On November 23, 2021, as the price for West Texas Intermediate (WTI) crude oil hit $78.50 per barrel, U.S. President Joe Biden issued an order to the U.S. Department of Energy (DOE) to release 50 million barrels of oil from America’s Strategic Petroleum Reserve (SPR). Concerned about his declining public approval ratings and the impact that high gasoline prices were having on them, Biden and his advisors felt a political need to “do something” to address the situation, always the most dangerous motivation for any political regime.
Markets immediately responded to the Biden order by running oil prices up, not down, because they understood that the amount of oil involved was just a nominal gesture, a drop in a vast ocean of a 100 million barrel-per-day market. The oil price did start to fall when trading resumed two days later, the day after Thanksgiving, but that was due to the outbreak of the Omicron variant and fears of its potential to destroy oil demand, not related to Biden’s release.
Those fears were quickly erased in the market’s collective hive mind within a few weeks. WTI traded at over $85 per barrel on January 15, 2022, and most major analysts are now projecting that $100 oil is just around the corner. Memories of the administration’s SPR release are mostly out of mind, returning briefly only whenever DOE gets around to releasing a new tranche of a few million barrels to one of the larger U.S. refining companies for processing. On January 16, Valero, ExxonMobil, Marathon and Phillips 66 were among the bidders for a total of 18 million barrels offered by DOE in its first organized sale under the Biden order. The price for oil went up that day, not down.
All of this lack of real consequence coming about from such a high-profile presidential action provides just one more example of what little real power any U.S. administration has to actively intervene in a meaningful effort to impact oil prices set on a massive, global market. Things just do not work this way, and you really must wonder why Mr. Biden still, after all his decades in Washington, DC, does not recognize that.
After all, Biden was already a veteran in the Senate as he watched then-Presidents Gerald Ford and Jimmy Carter flail about during the 1970s, outlawing crude oil exports, implementing various regimes aimed at price controls, passing a Fuel Use Act that forced the building of hundreds of new heavy-polluting coal-fired power plants across the country because they were sure we were running out of natural gas. On and on, the brain-dead interventionist energy policy choices went. No bad idea seemed too awful for consideration, and it all culminated in 1980 with the passage by a Senate in which Biden held a seat of the Windfall Profit Tax, the single most brain-dead policy choice of them all.
Despite all of his long history with utterly-failed energy policies — most of which he supported, of course — Biden thought it a great idea in November to trudge down that road to inevitable failure one more time. It was just one in a long line of policy failures the first year of his presidency produced, failures that only served to promote higher costs for all forms of energy, not just gas prices at the pump.
It all Started With Keystone XL
Writing in January 2021 about President Biden’s day-one executive order to kill the Keystone XL Pipeline, I warned that that action was just an opening volley in a war on the domestic oil and gas business that would only intensify over the four years of his presidency. Anyone who may have thought the president would be satisfied with killing one pipeline and holding up new federal leases for a few months did not understand the gravity of the industry’s situation as this new government took power and began to exercise it. Nor did they fully understand the nature of the people the new president was nominating to hold the key positions in his administration related to energy policy.
The decision to kill Keystone XL on the administration’s first day was as symbolic as it was substantive, a signal sent to the climate alarm lobby that the hundreds of millions of dollars it spent funding the Biden/Harris campaign and campaigns of other Democratic candidates would be paid pack many times over.
The question that too few, if any, in the news media asked the new president is, why? Why would a president who, at least during his campaign, portrayed himself as a champion of the environment move to cancel a pipeline that has pledged to turn itself into America’s first all-renewable energy interstate/international pipeline system? Other than a simple raw exercise in political power designed to impress one of the Democratic Party’s most loyal and powerful interest groups, the move makes little sense. It also shows how dominant the anti-fossil fuel lobby has become in recent years over one of that Party’s former powerful interest groups, organized labor.
Reacting to President Biden’s decision, Thomas Pyle, President of the American Energy Alliance, put it this way, “The Keystone pipeline is nearly completely built and an important link for North America’s economic security. The decision today to rescind the permit makes it crystal clear that Mr. Biden stands with the extreme green lobby and not average Americans.”
