Blog

Burgess: Russia, OPEC want to bankrupt US industry. Here's what to expect next
Posted by on April 4, 2020 | comments
f t # e
by Michael Burgess

Published in Fox Business

Over the past few months, America has fallen under siege. While our lives are threatened by a global pandemic and our markets are being burdened by social distancing, foreign nations have started an assault on America’s oil and gas industry. As a senior member of the Energy and Commerce Committee, I believe that the American energy sector will not only overcome this challenge but will dominate the future energy market.

Since January 2020, global oil prices fell steadily as quarantines across the globe reduced energy demand.

On March 9, the oil market collapsed after Russia and the Organization of the Petroleum Exporting Countries, better known as “OPEC”, failed to negotiate new production cuts. Both OPEC, specifically Saudi Arabia, and Russia have long been known to leverage their production capacity to distort global markets and advance their geopolitical position. This playbook is not new.

In the short term, both Russia and OPEC desire to starve each other to create a better bargaining position. In the long term, the true target is the United States shale industry. The American shale revolution has enabled our nation to become the global leader in energy production in less than a decade.

It is the shale revolution that provided affordable, reliable energy to our growing economy. Especially in my home state of Texas, this revolution created millions of jobs and billions in tax revenues for our schools, roads, and first responders.

Nonetheless, because retrieving oil from shale requires more capital-intensive processes and technologies, specifically horizontal drilling and hydraulic fracturing, the industry requires the price of oil to be above a certain level to remain profitable. By subsidizing exports, Russia and OPEC hope to push the price of oil low enough for long enough to bankrupt American industry. U.S. industry is the true target of this oil war.

So how will this impact American consumers? Americans across the country are already enjoying low gas prices, which are desperately needed in today’s uncertain economic climate.

Most Americans have never seen our economy shift so dramatically or so quickly, and I’m grateful lower energy prices are a silver lining. We must be mindful that this will not last.

Low oil prices have the potential to put many shale companies and suppliers out of business. It is not hard to imagine a world in the not so distant future where oil prices rapidly increase if U. S. production capacity is significantly reduced. Americans may see a swing in their energy bills from very low to unbearably high.

Then why am I still so optimistic? First and foremost, I believe that this coronavirus will not drastically alter the world’s growing need for energy in the medium and long-term. The Energy Information Agency projects that between 2018 and 2050, global demand for energy will increase by 50 percent and natural gas demand alone will increase by 40 percent.

Hundreds of millions of people around the world live without electricity. Clean American energy exports are the solution. This oil crash will temporarily hurt U.S. industry, but the skills and technologies that have prioritized America’s resources remain ready for long term success.

As the oil war rages on, what role should the federal government take?

President Trump is right to request the Strategic Petroleum Reserve be filled while prices are low and this should be considered in any future coronavirus response legislation. This purchase could increase America’s energy security at a reduced price and temporarily stabilize the market so American businesses can develop plans for the coming months.

Ultimately, however, market forces are what incentivize companies to work better, quicker, and more efficiently. While our competitors risk bankrupting their countries with heavy-handed central planning and extravagant subsidies for politically connected producers, I believe it is the very dynamism of America’s energy sector that will enable us to emerge from this crisis stronger than ever.

As General George S. Patton once said: “Americans love to fight. All real Americans love the sting and clash of battle… Americans play to win all the time.”

This oil war may not be fought with tanks and guns but is nonetheless an opportunity for American ingenuity and persistence to overcome adversity.

One day, we will look back on this time and see that America’s energy producers seized the moment to improve their efficiency, refine their techniques, and respond to the needs of consumers both here and around the world for clean, reliable energy.

Republican Michael C. Burgess, M.D. represents Texas's 26th Congressional District in the U.S. House of Representatives.

 

f t # e