US President Joe Biden has called upon several oil majors to use “historically high” refining margins to invest in expanding the country’s capacity to help ease pressures on gasoline prices rather than rake in the profits, but the majors are not taking accusations lying down.
In a letter sent earlier this week to a list of companies including ExxonMobil, Chevron, Shell, Phillips 66, Marathon Petroleum and BP, Biden chastised the companies.
“At a time of war – historically high refinery profit margins being passed directly onto American families are not acceptable,” the letter read.
His missive was met with an indignant response, with Chevron, in particular, calling for policies that underpin continued investment in oil and gas rather than the "obstructive" approach that many US oil industry insiders accuse Biden of adopting toward their business.
While Biden put most of the blame on Russian President Vladimir Putin for disrupting the energy supply chain following Russia’s invasion of Ukraine in February, he said the refineries are shifting the burden of costs to consumers, as reflected in gasoline prices around 15% higher than the last time oil was at the $120 per barrel mark.
“There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing. But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain,” Biden said in a letter obtained by multiple news organisations.
Since the downturn of the Covid-19 pandemic, about 3 million barrels per day of refining capacity went offline globally, Biden said, with 800,000 bpd going offline in the US the year before he took office.
Biden said refiners should use the high profits to invest in raising refining capacity back to pre-pandemic levels, claiming American refineries are at their lowest level of capacity in half a decade.
“The letter is intended to solicit companies’ best ideas on how to increase capacity and how the government can help them do it in the spirit of the earnest and pragmatic dialogue. But we feel like this is a good step for us to move forward, and hopefully we’ll come and get some solutions,” White House press secretary Karine Jean-Pierre said during a briefing held after the letter emerged into the public domain.
Biden asked in the letter that companies work with his administration to find the solutions, and requested they provide the secretary of energy with an explanation of any reduction in refining capacity since 2020 and any concrete ideas to address inventory, price, and capacity issues in the coming months.
“Your companies have an opportunity to take immediate actions to increase the supply of gasoline, diesel, and other refined product you are producing and supplying to the US market. With prices for your product where they are today, you have ample market incentive to take these actions, and I recognise that some of you have already begun to do so,” Biden said.
Hackles go up
In a written statement sent to Upstream, Phillips 66 said: “We look forward to working with the Biden administration on issues around energy security.
“We do, however, want to underscore that US refineries are running at high utilisation rates. Further, refinery capacity expansion is a long-term proposition, given permitting, engineering design, capital cost estimates and equipment procurement.”
In response to a request for information about refining capacity, Chevron pointed to data from the Energy Information Administration (EIA) showing US refinery utilisation at 94.2%, the highest since 2019.
In a sharp response to Biden, Chevron stated: “We share these concerns, and expect the Administration’s approach to energy policy will start to better reflect the importance of addressing them.
“Unfortunately, what we have seen since January 2021 are policies that send a message that the Administration aims to impose obstacles to our industry delivering energy resources the world needs.”
Chevron said it is planning to increase production in the Permian shale basin by more than 15% this year, and its overall US upstream capital investments are up 35% over last year.
Shell said in a statement to Upstream it is producing at full capacity in the US and is looking into delivering more energy products to customers in the US and abroad.
“Those efforts include accelerating new and existing production of crude oil in the Gulf of Mexico and repurposing an idled refinery in Louisiana (Convent) that will produce lower-carbon fuels and products,” Shell said.
Biden has acknowledged that some companies have already taken action to increase refining capacity.
ExxonMobil and Chevron both said they have both increased their investments in US oil and gas operations, including refining, since demand began to bounce back after the Covid-19 pandemic.
Jones Act waiver
ExxonMobil said in a release it had increased refining capacity by about 250,000 barrels per day since the downturn, the equivalent of a medium-sized refinery, but called for government action.
“In the short term, the US government could enact measures often used in emergencies following hurricanes or other supply disruptions — such as waivers of Jones Act provisions and some fuel specifications to increase supplies,” ExxonMobil said.
“Longer term, government can promote investment through clear and consistent policy that supports US resource development, such as regular and predictable lease sales, as well as streamlined regulatory approval and support for infrastructure such as pipelines.”
Marathon Petroleum told Upstream it looks forward to speaking with the Biden administration on the issue.In the letter, Biden said the government is prepared to take action to reduce the strains on the industry.
In his letter, Biden told the oil companies he is prepared to use all tools available to him to provide Americans with a secure and affordable energy supply.
“The administration is prepared to use all reasonable and appropriate federal government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that every region of this country is appropriately supplied,” Biden said.
“Already, I have invoked emergency powers to execute the largest Strategic Petroleum Reserve release in history, expand access to E15 (gasoline with 15% ethanol), and authorise the use of the Defense Production Act to provide reliable inputs into energy production.”