INSIGHT: Biden inflation plan promotes clean energy, quiet on oil

HOUSTON (ICIS)–US President Joe Biden proposed on Tuesday a multi-prong plan intended to fight the nation’s high inflation during his state of the union address.

His proposals, however, did not mention oil and gas, where prices have nearly doubled and done much to drive inflation in the US economy.

• Biden’s inflation plan targets clean energy, health, childcare and corporate taxes
• The proposal did not mention oil and gas production
• An oil trade group released its own proposals prior to Biden’s address

Biden’s comments about oil were limited to an agreement by the US and other members of the International Energy Agency (IEA) to release crude from their strategic reserves.

BIDEN’S PLAN
Biden’s inflation plan seeks to cut costs for prescription drugs and childcare. He wants the corporations and the wealthy to pay a larger share of the nation’s taxes.

His proposals intend to lower energy costs by increasing production of wind and solar energy, by cutting costs for electric vehicles and by issuing tax credits to improve the energy efficiency of homes and buildings.

Another proposal singled out ocean carriers, which had increased rates sharply and attracted the ire of the nation’s chemical distributors and producers.

“Tonight, I’m announcing a crackdown on those companies overcharging American businesses and consumers,” Biden said.

FEW COMMENTS ON OIL, GAS
Biden said little about oil and natural gas, despite its role in inflation. Since he took office on 20 January 2021, oil and natural gas prices in the US have nearly doubled. Gasoline has more than doubled, as shown in the following table.

Product	20-Jan-21	1-Mar-22	% change
Brent	56.08	104.97	87.2%
WTI	53.24	103.41	94.2%
Gasoline RBOB	1.5439	3.0887	100.1%
Natural Gas	2.539	4.573	80.1%

Source: ICIS

The rapid rise in oil prices could cause reductions in output among producers in regions that rely on oil-based naphtha as a petrochemical feedstock.

In the US, higher oil prices could actually raise margins, because chemical producers rely predominantly on gas-based feedstock such as ethane. Ethane costs tend to rise and fall with those for natural gas, while petrochemical prices follow those for crude.

Oil prices have increased further since Russia’s invasion of Ukraine and the resulting sanctions imposed on that country. Brent oil prices rose by $7/bbl on Tuesday.

In an earlier speech, Biden sympathised with those spending more money on gasoline.

“I know this is hard and that Americans are already hurting. I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me,” he said on US sanctions on 24 February following the Russia’s invasion of Ukraine.

Yet Biden has been reluctant to propose policies that would encourage more production of oil and natural gas.

During that same speech, he warned US oil companies not to use the war as an excuse to price gouge consumers. “American oil and gas companies should not exploit this moment to hike their prices to raise profits.”

So far, the response from the US has been to work with other members of the International Energy Agency (IEA) to release 60m bbl of crude from their strategic oil reserves.

PROPOSALS FROM ENERGY INDUSTRY
The American Petroleum Institute (API), a trade group representing US oil and gas producers, sent the Biden administration a list of proposals that it says would help reduce the volatility in global energy prices.

Among them are the following:

• Approve all applications for liquefied natural gas (LNG) plants.
• Make offshore lease sales quicker and more efficiently.
• Straighten out the application process for pipelines and other energy infrastructure.
• Encourage more investment for energy projects in eastern Europe and around the world.

Such policies would mark a break for Biden, who  revoked the permit for the Keystone XL oil pipeline on his first day in office. Days later, Biden issued a moratorium on new federal oil and natural gas leases.

If Biden is not enthusiastic about these proposals, he is not alone.

The Industrial Energy Consumers of America (IECA) have urged the Department of Energy to restrict LNG exports.

Environmental groups, an important Biden constituency, have supported the transition away from fossil fuels and towards renewable energy.

Insight article by Al Greenwood