HOUSTON — A key State Department official used an appearance at energy industry event CERAWeek to take on what he said were “myths” about the Biden administration’s energy policy in reaction to surging oil prices following Russia’s invasion of Ukraine.
Amos Hochstein, long a high-level official at the department on oil issues, is now senior adviser for global energy security at State.
One of the “myths” that he attacked was that the Biden administration has had no interaction with the oil industry to develop a response to the loss of what Hochstein said was 3 million to 4 million barrels a day of Russian petroleum supply out of total exports from that country of nearly 7 million barrels a day.
“We have had a number of communications for the last several months and especially the last several weeks,” Hochstein told a plenary session Tuesday at CERAWeek, a huge industry conference produced by S&P’s Global Commodity Insights division.
Hochstein disputed the view that the administration “is somehow holding back or is responsible for the industry not being able to produce a rising amount of oil.” The weekly Energy Information Administration report on crude production shows U.S. output at between 11.5 million and 11.6 million barrels a day for the past several weeks. That is higher than the roughly 11 million barrels a day being produced when Joe Biden was sworn in as president. However, it has not made any recent consistent upward move even as the world requires more supply.
When Hochstein has spoken with oil industry officials, he said he has asked them if the Biden administration had taken steps that are restricting production. “The bizarre thing is they told me it is not true,” Hochstein said. “The industry said there is no bottleneck for added production.”
The issues that the industry brought up with Hochstein when he met with them were problems that the federal government could not control. Hochstein cited frac sand supplies and labor tightness.
He did bring up the recent Biden administration talking point that there is an enormous backlog of undrilled federal leases, echoing a recent statement by the White House.
“There are 9,000 approved drilling permits that are not being used,” White House Press Secretary Jen Psaki said at a press briefing Monday. “So, the suggestion that we are not allowing companies to drill is inaccurate. The suggestion that that is what is hindering or preventing gas prices to come down is inaccurate.”
Hochstein noted that 90% of production in the U.S. is on private lands, where the federal government has no control.
But it is the private sector where Hochstein said there has been a problem restricting supply. Oil executives have told him, Hochstein said, that “Wall Street and the funds” were pushing oil companies not to ramp up their drilling activities and instead focus on continued payments of dividends.
That is not new; the largest output in production from a few years ago came from a shale industry that was not producing free cash flow and paying no dividends. Fiscal discipline has changed that in recent years, but it also means that capital expenditure budgets have been kept on a tight leash.
“It is unfortunate but that is a private avenue, not the government,” Hochstein said.
He added that even with those limitations, the federal government expects an increase of 900,000 barrels a day in U.S. output both this year and next.
U.S. exports of liquefied natural gas surged in January to help a European market that was dealing with reduced supplies of Russian natural gas, as well as anticipation of even further cuts should there be military action by Moscow.
The administration, he said, worked with the industry and European counterparts “to identify short-term and surge supply to Europe. It would not have happened without us.”
The role of the State Department, Hochstein said, was mostly to “nudge” the industry and shift LNG supplies that were headed to Asia and route them to Europe instead.