Oil Companies Call Biden’s Bluff
President Biden on Tuesday sent a letter to oil companies urging (begging? threatening?) them to boost domestic oil refining. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis ….” he said. “Historically high profit margins … are not acceptable.”
With the national average gas price hovering around the unprecedented price of $5 a gallon, President Biden has been desperately searching for ways to lower gas prices for months, including selling 90 million barrels from the Strategic Oil Reserve, waiving prohibitions on gasoline blends with higher ethanol content, and pleading with foreign authoritarian regimes to pump more oil.
Part of the president’s desperation may be fueled by the public’s perception that Biden is responsible. According to an ABC News/Ipsos poll conducted earlier this month, only 27% of Americans approve of President Biden’s handling of gas prices. “He wants to blame oil and gas [companies]. He wants to blame Ukraine. He wants to blame Trump and Republicans for all the failures that he’s caused,” remarked Representative Steven Palazzo (R-Miss.). Well, it hasn’t worked.
Palazzo didn’t think too highly of Biden’s letter to oil companies, either. “For him to just single out an industry the way that he does,” Palazzo said, “he’s not coming up with solutions. He’s not addressing the problems.” Nor is he inspiring confidence that he will. “The idea we’re going to be able to click a switch, bring down the cost of gasoline, is not likely in the near term,” argued Biden earlier this month.
If he’s right, then his letter ordering oil companies to refine more is simply pointless, and the American Petroleum Institute (API) told him as much with a letter on Wednesday. In the letter, they gave Biden a few economics lessons with data-driven “realities.”
For starters, Biden’s letter got the facts wrong about refinery profits. “Your letter … [does] not account for operating costs that are being driven higher by record inflation. The timing and reasons for shutdowns of several refiners … were primarily due to lack of buyers willing to continue operating the facilities as petroleum refineries given growing rhetoric about the long-term viability of the industry,” they wrote. The Washington Post perplexedly reported the lack of buyers, too. Palazzo added, “I [don’t think] we’ve built a refinery in America in over 40 years.”
But just because refinery prices are up doesn’t mean American refineries can lower them. “Refined product prices are determined on the global markets,” they argue. “Refined products from crude are global commodities, priced in a competitive global market. … The cost of refining in other nations is currently higher” — three times higher in Europe, in fact. Add to this the fact that “U.S. refineries are operating at or near maximum utilization. According to the EIA [Energy Information Agency], U.S. refineries are running at 94 percent of capacity.” How are they going to expand?
Nor is a short-term price spike alone incentive enough to encourage investors. “Refiners do not make multi-billion-dollar investments based on short-term returns. They look at long-term supply and demand fundamentals and make investments as appropriate. To that end, following on your campaign promise to ‘end fossil fuel,’ consider just some of the policy and investment signals being sent by various federal agencies.” API listed these dis-incentives, including electric vehicle incentives, higher fuel economy standards, regulatory hurdles to capital formation, permitting obstacles, and increasing Renewable Fuel Standard volumes. In other words, why would they invest more in an industry Biden is actively trying to run out of business?
Government incentives toward renewable fuels have had a predictable effect. “About half of U.S. refinery shutdowns are conversions to renewable fuel production. … These investments cannot be easily or quickly undone.”
Of course, the picture is more complex. Despite the Biden administration’s best efforts, fossil fuels are so efficient that they still make some economic sense. “U.S. refiners are, in fact, adding new U.S. refining capacity where it makes business sense. For example, ExxonMobil is expanding the capacity at its Beaumont, Texas refinery and Valero at its Port Arthur, Texas refinery for a combined total of 300,000 barrels per day,” they explained. Take note: oil companies expanded capacity because it made “business sense,” not because the president wrote them a nasty letter.
The lesson for Biden, which he likely won’t apply, is that the way to increase refining capacity is by incentivizing it, not demanding it. Businesses respond better when government gets out of their way than when they are ordered to partner with government. Alas, disbelief in the free market is an article of faith to some on the Left.
President Biden stated in his letter, “I am prepared to use all tools at my disposal, as appropriate, to address barriers to providing Americans affordable, secure energy supply.” Is he really? ExxonMobil — the only major oil company to ban rainbow flags during Pride Month — offered the president a list of suggestions to lower prices, both in the short-term — “waivers of Jones Act provisions and some fuel specifications” — and the long-term — “promote investment through clear and consistent policy that supports U.S. resource development, such as regular and predictable lease sales, as well as streamlined regulatory approval and support for infrastructure such as pipelines.”
These ideas and more weren’t invented overnight. According to a 10-point plan API released last year, the Biden administration could “lift development restrictions on federal lands and waters,” “fix the NEPA [National Environmental Policy Act] permitting process,” “dismantle supply chain bottlenecks” including steel tariffs, “protect competition in the use of refining technologies,” and “end permitting obstruction on natural gas projects.”
Did Biden listen then? Of course not. Will he listen now? Not if he remains committed to ending the oil industry in the long-term. “Families are paying now more than they ever have because of the failed Biden policy,” remarked Palazzo.
Joshua Arnold is a staff writer at The Washington Stand.