By Liam Denning / Bloomberg Opinion
It is the fate of any occupant of the White House to be blamed for pump prices that are, to a large degree, beyond their control. Which makes it interesting that Florida Gov. Ron DeSantis wants to lash himself to them before he is even the Republican presidential nominee or, for that matter, the front runner. Interesting but, in policy terms, risible.
DeSantis delivered a speech Wednesday in Midland, Texas, America’s unofficial shale capital, pledging a number of energy-related policies and goals. These include rolling back President Biden’s efforts aimed at lowering tailpipe emissions and boosting electric vehicles, promoting drilling on federal lands and — the headline — achieving $2 gasoline prices in his putative first year in office, or “$2 in 2025.” Newt Gingrich once pledged $2.50 gas during his failed 2012 campaign for the nomination, so at least DeSantis’ ambition can’t be doubted. Unfortunately, it collides with some basic number thingies.
First, the U.S. has only seen average $2 pump prices on a nominal basis three times in the past 15 years. None of them will be remembered fondly by the U.S. oil industry, and two of them by no-one at all.
In real terms, we haven’t had $2 gas since 2004. U.S. crude oil production has more than doubled since then, to almost 13 million barrels a day, making the U.S. the largest producer in the world and a small net exporter for the first time since World War II. How did that happen? Oil prices surged for most of the decade after 2004, hitting an all-time peak in 2008, catalyzing the shale boom. A lot of investor dollars got burned in the process — even as consumers eventually benefited when oil prices crashed in 2014 — and the past five years have witnessed a shift toward a more sustainable business model for frackers. Production is rising but not at the balance sheet-shredding pace of a decade ago.
With this in mind, the superficially beguiling logic of DeSantis’s plan to unleash U.S. production and thereby slash pump prices rather evaporates. Assuming a DeSantis administration also managed to follow through on his pledge to remove federal surtaxes on fuel — the Highway Trust Fund is structurally deficient as it is, but anyway — $2 gasoline equates to a crude oil price of about $45 to $55 a barrel. Unsurprisingly, crude oil has only dabbled with those levels during the same three disasters of the past 15 years. In case it needs spelling out, those were not boomtimes in places like Midland.
In other words, the boom in U.S. production DeSantis envisions, supposedly delivering $2 gasoline, would be destroyed by that same $2 gasoline. Production growth would halt and the industry would see big job losses. While potential donors in Texas may enjoy the anti-ESG message DeSantis touts, the industry has been down this path before and the economic consequences ought to give them some pause. DeSantis’ plan to promote drilling on federal lands wouldn’t make much of a dent since onshore federal production accounts for less than 10 percent of U.S. oil output; and offshore production, while bigger at about 14 percent, requires higher oil prices to encourage the upfront spending needed for greenfield projects.
Overall, the result would be greater dependence on foreign oil imports, worsened by DeSantis’ plan to also encourage domestic demand for gasoline by dropping the federal pump tax and easing fuel-efficiency requirements. A big reason why even last year’s Russia-inflicted oil shock didn’t hit U.S. incomes as hard as in prior crises is that efficiency gains have reduced the energy intensity of the economy.
To be fair, U.S. energy policy has been dysfunctional for at least as long as DeSantis has been alive, in part because his span coincides with the national neurosis sparked by the 1970s oil crises. Even so, his latest contribution would mean the country’s guiding principle having gone from energy independence to energy dominance to energy incoherence in less than a decade.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.