In a press release issued just before Biden took office, TC Energy, the owner and operator of the Keystone XL System, made a series of strong environmental and labor-related pledges in a last-ditch attempt to head off the looming presidential order to cancel its permit. Among those commitments were the following:
- The Keystone XL System would achieve net-zero emissions in its operations by the year 2023
- While the net-zero goal would be achieved largely through the trading in renewable energy credits, the system would become fully powered by new investments in renewable energy capacity by 2030
- A promise to “spur an investment of over $1.7 billion in communities along the Keystone XL footprint creating approximately 1.6 gigawatts of renewable electric capacity, and thousands of construction jobs in rural and Indigenous communities”
- The company also committed to “working with union labor in the U.S. and Canada,” pointed to the fact that “Keystone XL has also signed a Memorandum of Understanding (MOU) with North America’s Building Trades Unions (NABTU) to work together on the construction of TC Energy owned or sourced renewable energy projects”
“Since it was initially proposed more than ten years ago, the Keystone XL project has evolved with the needs of North America, our communities and the environment,” said Richard Prior, President of Keystone XL. “We are confident that Keystone XL is not only the safest and most reliable method to transport oil to markets, but the initiatives announced today also ensures it will have the lowest environmental impact of an oil pipeline in terms of greenhouse gas emissions. Canada and the United States are among the most environmentally responsible countries in the world with some of the strictest standards for fossil fuel production.”
So, you might ask, why would a Democratic Party president move on his very first day in office to cancel such an environmentally responsible project committed to investing $1.7 billion in new energy capacity projects, one that planned to use union labor to boot? It’s a valid question, but the answer is pretty obvious: Opposition to Keystone XL has been one of the main goals of the anti-fossil fuel lobby for a decade now, and no promises made today will change that fact.
Yes, TC Energy has been able to build out the vast majority of the overall Keystone XL System and place it into service in the U.S., but the northern extension into Canada facilitating movement of oil sands crude into the U.S. was, for the environmental left, a bridge too far (even though, in a bit of irony, the cross-border portion of the line was already constructed and in place when Biden issued his order). With the stroke of a pen, a sitting American president told a private company that the $8 billion in investments it had already made related to a key infrastructure project did not matter and that it would have to just eat that money despite the fact that it had not been found to be in violation of a single U.S. law, regulation or permit.
That is truly extraordinary, an outright authoritarian action by any measure. And it was all about political payback. As Barack Obama famously said in 2009, elections have consequences, and the cancellation of a key piece of America’s first truly all-renewable oil pipeline systems ended up becoming one of the consequences of the 2020 presidential election.
Ignoring a Court Decision Related To Biden’s Leasing Ban
Even adverse decisions in the U.S. courts do not appear to affect the administration’s drive to punish what it obviously sees as a disfavored industry. Secretary of Interior Deb Haaland’s (herself a longtime anti-oil and gas activist) long efforts to enforce Biden’s ban on the conduct of new federal lease sales is a prime example.
Shortly after that order was issued in January 2021, 13 state attorneys general filed a suit in a Louisiana federal court challenging its constitutionality. On June 14, the judge in that case issued a decision overturning that order, applying it nationwide. In his ruling, the judge stated that the plaintiff states had established that they would suffer severe economic harm due to the leasing ban, noting that “Millions and possibly billions of dollars are at stake.”
In a statement following the judge’s decision, an Interior Department spokesperson said the agency would issue a report that “will include initial findings on the state of the federal conventional energy programs, as well as outline next steps and recommendations for the Department and Congress to improve stewardship of public lands and waters, create jobs, and build a just and equitable energy future.”
The industry celebrated this victory, with Louisiana Attorney General Jeff Landry calling it “a victory not only for the rule of law but also for the thousands of workers who produce affordable energy for Americans,” but the celebration was short-lived as the Interior appeared to be taking no real action in response to the judge’s order. In late July, Sec. Haaland claimed the ‘report’ would be coming soon. “We promised early summer,” Haaland said during a visit to Colorado. “It’s early summer. We’re still working on it.”
