Spheres of Influence - How the U.S. Oil & Gas Industry is Exploiting the Russian invasion of Ukraine
The American Petroleum Institute are taking advantage of public support for Ukraine and the global inflation of fuel to repeal environmental regulations and expand their monopoly of drilling leases.
Vladimir Putin and Former ExxonMobil CEO Rex Tillerson during a signing ceremony for an arctic oil exploration deal between Exxon Mobil and Rosneft in Russia in 2011.
From my article for Spheres of Influence
Within 12 hours of the Russian invasion of Ukraine on Feb. 24, the American Petroleum Institute (API), a national trade association representing 600 oil and gas companies including ExxonMobil, Chevron and Shell, put out a statement urging the U.S. federal government to "unleash American energy." Condemning the invasion, the statement underlined the role American oil and gas producers must play in "supporting our European allies with access to a stable supply of reliable and affordable energy" and "serv[ing] as a stabilizing force while strengthening global energy security."
The API made four demands to the federal government. First the release of permits for energy development on federal lands to increase oil and gas production. Second, to increase the issue of U.S. Offshore drilling leases (conveniently contradicting the rhetoric of 'American' oil and gas). Third, accelerate the permitting of energy infrastructure projects such as pipelines and Liquid Natural Gas (LNG) terminals. Lastly, a general call to "reduce legal & regulatory uncertainty."
These demands are being framed as novel and responding to the unique circumstances created by Russia's invasion to "serve as a stabilizing force while strengthening global energy security." That to meet the inflation caused by Russian sanctions, oil and gas corporations must have freer reign to secure leases and produce fuel. However, the API has repeatedly made these exact demands on a nearly yearly basis in response to several minor and major political and economic developments.
The API aren't the only actors that push for the deregulation and expansion of oil and gas industries in times of global crisis. On Feb. 17, in the lead up to the invasion of Ukraine, 27 Republican Senators signed a letter addressed to U.S. Energy Secretary Jennifer Granholm calling for similar demands to the API:
"We are concerned by recent attempts to restrict liquified natural gas (LNG) exports from the United States to our European allies amid rising tensions caused by Russia… Support for the expansion of pipelines to increase supply into the Northeast would help solve price spikes… increased production and export volumes of U.S. natural gas… increases U.S. energy security and makes us essential to the energy security of others."
According to Open Secrets, a nonpartisan and independent American research group, the 27 Senators who signed the letter have received a total combined of $4,270,530 from oil and gas industry lobbying groups since 2017.
The “restrictions" the letter refers to are regarding an executive order signed by President Joe Biden in Jan. 2021 that paused fracking on federal land. However, the senators neglect that the leasing pause only applies to new leases, meaning existing operations are unaffected by these regulations. It also completely ignores that 53% of the 26 million acres of federal land currently under lease to oil and gas companies is currently unused, approximated at 7,700 approved yet unused permits. On top of this, oil and gas production on federal land only represents 9% of the total U.S. oil and gas production.
Opportunity & False Sentiment
Why then are U.S. oil and gas companies framing the current energy crisis as one that's unresolved due to a lack of production held back by governmental regulation? The United States is the third and fourth largest oil and gas producer respectively in the world. In 2021, the top 25 oil and gas companies – which includes global giants Shell, BP, Exxon Mobil, Chevron and others – raked in a record-breaking net income of $74.9 billion that year. Additionally, the Strategic Petroleum Reserve, the federal government's stockpiled emergency oil reserves, is the largest in the world at 714 million barrels. Production of oil and gas to meet inflation affecting American citizens and European allies reliant on Russian energy is not being held back by regulations as framed by certain media outlets, lobbied politicians and the API.
In fact, during Dec. 2021, when oil and gas prices had begun inflating before the Russian invasion of Ukraine, the Biden administration requested American oil and gas companies to increase production but were rejected. Even as the invasion loomed during February, which contributed to the rising inflation, oil and gas companies reiterated their stance of maintaining production levels. On Feb. 17, when asked on Fox News about Biden potentially again requesting increased oil and gas production in the event of an invasion, Pioneer Natural Resources CEO Scott Sheffield curtly answered:
"No. Pioneer will stay with our plan… I'll tell him… it's all about the shareholders. Our shareholders own this company; they want a return of cash. We know what happens when we increase U.S shale [oil production] too much."
Pioneer Natural Resources' annual revenue for 2021 was $14.643B, a 119% increase from 2020.
Market analysts understand that oil and gas investors are collectively pushing for their companies not to flood the market with fuel to increase profits and make up for market value lost in the pandemic and 2014 crash. "It's not the government that is banning them from drilling more. It's pressure from their shareholders" said Pavel Molchanov, an analyst at investment bank Raymond James.
