Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Economy

The U.S. Oil Industry Is Full of Hypocrites

A smooth transition to clean energy will require coordinating on oil prices — just not the way Scott Sheffield was doing it.

A gas station attendant.
Heatmap Illustration/Getty Images

The Federal Trade Commission earlier this month threw sand in the gears of one of several big oil company deals currently in the works, the $60 billion acquisition of shale oil company Pioneer by Exxon. While the FTC didn’t block the sale, it said that Pioneer’s chief executive, Scott Sheffield, could not join Exxon’s board, as proposed in the merger agreement, because of his role in seeking to coordinate oil production and push up prices.

It was yet another Rorschach test of the mid-transition — oil folk saw regulator overreach or pettiness under a Democratic administration, while climate campaigners saw shameless profiteering by the oil industry. What it really reveals is more complex: The illusion of laissez-faire oil markets; the disingenuousness (if not hypocrisy) of the U.S. oil industry; and the need for U.S. policymakers to take a much more interventionist stance in oil markets.

First, the FTC complaint. Sheffield, fêted in the oil world as one of the key instigators of the U.S. shale oil boom, has called on peers in the sector to refrain from drilling when prices were low. The commission also quoted public remarks by Sheffield referring to U.S. oil companies “staying in line,” being disciplined in their production, and being punished by shareholders if they sought to grow production.

He went further than that, though, according to the FTC. In a heavily redacted section of the complaint, the Commission describes Sheffield meeting with OPEC officials and communicating with them by WhatsApp. “If Texas leads the way, maybe we can get OPEC to cut production. Maybe Saudi and Russia will follow. That was our plan,”he said in one text message cited by the Commission. He added: “I was using the tactics of OPEC+ to get a bigger OPEC+ done.” Pioneer issued a statement saying that circumventing competition rules was “neither the intent nor the effect” of Sheffield’s comments and pointing to Pioneer’s role in increasing U.S. production.

Coordinating on prices, however, is the norm in the history of oil markets — even in the U.S. It shouldn’t be so shocking that the purportedly free market-loving oil industry would engage in this kind of behavior.

A lot of Sheffield’s activity mentioned by the FTC took place from around 2020 to 2023, when oil demand was still uncertain thanks to Covid. Even before then, the U.S. shale industry, which had boomed through the late 2010s, was under pressure from institutional investors, frustrated as all the new supply undermined their profits. Exxon, whose antecedent Rockefeller famously took control of transport to manage the oil market, is so big and cash-rich that it can largely ride out market fluctuations; the smaller and newer shale oil producers, reliant on increasingly impatient investors, could not.

No wonder Sheffield was vocal about restricting supply: He had a large company and a high profile among a sea of smaller players that were fracking madly even as prices fell.

Oil prices are notoriously volatile, which serves neither producers nor consumers. If prices are too low, the industry logic goes, no-one invests. Too high, and there’s a risk that demand for the stuff falls — especially if it prompts a recession. To keep prices in a sweet spot, a good chunk of the market has to be prepared to refrain from pumping. Turning the taps on and off is a role that Saudi Arabia and fellow OPEC petrostates have taken for decades. The nature of shale oil means it is a “swing producer” that can switch up and down its output with relative ease compared to other producers.

The market dynamics changed quickly when Russia invaded Ukraine in early 2022. Since then, U.S. oil producers have been pumping more than ever, to the point where the country is now the world’s biggest producer. None of this has stopped the industry from continuing to loathe the Biden administration, of course. (Sheffield himself said in 2021 that the administration was trying “to slow down U.S. drilling in any way they can.”)

The U.S. government is the one actor with enough power to influence global oil demand that has largely sat on its hands. The oil industry often engages in a kind of collective delayed gratification to keep oil prices in a sweet spot: high enough to maximize profits, but not so high that households and businesses start cutting back on their fuel use. Far less effort has gone into a kind of reverse strategy. There have been few attempts to reduce supply without disruptive price volatility — the kind of government inaction that pits voters against lawmakers and hurts households that really feel the pinch from higher gasoline prices.

Having intervened extensively in the preceding decades, during the 1980s, the U.S. government backed away from the complex price controls of the Nixon presidency and the demand-curtailing measures of Carter’s. With OPEC’s strategy being fairly straightforward, a couple of decades of relative stability followed, along with the assumption that the market would self-correct whenever prices went too high for consumers or too low for producers. Bassam Fattouh of Oxford Institute for Energy Studies argued that it was the perception of a self-correcting supply-demand dynamic that “stabilized long term expectations about oil prices”in that period.

The “mid-transition” idea, developed by academics Emily Grubert and Sara Hastings-Simon in a 2022 paper, asserts that the process of decarbonization involves a drawn-out, messy, liminal phase, during which changes to energy costs and supply will shape a society’s perception of clean energy so much that negative experiences like price spikes or supply interruptions will undermine political support for the transition.

