While it’s important that the U.S. maintain its longstanding alliance with Saudi Arabia, I wish President Biden had used Zoom for his recent meeting with the Saudi leadership. It was a bad look and bad energy policy for the U.S. president to fly all the way to Saudi Arabia to plead for more oil output when all he had to do was fly to Houston.
When it comes to energy policy today, Biden is not realistically diagnosing our problems or offering a comprehensive solution. (He also gotten zero help from the G.O.P.) Suspending the federal gasoline tax or draining our strategic petroleum reserves is not a strategy. They are signals that you have none. America is the world’s largest oil producer — not Russia or Saudi Arabia — and we need to get our act together fast by harmonizing three priorities.
In the short term, we need more oil and gas produced in the cleanest ways, with the least methane leakage, to bring down prices at the pump and help dampen inflation. Also in the short term, we need to produce more oil and gas to export to our NATO allies in Europe that have vowed to get off Russian oil — because if the Europeans do so without an abundant alternative, the global price of oil could go to $200 a barrel next winter and force their citizens to choose between heating and eating.
Most important, for the short term and the long term, we need to produce as much renewable energy and efficiency as possible to help mitigate climate change, which is helping to ignite dangerously high temperatures around the world this month, among many other weird and scary weather phenomena.
In other words, we need a strategy for a GREEN TRANSITION.
Both of those words are very important. We can’t get off fossil fuels like flipping a switch. Lord, I wish we could. I am still committed to that goal. But there simply are not yet enough renewables — not even close. So there has to be a TRANSITION. That means we need to encourage more, but cleaner, production of oil and gas today — along with policies that will dramatically accelerate our production of reliable, abundant and affordable renewables and energy-efficiency systems — to supplant fossil fuels as much and as quickly as possible.
Therefore, instead of going to Saudi Arabia, Biden should have put America’s biggest domestic oil producers in a room with his top environment and energy experts and not have let them leave until they agreed on a strategy for maximizing the cleanest possible production of U.S. oil and gas, with the smartest carbon tax, with the smartest energy conservation measures, with the most realistic plans for carbon sequestration, and with the most credible plan to massively and rapidly expand our renewable energy portfolio.
Then Biden could fly off to Saudi Arabia — or look Vladimir Putin in the eye — as an energy price maker, not just a price taker.
Forging this kind of realistic green transition plan would, alone, make Biden one of the most consequential presidents in history.
So, to help kick start the discussion of a “Biden Green Transition Plan,” I reached out to Ryan Lance, the chief executive of ConocoPhillips. Lance leads one of the biggest oil and gas companies in the world and is someone whom I’ve always found to be a thoughtful interlocutor on energy. I wanted to see if such a deal was even remotely possible. His emailed answers, edited here for clarity, to my questions left me more hopeful than not.
THOMAS FRIEDMAN: What will be the impact on the oil market of Biden’s visit to Saudi Arabia?
RYAN LANCE: It’s unclear. While we believe there is at least two million barrels a day of spare capacity today in the Middle East, we can’t know for sure. But it’s important to note that many OPEC members are not meeting their current production targets. What is more certain is that world demand has recovered strongly and is nearing prepandemic levels, so the market remains very tight. That, combined with current low oil storage inventories worldwide, indicates that prices will remain volatile.
FRIEDMAN: What if, instead of going to Saudi Arabia, the president had gone to Houston and asked U.S. oil and gas producers to pump more?
LANCE: North American production capacity had dropped by about 1.5 million barrels a day from 2019 to 2021, mainly due to putting the brakes on investment early in the pandemic. Combine that with ongoing shortages of people, materials and products, and reduced service and supply chain capacity, the U.S. will need a couple of years to fully restore production.
It’s important to remember that even the shortest-cycle wells take around 12 months to drill, complete and tie in to pipelines. But restoring U.S. crude and condensate production to prepandemic levels is well underway and will continue, particularly if supply chain constraints ease during the second half and policy supports the additional infrastructure that will be needed. Approximately 800,000 barrels of oil per day are expected to return this year, and a further increase of 900,000 barrels per day is expected next year.
