In what is possibly his most irrational action yet related to energy policy, President Joe Biden on Wednesday lashed out at oil refiners for shutting down too much refining capacity in recent years. Thus, the President whose administration has been actively trying to limit the domestic oil industry’s ability to get its business done is now so desperate to shift blame for high gasoline prices that he resorts to the pretense of being disappointed that that has been happening.
In a letter sent to seven refining and fuel companies, Biden alleges they are engaged in price-gouging and threatens that he is “prepared to use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term,” raising the specter that the current President could be ready to resort to even more Jimmy Carter-style market control measures that were tried and failed during the 1970s.
Biden’s letter does appear to recognize that the U.S. refining industry is already currently operating at near-full capacity as the industry has worked overtime to meet consumer demand for its products. “With prices for your products where they are today, you have ample market incentive to take these actions,” Biden writes, “and I recognize that some of you have already begun to do so.” Biden’s own Energy Information Administration reported last week that the industry was working at a very high utilization rate of over 94%. It isn’t as if these facilities have been idle.
The President’s letter goes on to ask the companies to come up with ideas to address issues relating to prices, inventories and refining capacity, and orders Energy Secretary Jennifer Granholm to convene an emergency meeting on the matter. What the letter does not recognize, of course, is the role the federal government, pressured by climate change interest groups, has played in creating the current shortage of domestic refining capacity.
Due largely to the difficulty in obtaining federal permits and the constantly rising costs associated with complying with expanding environmental regulations, the U.S. has not seen the groundbreaking on a new greenfield refinery with at least 50,000 barrel per day capacity since the late 1970s. What capacity that has been added since that time has been the result of expansion of pre-existing refineries and the building of smaller facilities with less than 50,000 bopd capacity and are thus exempt from certain EPA permitting processes. Just last Friday, in its response to Biden’s intemperate attack during a speech at the Port of Los Angeles, ExxonMobil noted that it is in the process of expanding its own refining capacity in the U.S. by 250,000 bopd.
At the same time over the last 4+ decades, some companies have decided to shut down aging refineries as the costs of environmental regulatory compliance and mandates to blend constantly rising volumes of biofuels into the gasoline have overwhelmed their ability to be profitable. I recently noted that LyondellBasell
LYB
, which has scheduled its own aging Houston-area refinery (capacity: 268,000 bopd) to be retired at the end of 2023, announced last month that it would retire the plant early in the event of a major equipment failure, given that it would be impossible to recover the costs of necessary repairs and upgrades prior to the scheduled retirement date.
The bottom line here is that this is a problem that has been a long time coming. It has been largely driven by the federal government’s own actions and it is one about which no one at the federal level has appeared to much care for more than 40 years now. But suddenly, an administration that has waged a bureaucratic war on the domestic oil and gas industry since the day it took office has awakened and figuratively said, hey, maybe closing down these refining operations isn’t such a great idea after all. Sadly, it always seems to take a crisis for politicians to begin to wake up to the folly of their own actions.
But this is a problem for which there are no quick remedies. The permitting and building of a new greenfield refinery would take at least a decade; major expansions take several years from cradle to startup. The President might believe that a heavy-handed action to implement price controls or other actions could offer him some short-term political advantage leading up to the November elections, but in the mid-to-long-term it would only result in less availability of the products being controlled. That is pretty much always the inevitable outcome of such policies.
The American Petroleum Institute (API), which represents most if not all of the companies targeted by the President’s letter, responded with a letter of its own, offering a laundry list of 10 actions the administration could take to incentivize and enable the industry to start to reverse the capacity shortage. Given the highly-ideological nature of this administration and the fact that most of API’s suggestions would conflict with Biden’s Green New Deal-based agenda, most if not all of them are likely to fall on deaf ears.
So, as was the case throughout the 1970s, the industry and consumers are left to wait to see what disastrous and ineffective action to control the market this President and his inept team might take next. In our interview last week, S&P Global Vice Chairman Dan Yergin expressed the concern that national leaders in the U.S. and Europe might resort to enacting what he called “panicky policies” in response to what is without question the worst energy crisis of this century.
Biden’s intemperate outburst at ExxonMobil last week and today’s letter indicates Mr. Yergin’s fears were well-founded. Stay tuned.