Today’s Key Takeaways: Secretary Granholm says, “we need oil and gas production to rise.” President of the U.S. Oil & Gas Association responds: Cut the crap and approver our permits.” Germany turns to LNG while U.S. slows their efforts on LNG. Kinross talks trucking plan in House Resources. 3 questions answered about Biden’s oil ban.
NEWS OF THE DAY:
U.S. Energy Secretary Urges More Oil Output: CERAWeek
Bloomberg News, March 9, 2022
It’s the third day of CERAWeek by S&P Global in Houston, one of the energy industry’s biggest annual gatherings and an event that hasn’t taken place in person in three years because of the pandemic.
The top U.S. energy official openly called on oil and natural gas producers to boost supply amid an energy crisis sparked by Russia’s invasion of Ukraine.
“We are on a war footing,” Department of Energy Secretary Jennifer Granholm told attendees at a packed ballroom. “The DOE and the Biden Administration are ready to work with you,” Granholm said. “We need oil and gas production to rise.”
Granholm said it was possible to work toward a transition to cleaner energy while also boosting short-term oil supplies.
“We can walk and chew gum at the same time,” she said.
Granholm’s comments come after the price of oil climbed to more than $130 a barrel this week. On Tuesday, the U.S. declared a ban on Russian crude imports.
OIL:
U.S. Oil & Gas Association President: “Cut The Crap And Approve Our Permits”
Zero Hedge.Com, March 9, 2022
- The Biden Administration is facing increasing backlash from consumers and oil industry executives alike over rising energy prices.
- Brent crude hit $139 per barrel on March 7, and some traders are even betting that oil will reach $200 per barrel by the end of the month.
- Tim Stewart, president of the U.S. Oil and Gas Association, had a straightforward response to the Biden Administration’s lack of action, “Cut the crap and approve our permits.”
On March 8, while President Joe Biden announced a ban on Russian oil and gas imports, regular gasoline at one BP gas station on Chicago’s South Side was nearly $5 a gallon. “$25 is only giving you half a tank,” Dacia, a customer who was buying a few dollars of fuel, told The Epoch Times. “I probably have to go to Indiana to find somewhere else cheaper. People don’t really have that much money.”
On March 7, average national gas prices had shattered the record set in 2008, reaching a new high of $4.104, according to GasBuddy. That number surged even higher on March 8, reaching $4.173, according to AAA.
“Gas is now officially more expensive than the movie ‘I Am Legend’ imagined it would be during the apocalypse,” PragerU’s Taylor Trandahl wrote on Twitter.
Patrick De Haan, GasBuddy’s head of petroleum analysis, said, “It’s a dire situation and won’t improve any time soon. GasBuddy now expects the yearly national average to rise to its highest ever recorded.”
The Energy Information Administration’s (EIA’s) latest Short-Term Energy Outlook (STEO) also reflects the costly new normal.
While EIA’s February STEO projected Brent crude, a key international benchmark, would average $83 per barrel in 2022 before falling to $68 per barrel in 2023, its March 8 STEO revised those estimates upward to $105.22 in 2022 and $88.98 in 2023.
Brent crude hit $139 per barrel on March 7. Some traders are betting that oil will reach $200 per barrel during March.
The most recent uptick in prices has to do with the Russia–Ukraine war, according to De Haan and other experts. Yet experts who spoke with The Epoch Times said prices had been increasing long before that conflict began.
“Russia’s war against Ukraine has added a premium to the price of crude on the global market of $15 to $20 per barrel and promises to add more if the conflict is extended. But the oil price was $37 per barrel when Biden was elected and had already risen by $60 before Russia’s invasion due to supply and demand factors,” David Blackmon, editor of SHALE Magazine and co-host of the radio show In The Oil Patch, told The Epoch Times in an email.
“The fact is the market has been under-supplied for months now, and Biden has contributed to that greatly by his efforts to hamstring the U.S. oil industry. That’s the truth.”
