The election will force the White House to deliver a pragmatic message on US oil supplies


The Biden government kicked off a moratorium on oil and gas leasing in 2021, alerting US drills to shrinking opportunities. The message for 2022 is very different.

“Please use the rental agreements that you have. Hire workers. Get your derrick up, ”Energy Secretary Jennifer Granholm told the National Petroleum Council on December 14th.

The change of tone reflects the turbulent year for the oil markets and US consumers as a number of factors such as the return of demand and the switch from gas to oil led to an increase in energy prices and inflation.

The Biden White House will have to strike a similarly pragmatic balance when it comes to US oil and gas production in 2022: increase fossil fuel supply now to meet current demand, including during the transition to green Energy future.

The November 8 midterm elections – which will determine whether the Democrats retain control of Congress – will keep pressure on the government to please progressive Democrats who want faster action on climate change while on US sensitivity – Drivers react to rising gasoline prices.

“On the surface it seems ironic,” President Joe Biden said at the G20 summit in October. “The idea that we can switch to renewable energy overnight … and from that point on, stop using oil or gas … is just not rational.”

Exclude export ban

Granholm gave U.S. drills an early Christmas present in the same Petroleum Council speech, saying the White House had lifted a gross export ban after months of suggesting it was considering taking such a drastic step to respond to high prices .

Some Democrats, who argue that the flows contradict the Biden government’s climate ambitions, as well as industrial companies paying higher energy bills, have steadily increased demands for a consideration of how much oil and gas the US is supplying to the world market.

The idea was also kept alive for months by the Biden government itself, as Granholm, White House press secretary Jen Psaki, and others said reintroducing a gross export ban is one of the means to respond to high gasoline prices.

The removal of export restrictions on crude oil in 2015 transformed the US upstream sector and global markets. The increasing US LNG exports also play an important role in the global supply crisis and geopolitics.

According to the latest data from the Energy Information Administration, the US exported approximately 25% of its domestic crude oil production and 8% of its gas production in September. By comparison, propane exports made up a huge 71% of domestic production that month.

No pump price reduction

For crude oil markets, cutting off most US exports would “depress WTI prices, inflate domestic inventories, raise international prices and anger allies,” said Paul Sheldon, chief geopolitical advisor for S&P Global Platts Analytics.

Central continent refineries could “swallow trapped shale oil for a while and make huge profits,” said Bob McNally, president of Rapidan Energy Group.

The savings would not go to drivers, however, as retail gasoline prices would still be tied to international Brent crude oil futures.

The US oil patch would be hardest hit, with the effects reverberating in the economy, said Kevin Book, general manager of ClearView Energy Partners.

Book said he had no doubt that White House political advisers weighed these potential implications, but viewed them as a political solution for a while.

“We didn’t think an oil export ban was likely, but we saw it as a pressure tactic against the industry,” said Book. “We pointed to President Biden‘s multiple, recent demands that the Federal Trade Commission investigate possible ‘price gouging’ and ‘illegal behavior’ as a mechanism by which the White House can respond to voter pumping problems while addressing domestic and domestic issues could nudge international producers to add. “

Inflationary pressures

The Biden government had to respond to a second month of record high inflation data on December 10, with energy costs rising faster than food, services and other categories. Brian Deese, director of the National Economic Council, said oil and natural gas price declines had been slow to show up in the monthly inflation report over the past few weeks.

Analysts said the White House had the power to impose new restrictions on US energy exports without the approval of Congress.

LNG export policy flows through the Department of Energy, which has responded to more requests from industrial manufacturers for a “consumer safety valve” at the export level as global gas and LNG prices have risen in recent months.

In contrast to the gross export ban, given the geopolitical importance of U.S. supplies to allies in Europe and Asia, the Biden administration has shown no sign of contemplating intervening in LNG export markets.

Executive power

Congress lifted export restrictions on U.S. crude oil in December 2015, but explicitly retained the president’s authority to restrict flows through the International Emergency Economic Powers Act, said Glenn Schwartz, energy director for Rapidan Energy Group.

The law “gives the president near-complete authority over exports, including the imposition of everything from an outright ban to quotas to restrictions based on some properties of the crude oil itself, such as sulfur content,” Schwartz said. It has to be triggered by a declaration of urgency, but such a decision would “essentially not be judicially reviewable from a practical point of view,” he added.

“Biden could call a new emergency, for example due to climate change, or piggyback an existing emergency,” said Schwartz.

Book doesn’t expect White House pressure on US producers to ease if prices stay high. He noted that the number of US onshore rigs has risen less with WTO prices than during the last two ramps in the rigs.

“In this context, we tend to interpret the minister’s explicit request for additional production – and its close proximity to her implication that the government will end the ‘uncertainty’ about a crude oil export ban in order to stimulate drilling – as something of a consideration pro quo : If production does not pick up, the pressure from the White House – perhaps in another way – could come soon. “
Source: Platts


Comments are closed.