Wake up domestic energy production? Wyoming governor calls for ‘peace through strength’ amid Russia’s attack on Ukraine

Oil well and storage tanks in the Texas Panhandle. (Jim Parkin / Shutterstock.com)

By Brendan Lachance, Oil City News

CASPER, Wyo. — With Russia invading the Ukraine on Thursday, natural gas prices spiked and the price of oil temporarily surged to over $100 a barrel and some in Wyoming are among those who see the emerging conflict as a wake up call for the United States to increase domestic energy production.

“What’s happening in Ukraine is as much about energy as it is about geopolitics and security,” Wyoming Governor Mark Gordon said via Twitter on Thursday. “It’s time America remembers what the adage ‘peace through strength’ means. Jennie and I are praying for the safety of the Ukrainian people.”

In addition to the emerging Ukraine crisis, the Intercept reported Wednesday that another factor in higher oil prices is on-going collusion between Russia and Saudi Arabia. For the governor’s office and others like the Petroleum Association of Wyoming (PAW), the Ukraine crisis highlights the importance of robust domestic energy production.

“What the Ukraine crisis should do is wake up the Biden Administration to the fact that the nation needs a consistent, vibrant oil and gas industry,” Michael Pearlman, director of communications for the governor’s office, said in an email Thursday. “As the Governor has stated regularly, fossil fuels are an important part of the overall energy mix, and the Federal government’s effort should be on reducing the C02 emissions through carbon capture as opposed to keeping oil and gas in the ground.”

The Bureau of Land Management under the Biden administration has not held an oil and gas lease sale in Wyoming in five consecutive quarters despite a federal judge in Louisiana ruling in June 2021 that the Biden administration does not have the authority to pause the federal mineral auctions without approval from Congress.

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“[T]he Biden Administration is breaking the law,” PAW President Pete Obermueller said in an email Friday. “He is required to hold lease sales and is not doing it against the rule of law.  Beyond that, having skipped 5 consecutive sales has an immediate impact on Wyoming with a loss of an estimated $47 million dollars to fund schools, first responders, and other important functions in Wyoming.”

If oil prices remain high, that would lead to an increase in revenues for the State of Wyoming even if domestic production doesn’t immediately ramp up but would also likely lead to higher prices for Wyoming drivers at the pump and elsewhere with higher oil prices likely to drive inflation higher.

Wyoming’s Consensus Revenue Estimating Group’s forecasts for Wyoming oil prices in its January 2022 report are $60/barrel in 2022 and $55 per barrel in 2023 and 2024.

“Assuming CREG production forecast is correct (85 million barrels in 2022), the total mineral revenue (through mineral severance taxes, federal mineral royalties, and property taxes) would increase by $120 million in 2022 if oil prices are $10/barel higher than forecasts and if the higher prices will last the whole year of 2022,” Wyoming’s Chief Economist Wenlin Liu said in an email Friday, noting that CREG assumes Wyoming oil prices will be about $5 lower than West Texas Intermediate prices.

Liu added that there are about 15 active oil and gas rigs in Wyoming, citing the Baker Hughes count. Rig activity is up after dropping as low as one active rig in summer 2020 “but still far below the average of 33 rigs in 2019,” Liu said.

The governor’s office noted that while higher oil and gas prices economically benefit producers in Wyoming and elsewhere, producers will likely need to see sustained higher prices before increasing production in response: “[M]ost producers are not going to base long-term investment decisions on the spot market,” Pearlman wrote.

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Obermuelller said that price spikes in oil and gas largely driven by a supply shortage amid strong demand as production ramps back up is being exacerbated by Russia’s invasion of Ukraine and that he thinks further supply disruptions are likely.

“The United States imports more than 500 million barrels of oil per day from Russia, providing Vladimir Putin with around $60 million dollars every single day,” Obermueller added.  “Given that President Biden has said he will ‘work like the devil’ to deal with high gas prices, he should be doing everything to trade out barrels from Russia with barrels from Wyoming.”

Biden on Thursday said that American oil and gas companies shouldn’t “exploit this moment to hike their prices to raise profits.”

“This is a very irresponsible thing to say,” Obermueller said. “Oil and gas companies do not and cannot set prices.  They can only respond to the global market price by producing more or producing less. President Biden is cynically trying to deflect blame that his Administration’s policies are clearly not helping.”

Liu said that with Russia supplying about 30% of Europe’s oil and natural gas, the conflict in Ukraine “may prompt rethinking of long term energy security for many countries.”

Oil and gas are just one aspect of the country’s energy portfolio and Wyoming’s governor has frequently called for an all-the-above energy strategy. In the wake of Russia’s invasion on Thursday, some are calling for increased investment in both renewables and nuclear power, according to MarketWatch.