S&P Global’s CERAWeek was an event seemingly designed for a different point in history. History, of course, has moved fast in recent weeks. The green color scheme and sea-foam carpet welcoming attendees to registration reflected an industry eager to show a climate-friendly face to a world that, until a few weeks back, seemed preoccupied with rising temperatures. But by the conference’s opening on March 7, both politicians and fossil fuel executives were fully focused on sticking it to Russia. A more apt design decision might have been red, white, and blue.
“The conference was designed to have a heavy emphasis on climate,” says George David Banks, a member of the State Department’s negotiating team at the U.N. Framework Convention on Climate Change under Trump and now an affiliate fellow at the Atlantic Council. “With the events around Ukraine, that’s shifted back to kind of a traditional geopolitical energy security conversation.”
An industry that’s spent the last two years and billions of dollars trying to convince the world that it can “decarbonize hydrocarbons” is much too savvy to brag about all the money to be made off a humanitarian catastrophe. Accordingly, the message fossil fuel execs pivoted to, as Russian troops crept further into Ukraine, is that they’re patriots, standing ready to meet the world’s energy needs and build American “energy independence.”
Even the brief planned programming of happy hours dotting the bars around downtown Houston—like a well-stocked “Women in Energy” confab convened by the American Petroleum Institute—kicked off with paeans to the bravery of the Ukrainian people. That’s not entirely disingenuous, of course, but fits neatly into a narrative that could spell big business for U.S. drillers: If you stand with the people of Ukraine—and of Europe, where an energy crisis looms—then it’s time to stand with American fossil fuel producers, who are ready to unleash the freedom molecules that’ll help kick Russian oil and gas to the curb and defund Putin’s war machine. If only they’ll let us. They, in this narrative, includes two groups. Wall Street investors won’t finance expanded production. And the Biden administration—in its alleged hostility to the industry and acquiescence to misguided climate activists—is sending those investors all the wrong signals, preventing them from changing their minds.
A conversation about war and America’s duty to the free world is more comfortable for fossil fuel executives than one about the grave dangers posed by their core products. The International Energy Agency, or IEA, just last year noted that limiting global temperature rise to 1.5 degrees Celsius (2.7 degrees Fahrenheit) means not greenlighting any further fossil fuel development. As of late last year, the world’s governments weren’t even close to limiting fossil fuel production enough to keep warming to 1.5 degrees. But at least they were talking about it. Then Russia invaded Ukraine. In a matter of weeks, policymakers on both sides of the Atlantic have gone from high-minded if watery talk of net-zero pledges to expediting permits for new fossil fuel infrastructure, inking previously unthinkable long-term supply contracts, and trying to ramp up drilling as quickly as possible.
You’d think fossil fuel executives would be ecstatic over the reversal. But if CERAWeek was any indication, politicians’ new willingness to greenlight gas terminals and oil wells has made executives cocky, but not happy: They’ve got scores to settle.
Fossil fuel executives repeatedly used their mic time last week to talk about how persecuted they’ve been by the Biden White House. “Most people on Wall Street still think our industry’s gonna be gone in 10 years,” Pioneer Resources CEO Scott Sheffield griped during CERAWeek. “And most people in the Biden administration, they want our industry gone based on their rhetoric.”
Actual rhetoric from the administration, meanwhile, was plenty conciliatory. In her speech in Houston, Energy Secretary Jennifer Granholm extended a literal and metaphorical “hand of partnership” to the industry that she for months has been unsuccessfully encouraging to drill more.
Industry lobbyists and the GOP have placed the blame for high gas prices and Europe’s roiling crisis squarely on White House policies to cancel the already dead-in-the-water Keystone XL pipeline and its court-ordered pause on auctioning off leases to drill on public lands. Yet the Biden administration has already issued more permits than Trump did in his first three years in office, according to the Center for Western Priorities. As Granholm pointed out, the United States was already poised to become the world’s largest exporter of gas this year before Russia invaded Ukraine.
