House Democrats Warn against Oil Industry Bailout

March 18, 2020

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by Rebecca Beitsch (The Hill) A growing number of Democrats are voicing concern that the White House may pursue broad relief for the oil and gas industry amid sinking prices and the coronavirus pandemic.

Twenty House Democrats sent a letter to President Trump on Tuesday cautioning against dolling out further funds to the fossil fuel industry after the White House announced late last week that the government would purchase oil to shore up the industry.

“Diverting public funds to bail out this industry will do nothing to stop the spread of this deadly virus or provide relief to those in need,” lawmakers wrote in a letter spearheaded by Rep. Nanette Diaz Barragán (D-Calif.). “A bailout tells the American public that fossil fuel investors can rely on U.S. taxpayers to cover their bills when the industry’s corporate executives’ risky investments don’t pan out.”

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Senate Democrats have already decried such assistance, while large oil companies have previously said they are not interested in any financial assistance.

Democrats worry the public health crisis surrounding coronavirus will lead to the government propping up the oil industry and handicapping efforts to combat climate change. READ MORE

MERKLEY, SENATORS INTRODUCE LEGISLATION TO BAR TRUMP ADMINISTRATION FROM USING PANDEMIC AS EXCUSE TO GIVE HANDOUTS TO FOSSIL FUEL INDUSTRY (Office of Senator Jeff Merkley (D-OR))

Trump’s oil buy may not be so easy (Politico’s Morning Energy)

Oil industry push for Trump bailout draws political headwinds (Politico)

Senate GOP eyes energy aid in response to market fallout (E&E News)

How oil prices could affect 2020: HOW LOW OIL PRICES COULD COST TRUMP (Politico’s Morning Energy)

‘This is not a bailout’: Mnuchin defends Trump plan to rescue firms affected by coronavirus–White House faces questions about why it is seeking to offer some firms emergency assistance but not others (Washington Post)

A Moderate Proposal: Nationalize the Fossil Fuel Industry (The New Republic)

Hoeven, Cramer push Trump to help beleaguered industry (E&E News)

Tariff on Saudi crude may be Trump’s answer to oil-price war (World Oil)

Texas Weighs Curtailing Oil Production for First Time in Decades -- Some shale producers have lobbied the commission for relief from falling prices (Wall Street Journal; includes VIDEO)

TEXAS CONSIDERS CURTAILING PRODUCTION: (Politico's Morning Energy)

TEXAS PUMPS BRAKES ON CURTAILING OUTPUT: (Politico's Morning Energy)

LAWMAKERS CALL FOR ROYALTY CUTS: (Politico's Morning Energy)

E.P.A., Citing Coronavirus, Drastically Relaxes Rules for Polluters (New York Times)

President Donald Trump offered a glimpse into his thinking on potential U.S. oil production cuts (Politico's Morning Energy)

No place to go: Oil storage filling up amid collapsing demand, excess production (S&P Global)

Texas Gets Double Punch From Coronavirus and Oil Shock. ‘There’s No Avoiding This One.’ (Wall Street Journal)

Shale billionaire says oil tariffs are Trump's 'biggest weapon' (Washington Examiner)

Trump floats oil tariffs amid Russia-Saudi dispute (The Hill)

Trump says OPEC has not asked him for a U.S. oil production cut (Reuters)

U.S. to become net petroleum importer (Politico's Morning Energy)

Bipartisan group unveils bill to fill petroleum reserve (E&E News)

Trump: 'Maybe' we'll cut domestic oil production (The Hill)

CASSIDY TARGETS SAUDI ARABIA WITH NEW BILL: (Politico's Morning Energy)

Excerpt from The New Republic: For the last week, the White House has reportedly been exploring low-interest loans to a struggling fossil fuel industry. Talk of a bailout is in the air, spurred on in part by longtime Trump ally and fracking magnate Harold Hamm. In the first concrete move on this front, Donald Trump promised to have the Department of Energy buy up oil for the Strategic Petroleum Reserve and “fill it right up to the top,” although that didn’t do much to stop oil prices from sinking to below $30 a barrel on Monday; there’s only so much it can hold, after all.

None of the options being floated by the administration will fix the lingering crisis facing America’s unconventional oil and gas sector. At best, they’ll stave off a reckoning for a little while longer. Kathy Hipple, a financial analyst at the Institute for Energy Economics and Financial Analysis, has been tracking evolving trends in the debt-ridden oil and gas sector for the last decade. “A bailout of a once-thriving industry that needs some help during a downturn is one thing,” she said. “But we’ve got evidence that this industry has failed to produce a positive cash flow for a decade. The logic of bailing out a failing industry, that has failed even when oil prices were much higher, would be political. It would not be economic.”

