On his first day as president, Joe Biden pledged to tackle climate change. Fourteen months later, his administration is meeting with Venezuela’s authoritarian government as part of a wider attempt to rustle up more oil.
Cue the line about best-laid plans.
Russia’s invasion of Ukraine has thrown a wrench into Biden’s climate agenda. Even before the crisis, oil markets were laboring to keep up with the galloping demand coming out of the pandemic-induced lockdowns of 2020. Now Russian President Vladimir Putin’s decision to attack Ukraine has thrown into doubt shipments from one of the world’s largest oil producers — and sent prices soaring.
West Texas Intermediate, the benchmark price for U.S. crude, closed yesterday at $121 a barrel, or about double its price this time last year.
That has left Biden scrambling. The White House acknowledged yesterday it sent representatives to Venezuela to speak about “energy security” with the government of Nicolás Maduro, the country’s strongman (E&E News PM, March 7).
Analysts broadly agree that Biden, like all U.S. presidents, has few short-term tools to contain the runup in oil prices. Oil is a global commodity and its price is determined more by supply, demand and the whims of OPEC than the occupant of the Oval Office.
But how Biden responds to the crisis could shape America’s long-term climate trajectory.
Oil interests argue the crisis underscores the continued need for investment in fossil fuels. Greens contend the surge in energy prices presents an opportunity to promote alternatives such as renewables, electric cars and heat pumps. Some say Biden can do both: seek new short-term sources of supply even as the administration pushes a wider move to cleaner energy sources.
“No one envisioned we would turn off fossil fuels overnight,” said Nate Hultman, a University of Maryland professor who helped draft Biden administration’s long-term climate strategy last year. “In terms of climate change, we were going to be using fossil fuels and phasing them out.”
The administration’s efforts to secure short-term oil supplies will look like “a blip” in 10 to 30 years when measured against the wider movement toward cleaner energy sources, he said.
“We’re talking about very short timelines to make sure there are no egregious price spikes, particularly for oil,” Hultman said.
The approach carries risks for Biden’s climate agenda. The first is a matter of scope. U.S. crude production is estimated to rise from about 11.6 million barrels in January to 12.4 million barrels by the end of the year, according to the U.S. Energy Information Administration. Global production outside Russia is projected to increase by more than 5 million barrels to almost 90 million barrels a day.
The problem is that it is difficult for the United States and other major producers to quickly patch a large supply disruption from Russia. EIA estimated earlier this year that Russia would produce 11.5 million barrels a day in 2022. That projection is now uncertain, with traders shunning Russian barrels and Congress weighing a ban on Russian oil imports.
The second challenge is timing. Even if global supply outside Russia increases, it will be months at the earliest before production begins to ramp up (Climatewire, March 7).
The risk for Biden is that the new oil arrives too late to solve the current supply crunch, while locking in the world’s reliance on fossil fuels, said Justin Guay, director of global climate strategy at the Sunrise Project.
“There is this irrational belief that we can swing supply in the near term and have a meaningful impact,” he said. “What it does is lock in that long-term reliance.”
Biden needs to place the United States on a wartime footing to reduce fossil fuel consumption and deliver alternatives like electric heat pumps to help solve Europe’s current energy crisis. In 2021, Russia supplied about 45 percent of the European Union’s gas imports, according to the International Energy Agency.
“You can deploy heat pumps in matters of weeks and months,” Guay said. “It will take years and months to build new [liquefied natural gas] terminals or unlock new supply in the U.S.”
The administration’s scramble to find additional barrels of oil marks a stark reversal from Biden’s first days in office, when he directed federal agencies to pursue fuel efficiency standards and pause leasing of federal lands for oil and gas development.
The oil industry argues those moves have dampened investment in oil and gas (Climatewire, March 7). They contend it makes little sense to curtail production at a time when demand for hydrocarbons is growing.
IEA estimates that global oil demand will grow 3.2 million barrels a day this year alone, bringing total demand to 100.6 million barrels a day. That would represent a new global record for oil consumption.
At CERAWeek in Houston, a conference which brings together a who’s who of the oil industry, executives said the current crisis underscores the risks of moving too quickly to wean the world off fossil fuels.
“The focus really should be on energy security, and oil and gas have a vital role to play in the global economy,” Hess Corp. CEO John Hess told the conference, in comments reported by TheWall Street Journal. “Oil and gas are needed for decades to come, and the key challenge to oil and gas is investment.”
Clark Williams-Derry, an analyst who tracks the industry at the Institute for Energy Economics and Financial Analysis, said there is little evidence Biden has hampered investors’ appetite for oil and gas. American oil majors like Exxon Mobil Corp. and Chevron Corp. have seen their stock prices rise steadily since 2020. IEA projects investment in new oil and gas production increased 10 percent last year, though it still remains below 2019 levels.
Many drillers also seem reticent to ditch their strategy of conserving cash and paying dividends to shareholders in favor of expansive new drilling programs, he said.
“This is an industry that scared off most of its own investors. Basically, they would overproduce, and investors didn’t like that. Now they’re focused on dividends to investors,” Williams-Derry said. “That exact dynamic makes it hard for Biden to exercise any influence over the industry.”
In the past, oil price spikes have hurt demand, prompting consumers to use less oil. Oil consumption in rich nations that make up the Organisation for Economic Co-operation and Development has been essentially flat since the Great Recession of 2008, with the growth driven by developing nations, according to BP PLC statistics.
The difference today is that consumers have alternatives such as electric vehicles, heat pumps and renewables.
“It accelerates the energy transmission at the same time it creates new uncertainties about supply,” Williams-Derry said.