The world's hunger for US oil and gas has Biden walking a tightrope
High prices pose a political risk at home, but allies abroad are desperate for aid
The message from President Joe Biden's administration to oil executives was familiar, but the tone was more urgent than ever.
Help us protect consumers at home by sending less American-made fuel overseas and boosting stockpiles, US officials pleaded during a virtual meeting in late September, one in a series of similar gatherings held this year with companies including Exxon Mobil Corp. and Marathon Petroleum Corp. Yet again, industry leaders didn't budge.
The White House is now taking a closer look at what it once considered a radical option: limits on gasoline and diesel exports. If imposed, the restrictions would be just the latest step in the administration's crusade to tackle energy inflation, which has included an unprecedented release of emergency oil reserves and a notably unsuccessful bid to prevent OPEC from reducing output.
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It's a delicate balance. As one of the world's top producers of oil and natural gas, the US is facing calls from its allies in Europe and around the globe to help ease an energy crisis inflamed by Russia's invasion of Ukraine. But with just weeks to go before the midterm elections, it's also under pressure to help Americans hit by price gains for everything from gasoline to food.
The Biden administration is "being very careful to reassure European allies that we are going to continue supplying energy," says Kevin Book, managing director of research firm ClearView Energy Partners LLC. "They're also being very careful not to make it seem like American energy is going to other countries" and to prove they're shielding US consumers.
That dilemma is a uniquely American one: Most countries aren't energy-producing giants or geopolitical coalition leaders. Still, as commodity prices surged this year, governments around the world have faced the same kind of pressure to put domestic consumers first—even at the expense of neighbors and allies.
Tensions are running especially high in Europe, where the shutdown of Russian natural gas supplies threatens to leave countries without enough heat and power this winter. Norway, one of the biggest electricity exporters in Europe, said it would curb supplies to other countries if water levels for its hydropower plants remain low—an announcement that triggered criticism from its Nordic neighbors.
The wave of what's known as "resource nationalism" goes beyond energy, with export bans for palm oil in Indonesia and beans in Mexico. But as winter looms in the Northern Hemisphere, for many countries the priority is fuel.
"Countries are taking extraordinary measures to safeguard their economies and communities from record-high energy prices," says Sarah Ladislaw, managing director at the Rocky Mountain Institute, a Colorado-based nonprofit organization that seeks to accelerate the transition to cleaner energy. "They're weighing protecting their domestic interest with the need for solidarity."
During previous oil price shocks—in the 1970s, when a coalition led by Saudi Arabia cut off crude exports to countries including the US, and in the 1990s during the Gulf War—America was reliant on imports from the Middle East. Now the US is a global oil and gas powerhouse, but that hasn't entirely protected it against a fuel crunch.
In domestic US politics, the top energy priority is the price of gasoline. For Biden, it's a major political risk weeks before the November midterm elections, which will determine who controls the House and Senate. For Americans filling up their cars every week, it's one of the most visible reminders of inflation's impact. Oil companies are notching record profits.
Pump prices reached an all-time high in June and were easing in late summer. Now, however, the price that consumers pay for energy is ticking up again as supplies tighten. In New England, stockpiles of distillates including diesel and heating oil are at the lowest on record for this time of year.
A decision by OPEC and its allies to slash output—a move that drew a swift rebuke from the US—is adding to concern about tight supplies. Russia is warning that if European nations agree to cap the prices they pay for the country's oil, the country could retaliate by curbing output.
US officials, including Energy Secretary Jennifer Granholm and top Biden economic adviser Brian Deese, made it clear at the September meeting that a ban on gasoline and diesel exports wasn't their first, second, or even third option. Industry leaders and many analysts have said such an approach could intensify competition for fuel in the global market, crimping supply and raising prices for many consumers—especially in the Northeast US.
"If you're concerned about inventories and your goal is to get a build going there, then an export ban is actually the opposite thing you want to do," says Geoff Moody, vice president of government relations with the American Fuel & Petrochemical Manufacturers, a trade association.
There are other levers the US Department of Energy can pull, such as requiring refiners to store more petroleum products domestically. But administration officials believe the mandate can't be imposed without legislation from Congress, and it would translate into more holding costs and losses for the industry.
For American foreign policy, natural gas may be the key fuel it can export to European countries grappling with acute shortages. In the US, it's less politically sensitive than gasoline, the price of which drivers see every time they fill up. The Biden administration isn't actively weighing new limits on exporting liquefied natural gas, or LNG, a move that allies have warned against.
"I don't think it's in the interest of the United States and its citizens to dial back the export of LNG at a time when the market is already so tense and especially at a time when one of the actors in that market is trying to divide and weaken us and use this as a weapon," European Commission Vice President Frans Timmermans said in late September.
Even though US natural gas prices have slipped from recent peaks, they're still hovering around the highest seasonal levels since 2008—expensive enough to cause painful utility bills for Americans this winter. Stockpiles are already below normal, and with a potentially cold winter ahead, prices could skyrocket, particularly in New England, which has limited access to gas pipelines.
Four years ago, a government-commissioned study found that LNG exports provide benefits to the US such as improving the nation's trade balance. Some lawmakers are urging the US to redo the report because domestic production isn't keeping pace with climbing demand for gas both as a domestic power source and as an export.
"At the very least that should happen," says Senator Angus King, an independent from Maine. "A logical part of that analysis would be an analysis of what the effect is on domestic prices."
As energy prices soar around the globe, it's becoming increasingly evident for the US and other countries that a hands-off policy approach isn't going to cut it. But history suggests that when countries become locked in a competition to protect their domestic markets, sometimes everyone loses out.
With such stress around energy prices at the moment, "governments are feeling insecure, and they're looking at taking care of their own citizens first," says Ben Cahill, a senior fellow with the Center for Strategic and International Studies, a Washington think tank. "That doesn't always result in optimal policy." — With Ari Natter, Gerson Freitas Jr and Ben Holland
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.
