Things are bad in America’s oil patch. Last week, oil prices in the U.S. dropped below $0 for the first time ever, as demand for the fossil fuel dried up and storage tanks filled up in the wake of the COVID-19 pandemic. Even before COVID-19, the fracking industry was hundreds of billions of dollars in debt and was only profitable when prices were above $40 a barrel, leading to serious questions about the industry’s future. That is despite the roughly $20 billion a year in direct subsidies the U.S. gives to fossil fuel companies each year, 80 percent of which go to oil and gas.
Fracking imposes tremendous costs on our environment and health - from degraded water supplies to methane leaks to loss of natural land and wildlife habitat. Despite those costs, and despite the American public’s skepticism of fossil fuel bailouts, the Trump administration and some in Congress have continued to push increasingly desperate - and sometimes absurd - steps to pull the oil industry out of its current ditch.
Today, the industry might have gotten at least some of its wish, with changes to the Federal Reserve’s emergency programs that appear to open the door for lending to troubled oil and gas firms. It is just the latest in a string of attempts to offer a lifeline to an industry that harms our environment and health.
Pay drillers to stop pumping - For years, the federal government paid farmers not to grow crops in order to prop up crop prices and help farmers’ finances. In mid-April, administration officials considered a similar approach to oil - paying drillers not to produce oil. In essence, the federal government would use existing authority to buy oil while it was still in the ground, potentially allowing it to be pumped and sold later, with the proceeds going back into the Treasury. The money for such a purchase would likely need to come from a congressional appropriation, and the idea has thus far stalled.
Pump oil drillers with cash - President Donald Trump early last week asked his cabinet to develop a plan to directly inject cash to U.S. oil drillers. Treasury Secretary Steven Mnuchin then announced that the government was considering a government lending program for oil companies, one that could leave the government as a part-owner of some firms. It is unclear exactly how Mnuchin would be able to launch such a program, but the Treasury Secretary said last week, “[w]e’re looking at a lot of different options.”
Buy the oil and bury it - In March, President Trump announced plans to buy up roughly 75 million barrels of oil to fill up the country’s Strategic Petroleum Reserve, which is located in caverns in Louisiana and Texas, in order to take excess supply off the market. Congress refused to allocate the $3 billion originally proposed for the purchase in the CARES Act, killing the plan for now. But Trump has continued to push for such purchases following last week’s crash in oil prices.
Designate oil production as “critical” infrastructure - The main oil lobbying group, the American Petroleum Institute (API), wrote a letter to President Trump asking for critical infrastructure designations, which would allow them to benefit from a $17 billion stimulus fund set aside for “businesses critical to maintaining national security.”
Change the rules of the game - Many oil firms have not been eligible for Fed assistance, either because their bonds were “junk” before COVID-19 struck (rendering them ineligible for Fed corporate bond purchases) or because the terms of the Fed’s loan program for small- or mid-sized businesses - which were designed to protect taxpayers’ investment in the program - did not allow many risky, heavily indebted oil and gas firms to participate. On April 21, 11 U.S. Senators signed a letter to Treasury Secretary Mnuchin and Federal Reserve Chairman Jerome Powell urging a couple of subtle but important changes in the rules that would allow the Fed to purchase more corporate debt of troubled oil and gas firms. And today, the Fed altered the terms of its “Main Street” lending program in ways that could allow more oil and gas firms to obtain credit.
Oil and gas drilling has already saddled Americans with environmental impacts and now the industry wants to make the public take on some of the industry’s financial risk. So far, the public isn’t buying it, with fewer than half of all Americans supporting bailouts for the oil and gas industry.
But while Congress is seemingly in no rush to bail out the oil and gas industry, the numerous and sometimes wily ways in which the Trump administration has sought to aid the oil industry show that the public has to remain vigilant. Federal officials should refrain from throwing a lifeline to fossil fuel producers who do harm to our environment and public health, and instead find other ways of using government money and resources to help all Americans through this public health and economic crisis.
Photo credit: jwigley via Pixabay (CC0)