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The Unregulated Podcast #77: Words Have Many Meanings

April 1, 2022 by 1 Comment

On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss the latest rambling proclamations and missteps made by the Biden administration on everything from the war in Ukraine to the Strategic Petroleum Reserve.

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The Biden Administration’s Dishonesty on Domestic Oil Production

March 31, 2022 by 2 Comments

American Energy Alliance’s statement on President Joe Biden’s proposal to release more oil from the Strategic Petroleum Reserve.

WASHINGTON DC (March 31, 2021) Today the Biden administration announced it would release 1 million barrels a day for the next six months from the nation’s Strategic Petroleum Reserve. 

Thomas Pyle, president of the American Energy Alliance, issued the following statement.

“The Biden administration has done everything it possibly can to strangle domestic energy production, and this release from the SPR is not a sustainable plan to reduce prices. The SPR is not a Strategic Price Reserve.  The President is trying to use it to bail out his failed policies. Over the past 10 years, no country in the world put more new oil on the market than the United States.  More domestic production from the largest producer in the world–the US—is the only sustainable path toward bringing down prices.”

While the Biden administration can change course, this would require a 180-degree change from their current approach. The Biden administration claims that “The fact is that there is nothing standing in the way of domestic oil production.” This is not true. According to the latest numbers from the Department of Interior, there are currently:

Not allowing oil production on over 98 percent of federal lands, when the federal government is the largest land manager is a serious impediment to domestic oil production. Not only that, but just this week the Biden administration released a budget with no money to carry out offshore leasing. This would be the third year in a row without offshore leasing.

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The Biden Administration’s Dishonesty on Domestic Oil Production

March 31, 2022 by 3 Comments

Today the Biden administration announced it would “immediately increase supply by doing everything we can to encourage domestic production now.” While the Biden administration can change course, this would require a 180-degree change from their current approach.  

The Biden administration claims that “The fact is that there is nothing standing in the way of domestic oil production.” This is not true. According to the latest numbers from the Department of Interior, there are currently: 

Not allowing oil production on over 98 percent of federal lands, when the federal government is the largest land manager is a serious impediment to domestic oil production. Not only that, but just this week the Biden administration released a budget with no money to carry out offshore leasing. This would be the third year in a row without offshore leasing.  

There is plenty standing in the way of domestic oil production. President Biden is standing in the way of domestic oil production.  

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Democrats Break Biden’s Promise And Work To Raise Energy Prices

March 31, 2022 by Leave a Comment

As American motorists reel from gasoline prices averaging more than $4.20 nationally, it’s important to shine a critical light on so-called climate policies that would drive prices up even higher. Consider for example the provocatively-named “Polluters Pay Climate Fund Act,” originally introduced last August by Senator Chris Van Hollen (D-MD) along with Bernie Sanders and a coalition of other Senate Democrats. The Act would apportion a $500 billion “assessment” over ten years among the largest fossil fuel extractors and refiners operating in the US, according to their estimated contribution to emissions during 2000-2019. The senators claim that their plan would fund the necessary government response to climate change that these large companies helped cause, and moreover that because the assessment is based on past activity, it would have no influence on future production and therefore wouldn’t raise prices for consumers.

Despite the senators’ claims, their proposal makes no sense, whether from the perspective of legal liability or climate policy. Furthermore, if passed the Act would indeed raise gasoline prices for consumers, and on that score would violate President Biden’s campaign pledge to avoid tax hikes on any household earning less than $400,000.

Even on its own terms, the Act makes no sense. The $500 billion “assessment” for emissions over the last twenty years is obviously a number pulled out of a hat. Furthermore, the entire premise behind the Act—namely, that the corporations who have profited the most from fossil fuel emissions should bear the cost of the associated clean-up—is flawed. ExxonMobil, BP, Shell, etc. were not the sole beneficiaries of their oil-and-gas activities. Their customers all participated in the gains, too. The consumers were part of the voluntary process by which major oil companies provided valued goods at reasonable prices. It is economically incorrect to attribute any liability to damages (allegedly) caused by these market activities solely to the supply side, while ignoring the beneficiaries on the demand side.

