(Bloomberg) — As the end of October approached, the White House saw another potential energy flashpoint on the horizon.
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Stockpiles of diesel fuel and fuel oil in the US Northeast were dwindling alarmingly. Officials swung into action, arranging a series of talks between Energy Secretary Jennifer Granholm and several of the nation’s largest oil refiners to discuss strategies to boost supplies. The tone was cordial, according to 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 “scandalous” profits to shareholders and executives instead of lowering pump prices. Unless that changes, he warned, oil companies will face more taxes. “Their profits are a windfall of war — a windfall of the brutal conflict that is ravaging Ukraine and hurting tens of millions of people around the world,” he said.
It was exactly the kind of whiplash that repeatedly sowed 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 and the meetings and conversations they describe are private.
Biden’s team has been at odds with the industry since the 2020 election campaign. But as global energy prices have soared this year following Russia’s invasion of Ukraine, the White House has called on Big Oil to help, only to grow increasingly frustrated that it is delaying production while reaping record profits.
“Month after month, these companies posted record profits that they then used to line shareholders’ pockets instead of increasing production and lowering gas prices,” White House spokesman Abdullah Hassan said. “Month after month we offered them every opportunity and incentive to change their behavior.”
While they’ve never been under any illusions about the president’s green ambitions, oil industry insiders say they’ve grown increasingly frustrated by a series of conflicting policy priorities — for example, moving within months of a freeze on federal oil drilling leases to demanding more production — and unrealistic demands like spending billions of dollars to quickly add more refining capacity.
Unwilling to act as dummy boys for rising household fuel bills in the run-up to the mid-term elections, usually unknown industry figures are becoming more outspoken. Last week, the CEOs of Exxon Mobil Corp. and Chevron Corp. have issued dire warnings of potential windfall taxes. Marshall McCree, co-CEO of pipeline operator Energy Transfer LP, said this week that U.S. energy policy is so pervasive it’s becoming like a “Saturday Night Live parody.”
“It would be funny if it wasn’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 back crude oil at $70 a barrel.
“If they don’t like the carrot approach, the president has made it clear we can use sticks,” Hassan said. “We will do what we must to support American families.”
The tension comes at a difficult time for both the country and the rest of the world. President Vladimir Putin’s weaponization of Russian natural gas has Europe facing a perilous winter. OPEC was 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 ease prices and ensure energy security. After all, the shale revolution added more crude oil to world 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 this growth spurt again will require the right investor and political support, as well as balancing increasingly ambitious US climate goals. So far, the signs that this is happening are not good.
“A lot of senior executives are kind of throwing in the towel at the White House,” said Stephen Brown, an energy consultant who previously served as head of federal affairs for the Andeavor refinery. “When we talk to people in the administration, we hear things that are conciliatory about establishing a relationship. And then you turn around and get hit between the eyes with a chirp.
On January 20, 2020, his first day in office, Biden rescinded the presidential authorization for the Keystone XL pipeline, which would have allowed more Canadian crude oil to flow to Gulf refineries. Days later, he placed a moratorium on new federal oil and gas leasing (later overturned in court).
Shale executives were furious because some of the best locations for wells in the Permian Basin are on federal land in New Mexico. The message was clear: Biden and his progressive caucus were not going to be friends with the oil industry.
As gasoline passes the $3-a-gallon mark in mid-2021, senior administration figures have begun to pay more attention not only to gas station prices, but also to their role in boosting inflation.
A 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 fell. Biden asked the Federal Trade Commission to investigate potential “illegal conduct.”
“The trust between the industry and the administration has probably deteriorated 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 to its highest level since 2008, the White House had completed a U-turn from the earliest days of the presidency and demanded more oil and gas production. instead of policies to cut output.
“We are in a fighting position,” Granholm told executives gathered for S&P Global’s CERAWeek oil conference in Houston in March.
But U.S. manufacturers, still scarred by struggles from the peak of the pandemic when energy prices collapsed, were in no 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 reached $5. As analysts began to estimate record profits for Big Oil, Biden went on the attack.
“We’re going to make sure everyone knows Exxon’s earnings,” he said at a news conference in Los Angeles. “Exxon: Start Investing and Start Paying Your Taxes, Thanks.”
Exxon responded by saying it was investing heavily in the US and was working on a major refinery expansion in the Persian Gulf. But the narrative was already clear: Biden was going to blame Big Oil for high gas prices.
Less than two weeks later, Biden summoned top oil executives to the Energy Department in Washington to discuss the matter. For more than an hour, the executives spoke with Granholm about the barriers to higher fuel production and policy moves that could help reduce costs.
Granholm assured them that the administration wanted to cooperate. At one point, Wirth, Chevron’s CEO, went over the economics, logistics and constraints of U.S. refining. Participants described the meeting as cordial and productive, something of an olive branch offered to the industry after Biden’s insults.
But it was a much different scene three months later when oil company officials met again with Granholm, National Economic Council Director Brian Dease and Amos Hochstein, senior energy adviser at the State Department.
The September 30 session – originally expected to last an hour and billed as a discussion on fuel supplies following Hurricanes Fiona and Ian – quickly moved up. There was little talk of storms. One participant described it as a “lecture” from Granholm.
Administration officials faulted the group for selling fuel overseas instead of storing more in U.S. tanks, and suggested that without voluntary action by the industry, the government could force companies to stockpile more domestically. At least one official accused the companies of reaping high profits while failing to deal with low inventories.
While Granholm and Hochstein pressed the companies to limit fuel exports and explain how they would work to lower prices, industry players repeatedly raised objections, insisting they could not disclose those details to competitors. That kind of frank discussion could be a violation of U.S. antitrust law, they say.
The meeting broke up less than half an hour after the start.
Tensions between the US fossil fuel industry and a Democratic president were probably always to be expected, but the current clashes 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 bristled at 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 climbing again — reaching $3.79 a gallon on Nov. 3 — and the midterm elections now just days away, Biden appears to be in no mood to back down.
“I’m working like hell to deal with energy prices,” Biden said Friday. Pretty soon I’m going to have a little — as they say — come to the Lord talk with the oil companies.
–With help from Justin Sink.
(Updates with comment from the White House in the 10th paragraph.)
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