Before President Biden Reaches Jeddah

Mark Green
Posted July 14, 2022

Three key points as President Biden prepares to visit Saudi Arabia – where it is expected he will renew his administration’s request for the Saudis to increase global crude oil supply (as conveyed in comments by National Security Advisor Jake Sullivan) – at a time when the International Energy Agency says the outlook for oil markets has rarely been more uncertain:

1. Washington: Still looking for answers in the wrong places

As we’ve long pointed out, prices for fuels, goods and services have been impacted by an imbalance between global crude oil demand and supply. President Biden rightly has called for more oil production to boost supply. But it’s simply bad policy to seek that production growth from foreign producers instead of American producers. Mike Sommers, API president and CEO, in an interview with CNBC’s “Squawk Box”:

“What we really need right now are policies from this administration that emphasize the importance of American energy leadership, and instead they're going to OPEC and requesting they produce more when they really don't have the spare capacity that they need. … I really wish that this president instead was focused on the United States and putting policies in place that advance American energy leadership rather than going to OPEC and begging them for more production.”

Sommers told CNBC that American companies have increased production, but levels are about 1 million barrels per day short of pre-pandemic highs, and the administration’s attitude toward American oil and natural gas bodes ill for the future:

“Every signal that this industry has gotten in the United States from the beginning of this presidency has been to stop production in the United States. At this point, the president's policies have really been mugged by energy reality. The truth is that the world is going to require American energy leadership for decades and decades to come.”

API has recently reached out to the White House in two ways. First, API and other energy trade associations invited the president to tour American oil and natural gas production areas like the Marcellus shale region in Pennsylvania, as well as U.S. pipelines and refineries. It is an opportunity for the president to see firsthand the technologies, innovations and investments that are tapping America’s vast oil and natural gas resources that are key to global energy stability and security. Sommers:

“What we would like is for the president to go to the prolific Permian base, or to go to Kern County, California, or to go to the Marcellus Shale in Pennsylvania and show some leadership here in the United States and encourage production here, because we don't want to be dependent on regimes for our energy security. We want to be dependent here in the United States on the energy that we have here under our feet, and unfortunately, we're getting the exact opposite message from this administration over and over.”

A new API video that shows what President Biden could see if he accepted the invitation:

Second, API proposed a new initiative called “10 in 2022” – a list of 10 immediate steps the administration and/or Congress could take to help address current energy challenges, by “increasing supply and underscoring the connection between energy security and national security.”

This is American energy, produced by American workers – energy developed with the guidance of more than 800 industry standards and recommended practices covering all segments of the natural gas and oil industry, contributing to operational efficiency, safety, sustainability and environmental protection. Taking these actions would send a strong signal to American producers and global oil markets that American energy is in it for the long haul.

2. Policy: Chilling energy investment

As President Biden goes to Saudi Arabia, he does so from a position of energy weakness instead of strength, because the administration has not fully supported American oil and natural gas – for today and for the long-term future. Unfortunately, it’s the opposite, with the administration so far failing to see that its words and actions have chilled new U.S. production investment.

The president and his team have said they haven’t stood in the way of increased American production, but they’ve actually made increased production more difficult. They’ve canceled energy infrastructure, suspended new federal oil and natural gas leasing and more. When they’ve talked about American oil and gas, they’ve done so only in a short-term context, as a response to the current energy crisis and the impacts on American families and businesses. Sommers to CNBC:

“It costs billions and billions of dollars to provide new investment both in upstream operations and in downstream operations like refineries, and when you have an administration that continually says that you should pump more oil now, but the fossil fuel industry needs to go away five years from now, you're not going to get the kind of investment that you need.

“What we need is a long-term investment from policymakers in the energy future of the United States. … We need to invest in oil and gas because it's going to be about 50% of the energy [the world] needs in 2050 according to the International Energy Agency. We need to be making those investments now for future energy … we know the world is going to require.”

3. Practical: What can the Saudis actually do to help the situation?

Analysts tell Politico the kingdom might not be able to do much more than it already is doing, no matter how hard President Biden pushes in Jeddah. Asked by Politico what the president should expect from the Saudis, David Goldwyn, former State Department energy advisor in the Obama administration, replied: “Not much.”

That’s because experts question whether the Saudis and others in the Middle East have the oil supplies to further increase production and if their focus could be on keeping spare supply in reserve for future emergencies. Politico:

Oil market analysts have grown increasingly concerned that Saudi Arabia and other OPEC countries may also not have as much oil in their reserves as previously believed. Given that, Biden asking Saudi Arabia to pump more oil could spook the oil market with worries that fewer barrels are available in case of a future emergency, said Brenda Shaffer, senior adviser for energy at the Foundation for Defense of Democracies think tank. That’s especially true given that the administration has already been draining the Strategic Petroleum Reserves at home, drawing a million barrels of oil per day in a bid to bring prices down. “The market might get more nervous if Saudi Arabia and the UAE ramp up production, because you lost your last reservoir,” Shaffer said in an interview. “It’s reducing the supply cushion, and that’s really dangerous.”

America’s natural gas and oil industry is increasing supply. It needs clear policy support, not the current policy, which Sommers called “schizophrenic” in an interview with Fox News. Unfortunately, what we’re seeing with the president’s hat-in-hand visit to Saudi Arabia is a consequence of the administration’s current, flawed energy policy posture.