Over the past month, we have all witnessed Russia commit heinous crimes against an independent country and have seen the beginning of a string of economic and political sanctions placed upon Russian individuals, and the country. As a result of this conflict, Oil and Gas prices have soared with Brent and WTI rising to unprecedented levels signalling a major increase in utility bills for homes all around the world. On March 8th President Biden signed an executive order to ban the import of Russian Oil, LNG, and Coal to the US which added to oil prices reaching record highs.
What does this executive order mean? How will it affect everyone at home? Let’s find out why we should all say no to Russian Oil and Gas.
What is banned from this executive order?
The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal. Last year, the U.S. imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia and this step will deprive Russia of billions of dollars in revenues from U.S. drivers and consumers annually.
New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s efforts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.
The current state of the Oil and Gas Market.
The current oil price and volatility signal worrying times to come. 3 percent of the global oil market is tied to Russian oil with 3 million barrels a day being exported from the country. Many powerful oil importing nations have followed America in placing an embargo on Russian Oil such as the United Kingdom, Canada, and Australia.
Arguably, Saudi Arabia and the UAE have the internal reserve capacity to fulfil that 3% loss yet neither nation has signalled an intent to open their reserves for the world. Analysts are arguing that this may be one the biggest supply crises that the world has seen in decades and looking ahead “challenges to the global economy- especially regarding the slowdown of economic growth, rising inflation, and the ongoing geopolitical turmoil will impact oil demand in various regions”.
What does this mean for us here in the United States?
Overall, up to just before the ban on Russian Oil, US oil refiners’ purchases of Russian crude oil were at just below an insignificant 84,000 barrels a day. Russia actually only provides 8% of the United States’ crude oil and petroleum product imports so it is arguable the true effect this embargo will have on the United States. Where it might have an effect is on the overall price of utilities and global oil prices. However, this is not because of the United States but because of the overall worldwide demand of crude oil and LNG that comes from Russia. In Europe, 1.6 million barrels of crude oil are shipped per day from Russia. Nations that place an embargo on Russian oil will have to find oil elsewherleading to the US and China increasing output from their national reserves.
Over the last two years there have been significant steps taken to curb production from the USA, such as the cancellation of the Keystone Pipeline and efforts to stop lease sales in the Gulf of Mexico. Environmental concerns being cited as one of the main reasons for these efforts against energy independence, however there is no denying the difference between the environmental care, due diligence and regulations between the USA and China.
As prices rise at home and at the gas stations, it also marks a point in history where the United States, if supported, can begin to show its true power and supply in the Oil and Gas world. It is a call for more support for US oil and gas companies, a call for the current administration to create and support and infrastructure that will strengthen both offshore and land oil and gas firms.
So how can we say yes to American Oil and Gas?
The current administration has not actually made any meaningful steps to help oil and gas producers produce more oil. There are current hurdles making increase in production difficult, such as critical equipment like pipe and the essential personnel to run the equipment. Oil companies are being vilified in the US media for not doing “their patriotic duty” and producing more but in some market like the Gulf of Mexico and particularly international waters, production is planned two years out.
Oil and gas companies are being criticized for not using the permits that have already been issued, yet not all of these permits are viable, and producers are skeptical to use the viable permits they have due to of the current volatility of the market. It is not turning on a tap to reduce the price at the pump, it is an infrastructure of qualified people and raw materials that currently markets in the US are struggling to get. Yes, the price of crude is a major factor, but, refining costs, federal, state, and local taxes, as well as marketing and distribution costs also affect gasoline prices. This does note that in general, blame over higher gasoline prices directed at a particular politician or an industry deserves to be examined sceptically.
There is still no announced lease sale in the GOM, after the current administration vowed to curb oil and gas production and give in to environmental groups boycotting offshore drilling, yet here we are blaming the companies for the cost of petroleum. We have banned Russian oil, but not Chinese oil, so the US are likely to buy more from China, who supports Russia and as China exports more to the USA they are likely to import more from Russia. So how exactly are we saying yes to America made? If we are to say yes to American Oil and Gas and truly be independent, major support has to come from the top to trickle down to the rest of the levels of the ecosystem where producers, refiners, and distributors are all supported and encouraged.