Unfriendly Domestic Policies and Barriers to Production Increase Gas Price

By now, most Americans will have noticed that their price at the pump has been steadily climbing over the last few months, having recently hit $4.32 nationally. They will also likely have heard how supply chain disruptions, U.S. sanctions on Russia, and more recently a ban on Russian oil imports (10% of U.S. imports and 4% of supply), may be impacting these price increases.

However, what Americans are unlikely to have heard is how their gas prices are impacted by unfriendly domestic policies and barriers to production that hinder oil exploration and development.

The fact is that the price of gas has been steadily increasing since at least November of 2020 when Americans were only paying, on average, $2.11 per gallon. While this average was unusually low due a significant decline in the demand for gas during the height of the COVID-19 pandemic, the pandemic alone cannot explain why prices have risen so sharply. A steep decline in oil production has also contributed.

In just the last two years alone, U.S. domestic oil production declined from a record-high 12.910 million barrels per day (Mbpd) in December 2019 to just 11.567 Mbpd by December of 2021. Only now in March of 2022 has U.S. oil production recovered to 12.03 Mbpd, and this is still below the 2019 average.

Some experts are quick to caution that this decline is mainly attributable to supply chain issues and a national labor shortage, but numerous barriers to production such as a poor regulatory environment have also played a role in increasing gas prices. These barriers make the U.S. unnecessarily dependent on foreign imports and OPEC decision making. They also come in many different shapes and sizes. Examples include everything from pledges by different administrations to suspend federal oil and gas auctions, to regulatory barriers such as an archaic permitting process and cumbersome environmental reviews, to NIMBY activism.

Regulatory barriers in particular are harmful to U.S. oil production. For instance, in recent years it has become increasingly difficult for companies to obtain new permits and leases for drilling, particularly on federal land which spans much of the western United States. Subsequent administrations have voiced their opposition towards continuing to grant such leases over pressure to reduce greenhouse gas emissions. Even when a lease is granted, companies still face a number of obstacles including opposition from environmental groups and the potential cost of protracted legal battles.

Energy projects also face difficult challenges, and they extend far beyond oil and natural gas.

To provide just one example, all federal infrastructure projects must go through a lengthy review called an environmental impact statement (EIS), as part of the 1970 National Environmental Policy Act (NEPA). Intended to make federal agencies evaluate the impact of their actions on the environment, these reviews can be extremely lengthy, taking on average 3.4 years to complete. Recent evidence suggests these reviews may now be taking even longer as federal agencies busy themselves writing longer and longer EISs in an attempt to avoid legal challenges. Making matters worse, when the project in question utilizes stimulus money, that money is often not accessible until after the review is completed, therefore lessening it’s impact.

Environmental reviews also exist at the state and local level and can prove similarly labor intensive and cost prohibitive.

However, regulatory barriers are far from the only obstacles new energy projects face. The rise of “not in my back yard” (NIMBY) activism has also become a problem, frequently stalling the construction of important energy projects.

To provide just one example, NIMBY activists were instrumental in helping kill the 1,200-mile Keystone XL pipeline extension project, which would have carried 830,000 barrels of oil a day from Alberta Canada’s oil sands to Nebraska. While only one pipeline, this is significantly more than the 672,000 barrels a day that the U.S. imports from Russia, as reported by the International Energy Agency. Examples such as these symbolize the squandered energy potential of the U.S and contribute to high gas prices. They also illustrate just many obstacles still exist to increasing oil production. While the U.S. is right consider diversifying its energy sector, and should begin transitioning to renewable energy sources, this transition takes time. Traditional sources of energy like oil and natural gas still play a vital role in the American economy and should be treated as such. If America’s leaders are truly serious about helping lower gas prices, they should prioritize policies that encourage oil production and remove barriers to development. Bold actions such as these are needed in order for the U.S. to achieve true energy independence.

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin