During President Biden’s 2023 State of the Union Address, he relayed an anecdote that I believe explains his stance toward the oil and gas industry. At first, he stayed on script with his prepared remarks, claiming:
“You may have noticed that Big Oil just reported record profits. Last year, they made $200 billion in the midst of a global energy crisis. It’s outrageous. They invested too little of that profit to increase domestic production and keep gas prices down. Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”
As I have noted previously, oil companies made substantial increases in capital budgets last year as oil prices rose. The number of rigs drilling for oil has risen sharply, and U.S. oil production last year hit the second-highest level on record. But, President Biden — who strongly believes we need to bring down our carbon emissions — doesn’t think we are investing enough in producing more oil, even though 2023 may set a new record for U.S. oil production.
But then President Biden went off script.
He said that he had pressed oil executives on the issue of increasing investments, and he said they told him: “We’re afraid you’re going to shut down all of the oil wells and all the oil refineries anyway so why should we invest in them?”
President Biden said he responded: “We’re going to need oil for at least another decade.” The chamber burst into laughter, and then Biden quickly added, “and beyond that.”
I think this attitude explains the seeming disconnect in the President’s stance toward oil and gas companies. He and some of his advisors really believe we are going to rapidly phase out oil. He views that as absolutely necessary to address climate change. Thus, in his mind the oil industry’s relevance is going to soon fade, so there’s no harm in using them as his foil by blaming their high profits for high gasoline prices.
The reality is that we are going to need oil for a lot longer than another decade. Never mind that there is nothing in the pipeline that is going to displace jet fuel used in air traffic a decade from now. There may be some minor dent in petroleum used in marine traffic by then, but most ships will still run on oil in a decade.
But the widespread perception seems to be that electric vehicles (EVs) are going to substantially displace combustion vehicles a decade from now. That view is also not supported by facts.
U.S. EV share reached 6% of all new vehicle sales last year. The goal is to reach 50% by 2030 — just seven years from now. But that’s new car sales. The number of EVs on the road in 2022 was only about 1%.
Let’s look at Norway as an instructive example. Norway is one of the most aggressive EV markets in the world. In 2014, the country’s EV share on the roads reached 1%. By 2020, new EV sales represented 54% of new car sales in the country. This would be approximately consistent with the goals for the U.S. timeline. In 2021, over 20% of the cars on Norway’s roads were EVs, and in 2022 that number reached 25%.
How did this impact the country’s overall oil demand? According to the 2022 BP Statistical Review, in 2014 — the year Norway reached a 1% share of EVs on the roads — the country’s oil demand was 216,000 barrels per day (BPD). In 2021, with a 20% EV share, that number had fallen to 199,000 BPD. (Final full year 2022 numbers are not yet available, but preliminary numbers show a 0.4% decline from 2021).
That’s a decline of less than 8% in seven years. There’s no question that this is good, and is likely primarily due to the country’s adoption of EVs. But it also doesn’t translate to a major reduction in oil demand. When the President says “We are going to need oil for at least another decade”, I think he envisions much larger declines than this over the next decade.
Today the U.S. consumes around 20 million BPD of petroleum products. A 10% decline in this number would reduce consumption back to what we were consuming in about 2012. A large reduction, to be sure, but our transportation infrastructure would still run primarily on oil.
So, make no mistake. We aren’t going to just need oil a decade from now. We are still going to be overwhelmingly dependent on oil a decade from now. Our energy policies should reflect this reality.
Go ahead and aggressively try to speed up this transition, but also recognize that oil will still be our most important commodity in a decade; probably even two decades from now. The Biden Administration should recognize this and cease the hostility toward this critically important U.S. industry.
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