Perhaps she was biding her time, waiting for the U.S. Senate to approve Biden’s nomination of his nominee to become the Director of the Bureau of Land Management, a long-time anti-development radical and alleged domestic terrorist named Tracy Stone-Manning. Ms. Manning spent years working for an anti-logging group that engaged in the practice of spiking trees with metal spikes, an act that endangered the lives of loggers working in the forest. In 1989, this group inserted 500 pounds of these spikes into trees in an Idaho forest in order to halt the operations there.
She has been unapologetic for her actions, was what one agent called an uncooperative and evasive witness during FBI investigations and provided conflicting accounts of her involvement in these acts. One retired agent told reporters that she “absolutely refused to do anything” to help in the investigations.
On the same day Haaland issued her statement regarding the report, Stone-Manning’s nomination was advanced from the Senate Energy and Natural Resources Committee on a straight party-line vote. Coincidence? Smart people don’t believe in them.
Ultimately, Haaland, Stone-Manning et al. were forced by the courts to restart the federal oil and gas leasing program, but only after they had exhausted every procedural arrow in their quivers. In the process, they had made their point clear: This administration considers oil and gas to be a disfavored industry, and its apparatchik will spend four years working to limit it in favor of preferred industries like wind, solar and electric vehicles.
Congressional Democrats go After Wastewater Disposal
Congressional Democrats rolled out another frontal assault on the nation’s oil and gas industry in early summer, this time in the form of language contained in their massive CLEAN Future Act, sponsored by New Jersey Rep. Frank Pallone.
As detailed in a report from Rice University’s Baker Institute, the language would reclassify returned water from oilfield drilling operations as a “hazardous waste” under the provisions of the federal Resource Conservation and Recovery Act (RCRA). From the Baker Institute report:
Section 625 of the act holds particular importance, as it would task the administrator of the U.S. Environmental Protection Agency (EPA) with determining whether certain oil and gas production byproducts — including produced water — “meet the criteria promulgated under this section for the identification or listing of hazardous waste” within one year of the bill’s enactment. 3 The EPA defines produced water as “the water (brine) brought up from the hydrocarbon-bearing strata during the extraction of oil and gas.”
Such a change would do great harm to the upstream industry’s ability to get its business done. This brine — which is basically all that’s left once any solids have been removed from the returned water — has always been disposed of in Class II disposal wells, which exist in the tens of thousands across the country. Such wells are regulated by state agencies like the North Dakota Industrial Commission, the Oklahoma Corporation Commission and the Texas Railroad Commission.
But this reclassification would require the water to be disposed of in Class I wells governed by the U.S. EPA and its delegates, like the Texas Council on Environmental Quality. As the Baker Institute points out, only a few hundred such wells currently exist in isolated pockets, most along the Gulf Coasts of Texas and Louisiana.
If your goal is to damage the U.S. domestic oil and gas industry, this is a fairly ingenious approach. As the report’s authors point out, the language in the bill envisions a short timeline for implementation that would afford the industry little time to adjust. One industry executive I contacted said the change would be “potentially disastrous” for the business.
While it all sounds quite dire, one elected official in Texas was not so sure. Given his background in the waste disposal business and his current status as one of the state’s three members of the Railroad Commission, I contacted Commissioner Jim Wright to get his thoughts on the subject. Though he acknowledged the seriousness of this proposed change, he was a little more sanguine about the industry’s ability to cope with anything that comes down from Washington over the next few years.
“I think we are in for a crazy four years. There is going to be a lot of stuff thrown at the wall — what sticks, I’m not real sure,” he said. “If this does come to reality in whatever fashion, I think that our industry will adapt.” Not an unreasonable presumption given the industry’s long history of successfully adapting to a constantly-changing regulatory environment.
Wright pointed out that advances in technology in this century have enabled the industry to create uses for the returned water that are viable and scalable. He focused on two in particular: “One is for re-fracking, and the second is to utilize it for irrigation. We have seen a lot of development of technology related to both,” he said. “We are going to be looking very hard at trying to simplify the process of encouraging recycling of that water.”