Shubham Garg, founder, and CEO of White Tundra Investments told The Epoch Times, “The geopolitical risk and fear in the market does play a role. However, I think the bigger problem is a fundamental problem—we were already in an undersupplied market with a very low inventory.”
“American domestic production and Canadian production have been unfairly targeted.”
Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers (TAEP), told The Epoch Times that a slow recovery from the COVID-19 production downturn partly accounted for the long-range rise in prices—a conclusion similar to that of EIA Administrator Steve Nalley, who testified before the Senate in November 2021 that rising oil prices are driven by global petroleum consumption outpacing production.
“The question is, why weren’t we growing production on the heels of that much faster than we were?” Ingham asked. “I think it’s quite safe to say that the political, legislative, and regulatory environment is openly hostile, or has been, to growing or re-establishing U.S. domestic crude oil production.
“It’s quite disingenuous to simply blame our current price levels on what Russia did, because we had a $90 base of crude oil pricing in place before this happened.”
Yet when the Biden administration has been pressed on rising gasoline prices, which have trended upward since November 2020, it has blamed Russia and exempted its own policies from fault.
Related: Surprise Crude Draw Bolsters Oil Prices
At a March 4 press conference, White House press secretary Jen Psaki told reporters, “The reason why the price of gas is going up is not because of steps the president has taken. They are President [Vladimir] Putin is invading Ukraine, and that is creating a great deal of instability in the global marketplace.”
At a March 7 press conference, Psaki doubled down. Asked whether post-pandemic supply chain factors were already a driver of increased gas prices before the invasion, she said, “The anticipated continued increase … is a direct result of the invasion of Ukraine.”
“Federal policies are not limiting the supplies of oil and gas,” she later said at the same press conference.
In his Tuesday press conference announcing the Russian energy restrictions, Biden said, “It’s simply not true that my administration or policies are holding back domestic energy production.”
He cited the fact that almost 90 percent of onshore oil production doesn’t occur on federal land, as well as the fact that oil and gas firms have more than 9,000 unused permits.
In a Fact Check released on March 7, the Institute for Energy Research (IER) pointed out that oil exploration on federal lands rapidly declined under the Obama administration.
“The reality is that federal lands vastly underperform on oil and gas production versus state and private lands because the federal government owns the majority of the mineral estate,” the IER wrote.
“You can hold a lease without deciding to develop or produce it based on the economics of that lease. Companies have always made decisions based on lease economics,” Ingham said of TAEP. “To suggest they’re not going to offer more leases until companies drill what they have now—that’s making decisions on behalf of companies that the administration is neither qualified nor authorized to make.”
Tim Stewart, president of the U.S. Oil and Gas Association, had a straightforward response to Biden’s March 8 comments.
“Cut the crap and approve our permits.”
Biden administration officials are making overtures to Venezuela, Iran, and Saudi Arabia in the hopes that those countries will boost production and reduce oil prices.
“Venezuela has probably some of the dirtiest oil in the world,” Garg said. “Even if they remove the sanctions, that industry is in such a collapsed state that it’s going to require hundreds of billions of dollars and expertise from America.”
“Higher oil and gas prices make electric vehicles and renewable energy more price competitive,” Blackmon said. “This is illustrated by the fact that officials like Pete Buttigieg continue to double down on that agenda as the ‘solution’ to our high gasoline price issue. That’s why you see him, Biden, and Kamala Harris advocate for more oil from Venezuela and Iran, but not from our own domestic industry.”
GAS:
Germany vetoes nuclear power extension, aims for LNG terminal in 2024
Reuters, March 8, 2022
- Germany looked a short-term, mid-term scenarios
- Risks, costs of life-time extension outweigh benefits
- EnBW, RWE, E. ON operate Germany’s last nuclear plants
BERLIN, March 8 (Reuters) – Germany on Tuesday poured cold water on extending the lifespan of its nuclear plants to help cut its reliance on Russian gas, saying it needed instead to build up alternative energy sources at “Tesla speed”.
Economy Minister Robert Habeck said the country’s first liquefied natural gas (LNG) terminal, announced last weekend, should be ready within two years.
