While Congress ponders a tax break to help drivers struggling with gasoline costs, the energy industry says it’ll take more investment to bring down prices.
The Biden administration and the International Energy Agency made similar pitches yesterday. The IEA said the world’s oil and gas producers are spending less than they did in 2019 on new production and are also missing a once-in-a-generation chance to use profits from conventional fossil fuels to invest in cleaner forms of energy.
President Joe Biden, speaking at the White House, called on U.S. companies to help lower the price of fuel, “instead of buying back stock.” He also asked Congress to enact a temporary cut on fuel taxes for drivers. Energy Secretary Jennifer Granholm is scheduled to meet with refining companies today to discuss ways to boost the output of gasoline and diesel fuel (E&E News PM, June 22).
But many of the energy industry’s own players say it’ll be hard to ramp up investment, even though the Russian invasion of Ukraine has pushed oil prices above $100 a barrel and driven up natural gas to about 50 percent more than its prewar price.
Toby Rice, CEO of Pittsburgh-based EQT Corp., said oil and gas producers worldwide have cut their spending in half over the last eight years, largely because of “anti-fossil fuel” policies.
Investing in pipelines and natural gas-export infrastructure would aid both the immediate energy crisis and the long-term challenge of climate change, by helping countries in Europe switch away from coal, he said at a conference sponsored by the Center for Strategic and International Studies.
“It seems like a lot of people are saying we need to double down on the policies that were taken in the past,” Rice said. “That is very concerning for me because when you double down on those policies, you’re doubling down on high energy prices, you’re doubling down on rampant inflation, you’re doubling down on Russia’s influence on the world stage.”
But EQT, which is the biggest U.S. natural gas producer, is among the energy companies that are spending heavily to buy back their own stock, diverting funds that could be used for more production or infrastructure. The trend has helped shape the oil and gas industry’s recovery from the pandemic and the current energy crisis.
In December, EQT announced that its board approved a plan to buy $1 billion of its own shares. Such a move is intended to boost the price of the stock that remains outstanding. EQT has already spent $200 million on buybacks, according to an April investor presentation.
Exxon Mobil Corp. and Chevron Corp., which are among the companies that have been invited to meet with Granholm, are both increasing their oil and gas production. Chevron CEO Mike Wirth said in a recent letter to Biden that the company is spending $18 billion this year on capital projects, a 50 percent increase. And the company’s oil and gas production has grown this year after setting a record last year.
But Exxon and Chevron also may each spend as much as $10 billion a year on share buybacks.
Other, smaller companies are following suit, including Chesapeake Energy Corp., which said it’ll spend up to $2 billion on buybacks. That is enough to repurchase about 16 percent of Chesapeake’s stock, according to Tudor, Pickering, Holt & Co.
The IEA report said global investment in energy will total $2.4 trillion this year, up 8 percent from last year. That’s still not enough to meet the world’s need for fossil fuels and clean energy, IEA Executive Director Fatih Birol said.
“A massive surge in investment to accelerate clean energy transitions is the only lasting solution,” Birol said in a news release. “This kind of investment is rising, but we need a much faster increase to ease the pressure on consumers from high fossil fuel prices, make our energy systems more secure, and get the world on track to reach our climate goals.”
Inflation and the Federal Reserve’s recent interest rate increases, which have spurred talk of a looming recession, make it less likely that companies will invest in new production, the Tudor, Pickering firm said in a research note yesterday.
“We suspect the last thing the industry wants to do is ramp up growth into a weakening crude market,” the note said.
Granholm, speaking to reporters yesterday at the White House, said she was optimistic that oil producers and refiners could help lower prices. Any actions from companies could be in addition to a short-term federal gas tax holiday, though that proposal faces headwinds from a number of Republicans and Democrats.
The U.S. government collects just over 18 cents per gallon in taxes and fees on gasoline and a little more than 24 cents per gallon on diesel. Yesterday, AAA put the average U.S. price for regular gasoline at more than $4.95 a gallon, up from about $3.07 per gallon a year earlier.
U.S. oil production has already risen this year, although it’s still below pre-pandemic levels. And the president’s decision to release 1 million barrels of oil a day over six months from the Strategic Petroleum Reserve is also helping to boost crude supplies.
The meeting with Granholm today is expected to focus on how to reopen refineries that were closed during the early days of the pandemic.
“With so many businesses enjoying high profits, our message is simple — that this is the time to reinvest those profits that will enable them to better meet the needs of citizens,” she said.
Reporter Carlos Anchondo contributed.