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Three things to start:
The UAE’s ambassador to Washington said the country wants Opec to start producing more oil, more quickly. But his own energy minister seemed to disagree, tweeting that the UAE was committed to Opec’s output plans.
Colombia’s president told us that the US shouldn’t count on Venezuela to fix the oil supply shortage.
And oil prices fell hard yesterday on hopes of peace in Ukraine and more Opec supply.
Welcome back to another bumper Energy Source, live again from CERAWeek.
The big news from Houston: US energy secretary Jennifer Granholm’s speech to oil execs, asking them to ramp up output to combat soaring prices.
The energy crisis has dominated talk both on the stage and in the corridors of the Hilton Americas. Outside, protesters tried to remind the execs indoors that another crisis — climate — is just as pressing and potentially even more devastating.
As Myles writes in our second note, some of the delegates at the conference agreed.
Meanwhile, there’s also been talk of whether US shale companies could answer the call of surging crude prices with a new drilling rush. The US government says they should. But, as Justin shows, investors still have a very different answer.
A bonus final note includes some insight into Russian sanctions, US-Saudi relations, and more from Amos Hochstein, the man running a lot of Biden’s energy foreign policy. Hochstein and I spoke in Houston, where he also urged the US shale patch to do “whatever it takes” to tame prices.
Please note that the team will be back in Houston again in April, for our Energy Source Live event. You can still register here.
Thanks for reading!
Biden’s climate policy takes a back seat to energy ‘emergency’
Jennifer Granholm, the US’s energy secretary, told oil executives in Houston on Wednesday that the country was now on a “war footing”, as she called for an immediate increase in oil production to avert a price spike.
“We are on a war footing. We are in an emergency,” she said at the CERAWeek conference. “That means releases from the strategic reserves across the world, as we have done. That means you producing more right now, where and if you can.”
The comments mark a huge shift in tone from an administration that had previously made climate policy the cornerstone of its energy strategy.
Its restrictions on new fracking leases on federal lands, together with a tighter regulatory and permitting environment for new pipelines, have been bugbears for an industry that has historically expressed scepticism about climate change.
But Granholm indicated that the administration would seek to minimise the obstacles, saying permitting was “on the table”. The remark drew applause from oil executives.
Oil prices have soared following Moscow’s invasion of Ukraine and western governments’ sanctions, including a move by the US to ban imports of Russian energy.
But US oil production, which slumped during the pandemic price crash, remains well below its historic highs, partly because investors have told companies to prioritise dividends and cash flow over new drilling campaigns.
Lack of labour and other shortages in oilfield services have also held back new supply growth in the once-prolific shale patch.
“I know that some of you are grappling with supply chain issues,” Granholm said. “In this moment of crisis we need more oil supply.”
She also called on investors to begin supporting the oil industry in a new supply push.
“I hope that investors are listening — we can’t have one element holding back the world,” said Granholm, who also appealed to the US oil sector to strike a new partnership with the federal government.
“We can’t do it if we are fighting internal battles. Lobbyists and Beltway politicians think this is the time to recycle old talking points,” she said, and referred to complaints that the Biden administration had blocked pipelines and other infrastructure. “That is the same old DC BS,” Granholm said.
. . . but climate policy is still front of mind for oil bosses
The last time I travelled to Houston, one item alone was top of the agenda for oil companies: climate.
From sit downs with executives and onstage panels, to conversations in hallways and evening drinks, the industry’s role in tackling emissions (or lack thereof) was the dominant theme the World Petroleum Congress three months ago.
But as Granholm’s recent comments make clear, the narrative has shifted. The war in Ukraine and the soaring prices it has triggered mean energy security has bumped climate down the agenda.
Still, executives are keen to burnish their environmental credentials to investors and to press politicians for a seat at the table when it comes to tackling emissions.
Darren Woods, chief executive of ExxonMobil, said the industry faced “two vitally important challenges: meeting the world’s energy needs and addressing climate change” — and should be given a role in deciding the approach to tackling both:
“With the challenge that we have with respect to managing climate change, I think the call is even greater for industry and governments to collaborate to make sure that the policy is being put in place and the direction that we’re going is thoughtful and balanced.”
Ryan Lance, ConocoPhillips chief, was among many big names pushing for a carbon tax to shift the burden down the chain to consumers.
“We think the best way to impact the demand side of the equation is to make consumers understand the choices that they’re making.”
Lance also attacked the idea that oil producers should be responsible for so-called scope 3 emissions, those from the burning of their products.
“We think it’s irrational to hold our company or companies in our industry responsible for scope 3 emissions. Those are consumer-led choices that are in the consumers making those decisions.”
