Four Points: Rising Energy Prices and the Importance of U.S. Energy Leadership

Lem Smith
Posted November 16, 2021

Inflation is at its highest level in 31 years. At $3.41 per gallon, U.S. gasoline is more expensive than any time since 2014. Global natural gas prices have recently surged, reaching record levels across the world. Meanwhile, with winter coming, U.S. consumers could see increased household energy costs.

Clearly, gasoline and other energy costs are critical pressure points for family budgets.

So it is worth unpacking the dynamics behind higher energy prices, identifying policy options that could worsen the situation – such as halting U.S. crude oil exports – and encouraging a smarter approach before today’s Senate committee hearing on these topics.

1. Energy Demand Is Rising. Energy Supply Is Not Rising at the Same Rate.

Inadequate energy supply puts additional strain on individual households, erodes consumers’ broader purchasing power and threatens jobs – as well as the larger economic recovery, potentially contributing to higher inflation. Essentially, demand for natural gas and oil – from motorists, truckers, airlines, shipping lines, manufacturers and other businesses – has rebounded from the pandemic much more quickly than supply has been able to keep pace. This is not because energy producers won’t step up.

2. Policy Choices and Investment Environments Matter.

Instead, supply has remained somewhat muted due to the industry’s continued financial, workforce and supply chain constraints. At the same time, policymakers have publicly discouraged investment in U.S. natural gas and oil while unsuccessfully asking other nations to raise supply. As a result of these and other factors, supply hasn’t kept pace with demand. The mismatch between the two has helped propel gasoline and natural gas prices where they are.

3. Policymakers Must Avoid Exacerbating a Bad Situation.

As more Americans see headlines about inflation and look to Washington to place blame, Congress should do everything in its power to steady the situation. That means backing off tax increases and encouraging U.S. energy leadership. Lawmakers should nix a natural gas tax and abandon production restrictions, both of which are needlessly included in the House reconciliation bill. Meanwhile, any effort to stop U.S. crude oil exports could bring additional bad side effects. For example, exporting “light” crude oil, which a number of U.S. refiners are not configured to process, supports American jobs. An export ban would also mean U.S. refiners may have to import more “heavy” crude oil, possibly boosting gasoline costs and making inflation even worse.

4. Acknowledging Reality: Natural Gas and Oil Are Here to Stay.

The answer is policies that support safe and responsible American production: access to reserves, timely infrastructure approvals, sensible oil and gas permitting that fosters project certainty, and coming to terms with the fact that natural gas and oil are critically important today and will be tomorrow. If Congress makes peace with that simple truth, they would be echoing the U.S. Energy Information Administration, where experts say that natural gas and oil will supply nearly 50 percent of the world’s energy in 2050, compared with 54.7 percent today. These realities lend credence to the idea that producing in the U.S. makes sense due to our nation’s stringent environmental standards and industry’s work to address the risks of climate change.

This set of conditions serves as an important reminder of why pushing toward energy security is better than America relying on energy imports from unstable trading partners. It was not that long ago that the U.S. was projected to be the world’s largest gas importer, but that has changed dramatically over the past decade thanks to the shale revolution. Likewise, since Congress and President Obama lifted the ban on crude oil exports, the increase in export activity has helped to create more jobs and economic activity domestically and provided a stable source of supply for our friends, allies and trading partners. Expanding this advantage requires smart energy policymaking that recognizes the importance of domestic production and the challenge of meeting energy demand in reliable, affordable, cleaner ways.