With severe price hikes at the pump, United States consumers are having to pay historical highs as they fill up their tanks. By mid-march of this year, the U.S. Energy Information Administration reported a weekly all-grade retail price of $4.41 per gallon, breaking the previous record high achieved 14 years ago. The spike in demand and price for crude oil is a result of multiple broader issues, stemming from the two-year pandemic supply and labor shortage and the Russian invasion of Ukraine in February.
In 2020 during the onset of COVID-19, demand for oil and gas plunged to 70% of its pre-pandemic levels as businesses shuttered, schools closed, travel halted, and families were quarantined in their homes. Even prior to the pandemic, the fossil fuel industry was already facing mounting pressure as the developing world was exploring climate-sensitive and cleaner energy alternatives. The sudden jolt of a global shutdown had nearly collapsed the crude oil sector, causing OPEC+ to drastically cut back production. “Oil had become akin to a waste product, something you had to pay people to take away.” Gas company executives in the U.S. were forced to decommission drill rigs and laid off thousands of workers. Rather than investing in refineries and fossil fuel production, the western nations committed to a clean-energy blueprint by 2050. Shell CEO, Ben van Beurden, elaborated, “Companies are focused more on the energy systems of the future, not the traditional energy system of oil and gas.” Never had the energy sector been so blindsided by the unprecedented demand that was lurking around the corner. Quarantined consumers who were unable to buy experiential services turned their insatiable appetite to purchasing goods, which increased demands for petrochemicals to produce materials, and diesel to fuel delivery vehicles. With multiple highly effective Coronavirus vaccines to aid in the recovery, the global economy roared back with demands that required a rampant uptick in energy production, which could not be easily met by the limited output of the existing green technologies. Moreover, the return to full fossil fuel production was always going to lag behind, as time was needed to refill empty wells, re-service drill rigs, and rehire and retrain employees. “Eighteen months ago, we were in a global apocalypse for the energy sector and now…we should all pause and recognize the tectonic shift,” commented Travis Stice, an executive of shale driller Diamondback Energy Inc. Crude oil per barrel increased from below $20 on “Black April” of 2020 to over $100 per barrel by 2022.
Furthermore, labor shortages and supply chain disruptions emerged as prevalent issues for many American industries. The impaired sectors include electronics, vehicles, clothing, and apparel, which are responsible for the difficulty that many Americans have faced in finding cars, phones, and other discretionary items. But coal mining and fracking are also among those facing significant labor and supply difficulties. Consumer demand outstripping supply causes the price to increase. This puts an undue burden on drivers, especially those who are already living paycheck-by-paycheck, as they head to the pump.
To further add “fuel” to an already dire predicament for the U.S is Vladimir Putin’s invasion of Ukraine. On the front lines, the war appears to be one of violence, destruction, and bloodshed, but from afar, economic warfare is being waged, with Russia as the gas and oil behemoth against the rest of the western hemisphere. As part of a multitude of collaborative sanctions by NATO and the EU to punish Russia, the U.S has halted all importation of oil, coal, and natural gas. Although this accounts for only 10% of the energy resources used by the U.S., it still puts a strain on a tenuous situation, particularly since alternate global suppliers of fossil fuels are limited to only a handful of nations. What is more, the EU is heavily dependent on Russia for its energy. Waging a war of sanctions against the supplier of 25% of Europe’s oil and 40% of its natural gas in the midst of a worldwide energy crisis will leave severe consequences that will reverberate through the energy sector for many years to come.
Amidst these problems, some have proposed appealing plans of America going “energy independent” immediately, an idea that many economists have struck down as impractical. Meanwhile, the Biden administration has been turning to alternative gas and oil-producing nations for assistance. Looking at Venezuela, a major oil exporter, but a country holding a hostile political history with the U.S., President Biden hopes to mend diplomatic relations so that trade with the South American nation will help alleviate the crisis. Following these efforts, Venezuelan leader Nicolás Maduro announced that Venezuela’s state-owned oil company is prepared to ramp up production “for the stability of the world.” Still, Biden’s negotiations with Venezuela face backlash from Biden’s own party. Democratic senator, Bob Menendez, voiced, “The Biden administration’s efforts to unify the entire world against a murderous tyrant in Moscow should not be undercut by propping up a dictator under investigation for crimes against humanity in Caracas.” A similar ethical debate can be said about petrostate Saudi Arabia, an oil-rich country with political tensions with the United States. However, Saudi Arabia and the United Arab Emirates stand strong with their agreement with fellow OPEC+ member Russia to limit and hold power over the outflow of oil and gas to the global market. In fact, Saudi Crown Prince Mohammed bin Salman has reportedly, although disclaimed by the White House, refused President Biden’s request to negotiate oil production.
While the Biden administration is searching for foreign aid to resolve the energy crisis, his “two-part” plan unfolds back home. This first component of his plan involves increasing domestic production. So far, his administration has released several reserves and issued permits to frack on federal land. In a briefing released by the White House, the administration had suggested that oil and gas companies were price gouging and intentionally limiting the supply of energy in order to manipulate the market. He proposes fining these companies for unused leases and “hoarded” public lands. “Companies that continue to sit on non-producing acres will have to choose whether to start producing or pay a fee for each idled well and unused acre,” the administration reiterated.
Biden is also announcing “the largest release of oil reserves in history,” which involves relinquishing 1 million barrels of oil per day for the next 6 months as a “bridge through crisis” to allow time for production to ramp up. However, this drastic release leaves the issue of an empty reserve for years to come. The plan details that the revenue gained from the release will be used to restock the reserve, a claim considered dubious by some.
The President is also pushing Congress to speed up the implementation of the green energy portion of his infrastructure bill. He is looking for green technology to generate jobs, help the environment, and create alternative sources to help solve the energy crisis. His plan includes new green-energy infrastructure along with EV recharge stations and electric public transit. Green energy, as it is usually harnessed in the form of electricity, is thought to be a domestic industry. This would allow the U.S. to avoid future energy crises and become independent from OPEC+ and “Putin’s price hike.”
Aside from what is done at the international and federal levels, state and local governments are also stepping up to aid with the crisis. Maryland officials have announced a month-long motor fuel tax-free period that ended on April 16th. The tax break would cost the state 100 million dollars in revenue, but officials claim that the state is capable of absorbing the cost. In Virginia, state Democrats proposed declaring Russia’s invasion of Ukraine a state emergency. This would allow the State Attorney General to prosecute gas stations accused of price gouging. In addition, Virginia Governor Glenn Youngkin wants to save anyone who purchases gas in the Commonwealth 27 cents per gallon by imposing a 3-month tax holiday, while fellow Virginian Democrats prefer giving a one-time $50 rebate to their vehicle-owning constituents.
As citizens, Americans can do their due diligence to alleviate the worldwide energy shortage. Even if a singular investment in energy-efficient installments seems insignificant, when done by millions, it can have an immense impact. Those who have the monetary means to purchase electric or hybrid vehicles, rather than unnecessary gas-guzzling high-end cars, can do so. Homeowners can work with their local utility company to install solar panels on their properties to harness the power of the sun. By making responsible choices, Americans can be a part of the bigger solution to mitigate the global energy crisis.
Written by Huan Changvu of Cabin John Middle School
Photo courtesy of Unsplash