There was broad, bipartisan consensus that energy price inflation is an issue of supply and demand mismatch, not price gouging at an event hosted by the Federal Reserve Bank of Minneapolis last week.

Lutz Kilian, a Senior Economic Policy Advisor at the Federal Reserve Bank of Dallas, discussed the relationship between energy price shocks and inflation and concluded that placing the responsibility to lower retail gasoline prices on shale oil producers is “unlikely to work,” and “additional regulation of oil producers is unlikely to lower pump prices.”

Earlier this month, Kilian and fellow Dallas Fed economist Garrett Golding published research evaluating whether oil companies are doing enough to rein in high gasoline prices:

“Much has been made of the fact that gasoline prices were quick to increase following the Russian invasion of Ukraine but have not come down as quickly as the price of crude oil since then. … The asymmetry of the response of retail gasoline prices need not be evidence of price gouging.” (emphasis added)

Jason Bordoff, co-founding Dean of the Columbia Climate School and former senior economic policy advisor to President Obama, pointed out that while the supply disruption caused by war in Ukraine is the major factor driving energy prices, underinvestment in the industry over the last few years has restrict the ability for energy companies to quickly ramp up production to meet increased demand:

“If you look at the amount over the last two years that’s been invested in the oil and gas sector, it is below what is needed to meet current demand for oil and gas. … A combination of factors, including poor economic returns from the industry and increasing social pressures for financial institutions to pull back from investing in oil and gas, created a risk of underinvestment relative to what the reality of today’s demand is.”

Bordoff also identified how rhetoric from Democratic policymakers today does little to encourage investment in new oil and natural gas supply:

“You’re asking the private sector to spend huge amounts of capital to increase supply at the same time you’re saying, ‘We are going to double down on our goals to not need nearly as much hydrocarbons in ten, fifteen years, as we do today.’ So, I think uncertainty about the outlook for oil demand presents part of the challenge with how comfortable people feel putting lots of capital in oil and gas.”

Representatives from the oil and natural gas industry discussed several areas where policymakers can support the industry’s efforts to bring down prices in a sustainable way. Responding to the question of whether companies are doing everything possible to mitigate high gas prices, Oxy CEO Vicki Hollub outlined the industry’s efforts and where she sees obstacles:

“It’s not a matter of if we can do the patriotic thing – we want to do that, we’re just restricted in our ability to do that right now. And I can tell you that the rhetoric from the administration does not help this situation. … For example, some of the agencies are going beyond their authority, outside their authority, to restrict our ability to grow our infrastructure and be able to grow our oil and gas production into the future.”

Cindy Taylor, President and CEO of technical products and services provider Oil States International, echoed Hollub’s remarks. Taylor pointed out that unfriendly rhetoric from the Biden administration impacts oil and natural gas companies’ ability to attract both capital and labor:

“I need increased workers and capital access, and the government can’t produce [more workers], but possibly just toning down the rhetoric. It’s hard for new college graduates to aspire to go into an industry that they’re hearing on the news is going to die in ten years.”

Both Hollub and Taylor encouraged the Biden administration to demonstrate long-term support for the domestic oil and gas industry, not just to help meet near-term supply needs, but also to allow the industry to invest in technologies that help meet climate goals.

Taylor explained how the lack of long-term commitment to the oil and natural gas industry from both investors and policymakers limits companies’ ability to pursue research and development into low-carbon and renewable technologies.

“I’m trying to invest in floating offshore wind technology, geothermal technology, deep-water mining for rare earth minerals, but I am cash flow constrained. And government can’t answer that – but possibly a long-range plan that proves out the economics of some of these things could help land support.”

In an interview following the industry panel, U.S. Sens. Kevin Cramer (R-N.D.) and John Hickenlooper (D-Colo.) agreed that without a long-term plan, energy companies are restricted in their ability to respond to short-term supply needs. Sen. Hickenlooper said:

“What we’re really lacking is a long-term plan so we can have some guardrails around what the price of oil is going to be – so the industry can have some way to recognize and plan for how their markets are going to evolve.”

While Hickenlooper and Cramer were not completely aligned on the near-term utility of electric vehicles and renewable energy sources, or how – if at all – to incentivize use of these technologies, they both agreed that the present-day energy crisis is an issue of supply and demand, not price gouging. Cramer rejected the price gouging allegations unequivocally:

“One thing I can tell you about oil and gas produces – they like to produce more. They’d like to produce more at a reasonable, profitable, consistent price than try to drive up a price spike. Remember they’re just coming out of a valley. Not that long ago, oil was upside down. No, I don’t think [price gouging] is happening. It’s an easy target, a scapegoat.”