HOUSTON—Massive government intervention to control the price of oil and gas … who’s in favor?
A majority of the crowd gathered for CERAWeek by S&P Global would likely give a visceral negative response, given the tenor of discussions concerning regulations. But what if the question was more nuanced: Are markets better off as a result of multiple governments joining to limit Russian revenues from oil and gas sales, as well as keeping prices low in the wake of the Ukraine war?
That was asked by Carlos Pascual of S&P Global Commodity Insights, moderator of a session on the growing role of government at CERAWeek by S&P Global. Few hands went up in the audience.
Panelists showed little surprise, but neither did they back down.
Indeed, the distrust of government policies was so intense at the CERAWeek government session that oil and gas industry representatives were loath to say they approved of actions taken to stabilize global markets, even if they benefited from those actions. It was a sentiment that echoed throughout the Hilton-Americas during CERAWeek this year.
“It’s always hard to compare to the counterfactual. What would have happened in the world if not for this?” said Richard G. Newell, president and CEO of Resources for the Future and a past administrator of the Environmental Protection Agency.
The oil market operates in a just-in-time manner, added Michael LaMotte, senior managing director of Guggenheim Securities. There’s not a lot of flexibility in the system, so friction causes significant price volatility.
“Markets don’t deal with externalities particularly well, so the invasion of Ukraine was a shock,” LaMotte said. “But I think the policy response helped relieve Europe.”
Two aspects of government intervention helped: reduction of uncertainty in the oil markets, in particular; and giving the market and market participants guidance on how to continue to trade and transact so the system can work with as little friction as possible, given the circumstances.
“Immediately after the invasion, with the runup in crude prices, I think the markets’ certain collective conclusion was, we’re headed towards a ban, most likely similar to that with Iranian crude,” LaMotte said. “This Russian oil would just be off the market. And with economies recovering post-COVID, there was a lot of concern about the supply-and-demand imbalance, which triggered the release of the SPR (U.S. Strategic Petroleum Reserve) and other constructive policy responses in terms of bringing the price down. Again, my hat’s off to those responsible.”
But LaMotte also noted that many government regulations hinder the energy industry.
“Society’s demanding us to go through this transition and do it in a cleaner and more sustainable way,” ConocoPhillips Chairman and CEO Ryan Lance said during a plenary session at the CERAWeek by S&P Global conference. “It’s now become economically and technically a little bit more feasible with the advent of the IRA [Inflation Reduction Act]. It is still procedurally impossible.”
Daniel Yergin, vice chairman of S&P Global and moderator of the session, stopped him cold and asked him to repeat. So, Lance did.
“It is still procedurally impossible for our country to go do this because our permitting doesn’t allow us to build these things,” he said. “It is not just our [Willow] project in Alaska, it is across the board.”
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And across the border. During a session on the future of natural gas, Greg Ebel, chairman and CEO of Enbridge, lamented the slew of failed western Canadian projects during what he has termed the “lost decade.”
Among those scrapped in governmental squabbles:
- Frontier Oilsands Mine
- Northern Gateway pipeline
- Energy East pipeline
- Pacific Northwest LNG pipeline and export terminal
- Prince Rupert LNG export facility
- WCC LNG export terminal
“Instead of a lost decade … we need a decade of consistency with respect to energy policy, permitting, all those things, and that’s a huge change, right?” Ebel said.
The lack of consistency is costly in terms of a drop-off in investment.
“There is a big void in the amount of infrastructure that’s not being built here in America,” said Jack Fusco, president and CEO of Cheniere Energy, during the natural gas session, who added that 2022 represented the lowest level of investment in natural gas pipelines since 1993.
“We’ve got to change that.”
For all of the complaints about the Biden administration’s approach to oil and gas, the permitting reform bill proposed by Sen. Joe Manchin (D-W.Va.) generated considerable opposition from both sides of the aisle—despite the benefits it would have provided to fossil fuels and the energy transition.
“How would a developer build a plant to produce green hydrogen on the Gulf Coast?” Lance asked. First, secure the permits.
“Look at the size, scale, scope of that industrial complex,” Lance said. “It’s huge. It’s another refinery. It’s another petrochemical plant-sized facility. Can we actually get that permitting in the United States?”
In the current political environment, probably not.
To Elizabeth Rosenberg, assistant treasury secretary for terrorist financing and financial crimes, it’s a matter of people not understanding what could have, and indeed was likely to have happened if nations had not acted swiftly and forcefully against Russia. The uncertainty unleashed by the war would have resulted in enormous upheaval for global equity markets as well as commodity markets, the expert panelists agreed.
People also don’t realize the breadth of cooperation required, Rosenberg said. No single country acted on its own.
“There’s been tremendous coordination between the EU, the U.K., the United States, Singapore, South Korea, Australia, Switzerland, Norway, etc., etc.,” she said. “It was never going to be just one—EU—that was banning all service provisions. Everyone moved together.”
But trust built in a global alliance does not translate to trust in domestic policies, particularly when there is a feeling that government is erecting hurdles to an industry’s success.
“We’ve got plenty of [natural gas] product, particularly here in North America,” Ebel said. “We know the world is hungry for it, and this is probably the greenest and freest place to actually produce those products. But if you can’t actually get it to tidewater in the case of exports, or you can’t get it to the market here in North America, it doesn’t seem to make a lot of difference on our energy transition journey.”
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