The U.S. oil industry is on an upswing, buoyed by the surge in gasoline prices to a record $4.25 a gallon Wednesday, sky-high crude oil prices and even some begrudging praise from President Joe Biden as he announced a ban on Russian energy imports.
But the rally-around-the-rig sentiment in the U.S. from the energy crisis caused by Russia’s invasion of Ukraine may not last long, and experts say the consumer pain from the fuel price spike could hasten the shift away from oil in the U.S. and toward cleaner energy sources.
The price at the pump, which the American Automobile Association says has leaped 75 cents per gallon in the past month because of the invasion of Ukraine, is likely to push more people to consider electric vehicles, which are slowly gaining market momentum as carmakers roll out new models. And that gasoline price rise, led by the rally in crude prices to 14-year highs, is offering some companies and policymakers a ready-made national security argument to push for more green energy projects as insulation against oil price shocks.
“This crisis will accelerate the energy transition,” said Marcel van Poecke, managing director at Carlyle International Energy Partners. ”People will say we don’t want to be dependent any more.”
And investors, already wary of the oil sector because of its rising debt in the past decade, may be tiring of the business whose main product has swung between a negative $37 a barrel at the onset of the Covid pandemic to a $120 less than two years later.
“The situation in Ukraine is in fact a game changer” for the oil industry, said Mark Brownstein, senior vice president at green group Environmental Defense Fund, which works with the industry to cut its greenhouse gas emissions. “It just sort of accentuates the challenge of having the global economy tied to oil and gas. If the industry was already facing a metaphysical challenge in climate change, it’s now got a second.”
A senior Biden administration official offered the same message to reporters when discussing the Russian import ban.
“The way to avoid high gas prices is to speed up, not slow down, our transition to a clean energy future,” the official said in a Tuesday call with reporters. “The reality is we can’t drill our way out of dependence on a global commodity that’s controlled in part by foreign nations and their leaders.”
But for now, things are definitely looking up for the industry. The White House, having given the cold shoulder to oil executives in its first year in office, is now ringing them up to get insights about the geopolitical tensions that sent the global energy market soaring.
At his speech announcing the ban on Russian energy imports, Biden offered some praise “for those firms in oil and gas industries that are pulling out of Russia and joining other businesses that are leading by example,” referencing moves by Exxon Mobil, BP, Shell and others. But he also offered warnings for companies not to price gouge because of the tight supplies.
Industry executives had long complained that the Biden administration ignored their input on energy policy. They were particularly incensed that the White House reached out to Saudi Arabia and Venezuela to bump up crude oil production before looking to their own home to replace any shortfall from Russia.
Ryan Lance, chief executive of ConocoPhillips, told an audience at the S&P Global’s CERAWeek energy conference that communication between the White House and his company started to ramp up as Russia looked increasingly likely to invade Ukraine.
”I couldn’t have said that two weeks or three weeks ago,” Lance said. “There wasn’t much communication going on between the administration and ourselves.”
“Energy security and national security is moving up to the forefront,” he added. “We can have a decent conversation on the implications this has over the medium and long term.”
The White House’s announcement of a ban came after a growing group of lawmakers urged it, a rare show of bipartisanship in Congress.
Sen. Dan Sullivan (R-AK) told industry executives in Houston that he had pushed Biden to take the step for weeks, and that a Russian import ban would create an opening for their companies to produce and sell more fuel domestically.
Sullivan led the room of executives at the conference in a round of applause for the industry in general, and told them, “What we need is to replace that production with American production, which has not been the strong suit of this administration.”
But Biden refuted Republicans’ characterization that he had harmed U.S. energy production.