In response to Russia’s invasion of Ukraine, Europe’s largest economy late last month floated the idea of keeping nuclear plants as part of its energy mix to diversify away from Russia, which delivers most of Germany’s natural gas.
Related: U.S. push to export LNG amid Ukraine conflict slowed by climate concerns – sources
MINING:
Kinross GM talks ore trucking plan before legislative committees
Jack Barnwell, Fairbanks Daily News Miner, March 9, 2022
State lawmakers took testimony Tuesday regarding the planned 2024 transportation of ore from the Manh Choh mine near Tetlin to Kinross Fort Knox 20 miles northwest of Fairbanks.
Kinross estimates mining a million ounces of gold from 2024 to at least 2028. Ore mined from the site will be trucked over 247 miles of highway to Fort Knox. Kinross Alaska general manager Jeremy Brans estimates up to four trucks traveling an hour each direction. The combined weight would total 80 tons per haul. Traffic will see an increase, especially between Tok and Delta Junction.
The transportation plan sparked intense community concern over traffic congestion, safety and impacts to air quality.
Advocates for Safe Alaska Highways (ASAH) are leading the charge in asking for more information. ASAH’s Barbara Schuhmann and Jon Cook represented the group Tuesday in Juneau before the House Transportation and House Resources committees.
Transportation concerns
ASAH group presented an extensive list of requests and questions originally submitted to the Department of Transportation. Among them, ASAH wants Kinross to provide DOT with a detailed traffic plan by March 31; the mining company to stop stating the plan will create only a 1% increase in traffic; and for DOT to stop holding “joint meetings” with Kinross.
Kinross has hosted meetings in Fairbanks, Tok and Delta regarding the mining project. ADOT staff member was onsite to explain potential mitigation measures ahead of the 2024 start.
“The first truck will not leave for more than two years from now,” Brans said Tuesday in the joint committee meeting. “We have not yet made our decision on who our contractor will be.”
Fairbanks will become a trucking hub, according to Brans, and will insist on a number of safety factors, including limiting drivers’ trips and time on the road, ensuring legal load limits, and maintaining constant communication.
Trucks will be custom built, and drivers will need to have at least five years of experience in order to drive them, Brans said. He claimed that larger trucks come with more axles and more braking power.
Schuhmann said her group isn’t opposed to mining, just the planned transportation efforts.
“If our infrastructure disintegrates, such as the failure of a bridge, it comes back to public safety,” she said.
Air pollution is also a concern.
“EPA is coming down fast and furious, and we don’t think these trucks will help with our air quality,” Schuhmann said.
Schuhmann added that the group doesn’t believe Manh Choh is only a precursor to a larger mining expansion.
She also asked who will be held liable for accidents.
“There is the potential for the state to have to pay if accidents happen,” Schuhmann said.
Cook said Kinross should consider other options, such as extending the railway or creating an onsite ore processing facility at Manh Choh. In addition, he said the state should conduct a traffic impact statement and should be open to peer review as “DOT has an inherent conflict of interest.”
“We support Kinross and mining, but we do not support a trucking plan that has no precedent,” Cook said.
Brans said such traffic has plenty of example across various industries and states, including Alaska.
Brans said ASAH has been stretching the truth or misrepresenting the issue.
“They take the upper end of our numbers and make a math error,” Brans said. “Some of the fear mongering stories are brought up don’t make for productive conservation.”
Brans added that ASAH does not represent a group of concerned citizens.
“We are bending over backwards to stay in the realm of the ordinary,” Brans said.
DOT: Listening to both sides
DOT Commissioner Ryan Anderson told lawmakers that his department has been listening to all sides.
“I want to make it clear that safety is one of DOT’s top priorities,” Anderson said. “We’ve been very interested in this proposal, and we’ve been listening and learning and answering questions from the public.”
Anderson added Kinross hasn’t provided a formal plan and is looking toward a process for that. In the meantime, DOT plans to construct 18 passing lanes in 2023, a year ahead of Manh Choh’s operational start.
“Passing lanes are beneficial for all involved,” Anderson said.
