Biden’s fuel price problem

Two things to start:

  1. The crisis over surging natural gas prices across Europe is getting worse, with governments discussing billions of euros in aid for households and stricken suppliers.

  2. Meanwhile, Asian buyers are winning a bidding war for imports of American gas, dashing European hopes that US supplies will ease the problem.

Welcome back to Energy Source.

This week is Climate Week and industry and politicians alike are keen to plug their latest green schemes. We will be keeping an eye on discussions at the United Nations, where world leaders are being pushed to do more to tackle climate change in the run-up to COP26 in Glasgow in six weeks’ time.

An event that will perhaps have more of a tangible impact on climate policy is Canada’s snap election, where the subject of emissions has been front and centre. Canadians went to the polls yesterday, but results are not expected until later this week.

Elsewhere, Royal Dutch Shell — under growing pressure to cut its carbon emissions after a recent court ruling — is selling its oil and gas assets in the Permian Basin to ConocoPhillips for $9.5bn.

In focus in today’s newsletter is the price of petrol (or gasoline, depending what side of the Atlantic you find yourself). Joe Biden has once again weighed in on the subject of fuel prices, which are at their highest in seven years. Why is he worried — and what can he actually do?

In the latest film in the Energy Source video series, Justin Jacobs looks at efforts to reduce flaring in the US shale patch. And Data Drill visualises what is behind Europe’s natural gas dilemma.

Thanks for reading.

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White House rankled by high gasoline prices

It could be a headline from practically any presidency in recent decades.

And the administration of Joe Biden — despite its green credentials — is no different. The president on Thursday made his latest intervention over elevated gasoline prices, which are at their highest level since October 2014.

“There’s lots of evidence that gas prices should be going down — but they haven’t,” he said. “We’re taking a close look at that.”

It’s not the first time the administration has weighed in. Last month Jake Sullivan, the president’s national security adviser, called on Opec to increase production in an effort to bring down fuel prices.

At a time of rampant inflation, high prices at the pump are among the most obvious examples to consumers of rising prices — prompting concern in the administration that it could spur a backlash among voters.

“They’re watching gas prices like hawks at the White House,” said Tom Kloza, global head of energy analysis at Opis, an oil price information service. “He’s making statements that are intended to let everyone know that he does not have a laissez-faire attitude on this.”

There are two problems though:

  1. Analysts say the president’s implication that the market is being somehow distorted is unfounded.

  2. And there’s not much he can do to shift prices anyway.

Why does Biden care?

Simply put, high fuel prices are a vote killer. The US has one of the world’s highest rates of car ownership and Americans like cheap fuel. When prices rise, politicians worry they will be blamed.

A study by researchers at Northwestern University in 2016 found that for every 10-cent rise in petrol prices, the approval rating of the incumbent president dropped by 0.6 percentage points, after controlling for other factors. 

“Compared to some other economic indicators, it’s one of the most visible ones to people in the public,” said Laurel Harbridge-Yong, an associate professor of political science at Northwestern.

“Unless you yourself are unemployed . . . people may not have a good sense of small to medium-size changes in [unemployment numbers] whereas with gas prices, many people are filling up one or more times a week and are going to notice.”

The same day that Biden alluded to potential oil market distortion last week, a Reuters/Ipsos poll showed his approval rating had dropped to the lowest level of his presidency. His approval rating has fallen from 54 per cent at the beginning of June to 46 per cent now — a period that has included the US’s chaotic withdrawal from Afghanistan.

For any White House, elevated petrol prices were “the biggest of deals”, said Bob McNally, head of consultancy Rapidan Energy Group and a former adviser to President George W Bush.

“There’s two modes: obliviousness — where they are not on the radar screen at all in the White House — or absolute panic — where they are top priority,” said McNally. “We are in the panic phase.”

What can he do?

Despite the tough talk, there is little American presidents can actually do about high prices at the pump. The price Americans pay for gasoline tends to closely track that of crude, which is a global market.

Biden can, as he has done, lean on Opec to pump more oil — but there is little indication he is doing this in a serious way. Otherwise, there’s the option of releasing supply from the Strategic Petroleum Reserve — the world’s largest supply of emergency crude — which has not been tapped in a significant way since Barack Obama did so in 2011 to compensate for lost Libyan production.

But such a move would be drastic — and not necessarily that helpful. “I think it would be ineffectual, short-sighted and very irresponsible,” said McNally.

Analysts said the blame voters were placing on Biden over fuel costs was being exacerbated by some rightwing commentators who are pointing fingers at the president’s climate change polices.

Biden has taken a more hostile stance against the oil industry than many of his predecessors as he seeks to cut American emissions, including cancelling a major pipeline project and pausing drilling leases on public lands.

But the assertion that this has pushed up oil prices at this point is “absolute nonsense” said Kloza.

Voters feel differently. An April survey by The Winston Group found 47 per cent of those polled blamed higher gas prices on the president’s environmental policies.

Is there anything fishy going on in the markets?

The president indicated that something may be impeding a fall in prices — and said the White House was “going after the bad actors and pandemic profiteers”.

He did not specify who exactly the “bad actors” were. But the administration is currently investigating whether consolidation in the oil and gas industry was leading to pump prices being higher than they need to be. Lina Khan, the chair of the Federal Trade Commission, has promised to deter illegal mergers in the industry, as part of a broader crackdown on the corporate power enjoyed by America’s biggest companies.

But as far as today’s fuel prices are concerned, analysts said there did not seem to be anything amiss in the markets.

“The markets are the markets. There’s nothing abnormal about what is going on,” said Patrick De Haan, head of head of petroleum analysis at GasBuddy, a price information service.

Prices have risen in recent months as Americans took to the roads in the wake of Covid lockdowns. They traditionally decline after the Labor Day holiday, which marks the end of the driving season, but Hurricane Ida has caused some additional disruption supply disruption this year.

“Everything on my radar right now is just fundamentals, the markets moving the way I would expect given the situation. And I do expect gas prices will start to decline, especially as we head out of the peak of hurricane season,” said De Haan.

Stephen Schork, editor of the energy newsletter The Schork Report, went further. The president’s comments, he said, were “pathetically specious, yet predictable.”

(Myles McCormick and Kiran Stacey)

Video: Reining in gas flaring’s waste and pollution

Data Drill

European governments are scrambling to tackle soaring natural gas prices. Prices have doubled since the start of this year, sparking fears of a slowed pandemic recovery and exorbitant electric bills.

Europe drained its storage capacity last year after an unexpectedly long winter. While the continent has been moving away from fossil fuel investments, still weather has drained its ability to generate wind power. To make matters worse, Russia has been curbing exports ahead of its launch of the Nord Stream 2 pipeline. 

EU energy ministers will meet this week to discuss how to best deal with the energy crisis as winter looms. France has already announced a €100 subsidy for 6m households, and Italy is expected to announce a support package of up to €4.5bn. (Amanda Chu)

Line chart of $ per MMBTu showing European gas prices are the highest in years
Column chart of Gas stockpiles are the lowest in ten years showing Europe faces an energy shortage

Power Points

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek BrowerMyles McCormickJustin Jacobs and Emily Goldberg.

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