Kern County calls for increase in oil and gas drilling permits to insulate drivers from expected spike due to Russian invasion of Ukraine
CALIFORNIA – California’s lofty goal of phasing out petroleum-powered cars by 2035 may be a lot easier than originally anticipated as Californians are already struggling with higher gas prices and bracing for $5 per gallon fuel to be the rule rather than the exception.
In the past year, the average price for gasoline in California has climbed from $3.08 in January 2021 to $4.80 as of Feb 25, 2022, a jump of almost 40%. The California New Car Dealers Association reported nearly a quarter of new purchases of vehicles in 2021 were in the hybrid /electric category as oil and gas prices in the state continued to punish motorists. By comparison, the market share for alternative fuel vehicles was around 9% in 2017. Plug-in hybrids’ share of the market went from 1.9% of sales in 2020 to 3.3% last year as more carmakers offered the product. Now electric trucks are hitting the market and have been heavily advertised.
Californians are using less gas than they used to pump. In 2015, the state recorded just over 15 billion gallons sold in California or about 4.4 million gallons a day, down from a high of 8 million gallons per day in 2006, according to the the Energy Information Agency. In 2021, the latest figures available, the state showed that number had fallen to 3.7 million gallons a day sold but still up from pandemic numbers in mid-2020 of 2.7 million gallons a day following the Governor’s stay at home order. Experts say this is in large part due to a shift to higher-mileage per gallon vehicles including the ramp-up of non-petroleum cars.
The pandemic hurt oil demand, idling many oil rigs that could increase the domestic supply of oil. Today, the Baker Hughes Rig Count shows 645 rigs active in the US, up 248 from a year ago but down from over 2,000 in 2014 and 4,500 in the 1980s.
Reports say the oil exploration industry is reluctant to again “drill baby drill” to produce more barrels having been burned by collapsing demand during the pandemic. But drillers ought to be motivated with the huge price increase created by supply chain interruptions and now the war in Ukraine. Experts say the energy pinch created by Russia’s invasion could drive up prices at gas pumps across the country by as much as 20 to 30 cents a gallon, pushing the average in California well above $5. Russia supplies 6% of America’s imported oil supply.
More domestic oil?
California Kern crude is now selling for $110 a barrel, up from $53 a barrel in January 2021. Year-over-year oil exploration in the U.S. is up 70.5%. Gas exploration is up 36.3%. The weekly average of crude oil spot price is 54.7% higher than last year and natural gas spot prices are 41.6% higher than last year.
Elected officials have taken note of the higher prices and their potential to impact American households. Gov. Gavin Newsom’s 2022-23 budget calls for a tax holiday on a proposed gas tax hike of 3 cents that would be a little relief. A bill in Congress called the Gas Prices Relief Act of 2022 would delay the 18.4 cents per gallon gas tax levied by the federal government through the end of 2022.
In 2019, the U.S. imported 9% of the petroleum it used, the lowest since 1957. The largest sources of U.S. imported oil were: Canada (49%), Mexico (7%), Saudi Arabia (6%), Russia (6%), and Colombia (4%).
According to the American Petroleum Institute, the oil and natural gas industry supports nine million U.S. jobs and makes up 7% of the nation’s gross domestic product (GDP). As of 2021, the petroleum and natural gas industries support 10.3 million jobs and make up 8% of GDP. Many of those jobs are in Kern County, considered by some experts to be the energy capital of California.
Kern County officials are lobbying regulators to loosen red tape on the county’s oil and gas (O&G) producers. Richard Chapman, president and CEO of the Kern Economic Development Corporation, recently wrote, “Despite the fact that Kern County has the most stringent O&G permitting regulations in the world, many state policymakers continue to pursue and advocate for energy policies that favor and (indirectly) incentivize foreign production over local production.” Since 2020, the time it takes to receive an approval for well stimulation has skyrocketed from an average of less than 200 days to now more than 600 days, according to the California Geologic Energy Management Division.
“Due to global warming concerns, many leaders want to wean California from using any petroleum,” Chapman stated. “But slamming on the brakes all at once may not work either, as a political reality.”
Chapman went on to write, “Kern County has been declared the energy capital of California. The region is one of the top oil-producing counties in the U.S. and generates more than 50% of the state’s renewable energy. The nation’s largest wind and geothermal facilities as well as the second-largest solar field call Kern County home.”
More low income EV sales?
In order to encourage more EV car sales, California is offering ongoing to rebates to lower-income buyers.
California plans to lower the manufacturer’s suggested retail price (MSRP) and has already lowered income caps for its Clean Vehicle Rebate Project (CVRP), which provides rebates of up to $2,000 for EVs and $1,500 for plug-in hybrids.
On Feb. 24, new rules took effect lowering the program’s income cap for single filers from $150,000 to $135,000, according to the program’s website. The cap for head-of-household filers will drop from $204,000 to $175,000. The joint-filer cap will decrease from $300,000 to $200,000.
According to Green Power Report’s January 31 edition, “This means fewer high-income car buyers will qualify for the rebate, potentially leaving more funds available for buyers that are more likely to need the rebate to be able to afford an EV or plug-in hybrid.”