Biden Administration, Wall Street Impede New Oil and Gas Investments (2022)

Banks, federal agencies, and ESG investors handicap the expansion of America's energy supply

The oil and gas industry is looking to the future with caution, and plans for expanding production of fossil fuels appear to be limited.

At the Enercom Energy Investment conference in Denver this week, the oft-repeated mantra among CEOs was that they will use the bulk of their profits to pay down debt and return money to investors through stock buybacks and dividend payments, with significantly less emphasis on major new capital investments. In addition, executives highlighted their commitment to environmental, social, and governance (ESG) principles for producing cleaner energy and addressing social justice issues.

As Democrats in Congress prepare to allocate $369 billion via the Inflation Reduction Act to subsidize electric cars and wind and solar energy, America’s oil and gas producers face an uphill battle. A shrinking supply of capital, a hostile regulatory environment, and shortages of materials and labor are creating significant hurdles against new drilling.

“I don’t want subsidies for our industry; we don’t need subsidies in our industry,” Chris Wright, CEO of Liberty Energy, told The Epoch Times. “We just don’t want barriers standing in the way of us providing the energy that people in the world want and need.”

Wall Street Steps Back from Fossil Fuel Financing

Among those barriers are banks and investors cutting back financing for new fossil fuel projects, due to both economic and political factors. In line with the ESG movement, 114 banks, collectively representing 38 percent of global banking assets, signed the Commitment Statement of the UN Net-Zero Banking Alliance, in which they pledged to “transition” their lending portfolios to reduce greenhouse-gas (GNG) emissions and reach net-zero GNG emissions by 2050 or sooner. American banks that signed this pledge include JPMorgan Chase, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley.

Another global money club, Climate Action 100+, is “an investor-led initiative to ensure the world’s largest greenhouse gas emitters take necessary action on climate change.” It has 700 investment companies as members, representing $68 trillion in assets, and includes asset managers such as BlackRock, State Street, Fidelity, Invesco, Fisher, and PIMCO; insurers such as Aegon, Allianz, and AXA; state pension funds like CalPERS, CalSTRS, New York State Common Retirement Fund, New York City Pension Funds, and Maryland State Retirement and Pension System; and university endowment funds from Harvard, MIT, and University of Rochester, among others.

In response, West Virginia and Texas recently barred banks that discriminate against fossil fuel companies from getting municipal banking contracts in their respective states. On July 28, for example, West Virginia State Treasurer Riley Moore announced that JPMorgan, Goldman Sachs, BlackRock, Morgan Stanley, and Wells Fargo would be placed on a Restricted Financial Institution List because they “are engaged in boycotts of fossil fuel companies, according to new state law, and are no longer eligible to enter into state banking contracts.”

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“Each financial institution placed on the Restricted Financial Institution List today has published written environmental or social policies categorically limiting commercial relations with energy companies engaged in certain coal mining, extraction or utilization activities, rather than considering the financial or risk profile for each company,” Moore said in an official statement. “While the ‘Environmental, Social and Governance’ or ‘ESG’ movement might be politically popular in California or New York, financial institutions need to understand their practices are hurting people across West Virginia.”

Last week, 19 state attorneys general sent letters to BlackRock CEO Larry Fink declaring that his efforts to impose the ESG agenda on companies whose shares it owns run counter to its fiduciary obligations to pensioners, intentionally harm America’s energy companies, and, to the extent that financial companies collude in this effort, raise anti-trust concerns. BlackRock is the world’s largest asset manager, with approximately $10 trillion in assets under management.

In a letter to Fink, Arizona Attorney General Mark Brnovich wrote, “BlackRock appears to use the hard-earned money of our states’ citizens to circumvent the best possible return on investment, as well as their vote. BlackRock’s past public commitments indicate that it has used citizens’ assets to pressure companies to comply with international agreements such as the Paris Agreement that force the phase-out of fossil fuels, increase energy prices, drive inflation, and weaken the national security of the United States.”

