The oil and gas paradox that threatens Biden’s party at the polls
The dynamic offers another reminder of how little power any president has to shape the turn of energy markets.
Democrats blamed the spike in gas prices on Russia’s invasion of Ukraine, production cuts by OPEC, the pandemic’s lingering effects on the economic supply chain and price hikes by oil companies — some of which reported record quarterly profits last week. On Monday, Biden accused the oil industry of “war profiteering” and threatened to insist on stricter taxes on company earnings.
But Republicans have delivered one consistent message this year: Biden has caused pain to drivers at the pump by shutting down America’s oil and gas production.
“Joe Biden’s Anti-Energy Agenda Has Destroyed America’s Energy Independence,” House Republicans announced on Twitter last week as part of a a cascade of similar GOP messages broadcast on social networks and television appearances before the elections.
However, an analysis of federal energy data shows a different story.
From January 2021 to the end of September, Biden’s Department of the Interior approved 74 percent more permits for oil and natural gas production than the agency did during a comparable period of Trump’s tenure, according to data from the U.S. Bureau of Land Management.
In the meantime, Natural gas production in the US has reached record levelsand oil production is expected to reach all-time record next year. Even with the oil industry’s pandemic slump, the U.S. produced more than 15 percent more oil during Biden’s first 20 months than during the same period under Trump, according to a POLITICO analysis of Energy Information Administration numbers.
Overall, the US remains the world’s largest producer of oil and natural gas, as it has been under Trump, as well as the largest exporter of natural gas, gasoline and other transportation fuels.
The pandemic hangover continues
However, those numbers come with some caveats. The increase in oil production, for example, is entirely due to drilling on private and state-owned land, which is mostly beyond the control of the administration. Oil production from federal land and waters — nearly a quarter of total U.S. output — has been virtually unchanged since Biden took office, falling less than 0.3 percent.
And U.S. oil production still lags below the all-time high it reached under Trump, which peaked at 13 million barrels the day before the pandemic began. That peak was the culmination of an oil boom that began during the George W. Bush administration and continued through the Obama years, except for a year-long industry crash that began in the summer of 2015.
The industry is now recovering a huge drop caused by the collapse of fuel demand during the shutdown of the Covid-19 business environment some industry officials said exacerbated by the Trump administration’s failure to convince more people to get vaccinated and control the virus.
Any lingering reluctance to produce more oil stems from the industry’s own aversion to crossing Wall Street lenders to a return to pre-pandemic spending levels, market analysts said – not from government policy.
The Republicans are right Biden has made transitioning away from fossil fuels a top policy agenda, and promised during the 2020 campaign to stop new oil and gas drilling in the federal territory. His Interior Department froze the sale of new leases for about a year, until a federal court ordered him to resume them.
In all, the Biden administration held just one oil and gas sale in the Gulf of Mexico and one round of onshore oil sales in seven states in June. By comparison, the Trump administration held four offshore lease sales along with quarterly multi-state onshore sales during its first 21 months.
Biden’s hiatus will mostly be a disruption to the drilling schedule for companies operating on federal land. The Interior Department is now in the process of scheduling new oil lease sales to comply with provisions of the recently passed Democrats’ climate bill.
The White House is changing its tune
At the same time, the White House made a rhetorical reference to last year’s rise in oil prices, which began in the fall of 2021 and accelerated after Russia invaded Ukraine in February. In addition to urging oil companies to get their rigs back up and running, Biden opened up the nation’s crude stockpile, the Strategic Petroleum Reserve, pushing more than 200 million barrels into the market since December.
When he announced the latest oil release last month, Biden rejected accusations that his administration had slowed oil production.
“Quite the opposite,” he told reporters during a press conference. “We are producing 12 million barrels of oil per day, and by the end of this year we will be producing one million barrels per day more than the day I took office. In fact, we are on track for record oil production in 2023.”
The oil industry acknowledges that the Biden administration has issued more oil and gas permits than the early Trump administration. But the American Petroleum Institute, the industry’s largest trade association, credits mounting momentum built during the Trump era with the Trump administration specifically changing the Bureau of Land Management’s review process.
The Biden administration also inherited the huge number of permit applications filed in the final months before Trump left office. Oil companies made what they believed to be a last-ditch effort to get permits before Biden’s inauguration, who campaigned on promises on the “prohibition of issuing new permits for oil and gas on public lands and waters”.
The numbers show that Biden didn’t keep that campaign promise — even though he’s still reaping the political blame for it.
The Biden administration has had a strained relationship with the oil industry, even if it hasn’t gone nearly as far as many environmental groups would like. First day in office, Biden killed the proposed Keystone XL pipeline, which would have delivered Canadian oil to the Gulf Coast. On the other hand, the administration is not sided with the green activists legal cases to be blocked other of the main oil pipelines or ConocoPhillips’ proposal Willow Oil Drilling Project in Alaska.
Oil market analysts generally agree that few policy decisions coming from the administration — Biden’s or otherwise — have more than a marginal impact on oil prices. short-term US oil and gas production. The more important factors are the price of oil and the simple laws of supply and demand, they say.
“Currently, no specific U.S. policy is significantly disrupting U.S. manufacturing,” Reed Olmstead, executive director of upstream research at market analyst firm S&P Global Commodity Insights, said in an email.
Biden’s releases from Strategic Petroleum Reserves “has not affected domestic markets sufficiently to cause a decline in activity/growth,” Olmstead wrote, adding that OPEC’s latest production cut “only served to depress prices, which were already more than enough to keep the industry running at full capacity capacity”.
Is oil a ‘business in decline’?
Instead of Biden, the real cause of Americans’ troubles at the gas pump lay in the oil industry’s relationship with Wall Street, analysts say.
The industry, which for years burned through capital, racked up debt and had little direct competition for its core products, now faces investors who are no longer willing to hand over money, said Philip Verleger, head of economic consulting firm PKVerleger and senior fellow at the Niskanen Center think tank. tank. He said those investors see oil as a “decline business,” believing that electric vehicles and renewable energy projects are a significant risk to the industry’s growth.
“Wall Street is not listening to the White House,” Verleger continued. “To say that the White House would only encourage oil and gas drilling, all that investor money would show up.” … I’m trying to think of another adjective instead of ‘crap.’”
The company’s earnings data show that even as gasoline prices hit a nominal high earlier this year — both the advice of Biden and Energy Department Secretary Jennifer Granholm to produce more — the industry as a whole has no plans to shift into high gear anytime soon.
“We expect capital discipline to remain strong, with much of the industry committed to low or no growth in 2023 and a continued focus on shareholder returns,” analysts at investment bank Morgan Stanley said in a client note last month.
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