Gas prices: what is the impact of Biden canceling Alaska oil and gas lease sale?

US gasoline prices hit a new record on Thursday — the same day that the Biden government canceled three oil and gas lease sales

Republican lawmakers point to rising fuel costs as a reason for selling more leases to drill on federal land, with some criticizing President Biden’s decision as damaging America’s energy independence. Alaska Governor Mike Dunleavy tweeted that the decision “proved their lack of commitment to developing oil and gas in the US”

Gas prices are rising as a result of a confluence of several trends, including an economic recovery that boosted the demand for energy like Russian war in Ukraine† Against that background, it’s no wonder that many legislators, consumers and businesses want the US energy sector to ramp up production. But even if the three lease sales had gone through, it would have taken years for production to hit the market, experts say.

In other words, the impact on gas prices today “means literally nothing,” said Patrick De Haan, GasBuddy’s chief of petroleum analysis. Here’s what you need to know about the canceled lease sales and their impact on gas prices.

Why did the Biden administration cancel the sale?

The government said it was not making any progress on leasing three potential drilling areas: Cook Inlet in Alaska and two areas in the Gulf of Mexico.

The reason for Cook Inlet’s withdrawal is a “lack of industry interest in leasing in the area,” a statement from the Home Office said. The Biden administration canceled the Gulf of Mexico sale due to “conflicting court decisions affecting work on these proposed lease sales”.

How much oil or gas could the regions have produced?

According to an assessment of the proposed lease sale in 2016, Cook Inlet would likely have produced more than 200 million barrels of oil. That assumes the price per barrel is around $100, roughly its current level. A drop in oil prices would likely result in lower production, while a higher price per barrel would encourage higher product output, the report said.

The canceled lease sale in the Gulf of Mexico is part of a broader geographic lease sale and the assessment includes the broader impact of the development in the region. Total production, assuming a price of $100 a barrel, would exceed 5 billion barrels of oil across multiple leases, including several areas outside of the two leases that were canceled.

How will that affect gas prices?

In the short term, the lease cancellations will not have a material impact on gas prices, as experts say it could take years for new federal land leases to begin delivering oil and gas.

Drew Caputo, vice president of litigation for land, wildlife and oceans at environmental organization Earthjustice, told CBS News that more than a decade would pass before those leases would have affected gas prices.

In other words, even if lease sales had moved forward, “it still doesn’t do anything to lower prices today,” De Haan said on Twitter. “The optics, that’s what’s not great, but still not really a big deal.”

However, the problem could arise in the longer term, according to the energy industry.

The canceled lease sale signals headwinds for the domestic energy industry and could deter investors from pouring their money into the sector, Frank Macchiarola, senior vice president of industrial trade group American Petroleum Institute, told CBS MoneyWatch.

“If you see the series of [Biden Administration] policies will not cause gas prices to rise too much in the short term, but all of them together create an environment where investors say, ‘I’m not going to invest in this industry because of the headwind’. he said. “Over the medium and long term, that has a horribly detrimental effect on price volatility.”

What will happen to US oil production?

The US is, in fact, producing more oil and gas, with the US Energy Information Administration (EIA) forecasting that crude oil production in the country is likely to reach an average of 11.9 barrels per day by 2022, an increase of 700,000 barrels from the previous year. the previous year. US oil production is expected to hit a record 12.8 barrels of oil per day by 2023, it said earlier this month.

The problem is that crude oil production fell in 2020 and 2021 due to the pandemic. With the economy picking up again, people returning to work and hitting the road, demand is outpacing supply.

For example, in 2021, the country’s total petroleum production — including crude oil, natural gas and other products — was 16.6 million barrels per day, according to the EIA. But consumption averaged nearly 20 million barrels per day that year, with the US turning to imports to fill the gap.

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