Global ESG Clubs Leave Oil and Gas Industry ‘Starved for Capital’

Oil and gas executives say the push to divest from fossil fuels by global organizations like Climate Action 100+, the UN Net-Zero Banking Alliance, and the Glasgow Financial Alliance for Net Zero is having its intended effect.

“Our industry is being starved for capital,” Anthony Gallegos, CEO of Independence Contract Drilling, told The Epoch Times, noting that banks are increasingly unwilling to provide revolving lines of credit or asset-based lending facilities [ABLFs] to the oil and gas industry. “There’s probably a third as many banks today that are willing to provide revolvers and ABLFs to [oil and gas] service companies compared to what there would have been six years ago,” he said. “There are investors, there are endowments, there are limited partnerships, some of which have historically invested in energy, that today have a mandate that they cannot make investments in fossil fuel industries.”

“The concern that the State of West Virginia, the State of Texas, and other states have had about financial institutions trying to dissuade investment I think is very real,” Wright said. “What that impacts most is the smaller or rising players that count on bank debt financing and reserve-based lending [RBL]. There is massively less RBL capital today than a few years ago; there’s a number of big European banks that were players in this space that have pulled out; there are American banks that want to show a decline in the percent of their portfolio that’s in oil and gas; there is less private equity capital because university endowments and CalPERS, CalSTRS, and other state pension funds, are divesting from oil and gas.”

Curtailing credit to smaller, private oil and gas companies is particularly harmful, Wright said, because they are currently the most active in developing new production. By contrast to the larger, public oil and gas companies, which are cautiously investing in new growth, “The private companies are investing relatively aggressively. Sixty percent of the drilling and fracking activity right now in the United States is private oil and gas companies,” Wright said.

In response to state actions, several U.S. banks recently denied they are doing anything to reduce financing for fossil fuels. Goldman Sachs stated in a July letter to West Virginia’s treasurer that it provided more than $118 billion in financing to fossil fuel companies. JPMorgan wrote that it had more than $42 billion in credit exposure to oil and gas companies.

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In an apparent reversal of BlackRock’s position in 2020 that “we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” BlackRock announced in May that it will likely support fewer climate-related corporate votes in 2022 than it did in 2021.

Investors Are Risk-Averse After Oil Price Volatility, Bankruptcies

In addition to the ESG movement, the oil and gas industry is also emerging from a period of over-investment in new fracking projects a decade ago, which together with increased output in the Middle East caused oil and gas prices to fall sharply in 2016 and then collapse in 2020 during pandemic lockdowns, forcing many oil and gas companies into bankruptcy. This has caused many investors to take a more cautious approach, particularly now that the economy is slowing and oil and gas prices have fallen from their peaks in the spring.

“I don’t think you’re ever going to see capital flow into this industry the way it did in 2012 through 2014,” Gallegos said. “Investors have made it clear: ‘We’re not here to fund your growth just for growth’s sake; if we’re going to give you money, you’re going to have to demonstrate a pathway toward generating returns where we’re seeing something back as investors.’”

Accordingly, CEOs are now more focused on returning cash to their equity and debt investors.

Fitch Ratings Director Neil Stirrat said that oil and gas companies were “exercising capital discipline” and using profits to repay debt and repurchase equity, with only a “marginal” increase in capital expenditures. This increase, about 15 percent on average across the industry, was approximately equal to the increase in companies’ costs due to inflation.

Fitch noted that industry credit ratings were generally going in a positive direction, as oil and gas companies reduced leverage, extended loan maturities, and improved their financial health. Whereas in 2020, Fitch downgraded the debt of 20 oil and gas companies, while upgrading four; in 2021, 13 companies were upgraded and only two downgraded. Year to date in 2022, Fitch upgraded the debt ratings of 10 oil and gas companies, with no downgrades. The average debt ratio for North American oil and gas companies, calculated as debt to earnings before interest, tax, depreciation, and amortization (EBITDA), came down from 4-to-1 in 2016 to 1-to-1 today.