But it was Tengku Muhammad Taufik, chief executive of Malaysian state-owned Petronas, who put the industry’s position most succinctly: “We are not the villains in this piece,” he said. “We’re part of the solution.”
Wall Street not ready to unleash shale yet
As oil prices spike, pressure on the US oil industry to step up output is mounting. But don’t expect Wall Street to give American shale drillers the greenlight to surge new production anytime soon.
Most major US shale producers have adopted a strategy, pushed by major shareholders, of capping production growth at much lower levels than the industry has had over the past decade. Instead, producers are putting cash towards new dividends and share buybacks to boost returns.
It has proven popular among investors and a sudden strategic pivot isn’t likely, industry executives and major energy investors said at CERAWeek.
“The industry is still repenting for its sins of the past and so much of the problem has been a reactionary model to the volatility of commodity prices,” said Mark Viviano, managing partner at Kimmeridge Energy Management, a major investor in the shale industry.
“To turn on a dime after companies just announced a budget in February and say ‘in reaction to higher prices, we’re gonna increase spending,’ that’s everything that’s been detrimental for this industry,” he added.
Jeff Ritenour, chief financial officer at Devon Energy, one of the shale patch’s top producers, said he was “not hearing calls yet from investors” to lift output and he didn’t expect the company to start ploughing cash into growth.
The extreme uncertainty around oil prices would discourage any major decisions considering that any new investment today wouldn’t yield production for many months, he said.
“I’m of the view that we need to sit tight and see how this shakes out,” Ritenour said.
Bonus item: Takeaways from a conversation with one of Biden’s top energy advisers
Amos Hochstein, the Biden administration’s special envoy and co-ordinator for international energy affairs, wasn’t pleased with “disingenuous” shale executives blaming the federal government for the slow rise in US production, when I spoke with him in Houston.
“If there’s a bottleneck it is on Wall Street. They should call their financiers and tell them there’s a war going on. The American public is paying the price,” Hochstein told me.
“I asked [shale executives], ‘Is there something I can do right now?’” he said. “The answer’s ‘no’. Some of them said, ‘Well, if you had sand or if you had labour fixes’.”
We also talked sanctions and US-Saudi relations, which remain rocky. Here’s more from our conversation, lightly edited for concision:
1. On the White House changing tack to ban Russian oil and gas:
“When we began these sanctions . . . we wanted to make sure that the impact was felt on Putin and Russia, and to mitigate the possible impact on the United States, the American public and our allies. Clearly the escalation of the war, the barbarity of the military attacks by Putin on innocent civilians throughout Ukraine has caused us to escalate the sanctions.”
2. Are secondary sanctions — an effort to impose a full embargo on Russian oil — next?
“Our intention is to continue to tell Vladimir Putin, the elites around him, people who run industries and businesses and the Russian people that our sanctions will continue to escalate. And if they continue to pound the cities of Ukraine, our reactions will continue to escalate, and there will be a price to pay. We’ll do it with two things in mind. One, making them as unilateral as possible, and two that they’re designed to punish Putin and Russia more than they affect us . . . We will have a price to pay. This will have a cost.”
3. More oil releases from strategic stocks are very much on the table.
“If necessary we will do additional releases and do so with the international community.”
The US has announced two strategic stock releases in recent months — an already unprecedented step. That more may follow shows the depth of the administration’s anxiety about oil and petrol prices.
4. On the US-Saudi relationship:
Hochstein had no comment on reports that Saudi crown prince Mohammed bin Salman refused to take a phone call from Biden. But he said recent discussions had been “productive”.
“This is not an oil-based relationship,” he said. “There are some differences between us that we need to work through.”
“This is complicated set of circumstances that needs to be managed very very carefully,” he said, referring to Saudi Arabia’s Opec+ oil alliance with Russia.
Hochstein praised Saudi Arabia for voting on the “side of the angels” in a recent UN vote on Russia. (The UAE abstained.) Referring to reports of further discord, he said: “The president spoke to the king. Recently, Brett McGurk [Biden’s Middle East co-ordinator on the National Security Council] and I were in Saudi Arabia just a couple weeks ago . . . Taking those developments as a negative sign is to take something that is moving in the right direction and try to force a wrong direction on it.”
So why haven’t they increased oil production in the face of a potential price shock?
“You’ll have to talk to them about that.” (Derek Brower)
While Biden’s decision to ban US oil imports will tighten an already constrained market, it is not an outright embargo on Russian oil.
Of the almost 8mn barrels a day Moscow ships abroad, just 8 per cent goes to the US — which is much more reliant on Canada for imports. By contrast, about 60 per cent of Russian oil exports go to Europe, explaining why Brussels opted not to follow Washington’s lead.
For more on what the decision means for global energy markets, the Energy Source team wrote an explainer, which you can read here.
Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.
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