U.S. Can Take Steps to Best-Position Energy Industry

The Rio Grande Guardian recently published an op-ed by GAIN strategic advisor James ‘Spider’ Marks emphasizing the importance of a strong domestic oil industry, and steps the government can take to best position the industry for the future. Marks opens:

The expansion of the U.S. energy industry bolstered America’s GDP and strengthened its national security.

Now, the coronavirus pandemic threatens to reverse decades of gains despite an OPEC+ production cut agreement to end the Saudi Arabia-Russia oil price war. Petroleum storage is rapidly filling at great cost to producers who are desperate to avoid halting operations.

While a number of options have been discussed for how to best support the oil industry in light of these unprecedented challenges, there is not a silver bullet. The Saudi Arabia-Russia oil war certainly exacerbated a crisis for political gain – but it merely accelerated an imminent glut. Marks argues:

That damage is now irreversible, and government must move quickly to help the U.S. energy industry survive. Unfortunately, policymakers continue to chase the wrong solutions. Some have advocated tariffs on energy adversaries, which will hurt American importers more than foreign producers. Others have proposed mandated production cuts, which are divisive at best and self-sabotaging at worse. These proposals are flawed in the same way as the original trade agreement: their efficacy relies on government-interference in private industry and cooperation with international competitors. To avoid the worst, it is imperative that lawmakers shift their focus from distracting foreign policy stopgaps to smart domestic action.

Several targeted domestic policies have already helped to mitigate the crisis. The U.S. Government has started taking deliveries to the Strategic Petroleum Reserve, which has bought the industry time to find alternative storage solutions. Meanwhile, the EPA has suspended enforcement of certain environmental regulations to prevent undue disruptions to production, and some states are considering allowing pipeline companies to store, rather than transport oil. Although these measures are not sufficient on their own, all three empower the private sector to respond to the crisis without interfering in the free market.

Marks further emphasizes the importance of the free market in the domestic energy industry’s prior success, noting: “Heterogeneity allowed producers to prosper, and their success contributed to stronger energy security, a healthier economy, and greater resilience to foreign price manipulation.”

He closes by pointing out that the U.S. has a duty to support producers without depriving them of the independence that facilitated their growth, concluding: “The correct response to foreign cartelization is not capitulating to adversaries’ wishes for production cuts, but instead taking advantage of a unique policy window to drive a strong domestic response rooted in free market principles that emphasizes public-private partnerships.”

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