High fuel prices won’t create jobs in Louisiana because companies won’t drill, expert says


Rising fuel prices typically lead to job growth in an energy hub like Louisiana, but experts say the state is unlikely to see much of a benefit this year as fossil fuel companies have so far hesitant to spend more on drilling and production.

The energy sector, in Louisiana and the world at large, is still recovering from the drop in demand due to the coronavirus pandemic combined with supply collusion by foreign oil suppliers. The market now faces further disruption from Russia’s invasion of Ukraine, which pushed gasoline prices above $4 a gallon in Louisiana.

Dr. David Dismukes, an economist and policy analyst at LSU’s Center for Energy Studies, said most U.S. oil companies aren’t increasing production.

“We’re just not getting that supply response, and I don’t see a real boom coming from that,” Dismukes said. “If anything, it could do more harm than good. For us, as a state, we are more of a net consumer of energy than a net producer of energy.

Dismukes said high fuel prices are likely to put pressure on transportation and other sectors such as housing and agriculture. Home builders, in particular, are likely to face higher prices for petroleum-based materials such as carpets, paint and insulation, he said.

the LSU Agricultural Center predicted last week that sugar cane and corn growers will likely suffer from higher diesel and nitrogen fertilizer prices, which tend to follow natural gas indices.

Russia and its ally Belarus are major exporters of nitrogen, phosphorus and potassium fertilizers, supplying more than 40% of the crop nutrient needs of Brazil, one of the main producers of soybeans and corn. Brazilian farmers, who are also battling a drought, are scrambling for fertilizer, further driving up commodity prices, the AgCenter reported.

During recent price spikes, Louisiana’s oil and gas sector has seen job growth, but Dismukes said oil companies aren’t investing a lot of money in drilling.

Some Republicans and oil lobbyists have claimed that US companies could increase oil production were it not for President Joe Biden’s climate policies. They blame him for crippling the industry by slowing federal drilling permits on public lands and canceling the Keystone XL pipeline.

Biden pointed to the issuance of 9,000 drilling permits on federal lands where he said producers “could drill right now” to boost production and drive down prices. While it’s true that there are 9,173 drilling permits approved at the end of 2021, that number includes permits approved under Trump and Biden, according to FactCheck.org.

The Biden administration alone approved 3,557 federal permits last year, which is still more than the Trump administration approved in a year from 2017 to 2019, according to USAfacts.org. Biden even set a record for the largest offshore lease sale last year in the Gulf of Mexico. Regardless, most of America’s oil – more than three-quarters of crude oil and 86% of natural gas – comes from private and state land, and it can take years for oil to be extracted from a newly licensed area.

The administration also disputed claims that the Keystone XL pipeline helped control gas prices. Only 8% of the pipeline had been built when Biden revoked his permit on his first day in office, Jan. 21, 2021. Even if it were to be completed somehow this year, the pipeline would have had little to no impact on gasoline prices, according to an energy expert and Forbes contributor Robert Rapier, who opposed the cancellation of the permit.

Both sides told half-truths about the cause of high fuel prices, according to FactCheck.org. The real impediments to domestic oil production and the causes of high gasoline prices are very global in nature, according to Dismukes.

The current situation dates back to just before the COVID-19 pandemic, when oil prices fell after Russia and OPEC (the Organization of the Petroleum Exporting Countries, which includes Saudi Arabia) agreed to flood the market and drive US oil producers out of business. , he said.

Many American companies went bankrupt or had to take on huge debts just to stay afloat, Dismukes said. By the end of 2019, the United States had become a net exporter of oil, with global supply exceeding demand. Crude oil prices began to rise in 2021 as COVID-19 vaccination rates improved, leading to an easing of pandemic restrictions. Economic growth has caused global oil demand to rise faster than supply could keep up, according to the US Energy Information Administration.

Supply has become even more strained with Biden’s ban on Russian oil imports. According to American fuel and petrochemical manufacturersRussia accounted for about 3% of US crude oil imports and about 1% of crude oil processed in US refineries.

As some call for US energy independence, Dismukes said many oil companies are too leveraged to risk current profits on new drilling when prices could fall by next year or sooner. .

“The market could turn around tomorrow,” he said. “Most of them are trying to tackle and negotiate balance sheets that are sort of messed up with a lot of debt and a lot of leverage. They’re just trying to pull themselves together.”

However, if oil prices stay too high for too long, like last week’s $130/barrel levels, it could very well lead to demand the destruction,“in which consumer behavior adjusts to drive down demand,” he said.

“When you get those high gas prices, consumers respond to those,” Dismukes said. “They are starting to drive less. They are starting to reduce some of their discretionary moves. They do a lot of different things that can ultimately negatively impact those refineries from a profitability standpoint.

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