Tue. Oct 4th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

August 26, 2022

Government initiated market intervention is not helpful. In a statement to The Hill, American Petroleum Institute President Mike Sommers said: “History has shown that federal market intervention has long-term negative consequences for secure, reliable and affordable energy for Americans and the best path to build redundancies for unprecedented events, including hurricanes or global turmoil, is to increase access to American energy.”

It is very unusual that President Biden’s Energy Secretary sent a threatening letter to seven major refiners in the USA that the Administration may consider “emergency measures” if they do not follow DOE’s “instruction.” We would not see any such letter from any Republican Administration. Biden must have his rationale for doing so, may be the US mid-term election is only 73 days away.

But Biden’s action will face complains from all sides:

  1. Encouraging domestic fossil fuel consumption runs against his green agenda. Leftists in the Democratic Party won’t be happy.
  2. Federal government has very limited power over “US Market System.” It is not clear what “emergency measures” that Biden Administration are contemplating. But these measures could be tied up at the US courts for days and months. Republicans are sure to challenge any measures advocated by Biden.
  3. European allies won’t be pleased at all, they are suffering unprecedented energy crisis because they join the US sanctioning against Russian energy after the war in Ukraine started on February 24, 2022. The sanctions backfired and Europe is entering unprecedented energy crisis and it is in a much worse shape than the USA. These allies are already dimming street lights, cutting down AC, and taking short showers already. When winter comes down to the Northern Hemisphere in two months or so, many Europeans, while taking cold showers, will not appreciate their allies in the US are warm and life as usual.

In this case, Biden Administration is taking unusual actions to protect the Northeast of the US, which is traditionally a political base favoring liberal Democratics. They bear responsibilities for their misfortune now. For example, these “progressive regions” usually detest fossil energy, no fracking, no oil/gas pipelines, even no nukes. It easy to point out that these seven major refiners which got DOE’s special attention, none of them is in the Northeast region. In terms of “fairness,” why should the people in southwest and Gulf Coast regions of the US breathing dirty air from the Petrochemical industry but send the refined products to the Northeast at a lower price than Europeans?

Biden Administration Urges Refiners To Curb Fuel Exports

By Tsvetana Paraskova – Aug 26, 2022, 9:00 AM CDT

  • According to a letter sent by U.S. Energy Secretary Jennifer Granholm to seven U.S. refiners, the Biden administration wants refiners to limit fuel exports.
  • Limiting exports at a time when global demand for non-Russian fuel is soaring would add upward pressure to both oil and fuel prices.
  • Refiners have already said that there isn’t much room to increase exports to Europe due to low inventories, pressure from Washington only amplifies that fact.

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The Biden Administration is urging American refiners to limit their fuel exports amid multi-year low domestic inventory levels, according to a letter U.S. Energy Secretary Jennifer Granholm sent to seven big refiners obtained by The Wall Street Journal.

U.S. fuel exports have been rising in recent months as countries in Europe and some in South America are looking to source alternatives to Russian fuel. In Europe, the looming EU embargo on Russian crude and products is prompting traders to source growing amounts of diesel from non-Russian sources. The U.S. has been one such source, and its exports hit 1.4 million bpd in July, the highest in five years. A lot of the increase is coming from Europe. 

However, the U.S. Administration is now urging refiners to curb exports in order to raise inventory levels at home.

“Given the historic level of U.S. refined product exports, I again urge you to focus in the near term on building inventories in the United States, rather than selling down current stocks and further increasing exports,” Secretary Granholm wrote in a letter to seven American refiners this month.

“It is our hope that companies will proactively address this need,” she added in the letter obtained by the Journal.

“If that is not the case, the Administration will need to consider additional Federal requirements or other emergency measures.”  

Gary Simmons, Executive Vice President and Chief Commercial Officer at Valero Energy, said on the Q2 earnings call last month that “It’s going to be a real challenge for us to be able to supply a lot more diesel into Europe.” 