A Hostile Regulatory Environment for Fossil Fuels

In addition to less generous investors, America’s fossil fuel companies faced a hostile regulatory environment. A June 28 report from the Heritage Foundation, for example, noted a rush by oil and gas companies in the final months of 2020 to secure drilling permits before the Biden administration took control.

“To date, Biden is the only president in modern history not to have held a single oil and gas lease sale on federal lands despite clear direction from Congress to do so quarterly,” the report stated. “While the Department of Interior is being forced by court order to hold a lease sale this quarter, it increased fees by 50 percent and decreased the amount of available acreage for drilling by 80 percent—even as it cut fees and red tape for renewable ‘green’ energy production.”

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In addition, Biden has not completed any offshore lease sales. By contrast, the Trump administration sold eight offshore leases, and the Obama administration sold 29. However, in 2021, the Biden administration issued more permits to drill on federal lands than the Trump administration did in its first year in office, though issuance of drilling permits has declined sharply in 2022.

Biden has also used other agencies, including the Securities and Exchange Commission (SEC) and the Environmental Protection Agency (EPA), to discourage investment in new oil and gas projects. The SEC issued a mandate in March that all listed companies must produce audited reports detailing their fossil fuel emissions, as well as those of suppliers and customers, together with their plans to reduce them. The SEC claimed that it was compelled to issue this mandate because “investors representing literally tens of trillions of dollars support climate-related disclosures.”

Government Spends Hundreds of Billions to Support Wind and Solar

Besides government policies and global money-club boycotts, the hundreds of billions in subsidies for renewable energy further undermine oil, gas, and coal companies’ ability to compete. This includes the $1.2 trillion Infrastructure Investment and Jobs Act, the invocation by Biden of the Defense Production Act, and the Inflation Reduction Act, currently being debated in the House of Representatives after being passed by the Senate.

In return for voting for green subsidies in the Inflation Reduction Act, Sen. Joe Manchin (D-W. Va.) reportedly negotiated a “side deal” that Congress would later approve a lessening of the regulatory burden for fossil fuels, including more congressional action to attempt to force the Biden administration to sell more oil and gas leases and issue new drilling permits. However, many doubt that Manchin will ever receive his part of the bargain, given that Democrats were virtually unanimous in rejecting a GOP-backed bill to streamline permit approvals last week.

The version of the Inflation Reduction Act that Manchin approved even granted the EPA the right to regulate carbon emissions. This was a critical issue because the U.S. Supreme Court’s landmark ruling in West Virginia v. EPA stated that the EPA’s decree that electric utilities must transition to renewable energy and away from coal and other fossil fuels was not legal because Congress never gave the EPA the authority to regulate carbon emissions. The Inflation Reduction Act would have given the EPA this authority, invalidating the Supreme Court’s decision, which had ruled in favor of Manchin’s home state.

Sen. Shelley Moore Capito (R-W. Va.) offered an amendment, which all Democrats, including Manchin, voted against, to remove from the bill the provision that granted sweeping new powers to the EPA. When that effort failed, Capito then challenged the provision’s compliance with budget reconciliation rules, which allow the Senate to bypass the filibuster. The Senate parliamentarian agreed with Capito, and the language granting the EPA new authority was removed from the bill.

“You could make the argument, and I’m sure Manchin would make it, that we’re getting some of those barriers out of the way for hydrocarbon development, and that would on the margin be positive,” Wright said. “But I balance that with the certainty that we’re going to spend $300 billion subsidizing unreliable, more expensive, grid-destabilizing energy, and if you subsidize it heavily enough, you’re going to get it no matter how destructive it is to our grid. No matter how negative it is, the subsidies are big enough that it is in the economic interests of those parties to build it, and we’re going to pay the price.”