Van Hollen et al. invoke basic economics to argue that their bill won’t raise gasoline prices for average consumers. As their white paper puts it: “[T]he assessment would not be passed on to consumers. The assessment is based on past, not current, activity, so it does not impact the ongoing costs of production.”

Van Hollen et al. are correct when they claim that a truly one-time wealth transfer—in this case, from particular corporations to the Treasury—shouldn’t affect the future business decisions of those corporations. But there is a glaring problem with this argument: Why in the world would we expect this to be a one-time wealth transfer, with no relevance to current or future production decisions? After all, look at how the Act is justified in the white paper itself: “Congress can generate significant revenue to address our climate challenges by turning to the industry that caused them…Fossil fuel companies have never been held to account for the societal costs of their emissions.”

If ExxonMobil, Chevron, and Shell are today going to be assessed billions of dollars in payments owed to the Treasury because of their “fair share” of emissions from 2000 through 2019, why wouldn’t they expect a future Congress in (say) the year 2030 to assess them billions of dollars for emissions during 2020 through 2029?

Putting aside the nod-and-winking from the sponsoring senators, it is clear that if they succeed in wringing $500 billion out of major oil companies in the name of climate justice, that there is nothing stopping them from going back to the well (pun intended) in the future. They have titled their bill the “Polluters Pay Climate Fund Act”—not the “Polluters Pay Through 2019 Climate Fund Act.” Every decisionmaker at major oil companies would know that their output decisions would likely be retroactively “assessed” down the road. This extra implicit tax would reduce current and future supply, thus raising crude oil and gasoline prices for consumers.

Even the sponsoring senators agree that their $500 billion assessment will cause pain to people who don’t literally write out the checks to the Treasury; namely, to the shareholders of the affected corporations. But in so doing, the senators are implicitly admitting that their proposal would violate Biden’s tax pledge. Although liberal Democrats like to pretend that only blue-blooded fat cats own stock in oil companies, the inconvenient (for them) truth is that tens of millions of regular American households indirectly own shares in oil and natural gas companies through mutual funds and IRAs.

For specific impacts, in a recent study I estimated that in the short run, passage of the PPCFA would lead to a 42 percent drop in earnings to oil and gas shareholders. In the medium term, workers in the oil and gas industry would suffer an 8 percent drop in income. In the long run, as labor and capital adjusted to the new implicit tax, consumers would bear the brunt of it, suffering from gasoline prices that were 40 cents per gallon higher than they would otherwise be.

Senators Van Hollen, Bernie Sanders, and a few other Democrats have proposed a $500 billion grab at Big Pockets. Their plan has no relation to actual numbers coming from climate science, and neither does it make sense as “strict liability” compensation for damages, since it ignores the billions of consumers who also participated in the emissions related to the companies being targeted. Furthermore, the senators are bluffing when they argue that their Act, based on past action, won’t have a chilling effect on future oil and gas production. Of course it would, since its foundational principles apply to future output as well. If passed, the Polluters Pay Act would implicitly tax consumers and hence violate Biden’s campaign pledge.

*This article was adapted from content originally published by the Institute for Energy Research.

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Democrats Inflate Gas Prices With More “Free” Money

March 29, 2022 by Leave a Comment

One of the proposals from California Governor Gavin Newsom to deal with high gasoline prices is to provide rebates to residents who own cars at $400 per registered vehicle, capped at two per person. The proposal would give $400 debit cards to those who own vehicles, as well as millions of dollars to transportation agencies to offer free rides for three months. Gasoline prices in California are the nation’s highest, $5.917 a gallon recently and up more than $2 from a year ago. Part of the high gas price in California are high gasoline taxes. California drivers spend on average about $300 in gas taxes per year. Newsom’s plan also includes a pause, not a suspension, on the increase to the state’s gas tax set to take effect later this year. The proposal would cost $11 billion, with $9 billion to cover the direct payments. The plan also outlines $750 million for transit and rail agencies to offer free transit to residents for three months, and $500 million for projects that promote biking and walking throughout the state.

Other states have gone in a different direction than California in supplying relief to their residents regarding high gas prices. While California lawmakers are against removing the state’s sales tax—one of the highest in the nation—other state lawmakers in Virginia, Maryland, Connecticut, and Georgia have temporarily halted their state’s gas tax, and other states intend to follow their lead soon.

