Biden’s feud with big oil grows just as the world needs more American oil

Biden’s feud with big oil grows just as the world needs more American oil

(Bloomberg) — As October drew to a close, the White House saw another potential energy hotspot on the horizon.

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Diesel and heating oil supplies in the US Northeast were becoming alarmingly low. Officials swung into action, arranging a series of calls between Energy Secretary Jennifer Granholm and several of the nation’s largest oil refiners to discuss strategies to boost supplies. The tone was cordial, say people familiar with the conversations.

But the very next business day the oil industry was blindsided. At a hastily arranged press conference on October 31, President Joe Biden blasted Big Oil for handing out “outrageous” profits to shareholders and executives instead of lowering prices at the pump. If that does not change, he warned, oil companies faced higher taxes. “Their profits are a windfall of war — a windfall from the brutal conflict that is ravaging Ukraine and hurting tens of millions of people around the world,” he said.

It was just the kind of blow that has repeatedly sown mistrust and fueled tensions with the fossil fuel industry during the Biden administration, according to multiple interviews with oil and gas executives and lobbyists, who declined to be identified because the meetings and conversations that described were private.

Biden’s team has been at odds with the industry since the 2020 election campaign. But as global energy prices soared this year after Russia’s invasion of Ukraine, the White House called on Big Oil to help, only to grow increasingly frustrated that it is holding back production while reaping record profits .

“Month after month, these companies posted record profits that they then used to line the pockets of shareholders instead of increasing production and lower gas prices,” White House spokesman Abdullah Hasan said. “Month after month, we offered them every opportunity and incentive to change their behavior.”

While never under any illusions about the president’s green ambitions, oil industry insiders say they have grown increasingly frustrated by a series of competing policy priorities — for example, moving within months of ending federal oil drilling leases to demands for higher production — and unrealistic demands such as spending billions of dollars to quickly add more processing capacity.

Unwilling to act like the fall boys who are driving up household gas bills ahead of the midterm elections, usually low-profile industry figures are becoming more outspoken. Last week, the chief executive officers of Exxon Mobil Corp. and Chevron Corp. they issued serious warnings about potential windfall taxes. Marshall McCrea, co-CEO of pipeline operator Energy Transfer LP, said this week that U.S. energy policy is so all over the map it’s becoming like “Saturday Night Live Skit.”

“It would be funny if it weren’t so tragically sad,” he added.

For its part, the administration says it has approved 9,000 drilling permits, released 180 million barrels of oil from the Strategic Petroleum Reserve and essentially provided a floor below the oil price with a commitment to buy crude at $70 a barrel.

“If they don’t like the carrot approach, the president has made it clear that we can use sticks,” Hasan said. “We will do what is necessary to support American families.”

The tensions come at a difficult time for both the country and the rest of the world. With President Vladimir Putin’s weaponization of Russian natural gas, Europe faces a dangerous winter. OPEC has been reluctant to ease the tight oil market; instead, it defied US wishes last month by agreeing with Russia to cut production.

Recent history shows that the US can play a vital role in increasing oil production to lower prices and ensure energy security. After all, the shale revolution added more crude oil to global markets than the entire production of Iraq and Iran combined from 2012 to 2020, making the US the largest producer of oil and gas.

But to repeat that growth spurt would require the right investor and policy support, as well as balancing America’s increasingly ambitious climate goals. So far, the signs that this is happening are not good.

“A lot of senior executives are kind of involved with this White House,” said Stephen Brown, an energy consultant who was formerly head of federal affairs for the Andeavor refinery. “When we talk to people in the administration, we hear things that are conciliatory in establishing a relationship. And then you turn around and get punched between the eyes with a tweet.”

On January 20, 2020, his first day in office, Biden rescinded the president’s permit for the Keystone XL pipeline, which would have allowed more Canadian crude oil to flow to Gulf Coast refineries. A few days later, he issued a moratorium on new federal oil and gas leasing (later overturned in court).