Kevin Stocklin is a writer, film producer, and former investment banker. He wrote and produced "We All Fall Down: The American Mortgage Crisis," a 2008 documentary on the collapse of the U.S. mortgage finance system.

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FAQs

What did Biden do about oil drilling? ›

Within days of taking office, Biden issued an executive order pausing new leasing pending a review of the federal oil and gas program. It was the first step to deliver on a bold campaign pledge: To end new oil and gas development on public lands.

Why did Biden shut down oil and gas? ›

Biden pauses new oil and gas leases amid legal battle over cost of climate change. The Biden administration is delaying decisions on new oil and gas leases and permits after a Louisiana federal judge blocked officials from using higher cost estimates of climate change.

Why won't the US increase oil production? ›

The biggest reason oil production isn't increasing is that American energy companies and Wall Street investors are not sure that prices will stay high long enough for them to make a profit from drilling lots of new wells.

Did Biden cancel oil and gas leases? ›

Biden had signed an executive order that suspended new lease sales soon after taking office in 2021.

Why did Biden cancel gas leases? ›

In May, the U.S. Department of the Interior announced that it would cancel the leases, citing a “lack of industry interest in leasing in the area.”

Did US cut oil production? ›

The U.S. still produces more than 11 million barrels of oil per day, but it does rely on other countries for oil supplies to refine into products like gasoline.

Is the US producing less oil? ›

U.S. oil production is up less than 2 percent, to 11.8 million barrels a day, since December and remains well below the record 13.1 million barrels a day set in March 2020 just before the pandemic paralyzed the global economy.

Is the US still exporting oil? ›

In 2021, the United States exported about 8.54 million b/d of petroleum to 176 countries and 4 U.S. territories. Crude oil exports of about 2.96 million b/d accounted for 35% of total U.S. gross petroleum exports in 2021.

Why don't we build more oil refineries? ›

New refineries are unlikely to be built in the United States due to daunting environmental standards and policies that the Biden administration has been implementing to reduce petroleum product consumption in the future. Shockingly high prices for energy is the outgrowth of those policies.

Why does the U.S. not use its own oil? ›

"The U.S. imports oil because consumption of oil products—about 20 million barrels per day—is greater than the quantity of crude oil it produces, about 18 million barrels per day," Kaufmann said. "This difference, about 2-3 million barrels per day, is much smaller than previous years."

Where does the U.S. get most of its oil? ›

In 2021, Canada was the source of 51% of U.S. gross total petroleum imports and 62% of gross crude oil imports.
  • The top five sources of U.S. total petroleum (including crude oil) imports by percentage share of total petroleum imports in 2021 were:
  • Canada51%
  • Mexico8%
  • Russia8%
  • Saudi Arabia5%
  • Colombia2%
21 Apr 2022

How many oil leases did Biden shut down? ›

Biden pulls 3 offshore oil lease sales, curbing new drilling this year.

How many oil leases did Biden revoke? ›

President Joe Biden canceled three pending oil and gas drilling leases in Alaska and the Gulf of Mexico this week as gas prices hit record highs.

Did Biden cancel oil contracts? ›

The Biden administration has canceled one of the most high-profile oil and gas lease opportunities pending before the Interior Department.

How much oil does the US produce 2022? ›

U.S. crude oil production in our forecast averages 11.8 million barrels per day (b/d) in 2022 and 12.6 million b/d in 2023, which would set a record for the most U.S. crude oil production during a year. The current record is 12.3 million b/d, set in 2019.

Can the US drill for more oil? ›

The oil industry can decide to produce more oil whenever it wants. In fact, the oil industry already possess more than 9,000 approved—but unused—drilling permits on federal lands. Nearly 5,000 of those permits were approved in 2021 alone—the highest figure since the second Bush administration.

Why did oil production drop in 2021? ›

The US' crude oil production is expected to decline in 2020 and 2021 due to coronavirus-related low oil demand around the world and falling crude prices, according to a statement by the country's Energy Information Administration (EIA).