FRIEDMAN: So that’s almost as much as the president hoped to get from Saudi Arabia, if it even has that much. But would more U.S. oil and gas production substantially lower pump prices here?
LANCE: Refined products, including gasoline, are priced in global markets, so the more crude oil going into the global market, the lower the price of gasoline. This is why U.S. crude exports help keep U.S. gasoline prices down.
FRIEDMAN: Has the Biden administration engaged in meaningful discussion with the oil and gas industry on an energy transition?
LANCE: While this administration meets regularly with environmental groups who want to eliminate all fossil fuel use immediately, there’s very little dialogue with the oil and gas industry. We have had some meetings — but to be honest, there haven’t been genuine discussions regarding energy supply issues, energy security, regional North American cooperation, and planning for a rational and coordinated energy transition to a low-carbon economy.
Oil and gas together supply 68 percent of U.S. energy today, while renewables supply just 12 percent, even after decades of wind and solar power construction encouraged by government mandates and tax breaks. Because oil and gas will remain in the energy mix well past 2050, we need a constructive dialogue with the administration, Congress and the American people on energy supply security, diversity, affordability, the energy transition and lower-carbon technologies. Demonizing the industry does not solve the problem.
FRIEDMAN: If there were a “Biden Green Transition Plan,” what would you want and what do you think the industry could give?
LANCE: What we need from government is stability and predictability. Sensible, predictable regulatory policies can foster a better investment environment. For example, from December 2019 to April 2020, oil prices fell from around $70 to $19 per barrel. Few industries ever see such a huge percent of revenue disappear so quickly.
Drilling permits alone are not enough. To encourage investment, government should resume orderly and consistent leasing of federal lands for exploration and development — and not sporadic and inconsistent —and expedite permitting approval not only for drilling, but also for the pipelines, roads and other infrastructure needed to facilitate new oil and liquefied natural gas production. These investments are typically longer cycle and require even greater regulatory certainty.
FRIEDMAN: And what green commitments should the oil industry make?
LANCE: All producers should have net-zero commitments. And our industry — and that means everyone, public and private companies — should deal with methane emissions, leaks and flaring once and for all, while upholding our imperatives on energy affordability and security. We should ensure all “orphan” wells are plugged in a timely manner, make real progress on carbon capture and storage, explore such low carbon sources as hydrogen, and assess the potential of nature-based carbon offsets.
ConocoPhillips, Pioneer and Devon recently joined the Oil and Gas Methane Partnership 2.0, which provides for a comprehensive, measurement-based methane reporting framework for the oil and gas industry. It is a partnership with the U.N. Environment Program and environmental NGOs, and includes third-party verification.
FRIEDMAN: How about a tax on carbon?
LANCE: We believe that a price on carbon, together with a plan to dividend the funds back to the consumer, would provide a stable and predictable market signal that would influence investment flows and end-user demand, while minimizing the local economic and social impacts of the energy transition. But we also acknowledge the political challenges of applying additional taxes at the point of sale. So other policy mechanisms should also be considered, including cap and trade, border adjustments, and equitable carbon credits across key parts of the economy.
Ryan Lance’s proposals sound mostly good. But words need deeds. The oil and gas companies have so far invested trivial amounts of financial capital in clean energy or carbon capture and zero political capital to enable and accelerate the clean energy transition. They have long endorsed a carbon tax, knowing it has a snowball’s chance in hell of being embraced by either party. And they were all AWOL in arguing for the president’s clean energy platform, which is full of new clean energy job opportunities and would put America back in the lead of the next great global industry.
All that said, this coincidence of the Russian invasion of Ukraine, soaring gasoline prices and climate change has made this moment ripe for a grand bargain. Biden should stop wasting time with Joe Manchin and, instead, gather all the key oil and gas executives and offer them this deal: He’ll give them, within reason, the regulatory certainty they need to invest in more wells and infrastructure and, in return, they’ll bring the G.O.P. around to voting for the billions of dollars in multiyear tax credits and investments Biden wants to promote solar, wind, nuclear power, hydrogen, electric vehicles, expanded electric grids, carbon capture systems and other clean-energy technologies.
There has got to be a way to strike a deal here, but it will happen only by the president going to Houston and not Riyadh.
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