Biden Administration Urges Fuel-Export Cuts to Restock Northeast

Ari Natter Fri, August 26, 2022 at 9:03 AM

(Bloomberg) — The Biden administration is warning refiners that it may take “emergency measures” to address fuel exports as stockpiles of gasoline and diesel fuel remain near historically low levels in the Northeast.

While East Coast gasoline and diesel inventories are well below normal, exports of US refined products are at an all-time high, the Energy Department wrote in a letter last week to refiners that included Exxon Mobil Corp., Valero Energy Corp., and Phillips 66.

Emergency actions can be avoided if the industry prioritizes “building inventories during this critical window,” Granholm said in the letter, which was obtained by Bloomberg.

The Biden administration is effectively asking refiners to prioritize American consumers over maximizing profits by supplying fuel-starved Europe, which is facing an unprecedented energy crunch after the invasion of Ukraine triggered US sanctions on Russian oil supply.

Though US refineries are operating near capacity, the Biden administration is concerned that much of the fuel they’re producing is being exported rather than sent to the supply-constrained East Coast, according to people with direct knowledge of the matter. The White House’s perception is that the industry simply wants to shift the product to the market that pays the highest price, instead of helping the American consumer, the people said.

Granholm’s letter also comes ahead of the peak of Atlantic hurricane season, when storms can wreak havoc on US fuel supply. Though few storms have emerged so far, the most-active part of the season typically doesn’t begin until right around now.

While the administration’s scrutiny has focused on fuel supply in the Northeast US, the recipients of Granholm’s latest letter were all major refineries with a limited footprint in that region. Other independent refiners that operate facilities in the Northeast did not receive the letter.

New York Fuel Supply Is So Low It Triggered White House Warning

Chunzi Xu Fri, August 26, 2022 at 11:12 AM

(Bloomberg) — The New York area is running so low on fuel that the Biden administration is warning of government action to address exports and suppliers are resorting to expensive US tankers to restock the region.

Recently, several US-flagged vessels also carried fuel to New York, a relatively rare move only economically viable when the arbitrage is wide enough. Gulf Coast refiners have been shipping a maximum amount of gasoline to the East Coast all summer on the fully booked Colonial pipeline.

But it may not be enough in a cold winter. Russian supplies that filled a critical gap during frigid weather last February won’t be available again after Moscow’s invasion of Ukraine triggered US sanctions. The closure of refineries on the East Coast, in Canada and in the Caribbean means the eastern US is more reliant on supply from Europe, which is facing a far worse energy crisis of its own.

Fuel supply on the East Coast is likely to remain precarious as Gulf Coast refineries begin scheduled maintenance in the fall. Even when supply is abundant, a dearth of pipelines and tankers means Gulf Coast refiners have limited options for sending gasoline and diesel to eastern markets.

Still, US exports of crude and oil products rose to a record last week, with diesel leading the surge. Countries around the globe are hungrier than ever for US diesel as they seek alternatives to costly natural gas to run power plants.

Energy secretary calls on US refiners to limit exports ahead of hurricane season

Zack Budryk Fri, August 26, 2022 at 12:48 PM

Energy Secretary Jennifer Granholm called on major U.S. oil refiners to build up capacity and reduce exports of refined products ahead of the winter in a letter shared with The Hill.

The letter was reported first by The Wall Street Journal. The paper accused Granholm in a Wednesday editorial of attempting to strong-arm the energy industry and abandoning European nations weaning themselves off Russian imports.

An Energy Department official sharply disputed this characterization, saying “as we get closer and closer to peak hurricane season right now, and we’re running our internal models, we are calling on [the industry] to be more proactive.”

The official cited another letter, also shared with The Hill, to Granholm from the six New England governors urging action ahead of the winter.

The governors asked the department to aid in modernizing New England’s energy reserves, as well as considering suspending the Jones Act, which restricts delivery of U.S.-exported liquefied natural gas into the region.

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