Wounded after U.S. President Joe Biden cancelled the Keystone XL pipeline that would have shipped Alberta crude to the United States, the province snapped at the White House’s call on the Organization of Petroleum Exporting Countries Wednesday to raise production faster than planned.
“The Biden administration pleading with OPEC to increase oil production to rescue the United States from high fuel prices months after cancelling the Keystone XL pipeline smacks of hypocrisy,” Alberta Energy Minister Sonya Savage said in a statement Wednesday. “Keystone XL would have provided Americans with a stable source of energy from a trusted ally and friend.”
Alberta Premier Jason Kenney was also critical of the Biden Administration.
“The same US administration that retroactively cancelled Canada’s Keystone XL Pipeline is now pleading with OPEC & Russia to produce & ship more crude oil,” the premier tweeted. “This comes just as Vladimir Putin’s Russia has become the 2nd largest exporter of oil to the US.”
The pipeline project, challenged by environmentalists for more than a decade, was expected to pump 830,000 barrels a day of Alberta crude to Nebraska, connecting to pipelines feeding refineries in Texas. It was abandoned by owner TC Energy Corp. in June after the Biden administration revoked a presidential permit on assuming office in January. President Barack Obama had blocked the project and President Donald Trump had revived it.
Jake Sullivan, Biden’s national security adviser, criticized global oil producers Wednesday, saying, “At a critical moment in the global recovery, this is simply not enough.” Sullivan also said in the statement: “Higher gasoline costs, if left unchecked, risk harming the ongoing global recovery.”
As the pandemic depressed oil demand last year, the benchmark West Texas Intermediate crude briefly traded at negative US$36.98 a barrel in April 2020, compelling the 13-member OPEC and 11 other major oil producers such as Russia, to cut supply by about 10 million bpd, or around 10 per cent of global demand. In July, the group agreed to increase production by 400,000 barrels a day (bpd) starting this month. The reduction now stands at about 5.8 million bpd, and OPEC has agreed to erase that by year’s end.
But with the U.S. economy reopening rapidly, demand is surging but production hasn’t kept up. WTI has been trading above US$60 a barrel since February, according to the U.S. Energy Information Administration, while average U.S. retail gasoline prices have jumped to US$3.17 a gallon in August from US$1.94 a gallon in April 2020. U.S. crude dipped 0.03 per cent to US$69.23 a barrel Thursday, while Brent crude was flat at US$71.43 per barrel.
Biden is taking the heat for higher gasoline prices during the summer driving season, with Republicans on social media attempting to link prices at the pump with his Keystone XL decision, efforts to disincentivize domestic oil production and plans for higher taxes in a US$3.5 trillion budget blueprint approved Wednesday.
“Our producers can easily produce that oil if your Administration will just stay out of the way,” tweeted George Abbott, the Republican governor of Texas. “Allow American workers—not OPEC—(to) produce the oil that can reduce the price of gasoline. Don’t make us dependent on foreign sources of energy.”
Other Republicans also took the opportunity to criticize the government that has been aggressively pushing out green energy policies to reduce the country’s carbon footprint.
“It’s pretty simple: if the President is suddenly worried about rising gas prices, he needs to stop killing our own energy production here on American soil,” Republican Senator John Cornyn of Texas said in a statement. “Begging the Saudis to increase production while the White House ties one hand behind the backs of American energy companies is pathetic and embarrassing.”
However, OPEC may not immediately pay heed to the White House’s call as the Delta variant is crimping global oil demand.
On Thursday, the International Energy Agency cut its forecast for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.
It’s a marked reversal for the Paris-based agency, which just a month ago was urging the OPEC+ alliance to open the taps or risk a damaging spike in prices. The oil cartel had responded to calls to hike supply, which is now arriving just as consumption slackens.
“The immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the IEA said in its monthly report.
U.S. oil production hit a record high of 12.3 million bpd in 2019 before dropping to about 11.3 million bpd during the pandemic, according to the EIA.
Helima Croft, head of global commodity strategy at RBC Capital Markets, says the administration’s “real anxiety appears to be about retail gasoline prices that have risen by over 40 per cent since the start of the year.” Biden doesn’t want to jeopardize his climate change-fighting policy target of the U.S. achieving net zero carbon production by 2050, she says.
“Encouraging greater U.S. oil production appears to be an absolute non-starter,” Croft says in an Aug. 11 report. “Hence calling on OPEC may be one of the only levers they can pull to try to keep U.S. gasoline prices in check while at the same time preserving their climate credentials.”
Part of the gasoline price surge lies with refining capacity hurt by “less than robust economics as well as the structural issue of refinery closures in recent years,” Croft says.
“Gasoline inventories have put in a new five-year seasonal low, an 8.6 million barrel deficit, recording the largest deficit since the winter storm freezeover knocked out U.S. refining capacity back in March. Moreover, U.S. crude production remains 1.8 million barrels a day below pre-pandemic levels, which has left crude inventories deeply in deficit territory since the start of May.”
Biden’s call on OPEC “serves as a more politically palpable way to deal with spiking pump prices” as opposed to how Trump urged producers to “drill baby drill” in domestic oil fields, Croft says.
For Minister Savage, “the Biden administration’s plea for more oil confirms there will continue to be demand for Canadian and Alberta energy, and highlights the need for affordable and reliable energy as the world seeks to lower emissions.”
“The bottom line is the world needs Alberta’s energy.”
With files from Thomson Reuters