Senators Tangle With Oil Experts In Hearing On Containing Energy Costs

‘Is your industry really that afraid of Joe Biden?’

Though gasoline prices are down 40 cents a gallon in recent weeks, Americans are still feeling the pinch from soaring energy prices. Gasoline, natural gas and heating oil are all up double digits in the past year, with worries of outright shortages in Europe this winter.

On Wednesday, a group of U.S. senators called on industry experts for suggestions on steps to take to ease the national energy burden. Don’t hold your breath; relief does not appear to be on the horizon anytime soon, with the testifying experts mainly proposing long-term solutions, or in some cases, no solution at all.

While tax credits and incentives were mentioned several times as a means to increase domestic energy production and lower costs, others, including Ron Ness, the president of the North Dakota Petroleum Council, argued in favor of more drilling-friendly policies, such as reducing permitting regulations and opening more federal land to drilling leases. North Dakota is a big wheel in the domestic oil scene: oil companies produce nearly 1.2 million barrels per day from the state’s Bakken shale formation — up from 900,000 bpd in the depths of the pandemic. He wants the federal government to encourage the state to drill even more.

“Energy security is national security,” said Ness. “Russia has weaponized their position as one of the top oil and gas producers in the world as they supply our enemies and hold our allies hostage. We must maximize our production not only to supply our domestic needs, but also to assist our allies.”

But that “does not occur with a flip of the switch,” he said. Ness criticized the Biden administration for putting up “hurdles to increasing production” like blocking access to new leases, permits and easements on federal lands. He also cited burdensome regulations, difficulty in building infrastructure, and problems getting new workers and capital investment as barriers. Anti-fossil fuel rhetoric sends a “strong market signal…that that industry might not be a sound investment,” he said. “This could all change tomorrow if the president and Congress changed their message to the American people, bankers, investors and workers that we need American oil and natural gas and that our industry has their support.”

Sen. Angus King (I-Maine) pushed back against Ness’ assertions, asking, “is your industry really that afraid of Joe Biden?”

“I mean, seriously, you’re talking like rhetoric and comments is going to drive your entire industry,” King continued. “I’ve never noticed that before. We’ve been trying to get off of fossil fuel for some time. All of a sudden, you’re saying that the cancellation of the Keystone Pipeline, which wouldn’t have come online for years and years, is somehow sending shockwaves through the industry.”

King’s remark came toward the end of a testy exchange with Ness, in which the lawmaker argued that oil and gas companies could’ve used some of their recent record profits to invest in expansion. Top “oil companies made $35 billion in profits in the last three months — you’re talking about a lack of capital, that sounds like a big pile of capital to me,” he said.

“The industry generally made a decision over the last 12 months to invest record profits in stock buybacks and extraordinary dividends rather than the typical pattern, which is when the prices go up, and there’s an increase of demand, which there was as we came out of the COVID pandemic, to make investments in production to meet demand,” King said. “That didn’t happen because of deliberate decisions about where to put that money.”

Sen. Catherine Cortez Masto (D-Nevada) later followed up King’s comment about record profits.

“Besides the profits that he was talking about, the $35 billion in profits that oil and gas have made over the last few years, it’s true they also receive subsidies from the federal government,” she said. “My understanding is there are [indirect and direct] subsidies to fossil fuel, about $20 billion annually — about 80% of that also goes to oil and gas.”

“So not only do they keep the profits, but they also get direct subsidies from the federal government,” she continued. “Seems to me those are opportunities for access to capital they need to continue the drilling that they need to do to add to the supply chain and address and help us lower costs globally.”

But focusing on lowering prices should not be Congress and utilities’ sole priority, Julie Fedorchak, chair of the North Dakota Public Service Commission, told the panel. “As important as affordability is, reliability trumps it and the growing reliability challenges we see nationwide are a reality check on how the electric system works,” she said.

“Prior to 2016, [the Midcontinent Independent System Operator] didn’t have any grid events that required them to use emergency procedures,” she said. “Since 2016, MISO has had 41 max gen events, triggering emergency procedures. These challenges are real and growing because integrating renewables is complicated. The physics of the electric grid are stubborn and don’t bend to anyone’s goals or deadlines.” She added that the EPA should coordinate with utilities and grid operators on new regulations “that could hasten our growing capacity crisis,” such as early coal retirements.

She delivered a clear warning: “When demand exceeds supply, people lose power. It’s inconvenient, yes, but it’s also a life or death matter.”

Looking on the bright side, John Larsen of the research provider Rhodium Group, told the Senate Committee on Energy and Natural Resources’ energy subcommittee that we use a lot less energy than we used to. “Over the past 40 years, the proportion of household energy costs to disposable income, often referred to as energy burden, steadily has declined from 8% in 1982 to 3% in 2020,” he said. “With recent price elevations households on average are back to spending 4% of their disposable income on energy costs. Things would currently be much worse for consumers if homes, appliances and vehicles had seen no energy efficiency improvements over the past 40 years.”

Larsen said that Rhodium Group estimates show that household energy costs will slowly decline back to near 2020 levels but it will take at least seven years to do so, based on on “renewable energy deployment, increasing efficiency of energy consumption, increases in conventional energy production and diversification away from the most volatile fossil fuels such as gasoline, towards alternative fuel vehicles.”

“While this is good news it is not necessarily a cause for celebration. High energy costs on households adds to the massive financial burden and challenges that Americans are already facing due to inflation,” he said. “The 50 million low income households in the U.S. face energy burdens that are on average three times higher than that of non low income households and these same households are also more vulnerable to price spikes.” Larsen suggested Congress accelerate cost reductions through investments and clean energy tax incentives.