As the energy industry goes, so does the entire economy.
We are witnessing the collapse of the American energy industry. And this is what Congresswoman Alexandria Ocasio-Cortez celebrated in her now-deleted tweet “you absolutely love to see it,” demonstrating the value of an economics degree today.
Of course, those in “big oil” are accustomed to the hate. Bernie Sanders, for years, has talked about the oil industry putting “profits over people” (a favorite catchphrase of his, used for basically every industry). Even the presumptive Democratic frontrunner for 2020, former Vice President Joe Biden, has said he wants to put oil executives in jail “for what they have done.”
But this kind of hyperbolic rhetoric is a luxury right now.
See, life in America is good. Even Alexandria Ocasio Cortez knows this. A year ago, during the polar vortex, she was cutting up vegetables during an Instagram video while decrying climate change and blasting the energy industry. All the while, she was too aloof, too indifferent, too stupid—or a combination of all three—to recognize the heat, the electricity, the app, the phone, the food are only possible because of inexpensive fossil fuels.
Gas is cheap! Yes, it is, but it shouldn’t take much of an IQ or a degree in economics to grasp that if gas is cheaper than milk, something is wrong. Something terrible is about to happen.
The bottom line is: if the energy industry goes, so will the entire economy.
[caption id="attachment_182188" align="aligncenter" width="1920"]
Cheap gas prices.[/caption]
THE TRUE COST OF CHEAP GAS
If you are an E&P Company (exploration and production), you are not so much worried about today, as you are petrified about tomorrow.
The drilling planned for next month? It’s canceled. The contracts for the third and fourth quarters? Also canceled. The land permits from the Bureau of Land Management you were planning to bid on? You guessed it, canceled.
The drilling planned for next month? It’s canceled. The contracts for the third and fourth quarters? Also canceled. The land permits from the Bureau of Land Management you were planning to bid on? You guessed it, canceled. In FY-2018, the Bureau of Land Management generated $105 billion in economic activity on land it leases to the energy sector. That’s when oil was profitable. Now? That future is on hold.
When the economy turns back on, so will demand for oil—the transportation and industrial sectors make up more than 90% of American oil consumption. They will come back online, planes will fly, people will commute to work, and we will return to regular oil consumption.
But our current supply—rather our current “oversupply,” caused by the mandatory economic shutdown and social distancing, that’s driving the prices into negatives—that stock will rapidly deplete when the economy is back to normal. Then what?
America, just ten years ago, imported 12 million barrels of oil per day. (Much of that was purchased from Saudi Arabia and Russia—and they’re desperate to have that market back). As of April 2019, however, U.S. crude oil production totaled 12.2 million barrels per day—making it the world's largest oil producer.
So, while in the short term, American gas is cheap for us, it is unprofitable for U.S. oil companies, and all future exploration and drilling has effectively stopped. And without that future stock of domestic oil, we will have to rely on a return to imports when the economy is back to full strength.
When this domestic power source is gone, the U.S. economy will be reduced to a sort of European Union-style malaise. Citizens of the EU pay twice what we do for electricity, and three times for gas, because of Brussels-imposed “green” mandates and taxes. And, importantly, because they don’t produce their own oil. They are at the mercy of the global markets.
In short: the current crisis is economically bad, now, but looks to be even worse tomorrow.
[caption id="attachment_182187" align="aligncenter" width="1920"]
Commuting in NYC.[/caption]
JEOPARDIZING AMERICA’S FUTURE
This is America’s future. Commuting to work will cost more. Factories will be more expensive to run, meaning goods cost more. Expensive transportation will drive prices even higher. Food will cost more. Life will cost more.
Much is on the line. Politics and war. Economics and autonomy. American independence.
This is what we are risking if we lose energy independence or, as President Trump likes to call it, “Energy Dominance.” We lose our quality of life and open ourselves up to tremendous international pressure from countries like Saudi Arabia and Russia after a difficult decade of reducing our dependence on them.
President Trump is aware. He has ordered the purchase of oil for the strategic reserves, and this executive action is a good first step in supporting the industry. He has other policy levers available to him: he could also impose tariffs, or better yet, ban the import of foreign oil entirely. The President has already stemmed the flow of immigration, understanding that the influx of cheap labor in the United States will undercut the entire labor market. The concept is the same.
Much is on the line. Politics and war. Economics and autonomy. American independence.
And then, of course, there are the people—the more than ten million men and women in rural parts of this country where energy jobs are the lifeblood of the community. We need to protect them, protect their communities, protect their homes from foreclosure, and their towns from bankruptcy. And we need to keep them going for tomorrow.
