Earlier this month, Energy Secretary Jennifer Granholm told the U.S. oil industry that she wanted to work together on "future-facing solutions" and asked oil companies to "take advantage of the leases that you have, hire workers, get your rig count up."
It was a heartfelt message seeking collaboration between the federal government and the oil industry, an industry that the government has signaled it will definitely not work with but rather work against. And, indeed, it has.
The moratorium on new federal land leases was the start. The moratorium was challenged in court and eventually lifted, but it wasn't the only move of the administration against oil and gas. Keystone XL was killed after President Biden came into office, and although there are differences of opinion as to how necessary the pipeline was, the fact that the administration did not have the industry's best interests at heart was obvious enough.
It is perfectly understandable, really. President Biden came into office with an energy transition agenda. He campaigned for a shift to lower-carbon energy systems, which necessitates less oil and gas drilling. Only since Biden came into office has it become painfully clear the shift will not happen overnight, and we will continue to need fossil fuels for quite a while yet. But members of the administration are working to speed this process up.
In an opinion piece for the Wall Street Journal this month, investor and Heritage Foundation fellow Andy Puzder struck at President Biden's special climate envoy John Kerry for waging a crusade against the oil and gas industry. According to the article, Kerry had on the quiet pressured banks into shrinking their business with oil and gas, which had raised concern in some government circles.
For instance, in May this year, a group of 15 state treasurers—not all from oil states, either—wrote to Kerry expressing their concern with his pressure campaign against oil and gas. According to the letter, the pressure campaign was private, and it involved other members of the Biden Administration, too.
"As members of the Senate Banking Committee have noted," the letter said, "these efforts to secure extralegal commitments from financial institutions will discriminate against law-abiding U.S. energy companies and their employees, impede economic growth, and drive up consumer costs."
That wasn't the first letter on this topic, either. A month earlier, a group of Republican Senators led by Louisiana's John Kennedy, who is a member of the Senate Banking Committee, wrote to Kerry expressing the same sentiment as the state treasurers a month later.
"As marginal funding costs rise, energy companies will have two choices: raise the cost of their products or cut expenses, including by laying off employees," the legislators wrote. "Eventually, they may be forced to do both. Unsurprisingly, these effects are likely to be borne by working class Americans. . . . Perhaps most disconcertingly, this self-harm will diminish America's strategic advantage in fossil energy over adversaries but not meaningfully reduce global carbon emissions given that 90 percent of total emissions come from outside of U.S. borders, as you have recognized yourself."
They also referred to a scandal from the Obama era, likening Kerry's "crusade", as Puzder put it, to that scandal: "Beyond the poor track record associated with central economic planning, this apparent attempt to prevent energy companies from obtaining capital disturbingly resembles the Obama administration's notorious 'Operation Choke Point' scandal, in which financial regulators attempted to coerce banks into denying services to legal yet politically-disfavored businesses."
Now, the oil industry is already subject to growing pressure from investor groups that are specifically targeting banks in a bid to do what Kerry is doing—limiting the industry's access to funding. Just last week, Reuters reported that an investor group was calling on banks to scale back their financing of new oil and gas projects and making accusations that their emission commitments are not good enough.
There's regulatory pressure, too. Earlier this month, the Office of the Comptroller of the Currency proposed new guidance that would force banks to add climate risk assessment to all of their operations. This is the sort of indirect pressure that would also see less financing available for oil and gas companies.
Banks are yielding, too. It is difficult not to yield when you are being pressured from all sides, especially in the reputation department, which seems to have become about as important as bottom lines in the era of social networks. Citi recently said it would begin screening clients for climate commitments, and it may have to drop some. Others, such as Britain's NatWest, are already dropping "dirty" clients.
Of course, there will continue to be alternative sources of funding, although perhaps they won't be able to fully replace legacy banks if it ever comes to that. But over the long term, it looks less like a crusade and more like a war between reputation and bottom lines. Normally, the latter would win. In this day and age, it's hard to say.
By Irina Slav for Oilprice.com
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