What percentage of US oil is imported? ›

Oil Imports

The United States imports 37% of its oil consumption (7,259,000 barrels per day in 2016).

How much untapped oil does the US have? ›

The country is also the world's largest consumer of oil, using about 21 million barrels per day in 2019 — 20% of the world's total. Buried under U.S. soil lies an estimated 38.2 billion barrels worth of proven oil reserves that are still untapped, according to the U.S. Energy Information Administration.

Who has the most oil in the world? ›

Venezuela has the largest amount of oil reserves in the world with more than 300 billion barrels in reserve. Saudi Arabia has the second-largest amount of oil reserves in the world with 297.5 billion barrels. Despite Venezuela's massive supply of natural resources, the country still struggles economically.

Who is the largest oil producer in the world? ›

The U.S. Is Still The World's Top Oil Producer.

What nation was the largest oil producer in the world? ›

The Kingdom of Saudi Arabia is often cited as the world's largest oil producer. The country produces 13.24% of the oil consumed in the entire world daily. Saudi Arabia has the second-largest reserves of naturally occurring oil in the world after Venezuela.

Why does the US export oil instead of using it? ›

The U.S. continues to import and export crude oil because the viscosity of oil (measured by its API gravity) being light or heavy and its sulfur content being low (sweet) or high (sour) largely determine the processes needed to refine it into fuel and other products.

What would happen if the US stopped exporting oil? ›

The study concluded that a cessation of U.S. exports “would lower the supply of oil in global markets and raise its price” and that “one would expect global fuel prices, if anything, to increase as a result.”

Does the US export oil to China? ›

“It's absurd that we continue to export oil to Communist China while Americans pay more than $5 per gallon of gas here at home,” Scott said. “In the first three months of 2022 alone, the U.S. sent nearly 52 million barrels of oil and petroleum to Communist China.

Why are we not drilling for oil? ›

As to why they weren't drilling more, oil executives blamed Wall Street. Nearly 60% cited "investor pressure to maintain capital discipline" as the primary reason oil companies weren't drilling more despite skyrocketing prices, according to the Dallas Fed survey.

Does the US have enough oil refineries? ›

The United States has adequate refinery capacity to process its current and projected crude production, however the free world oversupply of refining capacity will persist through the few remaining years of increasing world crude oil production and thereafter.

Are US refineries running at full capacity? ›

U.S. refinery capacity decreased during 2021 for second consecutive year. Operable atmospheric crude oil distillation capacity, our primary measure of refinery capacity in the United States, totaled 17.9 million barrels per calendar day as of January 1, 2022, down 1% from the beginning of 2021.

Who controls gas prices in USA? ›

Federal, state, and local government taxes also contribute to the retail price of gasoline. The federal excise tax is 18.40¢ per gallon (cpg), and state gasoline fees and taxes range from a low of about 15 cpg in Alaska to as much as 68 cpg in California and around 59 cpg in Illinois and Pennsylvania.

What was the purpose of the Keystone pipeline? ›

The Keystone XL pipeline extension, proposed by TC Energy (then TransCanada) in 2008, was initially designed to transport the planet's dirtiest fossil fuel, tar sands oil, to market—and fast.

Who buys oil from Russia? ›

Germany, Italy, and the Netherlands—members of both the EU and NATO—were among the largest importers, with only China surpassing them. China overtook Germany as the largest importer, importing nearly 2 million barrels of discounted Russian oil per day in May—up 55% relative to a year ago.

Why are gas prices so high in the US? ›

Why Are Gas Prices Still High? High demand for crude oil and low supply pushed gas prices upward this year. And though the Federal Reserve has raised interest rates four times so far in 2022—and is planning on more raises in the near future to nudge prices down—there are other factors at play internationally.

Did the US get any oil from Iraq? ›

The United States imported an average of 157,000 barrels of petroleum per day from Iraq in 2021.

