George S. Van Nest, BridgeTower Media Newswires
American energy policy and the focus on climate change have been a central tenet of the Biden administration. Shortly after inauguration, the president signed an executive order declaring climate change a crisis, initiated a number of climate-based actions, and halted construction of the Keystone XL pipeline. In the subsequent months, national and international pipeline and energy developments have led to increased scrutiny of those decisions as inflation, spiking energy costs, and reduced petroleum production has occurred.
The executive order revoked the March 2019 presidential permit granted to Trans Canada Keystone Pipeline LP to construct the Keystone XL pipeline. On June 9, 2021, TC Energy Corporation, the pipeline developer, issued a statement that it was terminating the project after the Biden executive order. The pipeline began permitting under the Obama administration and received presidential approval from the Trump administration. It would have transferred over 800,000 barrels of Canadian oil a day from Alberta, through Montana, South Dakota, and Nebraska to U.S. refineries on the Gulf Coast.
In week two, Biden issued another order that placed a moratorium on oil and gas leases on federal land and waters. The recent Inflation Reduction Act (“IRA”) deal struck by Sens. Manchin and Schumer includes a requirement that certain lease sales that the Biden administration previously canceled take place. Ironically, while the green interest groups have complained about the leasing components, the IRA’s requirement that the government proceed with limited lease sales is rather nominal in the face of reduced U.S. production and OPEC’s cuts.
Although gasoline prices went down somewhat over the last few months, they are increasing heading into the fall and the November midterm Congressional elections. The Biden administration has been publicly lobbying the OPEC nations to maintain or increase production levels, blaming inflation and the Ukraine invasion by Russia. On Oct. 5, OPEC rejected that approach and decided to cut production by 2 million barrels per day. This public rebuke of Biden’s request led to complaints by the administration, such as statements from National Security Adviser Jake Sullivan that “the president is disappointed by the shortsighted decision by OPEC Plus to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine.” In response, on Oct. 13, OPEC issued a statement saying that the Biden administration also asked for OPEC to postpone the decision by a month. This requested delay, until after the U.S. elections, appears to be an attempt to avoid a spike in gas prices prior to the midterm elections.
Biden’s actions have limited the availability of domestic energy sources and increased the price of fuel. The Biden energy policies are being felt daily in fuel prices. In December 2020 the price of U.S. gasoline averaged $2.30 per gallon and global crude oil prices were below $50 per barrel during most of 2020. According to AAA’s gas price index, the current national average fuel price is $3.85 per gallon (regular). In New York, the average cost of regular gas today is $3.68 per gallon. Likewise, the cost of diesel fuel in New York trucks and commercial transportation has increased from an average of $3.15 per gallon last year to $5.66 per gallon.
Although obvious to most, petroleum is our largest energy source for the country’s energy needs. According to the Energy Information Administration (“EIA”) as of 2021, petroleum, both gas and diesel, accounted for 90% of the nation’s transportation needs. According to the Census Bureau, of the approximately 15 million registered commercial trucks in the U.S., about 76% are diesel. Trucking accounts for 72% of the nation’s transportation. Consequently, increased fuel costs impact the entire economy through production, supply, transportation and distribution sectors.
The Bureau of Labor Statistics determined that September consumer prices increased by 0.4% for the month, more than estimated and that the rate of inflation was up to 8.2%. Although the inflation rate is down slightly from 9% this summer, it is near the highest levels in the country since the 1980s. The increases across key sectors are significant, including a 0.8% monthly increase in food costs (up 11.2% from 2021), transportation costs increasing 1.9% for the month (up 14.6% from 2021), and a 20-cent increase in fuel costs from August.
With the November election date rapidly approaching, the Biden administration announced this week that it is planning to release another 10 to 15 million barrels of oil from the nation’s Strategic Petroleum Reserve (“SPR”). In March, Biden announced a sale of 180 million barrels from the SPR to reduce gas prices. This pending release would be the limit of the 180 million barrels. While the Treasury Department estimated in July that the SPR releases and international releases reduced gas prices up to 38 cents per gallon, that estimate was prior to OPEC’s decision to cut production by 2 million barrels per day. While gasoline costs were down somewhat over the summer, they are trending back up in October.
Startlingly, the Biden administration’s desperate attempt to reduce energy costs this fall have included begging OPEC (and Russia) to increase oil production or at least delay cuts. When that failed, the administration then decided to release more oil from the country’s Strategic Petroleum Reserve prior to the election. The reserve was created following the 1973 OPEC oil embargo to avoid U.S. energy supply disruptions and provide sufficient supplies in wartime. When Biden took office, the reserve held 650 million gallons, with these new releases it will be down to its lowest level of 450 million gallons in 40 years.
The cumulative effect of Biden administration anti-energy policies will also have a dramatic impact on consumers and businesses this heating season. A recent forecast by the EIA projects that this winter will be colder and home heating costs for natural gas will increase by 28% or approximately $200 for an average home. Heating oil costs are projected to rise by 27% or $1,200 per home. The EIA estimates that electric heating costs will increase by 10% or about $123 per home. Significantly, the projected 2022-23 heating cost increases are going to occur on top of large increases that already happened a year ago.
The Biden administration has blamed Russia’s invasion of Ukraine, as well as energy companies for high petroleum prices, but the substantive actions taken by the administration since inauguration to reduce supply and disincentivize gas and petroleum production have increased the cost of fossil fuel use. The administration’s latest actions in lobbying OPEC to increase or delay supply changes and release of petroleum from the country’s Strategic Petroleum Reserve are not strategic long-range actions, but efforts to reduce consumer costs prior to election day on Nov. 8. Although long range planning and increased energy supplies for the country would benefit citizens and taxpayers, it seems unlikely that the Biden administration will change course following the election.
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George S. Van Nest is Partner in Underberg & Kessler LLP’s Litigation Practice Group and chair of the firm’s Environmental Practice Group. He focuses his practice in the areas of environmental law, development, construction, and commercial litigation.
