Why US oil producers need a clearer voice, not a louder one

American energy industry needs to be able to argue its case effectively as opposed to leaning on litigation

(FILES) In this file photo pipe is stacked at the southern site of the Keystone XL pipeline on March 22, 2012 in Cushing, Oklahoma.  TC Energy, the Canadian company behind the Keystone XL pipeline between Canada and the United States, on January 20, 2021 suspended construction of the oil conduit that new US President Joe Biden has pledged to quickly block.  / AFP / GETTY IMAGES NORTH AMERICA / TOM PENNINGTON
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The administration of President Joe Biden has been quick out of the gate in its energy policy. The US oil industry and its supporters have raised a predictable howl of complaint at restrictions on their business. But they have only themselves to blame, and will lose relevance if they cannot change course.

President Biden has already blocked construction of the Keystone XL pipeline from Canada, and rejoined the Paris Agreement on climate change. The US Department of Interior has put a moratorium on new oil, gas and coal leasing on federal lands and offshore areas, including the Arctic National Wildlife Refuge in Alaska, and halted the issue of new drilling permits.

The Democrats have a wafer-thin Senate majority, tilting on Joe Manchin from the coal-mining state of West Virginia, and could lose control in the 2022 mid-term elections. Joe Biden has substantial powers through executive orders and regulatory actions, though the Trump era showed how quickly a new president can undo such measures.

But this is not just about who sits in the White House. Several recent trends have shown the US fossil fuel industry was on an unsustainable path. Under Donald Trump, environmental regulations were rolled back, even those that large oil firms supported. Environmentally sensitive areas were offered for exploration, despite tepid interest.

Now, there is wide industry expectation that there will never be another major oil or gas pipeline built in the US. Even under a future Republican administration, the legal hurdles have become too much to surmount. Investors and insurers are increasingly unwilling to put money into fossil fuel projects, even though the Trump administration, in a bit of Brezhnev-lite command economics, tried to force them to.

The US oil industry has to win over not just its own public, but international customers. Ironically, the historic switch to being a net exporter of oil and gas, expected to herald “energy dominance”, actually gives the rest of the world a say in its domestic energy policy.

In November, Engie, a French utility, cancelled talks to import liquefied natural gas (LNG) from NextDecade in Texas, as its host government raised concerns over the high carbon footprint of American gas production. A fortnight ago, NextDecade dropped plans to build an LNG import terminal in Ireland over uncertainty about the country’s low-carbon goals. Last week, French oil giant Total announced it was withdrawing from the American Petroleum Institute, due to its counterproductive stance on climate policy.

If Europe moves ahead with plans to impose tariffs on the carbon emissions of imported fuels and materials, and if China advances on its 2060 carbon-neutral goal, US producers would suffer further.

The American industry does not seem to have woken up to the need to make its case, rather relying on litigation and friendly politicians. Wayne Christian, chair of the Texas Railroad Commission, the state’s oddly named petroleum regulator, responded to the Engie decision with a furious tirade, criticising the Paris Agreement, environmentally-responsible investing and “wokeness”.

Placing petroleum firmly on one side of the US culture war has been a bad choice. Industry associations and respected magazines should be informing their members and readers, and advocating for economically sensible environmental policies, not joining the right-wing echo chamber. Just a decade ago, natural gas was seen as a climate ally; now it is vilified more intensely than coal.

The big US oil firms may be understandably sceptical that they are the right companies to lead a renewables revolution. But unlike their European peers, they have not tried very hard in advancing low-carbon solutions that fit well with their existing core business.

Now, there is wide industry expectation that there will never be another major oil or gas pipeline built in the United States

To their credit, a few American corporations, such as NextDecade and Occidental, have been advancing climate approaches such as carbon capture and storage (CCS), including removing carbon dioxide directly from the atmosphere. They are encouraged by progressive policies, including generous federal tax breaks for CCS and credits from California for fuels with a low carbon footprint.

But this is not enough. As its French and Irish experiences show, NextDecade’s own plans for carbon neutrality have not sufficed when set against the wider industry’s preference to lobby for exemptions to continue unsustainable business as usual.

Trends in Washington and Houston look positive for Gulf oil producers – for now. Firstly, restrictions from the Biden administration will prevent the shale industry shooting its profitability in the foot again. Enforced capital discipline will mean less production growth and so less competition. That could be a reason for Opec+ to be relatively less aggressive in bringing back production, and comfortable with somewhat higher prices.

Secondly, in the longer term, the US oil industry’s refusal to adapt to a changing climate undermines its credentials. It has the fundamentals to be a low-carbon producer, but dogmatic opposition to any and all regulation, no matter how reasonable, has left it with high levels of flaring and methane leakage. Unlike troubled Iraq or distant West Siberia, the world’s largest energy market has no excuse for burning off “unwanted” gas.

In contrast, GCC producers are increasingly making low carbon footprints a key part of their sales pitch, and working on climate-friendly approaches including certifying carbon-neutral LNG, boosting energy efficiency, electrifying facilities, cutting methane leaks, and implementing CCS and hydrogen.

Nevertheless, the US’s unique influence gives it an outsize role in determining the eventual reputation of the world oil business. The American industry needs to stop trying to turn back the waves, or it will drag down its global peers alongside it.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis