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Subscribe today to the Washington Examiner magazine and get Washington Briefing: politics and policy stories that will keep you up to date with what's going on in Washington. SUBSCRIBE NOW: Just $1.00 an issue! RESTRAINT VINDICATED? The case for oil company capital discipline looks a little stronger this week after prices plunged in the face of high-profile recession warnings. West Texas Intermediate fell nearly 15% from June 8 through yesterday, where it closed at $104 per barrel. Brent fell nearly 11% over the same two-week period, while both benchmarks are up this morning. The story: Energy companies who are playing it conservative on spending have noted market volatility as a driving motivation for doing so, even with oil staying above $100 per barrel since the war in Ukraine began. They’ve also emphasized that spending today won’t make for additional barrels until multiple quarters from now, when the price could be substantially lower. Raoul LeBlanc, vice president for energy at S&P Global Commodity Insights, described the kinds of risk assessments that companies are considering: “If you ramp up in an inflationary environment, and then Ukraine and Russia hit a deal … These guys understand that it's not like anybody's going to feel sorry for them and go, ‘Oh, we're glad you invested when it was tough, and we’re going to give you some money.’” LeBlanc said the futures market tells the story of why producers are exercising this measure of capital discipline through sustained high crude prices. Futures on the Chicago Mercantile Exchange show WTI beginning to fall down into the $80-per barrel range beginning in March of next year and down into the $60 per-barrel range within three years. “If you were to try to hedge, you can only get $100 for a couple of months, and you'll never drill your well and get in online in that time,” LeBlanc told Jeremy. “So the actual price that people have to invest based on is being assumed to go down.” What Biden wants: President Joe Biden and other administration officials have stressed the need for more output from energy companies to solve the fuel price crisis, also asking investors on Wall Street to step up to put profits toward increasing production while criticizing companies for spreading the wealth to shareholders. At the same time, they’ve emphasized a view, before the war started and since, that the long-term solution should not favor oil and gas. Amos Hochstein, senior adviser for energy security at the State Department, said in October that the energy security of the future “is going to be not who controls oil and gas but who controls the inputs into a solar panel cell or into an electric vehicle battery,” and producers insist that kind of sentiment is making them stay put. More of the same: Diamondback Energy announced plans this week to increase its base dividend further. Chairman and CEO Travis Stice said the company continues to pay down its debts and maintained that the company now has “a strong balance sheet that can withstand another down cycle.” LeBlanc said companies are taking such actions, and being careful not to overspend with higher-than-expected revenues, to keep investor buy-in. “While there were a lot of bankruptcies in 2020, almost everybody survives the bad times. The question investors have is, can you survive the good times?” LeBlanc said. “When you hit a boom, will you blow it all?” Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
GRANHOLM, INDUSTRY DESCRIBE “PRODUCTIVE” AND “CONSTRUCTIVE” MEETING: Oil and gas players and Department of Energy marketed Secretary Jennifer Granholm’s meeting with executives yesterday in broadly positive terms. Both welcomed more collaboration on solving high energy prices without getting into specifics. Nobody showed their hand: Chevron Chairman and CEO Mike Wirth thanked Granholm for overseeing a “constructive conversation” and called the chat an important step toward better energy security, prosperity, and environmental protection. DOE’s readout said Granholm communicated that it is “imperative” that companies increase production and called for an ongoing dialogue between the administration and industry. The rub: But what everyone wants was clear enough going in. The American Petroleum Institute and the American Fuel & Petrochemical Manufacturers said the market needs signals “that the U.S. is committed to long-term investment in a strong U.S. refining industry and aligning policies to reflect that commitment.” The Biden administration hasn’t been willing to send such long-term signals. Granholm stressed on Wednesday that the way out of this is breaking “that sole reliance” on fossil fuels. AVOIDING GAS SHORTAGE MEANS NO EXPORTS: HABECK: Germany is staring down a gas shortage this winter unless it cuts back on its exports to other countries, Vice-Chancellor Robert Habeck said yesterday. Germany has historically turned much of its imported gas from Russia into exports to neighbors, including France and Denmark, but the reduction in flows via the Nord Stream 1 has changed the game, requiring the Germans to pursue more aggressive gas-saving measures. That apparently also will involve export cuts. Avoiding a shortage “is only possible under the assumption that we do not send gas from our stores to neighboring European countries,” Habeck said, according to Euractiv. Conditions have grown more dire for the Europeans because of the cuts, causing a number of countries to accept burning more coal to save gas supplies. Power prices are up, too. German winter power contracts have increased dramatically this week 300 euros per megawatt hour. EXXONMOBIL CEO CALLS DIRECT AIR CARBON CAPTURE THE ‘HOLY GRAIL’: Exxon Mobil CEO Darren Woods, in an interview with CNBC, called on the government to provide more support for direct air carbon capture, calling it the “Holy Grail.” “If you can overcome some of those technology hurdles, get your cost down, you’ve got a technology then that can address this in a very cost-efficient way,” he said. He suggested that the government should increase carbon prices in specific sectors. Flashback: ExxonMobil got in trouble in 2021 when a lobbyist said in a sting video that the company only publicly supported a carbon tax to appear to be environmentally friendly with little consequence because it saw no chance of actual legislation. The RundownNBC News Lake Mead is nearing dead pool status. The engineer for whom it was named would be 'horrified.' Wall Street Journal Yellowstone gateway town in Montana braces for months without tourists Bloomberg EU leaders brace for tough winter as Russia tightens gas grip CalendarSUNDAY | JUNE 26 The three-day G7 Leaders' Summit kicks off in Germany. |
