Surging oil production drops prices
But bump threatens to undercut efforts to reduce emissions
HOUSTON — American oil fields are gushing again, helping to drive down fuel prices but also threatening to undercut efforts to reduce greenhouse gas emissions.
Only three years after U.S. oil production collapsed during the pandemic, energy companies are cranking out a record 13.2 million barrels a day, more than Russia or Saudi Arabia. The flow of oil has grown by 800,000 barrels a day since early 2022, and analysts expect the industry to add 500,000 more barrels a day next year.
The main driver of the production surge is a delayed response to the Russian invasion of Ukraine in February 2022, which sent the price of oil to well over $100 a barrel for the first time in nearly a decade. The wells drilled last year are now in full swing.
With the surge in output, gasoline prices have fallen by close to $2 a gallon since summer 2022 and are back to levels that prevailed in 2021. The increase in production has also provided the Biden administration with substantial leverage in its dealings with oil-exporting foes such as Russia, Venezuela and Iran while reducing its need to cajole more friendly countries such as Saudi Arabia to temper prices.
But the comeback in U.S. oil production poses big risks, too.
More supply and lower prices could increase demand for fossil fuels when world leaders, meeting in Dubai, United Arab Emirates, are straining to reach agreements that would accelerate the fight against climate change. Scientists generally agree that the world is far from achieving the goals necessary to avoid the catastrophic effects of global warming, caused mainly by the burning of fossil fuels such as oil, natural gas and coal.
“We’re achieving energy security and reducing inflation by leveraging high-emitting, carbon-intensive oil production,” said Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University. “We’re going to need to address that conflict.”
The United States exports 4 million barrels a day, more than any OPEC member except Saudi Arabia. On balance, the United States still imports more than it exports because domestic demand exceeds supply and many American refineries can more easily refine the heavier oil produced in Canada and Latin America than the lighter crude that oozes out of the shale fields of New Mexico, North Dakota and Texas.
Nearly every extra barrel of American crude produced is being exported, mostly to Europe and Asia, where supplies are tight. In addition, the natural gas that often bubbles up with oil
has led to record exports of gas and helped to lower prices for that fuel and for electricity, much of which is produced at gas-fired power plants in the United States.
The surge in U.S. production has helped to end the crisis that gripped Europe after Russia invaded Ukraine — for now. European countries have replaced much of the gas they were buying from Russia with gas from the United States, Qatar and other exporters.
They have also reduced their use of natural gas, a phenomenon that a mild winter last year helped.
“There is a foreign policy dividend in keeping a lid on oil prices,” said David Goldwyn, a leading energy diplomat in the Obama administration.
Not long ago, the U.S. oil industry was in deep trouble. It had suffered repeated busts since 2015, culminating in a collapse of prices during the pandemic. Investors fled. Exxon Mobil was kicked out of the Dow Jones industrial average, and some European oil companies announced plans to pivot from fossil fuels to renewables more quickly.
With concerns over climate change growing, Joe Biden, during his 2020 presidential campaign, promised to stop drilling on federal lands and federal waters offshore. He also pledged to accelerate the transition to renewable energy and electric cars to drastically reduce the emissions responsible for climate change.
But as president, Biden has taken a much different tack. Although he has supported green energy and battery-powered cars, he has also hectored oil companies to increase production in an effort to drive down prices for consumers. He has approved a large drilling project in Alaska over the objections of environmentalists and a small number of offshore oil and gas permits.
Biden has been under pressure from some Democrats to trumpet gains in oil production as a way of reaching out to voters who are leery of high gas prices. He has yet to do so — but his administration has not complained about the production, either.
John Kirby, spokesperson for the White House National Security Council, said the administration was committed to keeping energy prices low.
“The president is going to keep focusing, as he has been, on a healthy global market that’s properly balanced and that can continue to bring the price of gasoline down here in the United States,” Kirby said.
Most of the new U.S. oil production is coming from the Permian Basin, which straddles Texas and New Mexico. There are also some new projects and expansions in Alaska and offshore in the Gulf of Mexico.
“It’s the mother of all comeback stories,” said Robert Mcnally, who was a senior energy adviser under President George W. Bush. “The last couple of years have shown that you should never bet against the U.S. oil sector.”