Glenn Richey, the Raymond J. Harbert Eminent Scholar and chair of the Department of Supply Chain Management in Auburn University’s Harbert College of Business, comments on record gas prices and how the Biden administration needs to work with the oil and gas industry to lower the price and to expand alternative energy sources.
Gas prices are the highest in U.S. history. Why?
The current marketplace is facing a perfect storm regarding oil and gas prices. We are seeing a rebound in world economic growth and related oil demand following tremendous downtime. Seasonal usage is on the rise, and decisions by the Biden administration eliminated the U.S.’s energy independence in 2021. Doing so puts us in a position where we are dependent on foreign sourcing. Supply chain disruption impacted prices early, but those disruptions are limited now. The trucking crisis remains an issue that the industry is working to cure. Industry-based production agreements for supply management (OPEC) will keep us in a precarious position, driving and holding prices higher. Similar to Canada in 2018, interventionism in “free” markets has hit a new high in the U.S. and is likely the most significant driver of higher prices. Interventionism is also a crucial cause of current inflation, reducing the dollar's value and hurting the customer's ability to buy anything, including fuel.
Can the oil and gas industry coexist with alternative energy demands?
Starting with their first day in office, the Biden administration has taken an adversarial position versus the oil and gas industry. Their first step should be to repair those relationships. Attempting to lower gas prices without expanding U.S. exploration and production is not a viable long-term strategy if we want prices to come down. Moves like invoking the Defense Production Act to accelerate domestic solar panel production will not move the needle. Doing so very likely could send prices higher while damaging our local environment.
In the U.S., the entities making the most significant strides toward alternative energy are the same companies that produce/market oil and gas. These companies know they cannot focus on the fossil fuel business forever. See Chevron, for example.
Working against rather than with industry will not put the country in a better energy position. Let's hope it doesn't take leadership much longer to figure that out.
What would bring down gas prices?
Go all-in on all forms of energy. Use funds generated from the sale of fossil fuels to support green energy expansion. It is self-defeating to develop strategies of going “cold turkey” on fossil fuels before we have a legitimate support system developed. The first step for Washington: Stop sending signals to the market that they are not supporting the energy business, or the prices will never come down. Our leaders also need to back off the unfounded corporate level price-gouging claims that I openly refuted in a meeting with Congress a few months ago. Let's hope we see some relief in the fall, but the estimates are mixed and not approaching the not-so-long-ago $2 level.
About the author:
Glenn Richey serves as the Raymond J. Harbert Eminent Scholar and chair of the Department of Supply Chain Management in Auburn University’s Harbert College of Business. He is the editor-in-chief of the Journal of Business Logistics and associate editor of the Journal of Supply Chain Management. He has published more than 100 articles in peer-reviewed, scholarly journals since 2003 and has taught students and executives across 26 countries. Richey’s research examines supply chain relationship governance, company internationalization, technological integration, government intervention and disaster recovery. He previously worked in managerial positions in manufacturing, procurement, sales and supply chain/logistics operations.