An Energy Education for Democrats

I f Democrats lose next week’s election, one reason will be soaring energy prices. The lesson that an electoral defeat should drive home is that this is the result of their own policies. Consider President Biden’s outrage Friday over last week’s robust earnings reports for oil and gas companies. Six of the largest “made $70 billion in profit in one quarter,” he said at a fundraiser. These “excess profits are going back to their shareholders and their executives instead of going to lower prices at the pump.” The President who has done everything in his power to limit U.S. oil investment is now furious that he succeeded. Mr. Biden doesn’t seem to believe oil companies should be allowed to make a profit or even cover marginal costs. “We need to keep making progress by having energy companies bring down the cost of a gallon of gas to reflect what they pay for a barrel of oil,” he said. Anything more is “excess” profit. Keep in mind that oil majors’ current profits follow steep losses in the pandemic. As oil prices plunged amid lockdowns, companies and OPEC nations pared investment and shut in wells. Demand for oil then bounced back much quicker than supply, which has driven up prices—and profits. That’s Econ 101. Mr. Biden is miffed in particular that companies are returning cash to shareholders rather than increasing supply. “You should be using these record-breaking profits to increase production and refining,” he said this month. But the progressive climate lobby and his own Administration’s climate policies have been urging the opposite. Exxon Mobil lost a board proxy fight in 2021 after large public pension funds and asset managers criticized it for investing too much in oil and generating too little profit. Exxon and its board need to assess “the possibility that demand for fossil fuels may decline rapidly in the coming decades,” BlackRock said. The International Energy Agency warned only last week that “no one should imagine that Russia’s invasion can justify a wave of new oil and gas infrastructure in a world that wants to reach net zero [greenhouse-gas] emissions by 2050.” It added that “any new projects would face major commercial risks” that may result in failing “to recover their upfront cost.” No wonder oil companies are returning cash to shareholders rather than make investments in production that take decades to pay off. U.S. shale drilling can produce returns more quickly. But rather than drill more wells, many producers are shrinking their inventory of “drilled but uncompleted” wells. The Energy Information Administration reported last week that the number of these wells fell to the lowest since December 2013, which means production will eventually taper off even in the prolific Permian Basin. Permitting challenges impede new drilling, as does limited pipeline capacity to move natural gas produced alongside oil. Large asset managers are also pressuring oil giants to maintain “capital discipline”—i.e., spend less on production. Private U.S. oil companies added 47 drilling rigs in the third quarter while public firms added only one. Climate lobbyists want companies to return profits to shareholders or invest in green energy. Continental Resources founder Harold Hamm said this month he is taking his company private to have the “freedom to explore.” “We have all felt the limits of being publicly held over the last few years, and in such a time as this, when the world desperately needs what we produce, I have never been more optimistic,” Mr. Hamm wrote to employees. Mr. Biden and fellow Democrats simply refuse to understand the economic consequences of their assault on American fossil fuels. They have come to believe that climate is a crisis and that banishing oil and gas is urgent. But that means higher prices, which they now blame on the very companies they want to go out of business. Economic logic won’t persuade them, but maybe a rout at the ballot box will.