WASHINGTON – After months of jostling with the Biden administration, oil executives are set to sit down with Energy Secretary Jennifer Granholm today to try and bring an end to the spike in gasoline prices over the past six months.
At the same time, oil executives are eager to make the case the Biden administration is part of the problem, attempting to move the economy away from oil and other fossil fuels even though industries and consumers remains very much reliant on them.
It’s unclear what if anything Biden can do to solve an energy crunch driven by oil supply constraints caused by the pandemic and the war in Ukraine, a decline in U.S. refining capacity and a surge in consumer demand since the lifting of COVID-19 health restrictions.
“It does feel like a bit of theater on both sides,” said Andrew Logan, senior oil and gas director at Ceres, a nonprofit that advises investors on climate. “The administration feels like it needs to do something even though it has very little power to do so, and the industry is trying to not let a crisis go to waste.”
In his bid to get the United States on the path to net zero emissions by mid-century, Biden has taken aim at the oil and gas industry since taking office last year, holding up lease sales for federal lands and waters and canceling the Keystone XL pipeline project.
Some oil executives believe that has contributed to growing skepticism among investors about the future of their industry. In a survey of oil companies conducted the Federal Reserve Bank of Dallas in March, close to 60 percent said investor pressure to control costs and increase profits was keeping them from increasing production.
Where shareholders once might have applauded spending billions of dollars to develop new oil and gas fields, now they want to see dividend checks and other moves to increase investor return, energy analysts and executives say.
In a letter to Biden Tuesday, Chevron CEO Mike Wirth wrote that oil companies needed “cooperation and support from your administration for our country to return to a path toward greater energy security.”
“We need an honest dialogue on how to best balance energy, economic, and environmental objectives,” Wirth said, “one that recognizes our industry is a vital sector of the U.S. economy and is essential to our national security.”
Only it’s not just Biden that has investors worried. Nations worldwide are shifting from fossil fuels, driven by increasingly dire reports from scientists about the impact of climate change.
And the industry’s struggles to maintain profitability amid regular slumps in crude prices also has turned off many investors, said Ken Medlock, an economist at Rice University.
“The biggest issue in terms of access to capital, it’s a lack of healthy returns over the last decade- plus,” he said. “In terms of the price of oil, the price of gasoline, there is no president that has that much power.”
But that hasn’t stopped Biden from trying.
Last week he sent a letter to oil companies including Exxon Mobil, Chevron, Phillips 66 and Valero, demanding they increase fuel production and pointing out their refining profits have, “tripled, and are currently at their highest levels ever recorded.”
“The crunch that families are facing deserves immediate action,” Biden wrote. “Your companies need to work with my administration to bring forward concrete, near-term solutions that address the crisis.”
Oil and refining companies maintain there is not much they can do.
A decade long decline in U.S. gasoline demand, driven by more efficient cars, has resulted in domestic refining capacity falling to 18 million barrels a day, its lowest level in eight years, according to the research firm S&P Global. Even if companies wanted to increase capacity, building refineries takes years.
“To say refineries can pop into existence and then going into hiatus is not realistic,” said Scott Segal, an energy attorney in Washington. “This meeting is an opportunity for the industry to explain the investment cycle is longer term.”
Hanging over the meeting today is the reality with which presidents have long struggled to come to grips: Global markets control oil prices, not them.
And with global economy coming back to life after two years of shutdowns and social restrictions, markets are saying through high prices there is not enough oil to go around.
The question Biden faces is whether he should take steps now to prevent a repeat of this year’s price spike in the years and decades ahead, as the world makes the transition to cleaner forms of energy, such as wind turbines, solar panels and hydrogen fuel.
The difficulties in getting pipelines and other oil and gas projects permitted, with environmental groups holding up projects for years, serves as a disincentive to invest in oil and gas production that would be needed in the years to come, Medlock said.
“If the administration starts to send a message of balance, it produces an environment for everything to move forward,” he said. “If you start denigrating the incumbent sources of energy, capital stops flowing, and you end up in this place where nobody wants to be.”
Uncertainty about climate policy isn’t helping either, said Logan, of Ceres. With Republicans and Democrats in Congress unable to reach any kind of agreement on climate, companies and investors are left to guess what future regulations might look like.
“You could say this is what a disorderly energy transition might look like,” Logan said.
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