Railroad Commission making a mistake on oil
Commissioner Ryan Sitton was disappointed, and perhaps a bit frustrated, when the Texas Railroad Commission met via Zoom on Tuesday morning.
Sitton had sought decisive action in response to the chaos in the world oil market resulting from geopolitical jousting that has kept supply high even as the COVID-19 pandemic has driven down demand.
So Sitton suggested “prorationing,” or limits on the amounts of oil output in the state, as a response. If his fellow commissioners — Republicans, like himself — agreed to such a proposal, contingent on other oil-producing states and nations signing up, that would help bend the supply curve to some extent.
But it was not to be, and Sitton
acknowledged as much Monday night in a tweet.
“Prorationing will not be happening,” he wrote. “I wish I could explain why so many Texans will lose their jobs while oil production drops in the U.S. worse than anywhere else, but politics beats data, so there are no answers. Just ‘free market.’”
Sitton had tried for months to persuade his fellow commission
ers, Chairman Wayne Christian and Christi Craddick, to back his proposal. (The oddly named agency, which was established in 1891 to regulate the rail industry, now concentrates on the energy sector).
Christian, however, had come out against prorationing in an op-ed piece for the Houston Chronicle last week. And Craddick had seemed to be leaning in that direction, too, when the commission met last month.
“During times of emergency, there is often pressure to ‘temporarily’ set aside your principles to solve a problem. As this pressure mounts, the cries of ‘we’ve got to do something’ get louder and louder,” Christian wrote. “But what if that solution is unlikely to solve the problem at all? Should a conservative state like Texas trade the free market for government centralplanning in the oil patch?”
True, Texas is a state that has historically been committed to limited government. But it’s also one that has long made provision for the fact that the free market is prone to failure when it comes to oil and gas.
“The oil industry is not like other businesses,” wrote David F. Prindle, a professor of government at the University of Texas at Austin, in his 1981 book, “Petroleum Politics and the Texas Railroad Commission.” The key issue, he explains, is that oil production can’t be governed by the forces of the market; a lack of regulation, in this industry, “brings chaos.”
And so while prorationing might sound like a strange thing for Texas regulators to consider — it’s conceptually similar to quotas, after all — the state has done so in the past.
Sitton noted as much in an essay published on his own website. State lawmakers, he argued, have long been believers in the free market, but “they also recognized that government must take steps to protect that market from extraordinary circumstances.”
“In 1911, the US government broke up Standard Oil, because they recognized that one company controlling 90% of the market was not a free market,” Sitton wrote. “Eight years later, the Texas Legislature recognized the potential for oil being produced in excess of market demand, they realized how harmful that could be to the industry and economy, and they outlawed it.”
Certainly, the circumstances at hand are extraordinary by any standard. And so the commission’s debate over prorationing was instructive, in that it illustrates that some of the state’s Republican leaders are still deferring to ideology over evidence as they navigate this pandemic.
Gov. Greg Abbott has erred on the side of liberty, for example, against local leaders ordering facial coverings in public, despite the fact that public health experts support the latter as part of our efforts to contain the novel coronavirus.
It’s too soon to start speculating about the long-term effects of this pandemic, if any, on the political worldviews of those of us living through it. But it does seem fair to say that Texans have been reminded that government does have a role to play.
Proponents of limited government should remember that, going forward, rather than throwing up their hands and professing faith in the markets.
Christian reiterated his case against prorationing at the meeting Tuesday, and added that there would be a cost to simply taking action, as a state, given that Sitton’s proposal was contingent on other partners signing up.
“If the motion passed, the oil and gas industry would be living in limbo and dealing with regulatory uncertainty for the foreseeable future,” he said.
Craddick agreed, and Sitton ultimately decided not to make a motion in favor of prorationing, since it wouldn’t pass.
“In the end, proration may not have been the answer,” he said. “I would have liked to have had a more analytical answer as opposed to a philosophical one.”
The oil and gas industry in Texas may not be dealing with uncertainty from state regulators, for the time being. But they do have to reckon with the fact that even in the face of chaos in their industry, and around the world, those regulators will be reluctant to act.