I published Energy: Overdevelopment and The Delusion of Endless Growth a few years ago.
In my research for that book, I gained a couple of insights about energy and its ultimate costs.
First, oil and gas are sold on the global market, ultimately setting the price of oil and gas at the pump.
Second, energy companies require a minimum price per barrel to extract oil and gas economically. This varies, depending on the geological source of energy.
Not all barrels of oil are created equal. Some parts of the world produce light and sweet crude while others produce oil that is heavy and sour. Plus, the cost to produce a barrel of oil varies widely across the world.
Currently, the global price of oil is about 40 dollars a barrel. But at that price, only 55% of global oil production is profitable.
Saudi Arabia can produce a barrel of oil at 17 dollars a barrel. Russia at 42 dollars a barrel.
Oil must rise to 55–60 dollars a barrel to be profitable for most producers.
Third, the government reports on oil and gas “recoverable” reserves based on the price of oil and gas, not ultimately on the size of the oil deposit. In other words, the US has some of the biggest fossil fuel reserves in the world, but much of it is costly to extract. Sometimes, a new technology, like fracking, allows for developing specific oil formations at a lower cost, and suddenly, the “proven reserves” increase.
The current price per barrel of US crude oil is between 65 and 70 dollars per barrel. If oil prices declined, many US oil producing regions would not be able to compete with less expensive oil sources.
All of these observations are critical to understanding how President Trump is distorting and misleading the public with his Executive Order declaring a national energy emergency.
The United States does not have an energy emergency. In 2023, the United States crude oil production was reported at 12,927.088 Barrel/Day, while Russia averaged 9,592.386 barrel a day and Saudi Arabia averaged 8,963.000 Barrel/Day.
We are now the number one producer of oil and gas, in part due to fracking, surpassing Russia and Saudi Arabia.
Furthermore, we export more oil than we import.
Interestingly, after Europe, China is the second-largest importer of US oil.
If we had a real emergency, one would expect Trump to declare it illegal to export American oil, but of course, that is not what he is suggesting.
By declaring an “emergency”, Trump can override normal government procedures and regulations like the National Environmental Protection Act (NEPA), the Endangered Species Act, and other regulations that protect public health, wildlands, air and water.
As with many of his executive orders, Trump seems possessed with hatred for the Biden administration, which borders on mania. According to Trump, the national energy emergency exists because of: “The harmful and shortsighted policies of the previous administration”. Biden, according to Trump, is responsible for “the high energy prices that devastate Americans, particularly those living on low- and fixed-incomes.”
What is particularly ironic about Trump’s declaration is that oil production reached its highest level in history during the Biden administration.
Trump’s fretted concern about the cost of energy for poor people is just a ruse to cover up his real motive—to facilitate greater energy production as payback for the financial contributions for his reelection campaign he received from the oil industry.
Eliminating regulations designed to protect the environment will reduce the cost of production and lead to higher profits.
Part of the explanation for “higher” gas prices at the pump has to do with the global oil market. Oil prices are set by global availability of oil, not by the production of any country. The war in Ukraine has driven up global oil prices. Prior to the war, Russia sold much of its oil and gas to northern Europe.
Oil and gas sales are one of the primary sources of funds that support Putin’s war in Ukraine. The US has pressured countries to reduce their consumption of Russian oil and gas. In 2022, U.S. crude oil exports to Europe increased significantly following Russia’s full-scale invasion of Ukraine and subsequent EU sanctions banning imports of seaborne crude oil from Russia. This has led to greater competition for the remaining oil sources, including oil and gas produced in the United States, leading to higher gasoline prices at the pump.
The price of oil also determines inflation. Rising prices of commodities in the United States is partially due to the cost of energy. Crude oil prices were the highest in a decade as the U.S. and its allies-imposed sanctions on Russia due to its invasion of Ukraine, contributing to higher inflation as a consequence.
There is little that any President can do to lower inflation as long as oil prices remain high.
Most people do not understand the connection between oil prices and inflation. Oil is essential to modern economies. We all have 50-60 “oil slaves” or the work done by cheap energy that would require human slaves to accomplish. Since energy (mainly fossil fuels) is essential to everything from heating or cooling homes to producing food to transportation, the global price of oil is one of the significant factors in inflation.
Reducing inflation will require a substantial shift in global oil prices. Some countries like Saudi Arabia can produce excess oil relatively quickly by pumping more from their immense reserves. However, it is not in the interest of Saudi Arabia or other oil producers to flood the market and drive down global oil prices.
I suspect Trump is less interested in what gas costs low income people than what he can do to improve the profitability of oil companies. And while citizens can expect to pay more for oil as long as there is a war in Ukraine.
While it’s uncertain whether Trump’s executive order will lead to lower oil prices, we can be certain that it will lead to a greater loss of wildlands, more global warming, and climate disruptions. His attack on renewable energy only ensures that climate warming will likely increase with the associated wildfires, hurricanes and droughts.
These costs are not part of Trump’s considerations when he suggests that his policies will reduce costs for Americans.
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