Rhetoric and Reality // Heat Wave Pummels Midwest and Southern Grids

Rhetoric and Reality

Watching the Biden administration handle this energy crisis reminds me of Thucydides, the ancient Athenian writer who cataloged the war between Athens and Sparta. The split between rhetoric and reality makes for a major theme in his masterwork.

At one point, Pericles, ruler of Athens, gives a stirring funeral oration for fallen soldiers. He enumerates Athens' virtues, its laws, its people. Later, after the Athenians pull behind their defensive walls, a plague breaks out. The city is reduced to licentiousness, lawlessness, and a total collapse of fellow-feeling amongst its people.

There's what you tell yourself it is when times are good and then there's how it really is when times get tough.

Biden campaigned on tough talk. He was the straight shooter ready to take on Big Oil: "No more subsidies for the fossil fuel industry. No more drilling including offshore. No ability for the oil industry to continue to drill period. It ends," he said. This was before Covid, before the energy crisis. Times were good.

Now, oil's cracked $100 a barrel and doesn't look like it's ready to come down any time soon. Gas prices have increased every week for the last eight weeks--the year began at $1.70 a gallon, now it's over $5. Natural gas prices are high, driving up electricity prices and straining the grid (more on that below). And fertilizer plant shutdowns threaten a deep food crisis in the winter.

In March, Energy Secretary Granholm told the oil and gas industry that America is on a “war footing,” saying, “That means you producing more right now, where and if you can."

Yesterday, Biden wrote a letter to oil and gas companies complaining that they don't have enough refining capacity. “At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable," he wrote.

Meanwhile, his press secretary had this to say:

"Do the right thing" and refine more? What happened to 2020 Biden? Why does his administration want all these hydrocarbons all of a sudden? Didn't he want to basically end the domestic oil and gas industry? Didn't Ron Wyden just propose raising taxes on the industry to 42%, a move sure to inspire eye-popping investments in production? And didn't John Kerry just say we "absolutely don't" need to go back to fossil fuels?

Rhetoric and reality.

In response, Exxon wrote, “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."

“Any suggestion that U.S. refiners are not doing our part to bring stability to the market is false,” Chet Thompson, president of the American Fuel and Petrochemical Manufacturers, said. “We would encourage the Administration to look inward to better understand the role their policies and hostile rhetoric have played in the current environment.”

Irina Slav points out that even if companies could invest on a dime, lead times would still be a factor. "Let’s assume the only thing holding them back from drilling was their own unwillingness to drill and let’s also assume the White House could force them to reconsider this unwillingness. According to what I’ve heard from industry insiders, it takes several months to put a shale oil well into operation."

Outside the fantasy world where projects start when the President puts a letter in the mail, the "hard reality is not that difficult to grasp. You cannot drill a well if you do not have the equipment you need to drill it with or the people to drill it. You can’t frac a well if you don’t have the frac sand you need to frac a well," Slav writes.

Rhetoric and reality.

Eventually, Athens lost to Sparta and spent a convulsive year in the murderous thrall of thirty tyrants from its own ruling class. “For the whole earth is the tomb of famous men [...] Make them your examples, and, esteeming courage to be freedom and freedom to be happiness, do not weigh too nicely the perils of war," Pericles had told his people during that famous funeral.

"Do not weigh too nicely the perils of war."

Look where that got him. Look where it's gotten Biden.

Heat Wave Pummels Midwest and Southern Grids

The National Weather Service has declared that the heat wave swamping the Great Lakes area and the Southeast will persist. "The extreme weather condition has pushed PJM West Hub and Into Southern day-ahead on-peak prices into triple digits, with Into Southern bilateral index assessed at a record $350/MWh for June 15 delivery," reports SPG.

ERCOT in Texas has declared that the triple-digit heat will see "all-time peak record loads" for today, June 16.

Meanwhile, PJM looks like a hockey stick.

Due to the collaboration and growth of natural gas and renewables in ISO areas, natural gas and electricity prices move close together. This is the danger of ultimately relying on a single fuel type. "After plunging to a 5-week-low on Tuesday, natural gas prices in the U.S. have ramped up again, gaining 4% on Wednesday on excessive temperatures expected to last through next week," Oilprice.com reports.

This trend may continue throughout the summer.

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Conversation Starters

• Senator Diane Feinstein has officially reversed her position on closing California's Diablo Canyon nuclear power plant. In an op-ed published in the Sacramento Bee, she cited reliability concerns and emissions targets as what persuaded her. Hopefully, this will make it easier for Governor Newsom, who has been reconsidering closing the plant, to change his mind.

• Speaking of California, the state has re-opened the record on its net metering case on residential solar. This is likely to stir the pot for a while, as California's residential solar scheme is highly regressive, but coveted by participants. Utilities, on the other hand, hate it.

• A complicated legal case in Kurdistan could endanger international oil company projects. "The long-running dispute over how oil flows are handled in the semi-autonomous region of Kurdistan in northern Iraq – administered by its government (the KRG, in Erbil) – and how the region is rewarded by the Federal Government of Iraq (FGI) in Baghdad for its co-operation in this regard has taken a series of dramatic legal twists in the past week or so," reports Oilprice.com

Word of the Day

Development drilling 

Drilling done to determine more precisely the size, grade, and configuration of an ore deposit subsequent to when the determination is made that the deposit can be commercially developed. Not included are:

1. secondary development drilling,

2. solution-mining drilling for production,

3. production-related underground and open pit drilling done for control of mining operations.

Crom's Blessing