Image: Creative Commons under Unsplash

Jim Geraghty at National Review, in his “Morning Jolt” column today, does one of the best jobs I’ve seen of explaining exactly why Americans are paying such high gas prices—and it’s not Putin’s war in Ukraine. Here’s the relevant portion of Geraghty’s column:

A Failure to Insulate from OPEC+

Politico reports that Democrats are “seething” about the decision by OPEC+ to cut oil production by 2 million barrels per day.

Well, fellas, if you don’t want OPEC+ to be in a position where it can influence U.S. gasoline prices a month before the election, you need policies that minimize the U.S. market’s dependence upon the global oil market. This means maximizing U.S. oil production and expanding U.S. refinery capacity.

It would be a mild exaggeration to declare that the Biden administration has completely stopped issuing leases for oil and gas drilling on federal lands and in federal waters, but only a mild one. As the Wall Street Journal reported last month, “President Biden’s Interior Department leased 126,228 acres for drilling through Aug. 20, his first 19 months in office, the analysis found. No other president since Richard Nixon in 1969-70 leased out fewer than 4.4 million acres at this stage in his first term.” It’s not a complete halt, but it’s very close to one. This means that the U.S. is almost entirely dependent upon oil production from private lands.

The good news is that there’s still a lot of oil beneath private lands. As of July, the U.S. was producing 11.8 million barrels per day, an increase from the 11.1 million barrels per day produced in January 2021, the month President Biden took office. But before the pandemic hit in early 2020, the U.S. was producing 12.8 million barrels per day, and it even hit 13 million barrels per day in November 2019. We have the proven ability to produce about 1.2 million more barrels per day than we are, if we want to do so and our public policies encourage it. But right now, they do not.

The Biden administration keeps insisting that it’s doing everything it can to bring gas prices down, including releasing oil from the Strategic Petroleum Reserve — which is now at its lowest level in 40 years. But what’s in the SPR is oil, not gasoline, and oil must still be refined. You can’t just pump the stuff out of the ground and put it in your car.

U.S. refineries are running at full capacity, or just short of full capacity. This is why oil from the Strategic Petroleum Reserve releases got sent to Europe and Asia, because they had the room and equipment to turn it into actual usable fuel. The U.S. currently has no more spare ability to turn the oil from the reserve into stuff that will actually make your car move; yelling at the oil companies isn’t going to change what is fundamentally an engineering problem.

This lack of capacity is exacerbated by two policy choices. First, the U.S. almost never builds new oil refineries on its own soil anymore. According to the U.S. Energy Information Association, the newest refinery in the United States is the Targa Resources Corporation’s site in Channelview, Texas, which began operating in 2019 and processes 35,000 barrels per day. Before that, the newest refinery with significant downstream unit capacity was Marathon’s facility in Garyville, La. That facility came online in 1977.

The second problem is that, in addition to not creating new capacities, old ones are being taken offline and turned into biofuel-processing plants — again, in response to the contention of Democratic policymakers that fossil fuels are obsolete and “alternative fuels” are the way of the future.

I’ve been beating the drum on this issue all year, but no one in the administration wants to listen. We’re getting back to pre-pandemic levels of demand, while our refineries are pumping out about a million fewer gallons of fuel per day than they did before the pandemic. And it’s going to get worse. Chemical maker Lyondell Basell Industries announced in April that the company will permanently close its Houston crude-oil refinery by the end of 2023. That plant refines about 263,000 barrels of gasoline, diesel, and jet fuel per day.

The cost of refining isn’t the biggest factor in the prices at your local gas station, but it’s a chunk of the cost. As of August, the cost of crude was 57 percent of the cost of a gallon of regular unleaded gasoline, and the cost of refining it was 15 percent. Another 15 percent went to distribution and marketing, and 13 percent of the cost, on average, went to taxes. For diesel, 45 percent is the cost of crude, 26 percent is the cost of refining, 17 percent is distribution and marketing, and 12 percent goes to taxes.

Biden has declared that the profit margins of oil refiners are “not acceptable.” But refinery capacity is subject to supply and demand, just like everything else. When there is great demand for refinery capacity but limited supply, prices go up. If we ever increased the number of refineries in this country, the cost of turning oil into unleaded gasoline, diesel fuel, and jet fuel would come down.

In other good news, the U.S. has an estimated 38.2 billion barrels of proven reserves, meaning that if we never imported another drop, we could operate for 5.2 years at our current level of demand. It’s a bit tougher to get a sense of what our “normal” gasoline-demand level is since the pandemic, but the range of consumption in 2022 has been lower than the range of consumption from 2015 to 2019.

This is where Energy secretary Jennifer Granholm would wag her finger and assert that it’s your own fault for not buying an electric vehicle. “People can buy electric vehicles and don’t have to ever worry about going to fill it up at the gas pump!” she declared in March. Currently, it’s estimated that around one percent of the 250 million cars, SUVs, and light-duty trucks on U.S. roads are electric. The U.S. could be minimally impacted by the decisions of OPEC+ if we wanted to be. Back in 2018, you saw headlines such as, “How The Fracking Revolution Broke OPEC’s Hold On Oil Prices.” We choose to be dependent upon the goodwill of oil-rich states such as Saudi Arabia because genuine energy independence would require us to enact policies that environmentalists don’t like.

Photo by Yassine Khalfalli on Unsplash.