Has the U.S. stopped oil production? ›

The U.S. still produces more than 11 million barrels of oil per day, but it does rely on other countries for oil supplies to refine into products like gasoline.

What did Executive Order 13990 do? ›

Executive Order 13990 directs Federal agencies to immediately review and take action to address the promulgation of Federal regulations and other actions during the last four years that conflict with these important national objectives and to immediately commence work to confront the climate crisis.

How many oil refineries have been shut down? ›

Five refineries have shut down in the United States in just the past two years, reducing the nation's refining capacity by about 5 percent and eliminating more than 1 million barrels of fuel per day from the market, leaving the remaining facilities straining to meet demand.

How much oil did the U.S. produce in 2021? ›

The U.S. remained the largest producer of oil and gas in the world, producing over 4 billion barrels of crude oil in 2021.

Why does the US not use its own oil? ›

"The U.S. imports oil because consumption of oil products—about 20 million barrels per day—is greater than the quantity of crude oil it produces, about 18 million barrels per day," Kaufmann said. "This difference, about 2-3 million barrels per day, is much smaller than previous years."

Where does the US get most of its oil? ›

In 2021, Canada was the source of 51% of U.S. gross total petroleum imports and 62% of gross crude oil imports.
  • The top five sources of U.S. total petroleum (including crude oil) imports by percentage share of total petroleum imports in 2021 were:
  • Canada51%
  • Mexico8%
  • Russia8%
  • Saudi Arabia5%
  • Colombia2%
21 Apr 2022

Can the US drill for more oil? ›

U.S. oil companies are under pressure to drill more, but they are constrained in how much they can do. It might seem like a logical fix. With domestic gasoline prices surging this month, oil producers could just drill more, right here in the United States.

Is eo 13834 revoked? ›

Executive Orders

13834, Efficient Federal Operations (Revoked January 20, 2021 except for sections 6, 7, and 11.)

Can an executive order be overturned? ›

Congress may try to overturn an executive order by passing a bill that blocks it. But the president can veto that bill. Congress would then need to override that veto to pass the bill. Also, the Supreme Court can declare an executive order unconstitutional.

What has Biden done for climate change? ›

Since President Biden set a bold goal of deploying 30 gigawatts of offshore wind by 2030, the Administration has approved the first large-scale projects and new wind energy areas, held record-breaking wind auctions, and issued an action plan to accelerate permitting.

Why are we not drilling for oil? ›

As to why they weren't drilling more, oil executives blamed Wall Street. Nearly 60% cited "investor pressure to maintain capital discipline" as the primary reason oil companies weren't drilling more despite skyrocketing prices, according to the Dallas Fed survey.

Why are no new refineries being built? ›

New refineries are unlikely to be built in the United States due to daunting environmental standards and policies that the Biden administration has been implementing to reduce petroleum product consumption in the future. Shockingly high prices for energy is the outgrowth of those policies.

Does the US have enough oil refineries? ›

The United States has adequate refinery capacity to process its current and projected crude production, however the free world oversupply of refining capacity will persist through the few remaining years of increasing world crude oil production and thereafter.

Why can't the US pump more oil? ›

The biggest reason oil production isn't increasing is that U.S. energy companies and Wall Street investors are not sure that prices will stay high long enough for them to make a profit from drilling lots of new wells.

Who has the most oil in the world? ›

Venezuela has the largest amount of oil reserves in the world with more than 300 billion barrels in reserve. Saudi Arabia has the second-largest amount of oil reserves in the world with 297.5 billion barrels. Despite Venezuela's massive supply of natural resources, the country still struggles economically.

How much untapped oil does the US have? ›

The country is also the world's largest consumer of oil, using about 21 million barrels per day in 2019 — 20% of the world's total. Buried under U.S. soil lies an estimated 38.2 billion barrels worth of proven oil reserves that are still untapped, according to the U.S. Energy Information Administration.

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