Shale executives were outraged because some of the best drilling locations in the Permian Basin are on federal land in New Mexico. The message was clear: Biden and his progressive club will not be friends with the oil industry.

As gasoline crosses the $3-a-gallon threshold in mid-2021, senior figures in the administration have begun to pay more attention not only to pump prices but also to their role in fueling inflation.

The critical moment came last November, when Biden accused the industry of “anti-consumer” behavior and complained that gasoline prices remained high even as oil and gas companies’ costs were falling. Biden asked the Federal Trade Commission to investigate potential “unlawful conduct.”

“The trust between the industry and the administration has probably been deteriorating since then,” said Frank Macchiarola, senior vice president for policy at the American Petroleum Institute, a group that represents the energy industry. There is a “lack of understanding of the fundamentals of energy markets”.

By the time Russia invaded Ukraine in February, sending oil soaring to its highest level since 2008, the White House had completed a U-turn from the earliest days of the presidency and was calling for more oil and gas production rather than policies to reduce output.

“We are on a war footing,” Granholm told executives gathered at the CERAWeek by S&P Global oil conference in Houston in March.

However, American producers, who are still struggling with the height of the pandemic, when energy prices fell, were not in the mood to cooperate. After a decade of poor returns for investors, a consensus has emerged on how to restore confidence in stock prices: keep production flat and return as much cash as possible to shareholders.

As inflation rose in the first half of 2022, it became clear that the White House had an economic crisis on its hands. No US president has been re-elected with gas prices above $4 a gallon. In June, the national average was $5. As analysts began to peg record profits for Big Oil, Biden went on the offensive.

“We’re going to make sure everyone knows about Exxon’s profits,” he said at a news conference in Los Angeles. “Exxon: Start Investing and Start Paying Taxes, Thanks.”

Exxon responded by saying it was investing heavily in the US and was working on a major Gulf Coast refinery expansion. But the narrative was now clear: Biden would blame Big Oil for high gas prices.

Less than two weeks later, Biden invited top oil executives to the Department of Energy in Washington to discuss the issue. For more than an hour, the executives talked with Granholm about the obstacles to more fuel production and policy moves that could help lower costs.

Granholm assured them that the administration wanted to cooperate. At one point, Wirth, Chevron’s CEO, walked through the economics, logistics and limitations of American refining. Participants described the meeting as cordial and productive, an olive branch of sorts offered to the industry after Biden’s tongue-lashing.

But it was a much different scene three months later when oil company officials met again with Granholm, National Economic Council Director Brian Deese and Amos Hochstein, the State Department’s senior energy adviser.

The Sept. 30 session — initially expected to last an hour and billed as a discussion on fuel stocks after Hurricanes Fiona and Ian — quickly turned upside down. There was little talk of storms. One participant described it as a “lecture” from Granholm.

Administration officials blasted the group for selling fuel overseas instead of storing more in U.S. tanks, and suggested that without voluntary industry action, the government could force companies to store more supplies domestically. At least one official criticized the companies for making high profits and not addressing low inventories.

While Granholm and Hochstein pressed the companies to reduce fuel exports and explain how they would work to lower prices, industry participants repeatedly raised objections, insisting they could not reveal those details to competitors. That kind of candid discussion could be a violation of U.S. antitrust law, they argued.

The meeting was adjourned less than half an hour after it began.

Tensions between the US fossil fuel industry and a Democratic president were probably always expected, but the current conflicts between the two sides have been far more visible than when Barack Obama was president.

“I don’t think they’ve been warm and welcoming, but they haven’t been hot on the industry,” Dan Eberhart, a Republican donor and CEO of an oilfield services company, said of the Obama administration.

With average gas prices across the country on the rise again — reaching $3.79 a gallon on Nov. 3 — and the midterm elections now just days away, Biden appears in no mood to back down.

“I’m working like hell to deal with energy prices,” Biden said Friday. Soon I will – as they say – come to the Lord, talk to the oil companies.”

–With help from Justin Sink.

(Updates with White House commentary in paragraph 10.)

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