Not to be outdone, the Biden administration considered sending gas cards through the IRS, but Congressional legislators were not in favor. Instead, U.S. House Democrats have introduced three bills that would send Americans payments to offset high gas prices—similar to pandemic stimulus and child tax credit checks. Gasoline is averaging about $4.246 a gallon in the United States. It peaked on March 11 at $4.33 per gallon of regular gas, breaking the previous record of $4.11 from 2008.

House Democrat Proposals

On March 10, Representative Ro Khanna (D-Calif.) and U.S. Senator Sheldon Whitehouse (D-R.I.) introduced the Big Oil Windfall Profits Tax that would tax large oil companies and give that money to Americans as a quarterly payment. The tax would apply to oil companies that produce or import at least 300,000 barrels of oil per day. The tax would be 50 percent of the difference between the current price and pre-pandemic price per barrel of oil. At $120 per barrel of oil, the tax would raise approximately $45 billion per year. Single tax-filers would receive an estimated $240 per year, and joint filers would receive about $360. Eligible recipients would be single filers earning up to $75,000 or joint filers earning up to $150,000.

On March 16, Rep. Peter DeFazio (D-Ore.) introduced the Stop Gas Price Gouging Tax and Rebate Act that would tax oil companies and give that money to Americans as a monthly advance tax credit. Oil companies would pay a one-time 50 percent windfall profit tax on income that exceeds 110 percent of their pre-pandemic income. Single filers who earn up to $75,000 and joint filers who earn up to $150,000 would be eligible.

On March 17, Reps. Mike Thompson (D-Calif.), John Larson (D-Conn.) and Lauren Underwood (D-Ill.) introduced the Gas Rebate Act of 2022, which would give Americans an ‘energy rebate’ of $100 per month, plus $100 for each dependent, for each month the national gas price average exceeds $4 per gallon through 2022. Eligible recipients would be single filers earning up to $75,000 or joint filers earning up to $150,000. None of these proposals tie payments to energy usage or gasoline consumption.

Why the Rebates Make No Sense

The $400 rebate being proposed in California to offset the increase in gasoline prices is a one-time increase in income. But, as income increases, people are willing to spend more, thereby increasing demand for goods and services. When demand increases and supply does not, the imbalance increases prices. Those who receive the handout will be better off, but the rest of the world will have to pay the higher resulting prices for the increase in demand generated by the policy. In this case, the price change may actually be quite small, particularly if few states follow California’s lead, so the policy may not provide much benefit except to the politician who may garner more votes.

But there is a major inconsistency in California’s logic. If California expects to eliminate gasoline and diesel cars by 2035, high gasoline prices are a tool it should want to use to move forward since it will make residents purchase electric vehicles earlier than it would with low gas prices. So Newsom’s rebate is inconsistent with his goals. Newsom wants gasoline to cost a lot in 2035 so that no one uses it, but in 2022 it apparently costs too much so he creates a new handout program.

Further, someone has to pay for the cost of the rebates since there is no such thing as a free lunch. The funds being used to pay for the rebates were originally to be used elsewhere, which results in an opportunity cost. Since government funds come from taxes, in California’s case, residents who do not have cars are subsidizing those that do or if California needs to borrow money for this program, future taxpayers will be footing the bill plus the interest that would accrue.

Who or What Is the Real Culprit?

Like Newsom, President Biden wants to eliminate gasoline and diesel vehicles, but he also wants Democrats to remain in power so he needs to have voters believe he is helping them. But it is Biden’s anti-oil and gas policies that have resulted in high gasoline prices. He is simply following up on promises made during his campaign for president. His policies to cancel the permit on the Keystone XL pipeline, ban oil drilling in ANWR and the Naval Petroleum Reserve-Alaska, put a moratorium on new oil drilling on federal lands, elevate the social cost of carbon used in analyses, and direct banks to fund renewable energy instead of fossil fuel projects have put a damper on U.S. oil production. Those policies had the effect of increasing the cost of gasoline a $1 a gallon before the Russian invasion of Ukraine even began.

If President Biden and House Democrats want to lower gasoline prices, all they would have to do is reverse these Biden policies, rather than beg OPEC to produce more oil, or use ineffective policies like releasing oil from the Strategic Petroleum Reserve or instituting these latest rebate proposals.

