Is the cool stuff important these days or is it a question of who provides the answers people want to hear? This comment can be applied to many, if not all, of today’s political issues. But it is particularly relevant to the discussion of the factors behind high gasoline prices and what to do about them.
Simply put, the White House likes to blame oil companies for high prices, and the oil industry claims that the war is out of its control in the circumstances – Ukraine, OPEC, etc. The Biden administration’s suggestion that oil companies must make some kind of sacrifice because of the crisis is not appreciated. (This version of the tension is also noticeable in many other industrialized countries.)
Here is a breakdown and explanation of the key points for non-specialists:
Oil prices: There are small differences in price between different types of oils, depending on its quality, and how much it should be processed. But there is essentially the same price worldwide, reflecting the fact that oil can be easily transported by pipeline or tanker, from where it is produced, to where it is processed and sold worldwide. After the Russian invasion of Ukraine, the price rose due to uncertainty and uncertainty.
Refineries: The ability to refine oil in the range of potential products that contain gasoline is currently suffering from a lack of capacity. In fact, a few weeks ago, Saudi Arabian officials were explaining that the state did not need to produce more oil because the increased prices were caused by a shortage of refineries and not a lack of production. But, aside from the political spin, if the demand for oil in 10 or 15 years is going to make the installation unnecessary, then companies are less than enthusiastic about building refineries with a projected lifespan of more than 20 years. Raising money for such an investment is a challenge, not helping the government by showing its “green” credentials.
Natural gas prices: These, kind of, track the oil price. “Clean” natural gas may replace it more than oil but a full conversion will take many years. That conversion relies on transporting gas in specially built liquefied natural gas tankers, where infrastructure is very expensive, covered by a built-in premium over price.
Energy conversion: Although it sounds trendy today, it has been going on throughout history. Many of us burn wood only for gatherings in the backyard these days, but a couple hundred years ago, it was the main way to cook and warm. Wood was replaced by coal, now too discarded for its dirt, yet still a significant contribution to the world energy mix for generating electricity. At one point, nuclear power was considered a wonderful future until it changed its cleanliness calculations to include its waste product.
The future of energy: Increasing power is being generated from wind and solar and other clean fuels – but there is an increasing demand for such electricity, to replace gasoline in cars, natural gas in home cooking, etc. The “green” debate was intense enough before the Ukraine crisis. Efforts to reduce Russian revenues from oil and natural gas exports and the strategic advantage given to it by its large market share have stoked the debate.
At present, the White House seems to be holding on to its green agenda, viewing the oil industry’s despair as almost oppositional, taking advantage of the world’s latest crisis to maintain its outdated stance.
Presumably, the Biden administration will see its line as vote-winner in the November interim. It will be interesting to see if the oil industry’s position changes in refining after Thursday’s meeting between top companies and Energy Secretary Jennifer Granholm. Democratic Party candidates don’t want to find themselves blaming the price of gasoline, especially if the title is above the $ 5-per-gallon rate.
Any discussion with the Saudi leadership of President Biden during his visit to the state in mid-July is another reference to the future. Is the increase sufficiently foreseen in OPEC + quotas, or is the US expecting more – and perhaps a split in Saudi-Russia cooperation over oil?
Cold facts or political positions? There may be some clarity, but don’t bet on it.
Simon Henderson Baker Fellow and Director Bernstein Program on Gulf and Energy Policy At the Washington Institute for Near East Policy. Follow them on Twitter @ShenderSongolf.