There are sour feelings, too, about the White House’s efforts following Russia’s invasion to cut deals with Venezuela and Iran—which could bring a combined three million barrels of oil per day onto the market if sanctions were lifted—as well as with OPEC and Saudi Arabia, which hold enormous reserves. Yet as executives freely admit, the U.S. simply does not have the capacity to replace Russian energy supplies. At the most, estimates suggest drillers here could bring another million barrels per day online this year and next. But feelings are feelings, and perception can count for more than reality. As one LNG executive told Politico’s Ben Lefebvre, what they might really want is “hugs.”
“While we may show up as a kind of a strange entity … at the climate change table, I think we’re 100 percent needed there,” said Gretchen Watkins, president of Shell USA, at an event about the COP26 climate summit. State Department Climate Envoy John Kerry agreed, telling CERAWeek founder and The Prize author Daniel Yergin on stage that executives like Watkins “have to have a seat at the table. No government in the world has enough money to implement this transition.”
Some fossil fuel execs see the White House’s friendliness as part of a broader international shift due to the crisis in Ukraine. “COP26, nobody wanted to see us,” argued Felipe Bayón, president of the Colombian oil company Ecopetrol SA. “In four or five months the conversation has shifted dramatically because of geopolitics.” The fossil fuel industry had the largest delegation to the U.N. climate talks in Glasgow last November. States are the only parties legally sanctioned to participate in official negotiations over the Paris Agreement.
“They are now willing to talk to us. Until about six months ago that was not the case,” Tellurian CEO Charif Souki told me about his company’s dealings with the White House. “We were not welcome. We could not show up at any administration buildings. And they specifically told us, you’re in the hydrocarbon industry, we don’t want to talk to you. So now at least we’re talking. Whether they’re listening is a different story.”
Members of the oil and gas industry have indeed met with the administration—not just recently but repeatedly since Inauguration Day. A year ago, White House climate office head Gina McCarthy affirmed in a meeting with energy executives that “the administration is not fighting the oil and gas sector.” In December, Granholm similarly assured executives that reinstating the crude oil export ban was off the table as a means to combat rising prices.
Significant parts of the U.S. oil and gas industry are behaving like a spoiled child who’s just been given a pony but wants a unicorn. With prices climbing at home and a potentially catastrophic global energy crisis on the horizon, the Biden administration is now in the unenviable position of trying to negotiate with them to meet pressing demands, armed with precious few tools to compel them to do much of anything. So what would the administration get in return for saying nicer things about the industry, as executives seem to want?
Probably not much. Drillers like Sheffield are refusing to budge on preexisting plans for low growth and high returns to shareholders. As Kimmeridge Energy Management founder Ben Dell told Bloomberg recently, the “upstream industry”—referring to exploration and drilling companies—“is not a public service industry.… For 10 years we made no money. The industry is profitable for two months, and the argument is that we’re supposed to price down the product or give away margins to support the consumer.”
From the bare statistics alone, it’s clear that the federal government isn’t what’s holding fossil fuels back. For example: Of the 18 LNG export facilities FERC has ever approved, just nine have been built. That’s got much less to do with bureaucratic red tape than financing troubles. And taps can’t turn on overnight after years of “underinvestment,” a key word throughout CERAWeek. In the short term, that is, nothing much is going to change.
What the industry wants now is “certainty” (“durable policy,” in industry speak) that nothing much will change for it, as well as a tone shift that—it hopes—will inspire investors to back a building binge that will cement fossil fuels’ future for decades to come. “Short-cycle” investments in new wells could help alleviate pressures on Europe over the medium term. Based on the language being thrown around at CERAWeek, though, it’s hard to imagine that either drillers or investors would be interested in a short-term burst in production without guarantees that they can lock in profits (and emissions) for the long haul.
And all that adds up to a wildly unrealistic bottom line. The only potential threshold at which fossil fuel executives will be satisfied by White House overtures will be when the Biden administration accedes to their vision of a future without any meaningful constraints on their business model, and where American energy dominance reigns supreme.
The crisis in Ukraine has presented the industry with an opportunity to push that audacious vision forward. “The need for what we do has become so obvious that it’s almost a cakewalk now,” Souki said on stage in Houston—“cakewalk” being a colloquialism for “easy” that originated with plantation-held dance competitions of enslaved people, which were then featured post-abolition in minstrel shows. “But I hate to benefit off of other people’s suffering,” Souki continued. He expressed relief that gas was once again being talked about as a transition fuel, or “bridge fuel,” as climate envoy John Kerry said earlier in the week. As Souki sees it, that bridge is a long one, involving the development of “100 years’” worth of domestic production that puts the U.S. where “Saudi Arabia was 50 years ago.” The monarchy there beheaded 81 people on Saturday.