Conclusion

President Biden wants Americans to believe that his policies are not responsible for high gas prices. As a result, he and his Democrat-led House of Representatives have several proposals to provide rebates to Americans as does Governor Newsom in California. These rebates have issues in that there is no free gasoline. Someone must pay either now or later. These lawmakers should fess up and tell the American public that they want high gas prices so that Americans will transition to electric vehicles—one of their goals.

*This article was adapted from content originally published by the Institute for Energy Research.

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Which is it, Congress?

March 25, 2022 by Leave a Comment

Many leading voices in Congress ran for office promising to end domestic production of natural gas, oil, & coal.

The DNC’s biggest stars get their sound bites attacking American energy producers. Now that the predictable consequences of their extremist agenda are coming to fruition Pelosi and her cronies are changing their tune.

You can’t have it both ways, Congress.

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The Unregulated Podcast #76: The Passage of Time

March 25, 2022 by Leave a Comment

On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss Vice President Harris’ muddled messaging generally and the Biden administration’s mixed messaging on energy production specifically.

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EIA: Petroleum and Natural Gas Will be the Most-Used Fuels in the United States Through 2050

March 24, 2022 by Leave a Comment

EIA’s Annual Energy Outlook 2022 reference case (which assumes current laws and regulations) projects that U.S. energy consumption will grow through 2050. According to the reference case, petroleum will retain the largest share of energy consumption throughout that period, followed by natural gas. Renewable energy is projected as the fastest-growing energy source through 2050.

EIA projects that transportation and industrial processes will continue to be the primary sources of petroleum consumption in the U.S. They also project that the industrial sector’s energy consumption will grow more than twice as fast as any other end-use sector from 2021 to 2050. Additionally, EIA projects that natural gas use will continue to grow, driven primarily by the chemical industries that use natural gas as a feedstock and heat-and-power consumption across multiple industries. Additionally, EIA’s reference case sees petroleum and other liquids (motor gasoline and distillate fuel oil) as the primary fuels consumed in the US. transportation sector. 

All of this is to say that the EIA does not project a major reduction in the use of petroleum and natural gas given the baseline public policy assumptions. That said, this does not mean that there are not barriers to growth for the petroleum and natural gas industries as the current administration has taken several steps to prevent the development of U.S. petroleum and natural gas resources.

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Skyrocketing Nickel Prices Threaten Biden’s EV Agenda

March 23, 2022 by Leave a Comment

Nickel prices have skyrocketed with Russia’s invasion of Ukraine due to fears that Russian supplies may be cut off. The disruption is causing supply problems for carmakers and others that need the metal. Nickel prices surged in the middle of March after which trading was temporarily suspended for several days and new restrictions were applied that did not initially work. A plunge in price at the open of trading several times triggered the exchange’s daily limit, below which no further trades were allowed.  Because nickel is a key component in batteries for electric vehicles, volatile prices could slow the transition away from gasoline and diesel vehicles, which may mean that President Biden does not reach his electric vehicle goal of 50 percent of vehicle sales being electric by 2030.

Background

Earlier this month, nickel’s price more than doubled in a matter of minutes. A large producer, Tsingshan of China, bet that nickel’s price would drop–a wager that went awry when Russia’s invasion of Ukraine threatened to disrupt already tight supplies. The rapid rise in price threatened Tsingshan and others with huge margin calls, prompting the London Metal Exchange, which handles all nickel trading, to halt trading and cancel trades made at the highest prices during the frenzy. Since then, attempts to restart trading and allow the market to settle on a price for nickel have faltered. Analysts expect nickel prices to drop, eventually, but to remain significantly higher than they were a year ago.

Automakers Are Rethinking Suppliers

As a result of the high prices and the suspension of trading, automakers are rethinking where they get the parts and metals they use to make cars and many other products. Automakers and other companies that need nickel, as well as other battery raw materials like lithium or cobalt, are looking for alternatives to shield against future price shocks. For example, Volkswagen is looking to buy nickel directly from mining companies. Besides Russia, there are known nickel deposits in Canada, Greenland and the United States in Minnesota. However, Biden’s Department of the Interior revoked existing federal leases for Twin Metals Minnesota to mine copper, nickel, cobalt, and platinum-group elements in January. Instead of producing these metals domestically, President Biden wants to import them.