While Commissioner Wright’s optimistic outlook has a strong basis in fact for many companies, there is no question that if passed, this provision would have a significant impact on some operators’ ability to get their business done. This, of course, is the reason why it is being pursued by Biden and congressional Democrats.
As of the end of 2021, the CLEAN Future Act was still pending on the agenda of the House Energy Resources Committee. Some of the language contained in this bill was also included in the larger “Build Back Better” welfare state expansion and Green New Deal funding bill sought by Biden. That bill was also stalled at the end of Biden’s first year in office.
At a rare press conference held on January 19, Biden promised to break the BBB bill down into smaller chunks, and hoped to start moving those through the congress as part of his legislative agenda for 2022. We can be sure that this effort related to Class II disposal wells will rear its head again during the course of the year.
Demagoguing the Industry on Mythical Tax “Subsidies” One More Time
Nowhere has the intensification of this war on oil and gas become clearer than in Democrats’ current efforts to raise taxes on the industry.
In its “Green Book” related to the administration’s “Build Back Better” bill, the Treasury Department uses this coded language to describe one of the overarching goals of the program: “Replacing fossil fuel subsidies with incentives for clean energy production.” This, of course, is nonsense, as I have written many times over the past decade.
It is a simple fact that the oil and gas industry does not receive “subsidies” of the type that wind, solar and electric vehicles enjoy, i.e., direct transfer payments from the government to enormous corporations like Tesla, General Motors and Ford, totaling billions of dollars every year. Some in the industry — mainly small producers and royalty owners — do benefit from the expensing of intangible drilling costs, which is similar to appliance manufacturers or pharmaceutical companies expensing their own cost of goods sold every year. Small independents and royalty owners also benefit from percentage depletion, a provision that is similar to the depreciation of inventory in other industries.
Despite these realities, Biden proposed to single oil and gas out by repealing those oil and gas-related provisions, which have existed in the tax code for more than a century, along with every other tax treatment in the IRS tax code specific to the industry today. In all, the Green Book contains a whopping total of $147 billion in new industry taxes, which would negatively impact mainly the red states where oil and gas are produced in the U.S.: Texas, Alaska, Wyoming, Montana, Louisiana, North Dakota, Ohio and Pennsylvania.
In most respects, it is the same nakedly political move that was attempted during all eight years of the Obama/Biden administration without success. We’ve seen it all before, most of it, anyway.
One clever new means of attacking America’s oil and gas industry is the proposal by the administration and many congressional Democrats to double the rate of taxation from a little-known tax provision called the Global Intangible Low-Taxed Income (GILTI) tax. Created as part of the 2017 tax reforms, GILTI was originally intended as a way to tax companies that move their intangible assets — like intellectual properties — overseas to lower tax-havens. The tax was specifically intended to target industries like pharmaceuticals and technologies in which companies have easily moveable, intangible assets.
International producers in the energy industry have become unintentional collateral damage of the tax. The industry is capital intensive and has tangible assets. Companies have to operate where the resources exist in the ground, often in far-away countries like Niger, Guyana, Gambia and Suriname. They are not operating overseas as a way to game the tax system.
Responding to the GILTI proposal, Jessica Boulanger, a spokeswoman for the Business Roundtable, said, “The potential international tax increase is as large as any corporate rate increase and at least as damaging for the competitiveness of U.S. companies because it hurts their ability to compete in foreign markets head-to-head with foreign companies whose countries don’t impose such a tax.”
The Biden/Democrat proposal to double the rate from 10.5% to 21% would make U.S. companies less competitive in the global marketplace, likely raising little real new tax revenues to the government as companies sell off international assets. It’s a fool’s game entirely designed as a punitive measure on a disfavored industry, the sort of policy move one would expect to see from authoritarian governments in third-world countries.
But this is not some third-world country. It is the United States of America, and the domestic oil and gas industry must find ways to survive this increasingly authoritarian government for at least another three and a half years. As Commissioner Wright told me, these years truly are going to be crazy.