“We are cautious when we review these proposals,” Anderson said. “We have had a number of discussions about this proposal.”
He said any plan Kinross submits will hopefully address all safety aspects.
Anderson said bridges along the route already handle similar legal roads but are on the list of concerned infrastructure.
House questions
Rep. Sara Hannan, D-Juneau, asked if Manh Choh will last beyond the projected four years. If so, would the mining company “be willing to put into the wear and tear” that will make it an industrial project.
“Four to five years is what we know right now,” Brans said. “With any mining projects you are drilling and extrapolating a model and at some point, you have to stop and make a business case for what you know.”
He added that Kinross will continue to explore the area and “are hopeful.”
Brans said the Kinross will contribute to road maintenance via gas tax but won’t directly pay for road improvements.
“What are having roads for but partially for having arteries for businesses to grow but we will try to mitigate what our project does,” Brans said.
Rep. Grier Hopkins, D-Fairbanks, asked who had supremacy for the transportation permitting process from the site to the Alcan.
Brans said if an Army Corps of Engineers permit process determines mining will impact wetlands, it triggers a National Environmental Protection process.
Rep. Mike Cronk, R-Tok, said the goal is to ensure the project addresses safety while keeping an open mine.
“I want to see a project like this because it provides a base for a community and brings a sense of pride to communities like Tetlin,” Cronk said. “I believe we are on the path to doing this project correctly.”
POLITICS:
3 questions answered about Biden’s Russian oil ban
Heather Richards, Mike Soraghan, Energywire, March 10, 2022
President Biden’s ban on Russian oil imports has raised questions about the use of the European country’s crude in U.S. refineries, as well as the direction of soaring pump prices and the White House’s role in influencing oil markets.
More than a week after Russian troops invaded Ukraine, the White House announced the ban as the latest salvo to cripple the Russian economy and convince President Vladimir Putin to end the invasion. To fill the gap — and help ease the cost to American consumers — Biden has urged U.S. oil companies to produce more oil and gas.
But that may be a difficult ask, experts say.
Russian crude fills a unique niche in the U.S. market, as the equipment in some refineries is designed to handle certain types of oil imported from the country. Meanwhile, the U.S. oil industry is facing investor pressure to return revenues to shareholders rather than drill, and labor shortages have slowed expansion. Experts also differ on how much the Russian oil ban will matter for oil and gas markets globally, which ultimately drive the cost of gasoline and diesel in the U.S.
Right now, the price of oil is high, with the U.S. benchmark price of crude hitting $130 earlier this week. Average pump prices have risen by 75 cents a gallon in the U.S. since Russia began amassing troops at the Ukrainian border earlier this year.
“Russia is the world’s third largest oil producer, and energy supply disruptions and market volatility are the result of [Putin]’s aggression,” White House spokesperson Jen Psaki said in a press briefing yesterday.
Analysts at Rystad Energy have pondered a worst-case scenario for rising prices, where sanctions on Russian oil spread beyond the U.S. That could drive the price of oil to an unheard-of $240 per barrel by this summer, the firm said yesterday in a statement.
That’s “fortunately not the most likely scenario,” said Bjørnar Tonhaugen, Rystad’s head of oil markets. But he warned policymakers, analysts, industry, and traders that sustained high prices are expected.
“This is the largest energy crisis in decades, and the impact on the world’s most important commodity is going to be unprecedented,” Tonhaugen said.
As the world contemplates a new era of uncertainty for oil and gas markets, here are three key questions shaping the debate:
Why import from Russia at all?
The oil ban on Russian crude came after a build-up in pressure to punish the Kremlin — but also grumbling from U.S. political leaders like Sen. Joe Manchin (D-W.Va.) that the U.S., the world’s largest oil producer, even needs Russian energy at all.
“It’s basically foolish for us to keep buying products and giving profit and giving money to Putin,” Manchin said on “Meet the Press” last week. “We have the energy, we have the resources here.”
Russia is the world’s third-biggest oil producer and has been the No. 3 source of oil to the United States. It exports roughly the same amount to this country as Mexico and far less than Canada, which in 2020 accounted for 52 percent of U.S. imports.