Establishing new mining operations here or elsewhere will take years, even decades, because of the time needed to obtain the infrastructure and to acquire permits and financing. Automakers and other big nickel buyers will need to look for alternative suppliers, use more recycled material or switch to battery designs that require less nickel. In the meantime, consumers will have to pay higher prices for goods that need nickel, which also includes goods made from stainless steel. The nickel price increases in March would more than double the cost of the 80 pounds of nickel that an average electric car battery needs to $1,750 a car.

While Russia’s nickel is mainly used for stainless steel, Russian company Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with vast operations in Siberia. Norilsk is among a limited number of companies authorized to sell a specialized form of nickel on the London Metal Exchange. To date, the United States and Europe have not tried to block nickel exports.

Price Expectations for Nickel

Analysts expect nickel prices to come down to around $25,000 a metric ton compared to the peak of $100,000 a metric ton, and remain much higher than a year ago. The price of nickel topped $20,000 a metric ton this year after hovering between $10,000 and $15,000 a metric ton for much of the past five years because of limited production due to the pandemic. After Russia invaded Ukraine in late February, the price rose above $30,000 in a little over a week. Then on March 8, Tsingshan Holding Group of China made a bet that the price of nickel would drop. When the price rose, Tsingshan owed billions of dollars. The price then shot up to a little over $100,000 a metric ton, threatening the existence of many other companies that had bet wrong and prompting the London Metal Exchange to halt trading.

Electric Vehicle Prices Increase

Because the prices of metals used in cars have soared, including aluminum that is used in the bodywork, palladium used in catalytic converters, and nickel and lithium that power electric vehicle batteries, automakers are raising their prices for vehicles. Tesla, for example, raised its prices in China and the United States for the second time in less than a week, after Elon Musk indicated that it was facing significant inflationary pressure in raw materials and logistics. Tesla raised prices for all its models in the United States by 5 to 10 percent, and in China, Tesla raised prices of some China-made Model 3 and Model Y products by about 5 percent.

According to Edmunds data, the average transaction price for a new electric vehicle rose to $60,054 in February, $1,820 more than their average MSRP of $58,234. That compares to the average transaction price for all new vehicles at $45,596 in February. The higher cost of an electric vehicle may make buying one uneconomic even compared to higher gasoline prices. For example, a person who drives 20,000 miles a year in a vehicle that gets 20 miles per gallon will pay $2,250 a year for gasoline at $2.25 a gallon. Doubling the cost means just under an extra $200 per month for fuel. It would take over 6 years of the extra cost for gasoline at $4.50 per gallon to pay the price premium between an electric vehicle and a gasoline vehicle. Electricity prices are also spiking, especially in states retiring baseload power plants and pressing for more market penetration of renewable energy sources, such as California.

Conclusion

Commodity prices soared on supply fears related to Russia’s invasion of Ukraine, with the ongoing war and Western sanctions raising fears of disruption. Russia is a key producer and exporter of metals and grains and is the world’s third-largest producer of nickel—a key ingredient in stainless steel and a major component in lithium-ion batteries. The increase in metal prices is affecting the price of electric vehicles as Tesla recently announced a second vehicle price increase. Automakers are trying to find alternative metal suppliers, but until they do consumers can expect to pay more for an electric vehicle. The increased cost could affect President Biden’s plans for an electric vehicle transition in the United States, particularly as the electric vehicle price premium would take years to pay back compared to the current increase in gasoline prices. But, American consumers need to be vigilant as environmentalists are calling for a national climate emergency that could have Biden evoking even more stringent actions against U.S. oil and gas companies, raising prices further.

*This article was adapted from content originally published by the Institute for Energy Research.

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Which Is It, Joe?

March 22, 2022 by 7 Comments

Joe Biden ran for president promising to end domestic production of natural gas, oil, & coal. Joe Biden hired a team of bureaucrats who zealously attacked American energy producers from day one. Now that the predictable consequences of his extremist agenda are coming to fruition Biden and his cronies are changing their tune. You can’t have it both ways, Joe.

Send a message to the White House demanding Biden abandon his anti-energy agenda!

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