Where Does Biden Go From Here?
It’s a very interesting question, one that was not entirely clear as Biden’s first year in office ended on January 20, 2022. His Build Back Better bill was dead, stalled in the Senate thanks to the steadfast opposition of West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Sinema.
As the Chairman of the Senate Energy Committee, Manchin wields tremendous power over legislation related to energy policy. Given that Build Back Better contained roughly $600 billion in new subsidies for “green” energy sources as a part of Biden’s Green New Deal agenda, much of which would work to damage the coal and natural gas industries that are so crucial to the economy in his home state, Manchin was never able to reach any compromise with the radical leftists who have made those subsidies among their top legislative priorities.
No one should think that Manchin is steadfastly opposed to such subsidies, though; he just wants to ensure they are “paid for” by offsetting taxes in congress’s arcane scoring system conducted by the Congressional Budget Office. In Mid-January, E&E News reported that Manchin had told them he supports some of those provisions but that he was not currently engaged in any negotiations on breaking them into a smaller package with other Senate Democrats or the White House. Sinema has also expressed support for many of these Green New Deal subsidy provisions. So the possibility remains that much of that subsidy money could come back up for congressional consideration during 2022.
This is really central to the Biden agenda on energy and the environment. That $600 billion was designed to fund efforts to try to reach the absurdly unrealistic targets Biden had set in early 2021 for expansions of wind and solar in the nation’s power grid and to subsidize more charging infrastructure for electric vehicles, as well as consumer purchase of them. For example, one of the major subsidy provisions would provide for a federal subsidy of $12,500 per EV purchased. That would be in addition to the federal, state and local subsidies already in place.
Another would create a $65 billion slush fund for buildout and expansion of transmission lines dedicated solely to bringing electricity generated by wind or solar power to distant markets, even though few such projects have even been identified as needed at this point. Another $213 billion would be dedicated to retrofitting homes and businesses to meet green energy standards, again without having identified a specific list of major projects to be funded in advance.
Make no mistake about it, none of these “green” energy things are going to happen without the subsidies since so few are profitable enterprises that would be funded by private equity during the normal course of business. The only way any of them could become profitable would be for the cost of energy generated by oil, natural gas, coal and nuclear to become more expensive in the marketplace than these “green” energy sources happen to be.
And it is once one understands that reality that one quickly realizes why every energy policy this administration and congress have pursued has been designed to make those traditional sources of energy more expensive. That’s part of the plan.
So, when we look ahead to what the Biden energy policy is likely to look like going forward, we only really need to look at the parts of it that he was unsuccessful in enacting during 2021. It will be a continuation of the same policies and spending plans, only the effort related to policy work will now shift away from congress to the federal regulatory agencies. The massive spending plans that were all crammed into the Build Back Better bill will now be broken up into smaller pieces and either moved as stand-alone bills or by attempting to attach language to other legislative vehicles.
The problem the administration and congressional Democrats will face there will be the fact that they also failed to revoke the Senate filibuster rule for budget-related bills in January, thanks to the opposition of the same two moderates, Senators Manchin and Sinema. So, unless they can succeed in attaching all the subsidy language to an omnibus budget package at some point, they will need to figure out a way to get to 60 votes in favor of such profligate spending. That means they would need at least 10 Republicans, perhaps as many as 12, should Manchin and Sinema continue to be holdouts.
All of which adds up to this final conclusion: At the end of his first full year in office, Joe Biden’s disastrous energy and environment agenda cannot be said to be fully dead. But it is on the legislative equivalent of life support, and so long as Manchin and Sinema don’t have changes of heart, its prospects for ultimate survival will become increasingly dim with every passing day during 2022. With Republicans looking likely to reacquire strong majorities in both houses of Congress in November’s midterm elections, whatever hasn’t passed by Election Day will safely be declared officially dead then.
About the author: David Blackmon is the Editor of SHALE Oil & Gas Business Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles — the last 22 years engaging in public policy issues at the state and national levels. Contact David Blackmon at [email protected].