About 1 percent of Russia’s annual oil production is sent to the United States, according to the U.S. Energy Information Administration.
Companies in the U.S. have imported Russian oil into the United States because some of the grades of oil Russia provides work well with what American refineries are able to refine. For example, after the U.S. imposed sanctions on Venezuela’s oil industry in 2019, imports of “unfinished heavy oils” from Russia helped replace heavy sour crude from Venezuela that many Gulf Coast refineries are set up to handle.
Now those refineries will need to find another source of supply. That is viewed as a primary reason why the Biden administration has reportedly begun negotiating about sanctions with Venezuela to let its oil start flowing back into the global market.
Last year, the U.S. imported an average of 209,000 barrels per day (bpd) of crude oil and nearly 500,000 bpd of other petroleum products from Russia. According to the American Fuel & Petrochemical Manufacturers, a trade group, most of those other petroleum products are “unfinished oils” that are processed into gasoline, diesel, and jet fuel, as well as gasoline blend stocks and petroleum diesel.
Russia also provides “light sweet” crude oil to West Coast refineries. Last year, Russian imports to the Gulf Coast increased to replace a loss of supply from the Gulf of Mexico because of Hurricane Ida, and to the West Coast because of problems Nigeria faced in restoring production to pre-pandemic levels.
Where are prices going?
The price of gasoline is likely headed up, but how far depends on oil production trends in the U.S. and abroad, as well as the outcome of ongoing sanctions.
West Texas Intermediate, the U.S. oil price benchmark, actually tumbled yesterday to $108 a barrel. Brent Crude, the international benchmark, fell to $111, experiencing its worst day since the pandemic thrashed crude demand in April 2020.
After prices climbed following the Ukraine invasion, a hopped-up Wall Street relaxed in part as Fatih Birol, executive director of the International Energy Agency, said the organization could release more oil from inventories, according to a Reuters report. The IEA will also come up with an action plan to cut oil usage, Birol said.
Even more so, fears were eased by the United Arab Emirates ambassador to the United States, Yousef Al Otaiba, announcing the UAE would push the Organization of the Petroleum Exporting Countries cartel to increase production.
It was a welcome tumble for downstream consumers.
The average national price was $4.25 for agallon of regular gasoline, AAA said yesterday. While it could continue to rise, the oil news has dampened that trajectory, said Andy Lipow, president of Lipow Oil Associates. Lipow said he’d revised his outlook for national average gasoline prices down from $4.50 to $4.35 on the news.
Others have also signaled that market panic about crude may be abating.
“That $130 price point was factoring in the absolute siege mentality in the oil market, where we were staring down potentially losing all Russian output, OPEC not budging and the Ukraine situation just worsening,” John Kilduff of Again Capital said yesterday on CNBC’s “The Exchange.”
He added: “Now we’ve reversed all of that, seemingly, to a degree at least. I don’t want to get ahead of myself.”
However, oil rose this morning after UAE seemed to backtrack on calling for OPEC to boost output. “The UAE is committed to the OPEC+ agreement and its existing monthly production adjustment mechanism,” Al Otaiba said in a tweet.
Morgan Bazilian, professor of public policy at the Colorado Institute of Mines, said the Russian oil ban had largely been priced in and would have a “muted” impact on American consumers. But he warned that price volatility remains a threat.
“The U.S. action alone is not the full story,” he said. “The oil market is global and deeply interconnected. Actions by others will matter more.”
The European Union did not join the U.S. in its decision to quit Russian oil and gas, and the White House said yesterday it had not insisted that allies with a greater need for Russian products take that path. But further price shocks could arise if broader sanctions from other countries follow in coming weeks and months.
“The U.S.’ ban on Russian energy imports is largely seen as symbolic given their limited dependence compared to Europe, but nevertheless shows that energy sanctions remain on the table and could be deployed if the war escalates further,” Sindre Knutsson, vice president of natural gas markets for Rystad Energy, said in a client note.