American oil and gas companies are not interested in increasing production to aid the global effort sanctioning Russia, but in reeling back the already minuscule environmental regulations the Biden administration passed to secure long-term leases on top of its large monopoly noted earlier. The pressure being mounted on the Biden administration by the API and others to deregulate the industry is framed as one to meet the immediate circumstances affecting the world, but these demands only serve the long-term financial interests of these companies, with the means to meet those immediate circumstances already available to them.
Biden Scrambles for Oil
Unable to convince the U.S. industry to increase oil and gas production at home, Biden has since scrambled to find alternatives to meet the growing domestic and global economic consequences to Russia's invasion of Ukraine. The past month has seen the Biden administration reach out to oil rich regimes it has previously criticized in Venezuela, Saudi Arabia and the United Arab Emirates (UAE).
On Mar. 5, a delegation of American representatives met with officials from the Venezuelan government to discuss the easing of sanctions in exchange for favorable oil exports. Venezuela has been under economic embargo by the U.S. since 2006 and therefore was receptive to talks. However, Saudi Arabia and the UAE have not been as receptive to Biden's attempts of rapprochement in a time of need despite long withstanding relationships, having rejected American attempts to organize talks. Analysts point to Biden's criticisms of Saudi and UAE human rights abuses and the recent removal of the Houthis, the Iranian backed party Saudi Arabia is currently waging war with in Yemen, from the global terror list as reasons for the souring of American-Gulf relations in recent months.
Throughout March, House Republicans placed mounting pressure on the Biden administration perceived as 'holding back' the American oil and gas industry in a time of crisis, with rapprochement with Venezuela only further igniting discontent. "Nicolás Maduro is a cancer to our hemisphere and we should not breathe new life into his reign of torture and murder" Sen. Robert Menendez (D-N.J.), the chairman of the Senate Foreign Relations Committee, stated in a published statement on Mar. 7. "President Biden, stop begging dictators to produce the energy that we need here in America… Don't go to Venezuela when the answer is right beneath our feet" said House Republican Whip Steve Scalise.
The pressure came to heed on Mar. 30 when 18 Republican Senators led by Rep. Matt Rosendale, R-Mont. introduced the "Restore Onshore Energy Production Act" which seeks to roll back Biden's pause on oil and gas leasing on federal lands. "The Biden administration imposed an illegal moratorium on federal onshore and offshore lease sales, damaging our nation's traditional energy production and energy independence when we need it most," Rosendale said in a statement on the bill. Rosendale has received $321,555 from oil and gas industry lobbying groups since 2017.
The next day on Mar. 31, Biden announced that the federal government would be taping into the Strategic Petroleum Reserve by releasing an unprecedented one million barrels a day for the next six months. While unable to push through the repealing of Biden's minor regulations, this episode reveals the extent of which the API and other lobbied interests are able to hijack popular discourse to exert influence in U.S. domestic and foreign policy, to which they were able to offset the costs of meeting inflation to the publicly owned Strategic Petroleum Reserve rather than meeting demands in a time of crisis.
A Window for Green Energy
Fundamentally, the political and economic crisis boils down to a desire to support Ukraine and counter Putin's oligarchic dictatorship. Continuing to fund and rely on fossil fuel, the industry that props the Putin regime up, is not the way to do that. Transnational American oil and gas companies stand to gain from Russia's fossil fuel reliant economy and will not push for a fundamental challenge to Putin's rule.
ExxonMobil, for example, has refused to sever their business relations in Russia, owning "a 30% stake in Sakhalin-1 — a vast oil and natural gas project located off Sakhalin Island in the Russian Far East." Rex Tillerson, the former CEO of Exxon and former Secretary of State, was awarded the Order of Friendship, "one of the highest honors Russia gives to foreign citizens." Shell, BP and other American companies also had lucrative operations in Russia before the sanctions. In Jan. 2022, the API, anticipating potential conflict with Russia, lobbied Congress to limit the scope of U.S. sanctions. "Sanctions should be as targeted as possible to limit potential harm to the competitiveness of U.S. companies," said an API representative.
According to the U.S. Energy Information Administration, Russia has double and four times the proven oil and gas reserves respectively that the U.S. does. The reality is that, as long as the world is dependent on fossil fuels, Putin will have control of a valuable resource that will allow him to retain and grow power. It stands that, on an environmental, economic and political level, the world's reliance on fossil fuels has only produced volatile results. To seriously counter Putin and develop a less fragile and more sustainable global economy, the invasion of Ukraine should be seen as an opportunity to establish the political momentum to economically shift toward renewable resources and weaken Russia's global monopoly on energy.