Gasoline prices in the US hit a new record on Thursday — the same day the Biden administration canceled three oil-and-gas lease sales.
Republican lawmakers are pointing to surging fuel costs as a rationale for selling more leases to drill on federal lands, with some criticizing President Biden’s decision as hurting America’s energy independence. Alaska Governor Mike Dunleavy tweeted that the decision “proved their lack of commitment to oil and gas development in the US”
Gas prices are rising due to a confluence of several trends, including an economic recovery that pushed up demand for energy as well as Russia’s war in Ukraine. Against that backdrop, it’s no wonder that many lawmakers, consumers and businesses want to see the US energy sector ramp up production. But even if the three lease sales had proceeded, it would have taken years for production to hit the market, experts say.
In other words, the impact on gas prices today “means literally nothing,” according to Patrick De Haan, GasBuddy’s head of petroleum analysis. Here’s what to know about the canceled lease sales and their impact on gas prices.
Why did the Biden administration cancel the sales?
The administration said it’s not moving forward with lease sales on three potential drilling areas: Cook Inlet in Alaska and two areas in the Gulf of Mexico.
The reason for pulling back on Cook Inlet is a “lack of industry interest in leasing in the area,” according to a statement from the Department of the Interior. The Biden administration canceled the Gulf of Mexico sales because of “conflicting court rulings that impacted work on these proposed lease sales.”
How much oil or gas could the regions have produced?
According to a 2016 assessment of the proposed lease sales, Cook Inlet would have likely produced more than 200 million barrels of oil. That assumes that the price per barrel sits at about $100, roughly its current level. A decline in oil prices would likely result in lower production, while a higher per-barrel price would incentivize higher product output, the report noted.
The canceled Gulf of Mexico lease sales are part of a wider geographic lease sale, and the assessment includes the broader impact of development in the region. Overall production, assuming a price of $100 per barrel, would be more than 5 billion barrels of oil across multiple lease sales, including several areas beyond the two lease sales that were canceled.
How does that affect gas prices?
In the near term, the lease sale cancellations have no material impact on gas prices because it can require years for new federal land leases to begin delivering oil and gas, according to experts.
Drew Caputo, vice president of litigation for lands, wildlife and oceans at environmental advocacy group Earthjustice, told CBS News that more than a decade would pass before those leases would have impacted gas prices.
In other words, even if the lease sales had moved forward, “It’s still not doing anything to bring prices down today,” De Haan said on Twitter. “The optics, that’s what’s not great, but still really not a huge deal.”
Yet the issue may play out in the longer term, according to the energy industry.
The canceled lease sales signal headwinds for the domestic energy industry and could dissuade investors from putting their money into the sector, Frank Macchiarola, senior vice president of industry trade group American Petroleum Institute, told CBS MoneyWatch.
“If you line up the series of [Biden Administration] policies, not one will have the effect of too sharply raising gas prices in the short term, but they all create in their totality an environment in which investors say, ‘I’m not going to invest in this industry because of the headwinds,’ he said. “Over the medium and long term, that has a terribly detrimental effect on price volatility.”
What is happening with US oil production?
The US is actually producing more oil and gas, with the US Energy Information Administration (EIA) forecasting that the nation’s crude oil production will likely hit an average of 11.9 barrels per day in 2022, an increase of 700,000 barrels from the previous year. US oil production is projected to hit a record 12.8 barrels of oil per day in 2023, it said earlier this month.
The problem is that crude oil production declined in 2020 and 2021 due to the pandemic. Now that the economy is rebounding, with people returning to work and hitting the road, demand is outstripping supply.
For instance, in 2021 the nation’s total petroleum production — including crude, natural gas and other products — was 16.6 million barrels per day, according to the EIA. But consumption that year averaged almost 20 million barrels per day, with the US turning to imports to fill the gap.
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