President Biden criticized US refiners June 15 for what he described as exceptional profits and called on them to take immediate actions to increase their output of gasoline, diesel, and other refined products.
Biden’s call for increased fuel production came in identical letters to top executives of seven of the biggest refiners. He said many factors were involved in driving prices up to painful levels, and he placed primary blame on what he called “Vladimir Putin’s war.”
But he also objected to what he called “historically high refinery profit margins,” and he singled out refinery capacity reductions in recent years as part of the problem.
Biden also raised the prospect that he would use “all reasonable and appropriate federal government tools and emergency authorities to increase refinery capacity and output in the near term.”
It was not the kind of idea that has been expressed in periods of high fuel prices over the last several decades, and he did not specify what those tools and emergency authorities might be.
Energy Secretary Jennifer Granholm, during a CNN interview June 15, did not provide the legal specifics either, other than to say the Defense Production Act has been used “in other contexts.”
Biden’s letters were sent to top executives at ExxonMobil Corp., Chevron Corp., Shell USA Inc., BP America Inc., Marathon Petroleum Corp., Valero Energy Corp., and Phillips 66 Co.
Refiners already near maximum
Refiners responded quickly through their trade groups. In a letter to the president from the American Fuel & Petrochemical Manufacturers (AFPM) and the American Petroleum Institute (API), they said US refiners are operating at or near maximum utilization, running at 94% of capacity, according to the Energy Information Administration.
The trade associations also said US refiners are producing more gasoline and diesel than current market demand.
The AFPM and API letter pointed to high prices for crude oil—the main component of refined product prices—and the mix of other factors affecting prices.
Biden’s claims of high profits—echoed by Granholm—may have rankled. “Your letter conflates refining margins with crack-spreads, which do not account for operating costs that are being driven higher by record inflation,” the trade groups said.
And investments to boost refining capacity—investments based on long-term supply and demand estimates—are questionable when the Biden administration is trying to follow through on Biden’s campaign goal to “end fossil fuel,” the groups said.
ExxonMobil reacted to Biden with a statement of its own noting recent financial losses and the big investments it has made in crude oil production and expanded refining capacity.
“Specific to refining capacity in the US, we’ve been investing through the downturn to increase refining capacity to process US light crude by about 250,000 b/d—the equivalent of adding a new medium-size refinery,” ExxonMobil said. “We kept investing even during the pandemic, when we lost more than $20 billion and had to borrow more than $30 billion to maintain investment to increase capacity to be ready for post-pandemic demand.”
Biden said he has directed Granholm to “convene an emergency meeting” on the subject of high fuel prices, and in preparation for that he asked refiners for “any concrete ideas that would address the immediate inventory, price, and refining capacity issues in the coming months.”
ExxonMobil was ready with ideas. “In the short term, the US government could enact measures often used in emergencies following hurricanes or other supply disruptions—such as waivers of Jones Act provisions and some fuel specifications to increase supplies,” the company said.
Longer term, government can promote investment through policies that supports US resource development and streamlined regulatory approvals, ExxonMobil said.
But the AFPM and API said in their letter to Biden that his administration was heading in the opposite direction.
“Federal agencies are following through on your campaign promises to make capital formation more expensive for traditional energy projects,” the groups said. “This is clear in both words and actions, and the most recent example is the current Securities and Exchange Commission rulemaking on climate risk disclosures.”
“Multiple federal agencies continue to make it more difficult to build and maintain energy infrastructure projects,” the groups said, citing as an example the White House Council on Environmental Quality discarding Trump administration decisions on easing the regulatory burdens of the National Environmental Policy Act.