Biden Administration, Oil Industry Come to a Detente

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December 22, 2021

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by Matthew Choi (Politico's Morning Energy) OIL LANG SYNE: The oil industry has seen quite a change in tone from the Biden administration since the beginning of 2021. What started off in January with President Joe Biden signing the executive order finishing off the Keystone XL pipeline’s chances and launching the biggest-ever push to elevate climate change action has morphed into a call for companies to deploy more roughnecks to the oil patch.

What prompted that change? The cyberattack that hit the Colonial Pipeline and sparked a run on gas stations in the Southeast certainly spooked the administration. But it was surging crude oil and gasoline prices later that fed into the near-panic around inflation and next year’s midterm elections that really marked the White House’s change of heart.

While the relationship between the White House and the oil and gas industry will never be exactly chummy, Energy Secretary Jennifer Granholm’s recent outreach via the National Petroleum Council appears to have settled some nerves just in time for the holidays, sources tell ME. Tensions had risen when Biden’s Chief of Staff Ron Klain floated the notion of re-imposing a ban on oil exports, something that unnerved the industry (and wouldn’t necessarily do anything to combat high prices).

It’s unclear whether Klain was seriously pushing to cut off the flow of the 3 million barrels per day of U.S. crude shipments or if he was using the idea as a political cudgel — ME suspects the latter. But Granholm’s putting the idea to rest during the mid-December Q&A with industry heads, plus her exhortations to “hire workers...get your rig count up,” soothed nerves, multiple industry executives who attended the meeting said. “That was good,” one executive told ME. “The message she delivered was something our guys wanted to hear.”

The former Michigan governor earlier had literally laughed at the idea of increasing domestic oil production to offset rising gasoline prices. Instead, the Biden administration had called on OPEC to open their taps, a move considered a slap to the domestic industry’s collective ego.

"It's important for the American oil and gas industry to address near term energy demands while also recognizing that they need to begin transitioning their companies,” a DOE spokesperson said in a statement Wednesday. “The industry just spent the past two decades innovating, and it's time for them make good on their own net zero commitments to help their companies and workers lead again, this time in the global clean energy revolution."

But with Granholm patching up relations with the oil industry, it’s opened up a new rift with some progressive groups. “It’s disturbing that Secretary Granholm cares more about placating the fears of oil industry millionaires than helping the countless people around this country sickened every day by fossil fuel pollution,” said Brett Hartl, government affairs director at the Center for Biological Diversity. “If the White House is hearing fossil fuel executives loud and clear on exports or anything else, that’s a terrible sign of where Biden’s climate agenda is headed.”

Still, there’s plenty of issues that will require industrial-strength antacids on both sides. The Biden administration ultimately wants to push the country toward much greater use of renewable energy, something that will help the battle against climate change but isn’t necessarily great for the oil business in Texas or North Dakota. Other priorities, including cutting back on methane emissions, have gotten some industry buy-in, but the language in the Build Back Better bill — itself on life support — hasn’t been settled yet.

Politically, the administration will have to play nice with oil companies as long as the threat of gasoline price spikes give Republicans an electoral issue to exploit. Granholm’s peace offering has eased some of the tensions and may have been enough to return the relationship between the administration and the oil sector to simply frosty. Or, as one lobbyist told ME: “Now both sides need to reduce the volume of the shooting war between them so all can return to just low grade skirmishing.” READ MORE

Confronting Inflation, Biden Administration Turns to Oil Industry It Once Shunned: U.S. producers, chastised about climate change, balk at White House’s call for more drilling to rein in gasoline prices (Wall Street Journal)

Daily on Energy: The important year ahead for shale (Washington Examiner)

Excerpt from Wall Street Journal: In closed-door meetings with Energy Secretary Jennifer Granholm over recent weeks, oil executives have made few promises about raising output, say people familiar with the matter, and explained that it may be months before higher oil prices lead to resurgent U.S. production.

At a time when Wall Street is telling oil companies to tamp down spending and deliver profits after years of poor returns, oil company leaders say Mr. Biden’s positions on oil make it even harder for them to justify new spending to grow.

“The administration’s energy policy has not been very coherent,” said Mike Wirth, Chevron Corp.’s CVX +0.84% chief executive. “The signals from the administration have been very conflicting and that can just chill decision making.”

The Biden administration says that oil companies face no government constraints on drilling more in the short run, even as it presses the companies to shift long term to cleaner forms of energy in response to climate change.

“It’s important for the American oil-and-gas industry to address near-term energy demands while also recognizing that they need to begin transitioning their companies,” said Energy Department spokesman David Mayorga.

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When gasoline prices jumped this fall, officials first called on the Organization of the Petroleum Exporting Countries, not U.S. companies, to increase production, angering many industry executives, who argued that the Biden administration should first consider domestic policies to raise output.

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Even if companies add more rigs, requiring a boost in capital expenditures at a time when many are planning conservatively amid the pandemic, it could take six months or more for the increase in production to materialize.

After hitting a seven-year high in October, oil prices have fallen roughly 16% in eight weeks, most recently amid concerns over the new Omicron variant. READ MORE

Excerpt from Washington Examiner: He (Ben Cahill of the Center for Strategic and International Studies) added that companies are still “toeing the line of capital discipline” — paying debts, giving back to shareholders, and holding off on lots of new drilling — but that conditions are changing.

“It's safer for companies to contemplate growth this year. Not a ton of growth — it's going to be controlled, moderated growth, but the market is signaling that we need this supply,” said Cahill, who is a senior fellow in CSIS’s Energy Security and Climate Change Program.

Prices for crude oil and natural gas on various benchmarks are helping drive that change of conditions.

Brent crude has been tracking up and closed above $80 all week. West Texas Intermediate crude is also up around that mark.

“With higher oil prices, you can achieve a lot of things at the same time. You can meet your investor demands and still contemplate a bit of growth,” Cahill said.

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Cahill estimated that some firms could raise production between 10% to 15%, something the Biden administration would be sure to welcome after Energy Secretary Jennifer Granholm’s exhortation to the industry last month to “hire workers” and to “get your rig count up” after holding out on such calls.

The administration’s other strategies to affect the higher prices, i.e., prodding OPEC, urging the FTC to investigate malpractice among oil firms, and opening the Strategic Petroleum Reserve, all would more or less mesh with its clean energy goals in a way that boosting domestic production does not, but they have otherwise yielded little to no demonstrable results.

The turn now to domestic producers for more output is basically what industry groups and Republicans have said the administration should do all along, even if producers weren’t prepared financially or operationally to plow ahead with additional production as Cahill assesses they are now. READ MORE