President Biden reignited his attacks on energy companies Wednesday by demanding they boost refined oil output, but industry leaders said his bombastic rhetoric only exacerbates America’s refining capacity woes that have inflated gasoline prices.
Energy producers and analysts rejected the president’s assertion that high pump prices can be boiled down to the notion refineries are simply sitting on untapped potential.
Amanda Eversole, chief operating officer and executive vice president of the American Petroleum Institute, said industry investments are made over the course of decades, not news cycles.
“Tone matters here,” she said. “Unfortunately, our industry is not something where you can just flip a switch and turn things back on.”
Dan Yergin, vice president of S&P Global, said the administration should “stop rehashing old soundbites about price gouging, which accomplish nothing.”
“The government needs to have a strong, open dialogue with the industry,” he said.
In a letter to seven of the largest U.S. oil companies, Mr. Biden blamed corporate greed and Russia’s war in Ukraine for the latest spike in fuel costs. The president also threatened to invoke his emergency powers to force more refined output to meet demand.
“I understand that many factors contributed to the business decisions to reduce refinery capacity, which occurred before I took office,” he wrote. “But at a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable.”
As the president escalated his rhetoric, a bipartisan group of lawmakers huddled with industry lobbyists and leaders at the Capitol in search of solutions.
U.S. refining capacity, the process that turns crude oil into gas or diesel, is already near full utilization. The Energy Information Administration expects capacity to reach 96% in June.
But America’s refining capacity remains below pre-pandemic levels, down roughly one million barrels per day from nearly 18.9 million in early 2020 to 17.9 million in March. The situation resulting from the pandemic has only been worsened by the world ditching Russian oil as a punishment on Moscow.
Companies have ditched refining assets or expanded existing facilities, rather than constructing new ones, given the high costs and historically low profits.
No new refineries with significant capacity have been built since a Marathon-owned facility in Louisiana came online some 45 years ago in 1977, according to the EIA. At the time, it produced 200,000 barrels per day, but has since been expanded to a capacity of 578,000 barrels.
There were 129 operable U.S. refineries as of January 2021.
Refineries, whose profits come from the difference between crude oil prices and the cost at the pump, have little control over their margins.
“My response to Biden saying take it easy on the profits is to say, you didn’t seem to mind when they were losing massive amounts of money for two years,” said veteran energy analyst Dan Dicker. “It’s only when the times start to be good, which they don’t have much control over, that these complaints start to build up.”
Oil markets have hovered at around $120 per barrel, which means the national average for gas should be roughly $3.75 per gallon, he said. Instead, the current $5 per gallon average is as if oil prices are $200 per barrel, due to limited refining capacity.
A bipartisan coalition of lawmakers in the House, known as the Problem Solvers Caucus, convened a panel of industry leaders representing energy companies Wednesday to discuss potential solutions to blunt bloated gas prices while keeping long-term climate change objectives in mind.
Rep. Josh Gottheimer, New Jersey Democrat and co-chair of the bipartisan group, suggested Mr. Biden should take a page out of his playbook and listen more closely to the industry’s challenges. The president has said Energy Secretary Jennifer Granholm will convene an “emergency meeting” on the topic.
“The White House should bring oil and gas producers into the White House and have a direct conversation with them about how the government can help and steps where they can help to get up production,” Mr. Gottheimer said. “I think that’s what you heard here today, not pointing fingers, but actually bringing everyone together.”
The bipartisan brainstorming session didn’t yield any near-term solutions, but Republicans and industry representatives reiterated their desire for Mr. Biden to cease his anti-fossil fuel rhetoric that they argued has had a chilling effect on new production.
The American Petroleum Institute, which was also present, unveiled a 10-point plan this week outlining how it believes Mr. Biden could help achieve lower prices down the road. It includes cutting red tape that ensnares energy projects, lifting restrictions for on- and offshore-lease sales, and offering support for the industry to promote new investments and production.
Record gas prices have led to record profits for oil companies. Still, the industry is projected to increase daily production by roughly 760,000 barrels by year’s end for a total of 12.6 million per day, according to the EIA.
The bad news for the Biden administration — and drivers — is there’s no magic wand anyone can wave to change the status quo except consumers, Mr. Dicker said. Until Americans stop driving as much, expect high prices to persist.
“Americans love to whine, but they’re not driving any less,” he said.