U.S. shale producers have been disappointed with the Biden Administration’s policies regarding the oil and gas industry for nearly a year now, and they voiced their disappointment, once again, at this week’s World Petroleum Congress in Houston.
While the U.S. Administration was calling repeatedly on OPEC+ to pump more oil to stop the rally in U.S. gasoline prices, which hit a seven-year high a few months ago, it failed to reach out to domestic producers first for more supply, shale executives and industry associations say.
Instead of asking OPEC+ and counties like Saudi Arabia, Iraq, and Russia to pump more oil, the Administration should have laid the foundations for a faster recovery of U.S. oil production, which producers curtailed last year in response to the crash in demand and oil prices, executives say.
Not that everyone would have listened. The oil companies have now switched to a “shareholder returns mode” from “record production mode” to finally reward investors after years of splurging on record production and seeing little (or in many cases, negative) cash flows.
Shale executives started to express their criticism of the Biden Administration weeks ago, when officials openly pleaded with OPEC+ to increase supply to relieve prices at the pump in the United States.
Now many of those executives gathered in Houston to reiterate their view that “you should have called us first.”
“[T]he energy industry is making enormous profits. They’re back up to above where they were before the pandemic started. So, they have taken advantage of that moment — the profits — to be able to engage in shareholder buybacks, for example,” U.S. Energy Secretary Jennifer Granholm said last month when President Joe Biden announced plans for a release of 50 million barrels from the Strategic Petroleum Reserve (SPR) in a bid to lower gasoline prices.
“But we want to encourage them to increase supply. We want supply to be increased both inside the United States and around the world so that we can reduce the pressures at the pump,” Granholm added.
The U.S. shale patch, however, is not racing to boost supply too much. One reason is the still widely prevalent capital discipline. But another is wariness and uncertainty about the Biden Administration’s policies toward oil and gas, and said Administration’s calls on OPEC+ to pump more while imposing restrictive measures on drilling on U.S. federal land.
Pioneer Natural Resources CEO: “They have not called me”
“Their first response was to call Opec and ask them to pump more oil. They have not called me,” Pioneer Natural Resources’ CEO Scott Sheffield told the Financial Times on the sidelines of the Houston energy conference. “And we’re the largest Permian producer,” Sheffield added.
Pioneer Natural Resources and many other public oil and gas producers cannot change capital budgets and drilling plans overnight, especially now that they are scrutinized by investors demanding higher returns.
The 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 last month.
U.S. Producers Grapple With Uncertainties Beyond Oil Prices
The shale patch is keeping disciplined spending because of their changed priority to return cash to investors first and because of the high uncertainties on the global oil market with oversupply looming early next year and uncertain impact of Omicron (or other) COVID variants on demand. But U.S. oil producers also face heightened uncertainty with this Administration, which pushes for renewable energy and looks to impose more restrictive policies on the fossil fuels industry.
When the Biden Administration intensified calls on OPEC+ to boost production to alleviate surging gasoline prices in the U.S., the American Exploration and Production Council said at the end of October, “The worst thing an Administration can do to energy prices is restrict supply by implementing policies that make it harder to produce energy.”
The Administration also called for an investigation into whether oil companies are allegedly colluding to make gasoline prices the highest in seven years.
In a comment following President Biden’s renewed request for the Federal Trade Commission to investigate rising gas prices, Frank Macchiarola, Senior Vice President for Policy, Economics and Regulatory Affairs at the American Petroleum Institute (API), said in mid-November:
“This is a distraction from the fundamental market shift that is taking place and the ill-advised government decisions that are exacerbating this challenging situation. Demand has returned as the economy comes back and is outpacing supply. Further impacting the imbalance is the continued decision from the administration to restrict access to America’s energy supply and cancel important infrastructure projects.”
“Rather than launching investigations on markets that are regulated and closely monitored on a daily basis or pleading with OPEC to increase supply, we should be encouraging the safe and responsible development of American-made oil and natural gas,” Macchiarola added.
By Tsvetana Paraskova for Oilprice.com
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The rise in gasoline prices was caused by rising inflation expected to hit 6.8% now and not by any crude oil shortages in the global oil market although President Biden tried to internationalize it by asking OPEC+ to raise its production.
US shale oil producers criticized President Biden for not asking them first to raise their production before asking OPEC+ first. However, the overwhelming majority of shale drillers are pursuing a disciplined production aimed at producing profits and therefore good returns to their investors. This begs the question as to whether this newly-found discipline is the result of pressure on drillers to come up with the profits or because they can’t increase their production further or both.
I tend to believe that this is due to both, namely inability to raise their production by much and the fact that they are making profits for the first time since the inception of the shale oil revolution.
The US Energy Information Administration (EIA) claims that US oil production including shale oil currently stands at 11.2 million barrels a day (mbd). The real test is how much shale oil production could rise. In the short term it can rise by up to 200,000 barrels a day (b/d) by 2022 but then it is expected to decline to 6.0-6.5 mbd in 7-10 years.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London