US Still Stuck on Oil
The US will be among the world’s laggards in transitioning off oil and gas, with a stronger-for-longer domestic oil industry continuing to influence Washington policymaking for years to come. ExxonMobil and Chevron have this month placed bets of some $50 billion each on this unhappy outcome, in the form of separate agreements by these two US “supermajors” to buy two of the country’s largest “independent” oil producers, Pioneer and Hess, respectively.
Sadly for US politics and tragically for the global climate, Exxon and Chevron are probably right. In a fit of nationalism, Washington is doing too much to slow the transition onto renewables and electric vehicles and throwing too many lifelines to the oil and gas industry for it to be otherwise. An outcome that appeared only as a risk a month ago, now seems virtually assured.
In the future, the US oil and gas industry will have fewer players and be more homebound, as overseas markets shrink and global crude oil production consolidates more tightly around a few low-cost areas — of which the US is by far the largest that remains open to private international operators. Even in the US, prospects for Big Oil are constrained by the transition. This is evident from the fact that Exxon and Chevron did not have to pay the usual hefty takeover premium above stock-market valuations to get Pioneer and Hess.
But neither is the US industry about to go away or even lose its political clout, as American climate activists have been hoping. Along with Saudi Arabia and Russia, the US is likely to be among the “last men standing” on the oil stage.
Earlier indications that the Biden administration might abandon the oily dark side in favor of sun and wind are disappearing as nationalism, neoliberal pugilism, and fear of falling off its geopolitical pinnacle grip Washington.
The contrast between the US stance on energy and that of China, which is using manufacturing muscle built up over decades to move at a breakneck pace directly off coal and oil onto domestically manufactured renewables and EVs, couldn’t be sharper. That Chinese manufacturing muscle is adequate not only to power China’s own transition. It could also provide the inexpensive solar generation equipment, batteries, and low-cost EVs the US needs in the interim, while it gradually builds up manufacturing capability and, hopefully, adjusts to the much less consumption-driven economic and social model that the Earth demands.
But Washington is clearly in no mood to work with China. Faced with its own necessity to make fundamental and internally controversial economic adjustments, China may also be losing motivation to try. A potential meeting between Presidents Xi Jinping and Joe Biden late this year offers some potential to turn things around, but that’s a long shot. Hope should probably be reserved for keeping the two countries out of a shooting war.
Humiliation and Upheaval
Spurred in part by humiliation at the evident fading of US power, the Trump and Biden administrations have erected ever more barriers to imports of renewable generating equipment, especially from China — even before it built up capacity of its own. US installation of utility-scale solar slowed by 16% in 2022 as a result of such barriers, even as China, Europe, India, and many others flocked to this increasingly cost-competitive power source. A reinvigoration of US solar installations early this year spawned hope that barriers were falling. Biden has even removed some hurdles by executive order. But imports again lost momentum in the second quarter, as the Commerce Dept. went back into delaying mode. There were signs of a further bounce starting in August, but progress is unsteady at best.
Domestic solar panel manufacturing capacity is building, but it will take time, and the panels will almost certainly cost more than those from China, which currently enjoys an estimated 50% cost advantage on solar modules. Plans for keeping US wind power expansion on track by moving much of it offshore — which suits the skill set of big oil companies — are even more clearly failing. The US is falling further behind China and other leaders in the energy transition with each passing day.
At the same time, the US oil and gas sector is going from strength to strength, with shale oil production continuing to rise, defying government forecasts of a leveling off. That’s despite a drop in the number of active drilling rigs in the country. Oil companies are accomplishing this by getting more oil out of each well they drill. This is the technical side of the dynamic driving Exxon’s near $60 billion bid for Pioneer, the largest and one of the earliest producers in the Permian shale play in Texas and New Mexico, and Chevron’s bid of near equal value for Hess, which is a major producer in the Bakken shale in North Dakota and also in Guyana, the small South American country which Exxon and Hess — now Exxon and Chevron — have been trying to turn into the next pliant petrostate.
If there’s anything no country should want to be, it’s a pliant petrostate. Ask the Nigerians or, in an earlier day, the Venezuelans. What a petrostate’s citizens get for their oil is massive pollution and corruption, while other domestic industries and occupations largely disappear.
What we’re seeing in the US is consolidation of the oil and gas industry at various levels — a circling of the wagons if you will. Just as they are consolidating the corporate side of the industry with takeovers, the two remaining US “majors” (Exxon swallowed Mobil and Chevron swallowed Texaco years ago) are gradually consolidating their geographic orientation. They are both shedding new investment outside North and South America, and in some cases even selling off producing properties. There are exceptions, but that’s the clear pattern.
Contradictions
Signs of bipolar disorder within the Biden administration continue, but the underlying message is supportive of oil and gas production, at least in the near-term. A slow slide in US CO2 emissions resulting from a decline in coal burning and rise in natural gas use for power generation helps deflect criticism — or at least attention — from fossil fuel-friendly US attitudes and policies. This shift off coal is “market-driven,” that is it results mainly from natural gas being cheaper than coal in the US most of the time.
Solar farms are cheaper than either coal or gas in the US if the modules are from China, and solar is still going up at a great pace on US rooftops, as rooftop arrays involve smaller panels that can be obtained in the US or from non-Chinese manufacturers. But the government’s negativity on imports of utility-scale panels from China is having a very real-world impact construction of large solar farms.
EV sales are picking up in the US, but off a relatively low base of only 8% of total passenger car sales, less than one-quarter the market share EVs have garnered in China and about one-third their market share in Europe. And US automakers have held off on bringing some new EV manufacturing capacity online for fear high interest rates will dull consumer demand for these still relatively expensive vehicles. It’s unlikely US customers will have access anytime soon to Chinese models — which like solar panels, are cheaper than US-made models — as Chinese car companies have apparently decided the political risks and business expenses involved in breaking into the US market are too high to bother trying.
There’s much to be said in favor of bringing manufacturing back to the US. There’s much to be said against allowing reindustrialization to slow the move off fossil fuels and thereby worsen the already life-threatening climate crisis.
This fossil fuel orientation in US policy extends even to development of hydrogen as a potential low- to no-carbon alternative to natural gas. Carbon capture and storage (CCS) benefits in the Biden administration’s Inflation Reduction Act put the US — meaning the US oil industry — on a potential path to some amount of blue, methane-based hydrogen. The only others visibly on that path are Saudi Arabia, the UAE, and a few other oil exporting states. China and Europe instead are moving increasingly, albeit slowly, toward green hydrogen, made with renewable energy.
Neither form of hydrogen makes much economic sense, and companies and research laboratories worldwide are scrambling to come up with technology that would obviate the need for such an expensive and risky approach to decarbonizing emissions-heavy industries such as steel and concrete.
It’s more likely, and certainly more desirable, that economic expansion will simply grind to a halt in the overdeveloped world in the face of severe environmental degradation and there simply won’t be as much need for such things — that capitalism will fragment and fail under the weight of its contradictory insistence on unlimited growth in a world of limited resources. But ”degrowth” is far from US policymakers’ — or many other governments’ — consideration at the moment. And the oil dance goes on.
