Biden pivots to boosting oil supply to combat high gas prices

President Biden traveled to Saudi Arabia on Friday to meet with officials from the desert kingdom — which holds the world’s largest oil reserves — and is expected to meet with leaders from five other oil-producing Persian Gulf nations on Saturday, in what will be the latest in a series of moves by the Biden administration to boost oil supplies to reduce high gasoline prices.

This approach represents a significant shift for the president, who campaigned on promises to restrict domestic fossil fuel development as part of his effort to combat climate change.

Earlier this month, Biden threatened to break a campaign pledge to stop selling leases for oil and gas production offshore and on federal land when the Department of the Interior (DOI) released a proposed five-year plan for offshore oil and gas drilling that could allow new lease sales in the Gulf of Mexico and in Cook Inlet in Alaska.

And last Friday, the administration moved toward approving a giant oil drilling project in Alaska that is opposed by climate change activists. The project, owned by ConocoPhillips and known as Willow, was previously blocked by a federal judge who ruled its environmental review did not adequately consider the effects on climate change. DOI issued a new environmental impact analysis that reviewed several options and caused opponents to fear that the administration was signaling support for the project.

“Giving the Willow Project a stamp of approval after this rushed and incomplete review process could be the kiss of death for any chance at meeting President Biden’s climate commitments,” said Lena Moffitt, chief of staff at Evergreen Action, in a statement responding to the new analysis.

Given the longtime lag between the new fossil fuel leasing and any effect on prices, experts say that none of these measures are likely to lower prices in the foreseeable future.

“There are few options in the U.S. presidential toolkit to lower fuel prices in the short term. Biden has been using the ones he has, from the wise move of selling oil from the Strategic Petroleum Reserve to the more economically questionable proposal of a federal gas tax holiday,” noted Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, in a blog post published Thursday on the think tank’s website.

“The Biden administration’s decision to sell off more public lands for drilling might be good for Big Oil, but it won’t lower gasoline prices and it certainly will worsen climate chaos,” Alan Zibel, research director for Public Citizen, a consumer advocacy group, told Yahoo News. “That’s because any oil extracted from leases issued now will have no conceivable effect on today’s gasoline prices.”

Oil extraction — which requires multiple steps such as seismic testing, obtaining permits and laying out infrastructure to transport equipment and oil before the drilling can even begin — is a slow process. Offshore, to go from a lease sale to oil production takes four to 10 years, depending on factors such as water depth, the drilling depth of the reservoir below the ocean floor, the distance from shore and so on.

“The outlook for the economy is a far bigger driver of oil prices than anything the Biden administration is doing on supply,” Zibel observed, noting that fears of a recession have caused crude oil prices to recently drop below $100 per barrel, bringing average U.S. gasoline prices down by 38 cents per gallon over the last month, to $4.63.

Even Biden’s Saudi swing is unlikely to yield an increase in immediate oil production. Rather, it may be a reciprocation for OPEC’s larger-than-expected increase in oil production announced in June.

“If Biden asks for increased oil production during his trip to Saudi Arabia, he is unlikely to be successful,” wrote Gross in her post for Brookings. “Saudi Arabia and the United Arab Emirates are the only countries with spare capacity today. However, that capacity is believed to be limited and they have no motivation to increase production. Both countries are enjoying today’s high oil prices, particularly in light of a coming energy transition that will eventually erode demand.”

Despite disappointing environmentalists, Biden’s moves also have angered the oil and gas industry, which argues that the areas potentially opened to new drilling are too limited. The offshore drilling plan, for instance, would not include any new lease sales in the Atlantic, Pacific or Arctic oceans.

Fossil fuel companies also are irritated that DOI waited until the day after the previous five-year plan expired on June 30 before proposing a new one, which won’t take effect until the fall at the soonest. And they are especially concerned about the possibility that none of the areas being considered for future fossil fuel leasing will actually be opened when the final rule is issued.

“At a time when Americans are facing record high energy costs and the world is seeking American energy leadership, tonight’s announcement [on July 1] leaves open the possibility of no new offshore lease sales, the continuation of a policy that has gone on for far too long,” said Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute (API). “Because of their failure to act, the U.S. is now in the unprecedented position of having a substantial gap between programs for the first time.”

API also would like to see oil production increased domestically rather than in the Middle East. “President Biden, on behalf of the men and women fueling America’s economic recovery, I invite you to visit America’s vast energy fields and infrastructure,” API president and CEO Mike Sommers said in a video released Thursday. “Instead of meeting with foreign governments to ask them to increase energy production, look to reliable U.S. energy sources here at home.”

The animosity is mutual, as the Biden administration has blamed oil companies for holding back on increasing supply. In March, Biden’s then press secretary Jen Psaki pointed out that “there are 9,000 approved oil leases that the oil companies are not tapping into currently” and the White House released a plan for lowering gasoline prices that asked Congress “to make companies pay fees on wells from their leases that they haven’t used in years and on acres of public lands that they are hoarding without producing.”

Oil companies are booking record profits, but one Wall Street Journal analysis found that in the first quarter of this year, the nine largest U.S. oil producers spent 54% more on paying dividends and buying back shares of their companies than they invested in new oil development. On June 15, Biden sent a letter to the major oil refiners, including Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell, asking for an increase in production.

“At a time of war — historically high refinery profit margins being passed directly onto American families are not acceptable,” Biden wrote. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis.”

The oil companies were unmoved, however, noting that refinery utilization rates are already at 94.2%, the highest rate since 2019, according to U.S. Energy Information Administration data, and that expanding refining capacity would take time. They also argued that the administration’s reluctance to embrace additional federal fossil fuel leasing discourages them from investing in capacity expansion.

“Unfortunately, what we have seen since January 2021 are policies that send a message that the Administration aims to impose obstacles to our industry delivering energy resources the world needs,” wrote Chevron in a response to Biden.

But if selling more leases or imploring Saudi Arabia won’t bring down gasoline prices in the short term, what would? Some climate change activists and consumer advocates are calling for a tax on the windfall profits being enjoyed by oil companies; the federal government could then pass that money along to taxpayers.

“Last year, four fossil fuel multinational giants — ExxonMobil, Shell, Chevron, and BP — earned more than $75 billion in a single year in profits,” noted the Center for American Progress in a brief arguing for a windfall profits tax.

In March, Sen. Sheldon Whitehouse, D-R.I., and Rep. Ro Khanna, D-Calif., introduced the Big Oil Windfall Profits Tax Act, which would tax excess corporate revenue from barrels sold over the average Brent crude price between 2015 to 2019, roughly $66 a barrel. That could raise an estimated $35 billion to $40 billion per year that would be sent to consumers as relief checks.

The proposal is not as radical as it may seem. In May, Britain’s Conservative government unveiled a 25% tax on the profits of oil and gas firms that will pay for $19 billion in subsidies to low-income households struggling with the increased cost of living.

Another possibility is using laws against price gouging to restrict price increases. A bill passed by the Democratic-controlled House of Representatives in May would give the president power to declare an energy emergency that would outlaw “excessive” increases in gasoline prices, but it has gone nowhere in the closely divided Senate due to Republican opposition.

The White House did not respond to a request for comment on what it hopes to achieve on oil supply, but expert observers see the recent moves as an effort to at least give the appearance of combating high prices.

“They’re clearly terrified of what high prices at the pump mean for Biden’s approval rating and the midterms in November,” Zibel said. “Any president in this situation would do whatever they can to either lower gasoline prices or be seen as lowering gasoline prices. These prices are not his fault, but he still has a political imperative to do anything he can to try to bring them down.”