It's A Gas, Gas, Gas Con't

 With the American people overwhelmingly in favor of banning Russian oil imports, including 4 out of 5 Democrats and two-thirds of Republicans, big energy companies voluntarily agreeing to not purchase any more oil from Moscow,  and Congress about to put a veto-proof bill on banning Russian oil on Biden's desk this week, the White House is reading the room and announcing plans to ban all Russian energy imports today.

The U.S. and the U.K. will impose a ban on imports of Russian energy on Tuesday without the participation of European allies, according to people familiar with the matter.

The U.S. ban will include Russian oil, liquefied natural gas and coal, according to two people, who spoke on condition of anonymity. The decision was made in consultation with European allies, who rely more heavily than the U.S. on Russian energy, another person said.

The U.K. move will be done in concert with the U.S. and the ban will be phased in over the coming months, according to the person, who requested anonymity speaking about policy that hasn’t yet been announced. The ban won’t apply to Russian gas, the person said.

The White House announced Tuesday that President Joe Biden “will announce actions to continue to hold Russia accountable for its unprovoked and unjustified war on Ukraine,” though didn’t specify the measures. He’s due to speak at 10:45 a.m. in Washington.

The people spoke on condition of anonymity ahead of the announcement owing to its sensitivity. Spokespeople for the White House National Security Council declined to immediately comment.

 

As I've been saying this was a foregone conclusion. The real fight will happen in the months ahead as Biden tries to escape the obvious trap set for him.

U.S. politicians could make the case that higher energy prices are a cost of defending freedom and democracy, upholding international law, resisting armed aggression. We’re not sending American sons and daughters into this war, they could say; instead, Americans’ sacrifice could be economic. We’ll pay more for gasoline — and perhaps other things, too — to help shoulder the burden of fighting Putin.

But that’s not the argument most U.S. politicians are emphasizing. Instead, they suggest there’s a free lunch to be had.

In recent days, Republicans (and some Democrats) have argued that the United States can apply sanctions to Russia’s energy sector while enduring virtually no economic pain at home, and without turning to unsavory alternative sources such as Venezuela. U.S. energy producers alone, they claim, can immediately ramp up supply to offset the shortfall. Big, Bad Government just needs to get out of industry’s way.

This is a fantasy — one born either of confusion about how energy markets work or a cynical desire to set up Biden.

For starters, it usually takes 10 to 12 months for a change in oil prices to lead to an actual change in oil production in the United States, according to John Kemp, senior market analyst at Thomson Reuters. That’s because there are many time-consuming steps involved, regardless of the regulatory environment: contracting a new rig, moving the rig onto the drilling site, recruiting workers and so on.

Already, U.S. oil producers have responded to the recent run-up in oil prices by taking steps to increase production. In January, there were 502 rigs drilling in this country for crude, according to energy research firm Wood Mackenzie. Today, there are 540. Unfortunately, any additional barrels that become available from these added rigs are months away.

The chief executive of the biggest U.S. shale oil operator recently told the Financial Times that domestic industry would be unable to replace lost crude supplies from Russia this year. In addition to all the usual factors, pandemic-related supply-chain constraints are slowing down development. Plus, investors burned in recent boom-bust cycles are pressuring shale operators to be more conservative about expansion this time around.

Republicans are ignoring all this. They’ve started arguing — with relatively little pushback — that if we can’t immediately replace lost Russian supply, it’ll be because of Biden’s supposed war on fossil fuels.

Despite his tough campaign rhetoric, though, Biden has been relatively gentle on the fossil fuel industry. Much to the dismay of climate hawks, his climate agenda is based almost exclusively on carrots, not sticks. As recently as January, he was outpacing Donald Trump in authorizing new drilling permits on public lands.

Republicans point to Biden’s decision to “shut down” the Keystone XL pipeline — but it was only 8 percent built when Biden revoked a U.S.-side permit for construction last year. Even if construction had continued, additional supply via this pipeline would still be years away.

“There’s no evidence that the regulatory environment is what has held the U.S. oil and gas sector back, and by extension, no indication that making the regulatory environment more permissive would generate additional production in the near term,” says Kemp.

It’s not clear what exactly Republicans think Biden could do to accelerate U.S. energy production in the short term, other than perhaps give a big pep talk.

 

Republicans are well aware, but they're going to spend the next 8 months lying about it anyway and not only will the voters let them get away with it, they will almost certainly be awarded control of Congress as a prize. 

Meanwhile, energy companies will continue to have record-shattering profits for a long time to come. They're the real bad guys, and you won't see oil below $100 again anytime in years, but it'll be Biden's fault forever.