High fuel prices won’t bring jobs to Louisiana because oil companies won’t drill, expert says

‘We’re more of a net energy consumer than we are a net energy producer’

By: - March 19, 2022 9:00 am
High fuel prices won’t bring jobs to 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 been hesitant to spend more on drilling and production.  

The energy sector, in Louisiana and the world at large, is still recovering from the decline in demand from the coronavirus pandemic combined with supply collusion from foreign oil suppliers. The market is now dealing with the added disruption of Russia’s invasion of Ukraine, which has caused gasoline prices to surge above $4 per gallon in Louisiana. 

Dr. David Dismukes, an economist and policy analyst at LSU’s Center for Energy Studies, said most U.S. oil companies are not ramping up production.

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

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

The LSU AgCenter projected last week that sugarcane and corn farmers will likely suffer from the rising prices of diesel and nitrogen fertilizer, which tend to track with natural gas indices. 

Russia and its ally Belarus are major exporters of nitrogen, phosphorus and potassium fertilizers, supplying more than 40% of crop nutrient needs for Brazil, a top producer of soybeans and corn. Brazilian farmers, who also are contending with a drought, are scrambling to locate fertilizers, further increasing commodity prices, the AgCenter reported. 

During past price surges, Louisiana’s oil and gas sector saw job growth, but Dismukes said oil companies are not putting much money into drilling. 

Some Republicans and oil lobbyists have claimed U.S. companies could increase oil production if it weren’t for President Joe Biden’s climate policies. They blame him for hamstringing the industry by slow-walking federal drilling permits on public land and canceling the Keystone XL pipeline. 

Biden has pointed to the issuance of 9,000 drilling permits for federal land where he said producers “could be drilling right now” to increase production and lower prices. While it is true that there are 9,173 drilling permits approved as of the end of 2021, that number includes permits approved under both 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 any year from 2017 through 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 petroleum — more than three-quarters of crude oil and 86% of natural gas — comes from private and state lands, and it can take years before oil is extracted from a newly-permitted area. 

The administration has also challenged claims that the Keystone XL pipeline would have kept gas prices in check. Only 8% of the pipeline had been built when Biden revoked its permit on his first day in office, Jan. 21, 2021. Even if it were to somehow be completed this year, the pipeline would have had little if any impact on gasoline prices, according to energy expert and Forbes contributor Robert Rapier, who opposed cancellation of the permit.

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

The current situation can be traced back to just before the COVID-19 pandemic when oil prices plummeted after Russia and OPEC (the Organization of the Petroleum Exporting Countries, which includes Saudi Arabia) colluded to flood the market and drive U.S. oil producers out of business, he said. 

Many American companies went bankrupt or had to take on enormous amounts of debt just to stay afloat, Dismukes said. In late 2019, the U.S. had become a net exporter of petroleum as global supply outpaced demand. Crude oil prices began to increase in 2021 as COVID-19 vaccination rates improved, leading to looser pandemic restrictions. The growing economy caused global petroleum demand to rise faster than the supply could keep up with, according to the U.S. Energy Information Administration

Supply became even more strained with Biden’s ban on Russian oil imports. According to the American Fuel and Petrochemical Manufacturers, Russia accounted for roughly 3% of U.S. crude oil imports and about 1% of the crude oil processed at U.S. refineries. 

While some call for U.S. energy independence, Dismukes said many oil companies are saddled with too much debt 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 kind of turned upside down with lots of debt and lots of leverage. They’re just trying to get their footing back together.”

However, if oil prices stay too high for too long, such as last week’s levels of $130 per barrel, it could very well cause demand destruction,” in which consumer behavior adjusts to lower the demand, he said.   

“When you get those high gasoline prices, consumers react to those,” Dismukes said. “They start to drive less. They start to curtail some of their discretionary travel. They do a lot of different things that can ultimately ripple back through to these refineries in a negative way from a profitability perspective.”

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Wesley Muller
Wesley Muller

Wes Muller traces his journalism roots back to 1997 when, at age 13, he built and launched a hyper-local news website for his New Orleans neighborhood. In the years since then, he has freelanced for the Times-Picayune in New Orleans and worked on staff at the Sun Herald in Biloxi, WAFB-9News CBS in Baton Rouge, and the Enterprise-Journal in McComb, Mississippi. He also taught English as an adjunct instructor at Baton Rouge Community College. Much of his journalism has involved reporting on First Amendment issues and coverage of municipal and state government. He has received recognitions including McClatchy's National President's Award, the Associated Press Freedom of Information Award, and the Daniel M. Phillips Freedom of Information Award from the Mississippi Press Association, among others. Muller is a New Orleans native, a Jesuit High School alumnus, a University of New Orleans alumnus and a veteran U.S. Army paratrooper. He lives in Ponchatoula, Louisiana, with his two sons and his wife, who is also a journalist.

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