Effects of U.S. energy sanctions on Russia will reverberate for a while

John Harpole, owner of a Colorado natural gas brokerage firm, said he watched for years as Russia wielded its energy resources as a political weapon and he expects the effects on energy markets triggered by the country’s invasion of Ukraine to reverberate for a while.

President Joe Biden on Tuesday announced a ban on all oil imports from Russia in an escalation of sanctions for waging war against Ukraine. Oil from Russia made up about 8% of the monthly imports to the U.S. last year, according to a recent Wall Street Journal analysis of data from the U.S. Energy Information Administration.

Harpole, founder of Mercator Energy in Littleton, said he started digging into Russia’s energy policies while working on a liquified natural gas project on the West Coast in 2003-05. It was before hydraulic fracturing launched the oil-shale boom in the U.S., when the country thought it would have to import more oil from Russia and other countries.

“I noticed that Russia had a tendency to cut off natural gas supplies to former Soviet Bloc countries. From 1991 to 2005, it cut off supplies 55 times,” Harpole said. “Clear back in 2005, I could see that (President Vladimir) Putin was using it as a geopolitical weapon.”

Harpole said he understands the U.S. ban on Russian oil from a political standpoint. “I also don’t want Russian oil here,” he said.

However, Harpole expects the economic fallout, especially in Europe, to last for several years and fears Putin will use its energy resources as a stranglehold on other former Soviet countries.

“This is not a short-term problem. We need to wake up as a country to the fact that there’s no quick off-ramp,” Harpole said.

Enverus, which provides data and analytics for the energy industry, said oil prices could soar to $150 per barrel as sanctions squeeze Russia, one of the world’s leading oil producers, and global oil supplies tighten. Oil was selling for $125 a barrel Tuesday, a far cry from the negative prices seen at the start of the coronavirus pandemic when travel and businesses slowed or shut down and demand went off a cliff.

Gas prices have been shooting up for a while. The average price in Colorado reached $3.75 Monday and is on track to breaking the $4.09 record average price set in July 2008, according to Colorado AAA.

In announcing the ban on Russian oil, Biden said the U.S. “will not be part of subsidizing Putin’s war.” But he acknowledged that Americans will pay a cost, especially at the gas pump.

Gov. Jared Polis joined other governors Tuesday to ask Congress to suspend the federal gas tax to help ease the economic impacts.

Oil and gas industry representatives said Colorado, a leading oil and gas producer, stands ready to boost drilling to fill any gaps. The U.S. doesn’t buy natural gas from Russia and is expected to increase its exports to countries that do.

“We support the U.S. government and our allies in their collective efforts against Russia’s unprovoked invasion of Ukraine, and our industry is prepared to comply with the import ban in response to this aggression,” Lynn Granger, executive director of American Petroleum Institute-Colorado, said in an email.

Granger said API supports reducing the country’s reliance on foreign energy sources and urges Colorado policymakers “to advance American energy leadership.”

“Colorado can certainly be part of the solution by increasing supply of both gasoline for our cars and natural gas for our homes,” Dan Haley, CEO and president of the Colorado Oil and Gas Association, a trade group, said in an email.

However, Haley added that the industry needs the state to process and approve drilling permits companies have submitted to encourage “investment and the development of some of the cleanest molecules in the world.”

Harpole blamed new state oil and gas regulations, particularly one that requires larger buffers around wells, for slowing drilling in Colorado. With oil prices as high as they’ve been, Colorado should have at least 50 drilling rigs at work. There are only 12 while the numbers have surged in Texas and New Mexico oil fields, he said.

After making it difficult to develop oil and gas on federal public lands, “the admission — no matter how long it took to make — that American production is preferable to Russian is now welcome,” Kathleen Sgamma, president of the Western Energy Alliance, said in a March 4 blog.

Proponents of strong oil and gas regulations disputed that the Colorado and federal governments have stifled development.

“This is just another case of the oil and gas industry crying wolf. Industry has made the same argument with every new state regulation for decades,” Mike Freeman, an attorney with the environmental group Earthjustice, said in an email.

“The driving factor for the rate of drilling is the market price for oil — not whether Colorado has laws to protect the public and the environment,” Freeman said.

Companies hold roughly 9,000 approved permits to drill on federal lands that aren’t being used, said Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center.

After Biden took office, he paused new oil and gas leasing on public lands to review federal policies in light of climate change concerns. A federal court overturned the policy, but a series of subsequent dueling court decisions has restored the pause.

What didn’t let up was approval of drilling permits on public lands, Schlenker-Goodrich said. Some in the industry are using the political troubles to push for more drilling on public lands, he said.

“The administration was processing and approving new drilling permits on federal public lands at a pace that, at least for the first year, exceeds the Trump administration’s first term,” Schlenker-Goodrich said. “The Biden administration has been rubber stamping permits at a rapid pace.”

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