Are President Obama’s Policies Causing U.S. Oil Production to Rise?

Question: What do President Barack Obama and ex-President Jimmy Carter have in common?

Answer: Both presided over strong increases in domestic oil production that were a result of decisions made before they took office, as I explain in this post.

In my recent post The Oilman in the White House, I posted the following graphic:

Is There More to this Graphic than Meets the Eye?

The purpose of the graphic was to get people to think about why oil production had behaved in this manner over the past decade. A lot of people took the bait, and asked how I could possibly believe that President Obama was responsible for this rise in production given his apparent hostility toward the oil industry. Some people on the other hand offered up the real reason for the production increases. One pointed out that the above graph could really be broken into three parts: Falling production until 2005, flat production from 2005 until 2009 as some new projects began to come online, and an increase from 2009.

This was one of the themes I was working on for my upcoming book, and I felt like it was worth discussing. I was looking back over the past eight presidential administrations, and it was pretty clear that what happens today in the energy markets is a result of decisions that were made 4-8 years in the past. For instance, the ethanol production gains in 2010 were not a function of Barack Obama’s energy policies; they were a result of energy legislation passed in 2005 and expanded in 2007.

When Jimmy Carter was in office, U.S. oil production rose for the first time in 7 years. The graphic below tells the tale, and is a pretty good analog for the behavior of U.S. oil production since President Obama has been in office.

The reason oil production rose under Jimmy Carter was because in 1973 President Nixon pushed through the Trans-Alaska Pipeline Authorization Act which cleared away legal challenges from environmentalists seeking to stop construction of the Trans-Alaska Pipeline. That pipeline started production in 1977, during President Carter’s first year in office, and as a result oil production rose for the first 2 years of his term.

Likewise, the reason that oil production has risen under President Obama is due to events that happened years earlier. In this case, it wasn’t some grand initiative that President Bush passed, rather it was years of steadily increasing oil prices that caused oil companies to approve a number of new projects that had marginal economics at lower oil prices. But these projects take some years to build, and as in the case of the Alaska Pipeline, decisions that were made 4-6 years earlier benefited President Obama with increased domestic oil production.

The reason I wanted to call attention to this is that I knew it would be an campaign issue in this election year, and indeed stories are beginning to surface in which President Obama touts his record on oil production:

Obama touts record U.S. oil and gas production in wake of pipeline rejection

Rejecting both the Republican push for an accelerated Keystone XL oil pipeline and the GOP argument that he doesn’t care about jobs, President Barack Obama Wednesday touted his record of increased domestic oil and gas production.

“Under my administration, domestic oil and natural gas production is up, while imports of foreign oil are down,” Obama said, adding that trend will continue “in a way that benefits American workers and businesses without risking the health and safety of the American people and the environment.”

Of course this situation isn’t unique to energy policy; one president’s policies often benefit or handicap the following administration. My intention is to raise awareness on this issue, so people understand the big picture as the energy policy debates play out this year. The current increases in oil production have little to do with Obama or Bush policies, but are simply a response to years of climbing oil prices.

But that cuts both ways. This is also the reason I have defended President Obama against criticisms that his decisions have caused gasoline prices to rise. The decisions he makes in this administration may ultimately impact gas prices, but due to the lag time they won’t impact gasoline prices for years. If President Obama is elected to a second term — as I expect that he will be — then he may begin to reap the outcome of his decisions by the middle of his second term. So his decisions today are certainly relevant for the future, and in 4 years he will deserve his share of the credit or blame for the status of the energy markets in the U.S.