Gas prices have hit record highs in Texas and around the country, so it begs the question: “how can we lower prices?”
Some say drilling more here on American soil could fix the problem, but it’s not as simple as building an oil rig overnight and pulling oil out of the ground.
Eagle Ford Shale Update
Roughly 10 years ago, a small town 70 miles south of San Antonio took on a record-setting pace in the oil industry.
Tilden, Texas, was home to a massive oil boom, which created thousands of jobs and changed the town’s landscape.
McMullen County Judge James Teal took office in 2011 right at the start of the surge in drilling in the Eagle Ford Shale, which spans 20-thousand square miles across 26 Texas counties from the Texas-Mexico border through counties east of Waco.
From 2010 to 2015, McMullen County saw its taxable sales increase by 53%, more than double any other county in the Eagle Ford Shale.
“The activity was instant with people from bigger communities traveling to and from, staying in hotels. Every business -- everything was completely full,” Teal said.
Joe’s Food Market was one of those businesses that took on a load of new customers. The general store has been family-owned for over a century and has everything from a fresh sandwich to a toilet bowl repair kit. Not even all of those years in business could have predicted the days of the Eagle Ford boom.
“We have a hotel now. I never would have thought Tilden, America, would have a hotel. We have a Pilot. I mean, and we have a Valero just across the street from the Pilot. We have two stoplights now,” said Misty Verastegui, co-owner of Joe’s Food Market.
The additional funding from the drilling in the Eagle Ford Shale meant McMullen County could have a 24-hour sheriff’s department for the first time. The infrastructure was improved within the town as well.
“We’ve been able to pave almost every road in the county. We’re working on a streets and drainage project now,” Teal said.
During the height of the boom in McMullen County, they had 32 oil rigs going. Now, they’re down to three. The county judge said they are ready for a resurgence in this activity if it happens. But that’s not a quick answer to these high gas prices.
Determining Oil/Gas Prices
“When the price of oil goes up, the price of everything goes up,” said Anne Bradbury, CEO of the American Exploration and Production Council. “That is something we are all experiencing. We are not just paying more for gas but for everything from milk to orange juice to medications. Even the price of clothes and shoes is higher. Part of the reason is that oil is a huge part of our everyday lives.
“That’s part of the reason why energy inflation is so concerning because we use oil not just in gasoline, but in household goods, in food production. Just really, really across our economy and across our lifestyle. So many things are made from oil,” says Bradbury.
The price hike finger inevitably gets pointed right at oil companies.
Frank Macchiarola, senior vice president of Policy, Economics, and Regulatory Affairs for the American Petroleum Institute, said, “Oil is a global commodity that’s priced in global markets. But even at retail, the price that you’re seeing at the pump is a reflection of the typically independent business owner trying to get a return on the cost of purchasing fuel that they’ve made.”
According to the American Petroleum Institute, nearly 99% of gas stations are independently owned, although one company may own several stations. The owners sign a licensing agreement with the oil companies to put their name on the marquee. Like any other business, the station owner has to buy the fuel and all the other items they sell, such as candy and snacks, plus there are labor costs and a lot more costs involved. It’s simply the price of doing business. They recoup some of those expenses by setting a gas price, which creates competition with the other gas station on the other corner.
“Prices are driven by market fundamentals and by supply and demand principles and also by the competitive marketplace,” Macchiarola said.
The oil market is a global one. What happens to the supply and prices around the globe impacts us here at home. Those prices are also determined weeks or months before the customer sees them posted at their local gas station.
Russian Oil Ban
“We’re banning all imports of Russian oil and gas and energy.” - President Joe Biden
On March 8, 2022, President Joe Biden announced the United States would ban oil imports from Russia after the country waged war on neighboring Ukraine. After that, we saw prices start to shoot up, but that price hike was not because the ban on Russian oil meant a drastically lower U.S. oil supply. The United States was only importing about 500,000 barrels of Russian oil a day, which is a fraction of what the U.S. consumes per day. The U.S. uses around 21,000,000 barrels of oil per day. According to the American Fuel & Petrochemical Manufacturers, only about 1% of our refined crude oil comes from Russia.
“It’s the fact that on the global marketplace, Russia was such a large producer of oil, they produced more than 10 million barrels per day. (It’s) the third-largest producer of oil, the first the largest exporter of oil in the world, pre-invasion,” Frank Macchiarola said.
For example, a drop in oil supplies in Europe, which relies much more heavily on Russian imports than the U.S., can still drive up prices for Americans. It all goes back to the oil market being a global marketplace. As of early June 2022, gas prices are averaging above $4 a gallon in every state. This is the first time in history that all 50 states are above the $4 mark. Prices can jump a few cents at a time. In San Antonio, they have been known to jump 20 to 30 cents overnight.
Drilling more in the U.S.
One proposed solution is to produce more oil in the United States.
“That’s really the only way you’re really going to bring down the price of crude and, therefore, bring down the price of gasoline,” Bradbury said.
That means diesel fuel as well. Bringing those prices down could decrease the price of goods and services across just about every industry, but drilling more is hardly an easy solution.
Bradbury says, “it takes many years to explore, develop to get additional permits for rights of way for water, take away capacity for infrastructure that might be needed.”
Back in McMullen County, the trucks that haul equipment for oil projects can still be seen driving in the town, but far less than they were 10 years ago. Judge James Teal said, “It’s just much different than it was. There’s not the boomtown kind of atmosphere.”
The good news is that oil field traffic is picking up again. Tiny homes known to many as “man camps,” places where oil field workers stayed at the height of the Eagle Ford Shale boom, have been turned into hotels. One is nearly full for the first time in years.
“They’re busy again. So it’s good for local business owners.” - Misty Verastegui, co-owner of joe’s food market
There are lessons learned from the first time around that people in McMullen County will keep in mind, should an increase in oil field activity keep on trucking.
“Now that we know all the things, you know, we’ve decided who or who we may not get in bed with next time, you know, or what companies or, you know, just little things like that,” says Verastegui.
Not so little are the benefits Judge James Teal says the county still sees from the Eagle Ford Shale boom all these years later.
“McMullen County’s been able to also save dollars where we can and maximize the dollars that come in through tax revenue and been able to sustain a good fund balance and prepare for the days whenever things aren’t so good,” Teal said.