U.S. President Joe Biden started his term in office at the beginning of 2021 by canceling the presidential permit for the Keystone XL oil pipeline, clearly stating his goal to promote clean energy solutions at the expense of oil and gas. By the autumn of 2021, the Biden Administration was already calling on the OPEC+ group to produce more oil than planned to help American households see some relief at the pump, where gasoline prices shot up to a seven-year high.
The apparent clash of energy policies highlighted once again the fact that the last pre-pandemic year 2019 was not the year of peak oil demand as some had suggested in early 2020, considering that global petroleum consumption came roaring back in 2021 as economies rebounded, lockdowns were lifted, and the U.S. saw record-high demand. Total implied petroleum consumption in the United States rose to a record 23.191 million bpd for the week ending December 10. The previous record was set during the week ending August 27 of last year, which had reached fresh highs of 22.820 million bpd.
Oil Demand Roars Back
While it was pushing to promote green energy and placing a moratorium on new oil and gas drilling on federal land, the Biden Administration has been contending with high gasoline prices—a pain for any president’s approval ratings—as a result of the rebound in American and global oil demand and international crude oil prices.
The U.S. Administration’s struggle has been one of the best examples of the dilemma that most world leaders faced in 2021 and will continue to face for years, and possibly decades, ahead: the need to ensure affordable energy, including from fossil fuels, while advances in the energy transition and technologies allow green energy to replace a material part of oil and gas demand. The energy crisis in Europe, which has contributed to the higher prices of energy commodities in recent months, showed that oil and gas would continue to play a crucial role in meeting the growing global energy demand. It also served to show that renewables cannot replace fossil fuels overnight, and the transition and all net-zero aspirations will not happen for decades.
Administrations pushing for green energy sources in the long term is an admirable endeavor, but households/voters tend to appreciate short-term fixes to high gasoline prices and surging energy and heating bills.
U.S. Shale Disappointed With Biden
The U.S. Administration has been looking to do what it can to lower the highest gasoline prices in America. It hasn’t had spectacular success since the summer of 2021. That’s mostly because international oil prices are typically the major driver of U.S. gasoline prices, and oil enjoyed quite a run last year, with Brent Crude prices reaching an annual high of $86 per barrel at the end of October, before retreating to around $80 in recent days.
“That duality — the quest for more oil to keep the economy moving while simultaneously pushing for low-carbon alternatives — was a running theme for 2021,” Houston Chronicle’s Correspondent Dan Graeber notes.
The theme continues into 2022, especially after the U.S. Administration pleaded with OPEC+ at the end of 2021 for help to curb high gasoline prices, instead of turning first to the industry at home, which sits on vast oil and gas reserves.
The U.S. shale sector, however, seems reluctant to reinvest too much in drilling new wells, seeking to reward shareholders after years of poor investor returns. The American oil industry is also frustrated with the Biden Administration’s neglect and proposed policies burdening the sector and making domestic oil production more expensive while increasing reliance on foreign oil, including producers with lower environmental standards.
U.S. shale has not been happy with the Administration’s continued engagement with OPEC+ on oil supply, while there is such—and it is abundant—in America.
“I think first you, you stay home, you ask your friends, and you ask your neighbors to do it. And then if we can’t do it, you call some other countries,” Occidental’s CEO Vicki Hollub told CNBC in November.
Related: White House Praises OPEC For Production Decision
Since then, the Administration has announced plans to release 50 million barrels of oil from the U.S. Strategic Petroleum Reserve (SPR) in a bid to lower gasoline prices and has continued to call on—and praise—OPEC+ for adding more supply to the market each month.
“We welcome OPEC Plus decision to continue increases in production,” White House Press Secretary Jen Psaki said this week after the group decided to add another 400,000 barrels per day to its oil production in February in a widely expected move to continue easing the cuts each month.
“Our objective is to ensure that the supply out there meets the demand,” Psaki said at a press briefing.
This objective of having affordable and reliable energy supply now while working for more renewable sources in the energy mix in the longer term should give the Administration food for thought about how it has been treating its own oil and gas industry over the past year and from where the world’s single largest petroleum consumer, America, sources the oil to meet demand.
By Tsvetana Paraskova for Oilprice.com
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Energy transition won’t succeed without major contributions from natural gas and nuclear energy. Moreover, the notions of a full global energy transition and net-zero emissions are illusions. The still raging energy crisis in Europe has shown that oil and gas will continue to play a crucial role in meeting growing global energy demand well into the future. It has also served to show the inability of renewables to satisfy electricity demand because of their intermittent nature.
We’re in an era of energy diversification where alternative sources to fossil fuels, notably renewables, will be growing alongside oil and gas not at their expense.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London