Sold on the promise that improving efficiency would eventually yield big profits, investors on Wall Street gave shale drillers improbable quantities of cash for nearly a decade afterthe last recession, loading companies up with the debt made possible by federal policy responses to it. Those expected profits never materialized, and the sector has seen a rash of bankruptcies in the last several years. By last summer, it had effectively lost access to the cheap credit that enabled the boom.

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Nationalization might be the best way out. READ MORE

Excerpt from Politico's Morning Energy: Texas regulators are considering cutting oil production for the first time in decades, after several oil executives requested relief amid the downturn in the oil industry, The Wall Street Journal reports, citing people familiar with the matter. The executives reportedly reached out to the Texas Railroad Commission amid the price war between Saudi Arabia and Russia and as the coronavirus continues to hit the global economy.

It's unclear whether regulators will decide to curtail production in the No. 1 oil-producing state in the U.S., the WSJ reports, but people familiar said staffers are examining what would be required.

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INHOFE CALLS FOR 232 TARIFFS: Senate Armed Services Chairman Jim Inhofe called on the Commerce Department to start the process to impose Section 232 tariffs on imports of foreign oil. The Oklahoma Republican sent a letter to Commerce Secretary Wilbur Ross requesting the 232 investigation into Russia and Saudi Arabia for excessive dumping in oil markets, calling it deliberate action to "weaken America's energy independence." Inhofe also appeared on CNBC on Thursday, where he called for the national security tariffs. "I don't want to get us in a position where we're dependent upon importing oil for our ability to defend America, to fight a war, to run our economy, and that's what we're faced with right now," he said. READ MORE

Excerpt from Politico's Morning Energy: TEXAS PUMPS BRAKES ON CURTAILING OUTPUT: The Texas Railroad Commission appeared to press pause on Friday on a push from energy companies to curtail output in the largest petroleum-producing state to help prop up prices amid the market downfall, Ben reports for Pros. Reports emerged last week that the commission, which regulates oil and gas production in Texas, had been urged to reduce oil production amid the downturn in the industry. "A couple of operators have suggested pro-rationing oil as a solution," TRC Chairman Wayne Christian said in a release Friday. "While I am open to any and all ideas to protect the Texas Miracle, as a free-market conservative I have a number of reservations about this approach." READ MORE

Excerpt from Politico's Morning Energy: LAWMAKERS CALL FOR ROYALTY CUTS: Several bipartisan lawmakers called on the Interior Department to temporarily reduce or cut royalties for offshore oil and gas leases in the Gulf of Mexico in a letter on Friday. The group of 13 lawmakers write that they don't believe the U.S. energy sector needs a bailout, but urge Interior Secretary David Bernhardt to "examine the viability of a temporary reduction in royalties as domestic energy producers weather this combination of an OPEC-driven price war and an epidemic that is driving millions of people around the world into quarantines of one kind or another." They add that such action in the short term "will help mitigate a price war that is sinking prices and decreasing production." READ MORE

Excerpt from Politico's Mornig Energy: LOOKING FORWARD TO THURSDAY: The president said during Monday's pandemic briefing that "nobody" from OPEC has asked him for a commitment to cut U.S. oil production. And despite his comments indicating he was still weighing such a move ("We'll have to make that decision, maybe we will, maybe we won't"), he pivoted toward the idea that the market was already driving crude output reductions.

"I think the cuts are automatic, if you're a believer in markets," he said. "It's market. It's demand, it's supply and demand. They're already cutting back and they are cutting back very seriously."

The president's comments follow a Reuters report Monday that said global oil producers, including Saudi Arabia and Russia, are keen to agree to cut production at the expected Thursday meeting, but only if the United States also curbs its output.

Of course, as ME has previously pointed out, the federal government has little power to require oil companies to stop production. But with prices hovering in the $20s per barrel and storage becoming expensive, companies are plenty of incentives to shut down their wells.

OPEC hope spring eternal: Earlier Monday, Energy Secretary Dan Brouillette expressed optimism on Fox Business News that Saudi Arabia and Russia could strike an agreement to end their oil price war, Pro's Zack Colman reports. Still, Brouillette warned "all options are on the table" for the U.S., including imposing tariffs on oil imports.

Trump made it "very, very clear" this past weekend that he would consider dramatic measures such as imposing tariffs to try to buoy U.S. oil and gas producers amid slumping oil prices, the secretary added. Brouillette said the administration would work with Congress to lift the amount of crude oil in the nation's Strategic Petroleum Reserve to 1 billion barrels.