Can Biden do anything to cut prices?
In the short term, the president’s actions may play a role in the daily swing of crude prices. But the White House’s ability to influence oil markets is minor compared with fundamentals of supply and demand, experts said.
Even before the Russian invasion of Ukraine, the world was looking at a tight market. OPEC was trying to raise production gradually, but some countries couldn’t even make their quotas, said Tai Liu, an analyst in U.S. oil research at BloombergNEF.
Meanwhile, the demand for oil and petroleum products was returning much faster than anticipated post-pandemic, he said.
“You have a supply picture that’s looking really tenuous, and then you have really strong demand gain,” he said. “Now with the invasion, everything is looking a lot worse.”
The energy ban from the U.S., mirrored by a phase-down in Russian imports in the U.K., could exacerbate that picture, he said, noting that it would depend on how slowly the countries unwind their ties to Russian energy. Liu said he could not comment directly on price dynamics.
Fernando Valle, senior oil, and gas analyst with Bloomberg Intelligence, said prices will likely remain in the triple digits despite Biden’s calls for more oil. U.S. production can’t ramp up fast enough to replace the missing Russian crude, he said.
“The issue that we see is that there aren’t any short-term fixes, and the market expects a lot from the U.S. production, which is facing some bottlenecks, from labor to sand to equipment,” he said.
While those issues could be resolved over time, there is no “panacea” response, he said.
Valle said the administration could make some controversial changes to help industry, such as lifting Jones Act restrictions.
A provision of the Merchant Marine Act of 1920 meant to protect U.S. shippers, the Jones Act requires that products being moved between U.S. ports be on U.S.-flagged and -manned ships. Critics say its limits force a reliance on foreign crude in places like Hawaii — which imports from Russia.
The administration could also ease regulatory requirements to help during the supply chain pressure, he said.
“Wells have to be drilled; they have to be completed. They have to be connected to pipelines, and we have to have all the equipment,” Valle said. “I think using some of the regulatory burden would help so that the producers can feel confident that raising production will be beneficial.”
But beyond bottlenecks, a fundamental shift has occurred in the U.S. oil industry in recent years that could bode ill for Biden’s hopes of more drilling.
The oil patch urge to drill feverishly when prices rise has been replaced by spending discipline. Shareholders want returns, dividends, and buybacks, and have little patience with oil companies making rash financial decisions that will increase debt, said Liu with BloombergNEF.
If there is a push to increase production because of these global political shifts, companies would have to get shareholders and investors on board, experts said.
Pioneer Natural Resources Co. CEO Scott Sheffield noted that shareholders may have to adjust expectations.
“Our shareholders need to understand that nobody knows where the price of oil’s going to go, how long it’s going to be there,” Sheffield said in an interview this week at CERAWeek by S&P Global, an annual energy conference in Houston.
“If we see continued bombardment and … killing of civilians in Ukraine, the mindset may change over time.”
While Biden is limited in his ability to support rapid production growth in the U.S., he could still pay a political cost if prices escalate, with voters recalling the decision to stop Russian oil.
“The political fallout from a very large price rise on gasoline that is sustained in the U.S. could be enormous,” Bazilian of the Colorado Institute of Mines said. “The same politicians and voters that are ‘supporting’ it now will come back and hammer Biden if U.S. gasoline prices rise further as a result.”
Lipow said the Biden administration and Congress could address price pressure on consumers directly by lifting the 18 cents excise tax per gallon of gasoline and 24 cents per gallon of diesel.
That was the call from six Democratic governors earlier this week, who urged congressional leaders to lift gasoline taxes temporarily.
“At a time when people are directly impacted by rising prices on everyday goods, a federal gas tax holiday is a tool in the toolbox to reduce costs for Americans, and we urge you to give every consideration to this proposed legislation,” wrote New Mexico Gov. Michelle Lujan Grisham in a letter, along with Govs. Gretchen Whitmer of Michigan, Jared Polis of Colorado, Tom Wolf of Pennsylvania, Tony Evers of Wisconsin, and Tim Walz of Minnesota.