U.S. Energy Secretary calls for more oil and gas output

Yahoo Finance's Rick Newman explains how the Biden administration is responding to volatile oil markets, high gas prices, and energy disruptions stemming from the Russia-Ukraine war.

Video Transcript

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- Energy Secretary Jennifer Granholm issued a dire assessment at the CERAWeek Conference on the state of the energy industry due to Russia's war in Ukraine.

JENNIFER GRANHOLM: We are on war footing. We are in an emergency. And we have to responsibly increase short term supply where we can right now to stabilize the market and to minimize harm to American families. And that means releases from the strategic reserves across the world, like we've done. And that means you producing more right now where and if you can.

- Yahoo Finance Senior Columnist Rick Newman is here with more on this. Rick, this is a major shift in tone from the Biden administration. But of course, comes against the backdrop of much higher gas prices in this country. What's your take?

RICK NEWMAN: Right. It's a shift in tone, but everybody needs to remember that here in the United States, it's not the government that decides how much oil to drill. This is not Saudi Arabia, this is not Russia, this is not Venezuela. Our oil and gas industry is controlled by the private sector.

So while Jennifer Granholm, the Energy Secretary or any Biden administration official can ask or even beg the oil industry to produce more here in the United States, that doesn't mean they're going to do it. They're going to produce more oil if they think they can make more money doing it. So the Energy Secretary sort of saying, we want you to do this and we're behind you for the time being-- maybe we'll stop trying to replace fossil fuels with green energy for a few months-- is not really going to change anything.

If investors start to think, OK, well it makes sense to open more wells and this will be an investment that pays off in the longer term, then we're going to get more oil. And there are-- there is evidence that that's actually happening, it's just going to take a while. You just don't turn oil rigs on and off like a light switch. It takes weeks or months to get that oil out.

So it's going to happen, but probably not as much as the Energy Secretary or President Biden wants.

- Well, and as you say, the administration can ask them to start drilling again. But let us just say there are not necessarily warm feelings, right, between the administration and the energy industry

RICK NEWMAN: Right.

- Right? So does that matter in this case though?

RICK NEWMAN: What matters the most is what investors think. Are drillers able to get the capital they need to open wells and to dig and to drill new wells and get the return on that money? And because of everything that's happening in the world, in the United States with policies that are more likely to favor renewables and green energy in the future and elsewhere, it's investors who feel a little leery about putting up that money. Because they think that the world is heading in a different direction.

So if any presidential administration, Biden's or otherwise, signals something that would make those investments better bets in the long term, that will make a difference. So is anything coming out of the Biden administration in that regard? I'm not sure. So this is going to remain uncomfortable for some period of time.

- Yeah.

RICK NEWMAN: We are going to have high gas prices for a while.

- Well, and by the way, the energy industry itself had been making that calculation as well, right? Not just because of a switch to a greener future so to speak, but also because they wanted better margins and so had been getting a little bit of fiscal discipline over the past several years. But leaving that aside for a moment, I want to talk about something else, Rick, that's important.

And that is a rare show of bipartisanship in Washington. And it's over Ukraine, which is-- this has just been fascinating to me. And it led to the House passing a new spending bill in part because Democrats took away money for COVID and gave it to Ukraine, right?

RICK NEWMAN: Something like that. I mean, this money that President Biden wanted for COVID testing and future preparation for this pandemic or another one, that was kind of a complicated formula that would have involved going out and looking for money states had not used from prior relief bills and then repurposing toward the COVID aid and some Democratic governors said, please don't come after our money, we're going to use it. So they took that out.

But you're right. The House has now passed this spending bill. It's going to the Senate. The Senate will probably pass it. We're going to need another short term spending bill.

But basically, this means one thing we don't have to worry about is the government getting funded. It will get funded through the fiscal year, which ends September 30.