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DEMOCRATS OPPOSE ROYALTY RELIEF: Sixteen House Democrats, led by Natural Resources Chairman Raúl Grijalva, urged the Interior Department to reject Republicans' calls to provide royalty relief for oil and gas producers drilling on federal lands during the coronavirus crisis, Pro's Anthony Adragna reports. The lawmakers argued in a Monday letter to Secretary David Bernhardt that a 1986 decision by the Interior Board of Land Appeals requires case-by-case determinations that royalty cuts are financially necessary and that they are limited to keeping specific sites operating. And they added that royalty cuts now are not in the public interest because they would be "padding the profits" of fossil fuel companies. The Democratic response comes after groups of House and Senate Republicans pushed for royalty relief last week.

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HALLIBURTON CUTS OKLAHOMA STAFF: Oilfield services company Halliburton said Monday it is laying off approximately 350 workers at its Duncan, Okla., facility, Reuters reports via a filing with the state. The staff cuts could begin this week and will be permanent, the filing said, and they come amid the severe downturn in the industry sparked by the coronavirus pandemic and the ongoing price war between the Saudis and Russians. The company said last month it expected to furlough 3,500 people at its Houston operations.

PERMIAN GAS FLARING ON DECLINE: The Covid-19 crisis and ongoing price war has led a decline in gas flaring in the Permian Basin, according to a Rystad Energy report. According to a preliminary estimate issued on Monday, total gas flaring in the first quarter of this year declined to 700 million cubic feet per day, with 550 million cfd flared at the wellhead. That represents the lowest quarterly flaring rate since the third quarter of 2018. READ MORE

Excerpt from Politico's Morning Energy: PRODUCTION CUTS COMING: U.S. crude oil production is expected to drop by 500,000 barrels per day this year stemming from the steep decline in prices and fuel demand, according to an updated forecast from the U.S. Energy Information Administration. The statistical agency had forecast last month that U.S. output would rise to a record level this year, POLITICO's Ben Lefebvre reports, but its new figures released Tuesday put U.S. oil production at a decline to 11.76 million barrels per day.

The United States is also likely to become a net importer of crude oil and petroleum products later this year, according to the new forecast, undercutting a crucial part of the president's "energy dominance" agenda. U.S. oil prices are hovering in mid-$20s per barrel, about one-third the price at the beginning of the year.

While the Tuesday forecast is still relatively mild compared to predictions from other analysts, it did warrant a statement from the Energy Department, which said the expected decline in U.S. production shows that the Trump administration doesn't need to intervene in the oil market to achieve the sort of cuts that OPEC and Russia are seeking. "The private sector and the free market are driving those cuts," a department spokesperson said.

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That statement echoes comments made by the president on Monday that suggested U.S. output will fall at the hands of market forces, even if the U.S. government does not commit to cutting U.S. oil production. "I think the cuts are automatic, if you're a believer in markets," President Donald Trump said. The EIA estimate could also factor into this week's OPEC+ meeting Thursday, where the U.S. can expect pressure from the Saudis and Russia to cut its output. A senior administration official told The Wall Street Journal that the White House plans to use the new production forecast to show the market is working and that U.S. oil producers are ramping down.

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EXXON SLASHES SPENDING: ExxonMobil said Tuesday it would cut its capital spending by $10 billion, or 30 percent, for 2020, representing the biggest cut yet among oil producers amid industry downturn sparked by the coronavirus pandemic and glut of supply from Saudi Arabia and Russia. The cuts in spending will be focused on Exxon's operations in the Permian Basin, the field that has been the biggest engine of oil production growth in the United States in recent years, Ben reports. Exxon also warned that further spending cuts could be considered.

KANSAS FED RINGS WARNING BELL: The Kansas City Federal Reserve — which monitors business activity in Oklahoma, Colorado, Kansas, Nebraska, Wyoming and portions of western Missouri and northern New Mexico — warned nearly 40 percent of the oil and gas companies in its region would go out of business in the next year if oil prices don't rebound, Ben also reports. The Kansas City Fed board said Tuesday energy producers reported that revenues and activity in March reached their lowest level since the beginning of 2015, and a crash in oil prices to below $30 a barrel forced drilling to its lowest level since the board started its energy survey in 2014. READ MORE

Excerpt from Politico's Morning Energy: CASSIDY TARGETS SAUDI ARABIA WITH NEW BILL: Louisiana Sen. Bill Cassidy (R) said Thursday he will introduce a bill when Congress is back in town in response to Saudi Arabia flooding the oil market. The legislation would impose tariffs on oil imports from Saudi Arabia to ensure Saudi crude imports don't drop below $40 per barrel. It would also require U.S. troops to withdraw from the country within 30 days after the bill's enactment. "Now is the time to protect ourselves," Cassidy said in a statement. "Tariffs will restore fair pricing. Withdrawing troops placed to protect others recognizes that friendship and support is a two-way street." READ MORE