“We are going to create a geopolitical tool in the U.S. that is going to be absolutely massive,” Souki predicted. “People are going to have to heed us, including China.” That, he explained, is due to the power of the U.S. dollar—now being brought to bear on Russia via punishing sanctions—and its energy resources. Right now, he says, there’s “a moment of opportunity for our country to take advantage.’’
“I think U.S. LNG should replace all of Russian gas to Europe,” Sempra Infrastructure’s Brian Lloyd told me. “Can we do that overnight? No. Because we need to build additional export facilities here in the U.S. and Europe. We need to build some additional gas pipeline interconnections to different parts of the continent right now,” he added, referring to Europe, and calling the drive to build such things a “moral imperative.” When pressed, he added that Qatar and Australia, along with energy efficiency and renewables, would have “a role to play, as well.”
Climate, meanwhile, will play second fiddle, at best. “Since the consequences of climate and environment are going to be felt 30 or 40 years down the road, people are going to focus a lot more on what is happening now, as they should,” Souki said.
As the Intergovernmental Panel on Climate Change report released earlier this month found, nearly half of humanity is already “highly vulnerable” to the effects of the climate crisis. But this didn’t seem to be reflected in Souki’s priorities: “Before we do anything about climate, we need to deal with energy,” he said. “When we have energy solved and the consequences of bad energy policy, which is economic recession—when we have addressed those two, we can come back to climate.”
An actual energy transition—that is, an entire planet of industries and consumers shifting away from the fossil fuel industry’s core products—poses an existential threat to companies at CERAWeek. But they’re already facing headwinds. While returns are soaring now, energy had been the worst-performing sector on the S&P 500 index for a decade before Covid-19. Salesforce booted ExxonMobil from its 92-year-old place on the Dow Jones in 2020. In response the industry’s attempting to redefine what the words energy transition will mean and exploit the phrase’s ambiguity.
Asked about his own definition of “energy transition,” Lloyd described it as “the long-term need and trend for the world’s energy systems to become lower and lower carbon over time, ultimately with the goal that the world is somehow sequestering or abating as much carbon is emitted.” Sempra “fundamentally view[s]” LNG, he says, “as a decarbonization tool,” though it still emits about half as much carbon dioxide as coal when burned. Methane emissions—a greenhouse gas 84 times more potent than carbon dioxide over the next 20 years, and 30 times as potent through 2100—remain a ubiquitous part of gas supply chains, though they are cannily referred to as “fugitive emissions,” so as to suggest they’re outliers. The IEA has found methane emissions are as much as 70 percent higher than official tallies report.
Positing unlimited gas development as key to the energy transition is also a bid to lure investors interested in cashing in on trendy Environmental Social and Governance, or ESG, offerings, and—to a lesser extent—wary of fossil fuel investments being rendered unprofitable by governmental policy. That gas was recently branded green in the EU’s Sustainable Finance Taxonomy was met with praise from CERAWeek attendees. “I hope investors do consider,” Lloyd said, half-jokingly, “that the ‘S’ in ‘ESG’ oughta, maybe for a while, be ‘security,’ as well. Because if you think about what is an ethical investment that is durable for the long term, we certainly think U.S. LNG and our projects.” Lloyd seemed to be referring to energy security and possibly to weaning the world off Russian gas.
Even a possibility that Congress might pass climate policy or that Wall Street might start factoring climate risks into investments has sent the industry into hysterics, despite the fact that the only piece of climate legislation ostensibly on the table is essentially a big, temporary tax break for clean energy that steers well clear of incumbent fuels. (In a press conference on Friday, Joe Manchin tamped down on “hope that there’s gonna be something” climate-related to pass.) The U.S. has yet to take basic steps toward a genuine energy transition away from fossil fuels, with Manchin holding a deciding vote on some of the lowest-hanging fruit. Meanwhile, companies with trillions of dollars bound up in oil and gas will fight to the death to stay afloat—even if that means millions sink.