In 2023, the Biden administration broke the U.S. government’s longstanding precedent and began intervening in oil prices with an eye beyond manipulating the immediate consumer price. It announced a target price for buying several hundred million barrels of oil to restock the Strategic Petroleum Reserve, which had been depleted after the invasion of Ukraine sent prices spiking. By pledging to buy crude whenever the price was between $67 and $72 a barrel, it would do what Employ America, a think tank, had proposed: Set a floor under prices that would help U.S. producers, as well as a ceiling that would avoid pain at the pump.

“Mid-transition” is a relatively new concept, but it harks back to a more established phrase in climate policy: “smooth transition,” which describes a pathway to decarbonization that is steady but not disruptive. Stimulating or restraining oil production in a way that stabilizes oil investment and prices — if done effectively and with the right intentions — is a necessary condition for such smoothness. Sheffield and other producers, including OPEC+ members, have for decades sought to manage oil supply to ensure that price spikes don’t disrupt oil’s future. For all that the U.S. oil industry castigates the Biden administration, they are actually pursuing the same goal, just with a different view of the end game.

Kate Mackenzie profile image

Kate Mackenzie

Kate Mackenzie is an independent researcher, journalist and advisor to organizations pursuing the Paris Agreement goals. She is a contributor to Bloomberg Green, editor of "The Polycrisis" series at Jain Family Institute's Phenomenal World journal, and a non-resident fellow at the Centre for Policy Development, a non-partisan Australian policy thinktank.

Climate

AM Briefing: Displacement Fears

On the Biden administration’s carbon removal investments, the climate refugees of Brazil, and more

Wednesday sunrise.
Heatmap Illustration/Getty Images

Current conditions: More storms and possible tornadoes are forecast to hit Texas and the Plains, where millions of people are still without power • Cyclone Remal, the first tropical storm of the season, killed at least 23 people in India and Bangladesh • Brazilian authorities are investigating up to 800 suspected cases of waterborne illness following unprecedented flooding over the past month.

THE TOP FIVE

1. Biden administration invests in carbon removal

The Department of Energy on Tuesday gave $1.2 million to companies competing for a chance to sell carbon removal credits to the federal government. These 24 semifinalists, which were each awarded $50,000, include nine direct air capture projects, seven biomass projects, five enhanced rock weathering projects, and three marine-based projects. Up to 10 of them will be offered federal contracts amounting to $30 million. “The Department of Energy hopes that by selecting 24 companies that have been vetted by government scientists, it’s sending a signal to the private sector that there are at least some projects that are legitimate,” Heatmap’s Emily Pontecorvo writes, referencing struggles in the broader carbon credits marketplace.

Keep reading...Show less
Yellow
Technology

Carbon Removal’s Stamp of Approval

The Department of Energy is advancing 24 companies in its purchase prize contest. What these companies are getting is more important than $50,000.

Heirloom DAC.
Heatmap Illustration/Heirloom Carbon

The Department of Energy is advancing its first-of-a-kind program to stimulate demand for carbon removal by becoming a major buyer. On Tuesday, the agency awarded $50,000 to each of 24 semifinalist companies competing to suck carbon dioxide out of the atmosphere on behalf of the U.S. government. It will eventually spend $30 million to buy carbon removal credits from up to 10 winners.

The nascent carbon removal industry is desperate for customers. At a conference held in New York City last week called Carbon Unbound, startup CEOs brainstormed how to convince more companies to buy carbon removal as part of their sustainability strategies. On the sidelines, attendees lamented to me that there were hardly even any potential buyers at the conference — what a missed opportunity.

Keep reading...Show less
Yellow
Economy

Tom Steyer Is Baffled By Warren Buffett’s Oil Bets

“In the case of fossil fuels, he doesn’t seem to recognize how quickly our ability to develop and deploy clean energy is growing — and how cheap that energy is becoming.”

Tom Steyer and Warren Buffett.
Heatmap Illustration/Getty Images

If you’re looking for a relatively optimistic read on the fight against climate change, Tom Steyer’s new book is out today. Called Cheaper, Better Faster: How We’ll Win the Climate War, it dives into the billionaire’s perspective on the state of the climate crisis and the clean energy solutions helping the world decarbonize. Steyer’s perspective is informed by the many hats he wears — investor, philanthropist, long shot 2020 presidential candidate, Yale man, and co-founder of the investment firm Galvanize Climate Solutions.

I chatted with Steyer a few weeks ago about his book, his guiding investment principles, and how and why people become environmentalists. Here are three things I found noteworthy:

Keep reading...Show less
Blue