US energy secretary calls for investment in crude oil for a 'managed' energy transition

The Biden administration is committed to a "managed" energy transition that is likely to lessen fossil fuel demand but, for now, increased investments to boost US oil production and refining capacity remain necessary to meet energy security needs, Energy Secretary Jennifer Granholm said Dec. 14.

Granholm acknowledged the at-times combative relationship between the oil industry and administration while expressing "deep gratitude" to the sector for coming to the table to address and have honest conversations about key issues during a challenging year of global upheaval in the energy markets.

Her remarks during a meeting of the National Petroleum Council, an oil and gas advisory committee to the Department of Energy, contrasted President Joe Biden's "there is no more drilling" comments at a political rally last month that riled Republicans and oil executives.

Granholm did not shy away from "the elephant in the room" and early in her remarks brought up "the butting heads between the oil and gas industry and the administration," frustrations experienced in the heat of disagreements and moments of talking past each other.

But despite differences in opinion, she contended that the government and oil industry were able to find ways to work together. She noted productive conversations on production and refining issues; turning to the industry for advice on the Strategic Petroleum Reserve and ethanol requirements; and coordination on LNG exports to Europe, the averted rail strike, and infrastructure assistance to Ukraine, to name a few areas of collaboration.

"The Biden-Harris administration's commitment to a managed transition is as strong as ever," she said, and underscored "that moving too fast could end up creating unintended consequences that will hurt people and cause backlash."

The first part of a smart, thoughtful transition managed in partnership with industry will be meeting current energy needs, "and that means increasing investment in production" to meet demand at home and abroad as the US oil and gas sector is poised to play an enormous role in the "geopolitical realignment of [global] energy supply," Granholm said.

Crafting the right approach to increasing distillate storage on the East Coast to ensure adequate supplies to get through the winter without crisis, particularly when extreme weather strikes, and keeping refineries operating safely with minimal outages were also flagged by Granholm as areas where the administration could partner with industry.

'Moment for diversification'

"Further ahead, this transition hinges on making sure ... we acknowledge that fossil fuel is not going to go away anytime soon, but that there's a moment for diversification at hand right now," Granholm said. "Our [energy, economic] and climate security all compel us to meet our needs today but then expand and invest in a widening array of energy sources."

"We need this industry to play a lead role in developing [and] deploying these additional resources," she continued. "This is an industry that's full of innovators. And I know, and I know many of you know, that you are rising and can rise to this challenge."

She encouraged oil companies to take advantage of incentives included in the bipartisan infrastructure law and Inflation Reduction Act, such as 45Q tax credits for carbon sequestration, tax credits for hydrogen, plans for new hydrogen hubs, and funding for enhanced geothermal and offshore wind projects.

"This managed transition that we're pursuing is not going to eliminate the use of fossil fuels by 2050 ... so we've got to do all that we can to decarbonize and work together on that decarbonization strategy, even as we expand the pie and add renewables to this plate," she said.

At the same time, the transition "does point to lower use of fossil [fuels] and the question is how the industry adapts to that change as well," Granholm said. "As we've long said, we're ready, we're eager to work with [the industry] on the answer to that question. And we know that question will lead to, hopefully, responsibly meeting our energy security needs and to rapidly decarbonizing especially the natural gas value chain."

Darren Woods, chairman of the NPC, agreed that the oil sector is "collectively committed to many of the same objectives in terms of significantly reducing emissions, both from our operations and the products that we sell."

He and Granholm said frank, candid conversations would continue into 2023 in hopes of finding the right solutions that meet the industry and administration's shared climate and energy security objectives.

Actionable steps

The NPC, at its meeting, also voted to approve and adopt a new study it conducted following a July request from Granholm to advise the department on short-term actions and transition strategies.

The report lays out near-term actionable steps the administration can take to help increase oil and refined product supplies. Those steps include energy infrastructure permitting reforms, Jones Act waivers, postponing refilling the SPR, relaxing fuel specifications and labeling during supply disruptions, supporting crude and product exports, and increasing domestic production.

The report also makes policy recommendations for enabling a successful, timely energy transition, which includes focusing policies on carbon emission reductions without selecting favorite technologies and industries; avoiding a premature phase-out of traditional energy; and prioritizing incentives for renewable energy and decarbonization rather than penalties targeting fossil fuels.

The report also advises the administration to consider energy security and economic robustness along with emissions reductions; accelerate technology deployment and innovation through government funding; improve the predictability of infrastructure permitting, and manage impacts on consumers.