President Biden has said he’d work to tax excess oil profits if companies don’t invest in new production, while diesel supplies are also low and OPEC predicts a long future for oil.

This is Overnight Energy & Environment, your source for the latest news focused on energy, the environment and beyond. For The Hill, I’m Rachel Frazin.

Biden urges Congress act on oil company profits

President Biden on Monday warned that oil companies would face a “higher tax” on their excess profits if they don’t reinvest in increasing production to bring down prices at the pump.

“They have a responsibility to act in the interest of their consumers, their community and their country, to invest in America by increasing production and refining capacity,” Biden said of the companies during a speech on Monday afternoon.

“If they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions,” he added in remarks from the White House just more than a week before the midterm elections.

• Biden can’t unilaterally impose a tax on companies; he would need a new law to pass Congress. He pledged to work with the legislature to look at his options.
  
• His comments come after ExxonMobil, Chevron and Shell reported high third-quarter earnings. The president name-checked both Exxon and Shell in his speech. 

The bottom line: Legislation would face a tough path even in a Congress held by Democrats, since at least 10 GOP votes would now be needed to break a filibuster in the Senate. 

Republicans are hoping the midterms will deliver GOP majorities in both chambers, amid polling showing rising prices being a top concern for most voters.

Gas prices in particular soared earlier this year after Russia’s invasion of Ukraine and Western and U.S. sanctions on Moscow, a major oil producer. 

Biden and his allies have blamed Russian President Vladimir Putin for the high prices, and have also tried to pin the blame on the industry. 

Analysts have attributed this year’s high gas prices not only to the war, but to a rebound in demand after the pandemic as well as refinery closures and outages.  

So what’s actually happening with oil production?  

• U.S. oil production has grown after falling with decreased demand during the pandemic.
  
• The Energy Information Administration, an independent government statistics agency, projects that next year, the country will produce an average of 12.4 million barrels per day in 2023, which would beat 2019’s record high production. It projects that this year’s average will be 11.7 million barrels per day.
  
• However, producers have also shown some aversion to what could be a risky investment in new drilling in case fuel prices drop again soon. In recent months, major companies have also sought to return profits to their shareholders by buying back their own stocks.  
  
  

SKY-HIGH EARNINGS

ExxonMobil on Friday morning reported its highest earnings ever at $19.7 billion for the quarter, while Shell reported its second highest of $9.5 billion.

• ExxonMobil’s quarterly profits surpassed the second quarter’s $17.9 billion, beating analyst projections by about $4 billion. The company said on an earnings call that its profits were boosted by record levels of Permian Basin oil and gas production, close to 560,000 barrels per day.
  
• Shell, meanwhile, announced profits of $9.5 billion for the quarter the previous day. Chevron also beat expectations, raking in $11.2 billion in the third quarter, also its second-highest quarter ever.

Exxon has been able to offset whipsawing oil prices largely through liquefied natural gas (LNG) exports. LNG demand has surged in Europe after the EU ended imports from Russia. As a result, companies in the U.S. have seized the opportunity.  

What do the experts have to say? 

“Not in a legal definition, but in most people’s minds, what’s happening with refined products, profits and margins probably qualifies as a windfall,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, told The Hill in an interview.

“The optics are pretty bad,” Kloza added. “Record profits … aren’t exactly being cheered by a population that says, hey, we need a break from inflation.”

Patrick De Haan, head of petroleum analysis at GasBuddy, argued that much of the actual consumer prices are outside oil companies’ control.

“They can decide to raise production or not, and if they raise production that lowers prices, but for now, oil company profits are a sign of the imbalances that exist in oil markets,” he said. “That is, everyone wants oil and refined products and there’s simply not enough to go around.”

Read more about the third quarter results here.  

Low diesel supply could worsen inflation

A seriously low U.S. and global diesel supply is likely to drive up fuel costs and worsen inflation, raising concerns as the cold weather months approach.   

“The national numbers for distillates are pretty tight,” said Patrick De Haan, head of petroleum analysis at GasBuddy.   

“It’s uncomfortable. That doesn’t mean that you’re going to see widespread outages, but if we get a bout of cold weather, things could be challenging.”  

Analysts say that a confluence of factors — long bubbling beneath the surface — are now coming to a head as colder temperatures bring more seasonal demand for diesel, a fuel that powers trucks and buses and is also similar to heating oil.  

“This is the start of heating oil season. This is when demand really starts picking up as we enter the winter months,” said Debnil Chowdhury, the head of North and Latin American refining and marketing research at S&P Global Commodity Insights.   

A confluence of factors have strained diesel markets including: reduced refining capacity due to the pandemic, increased demand amid COVID-19 recovery and Chinese export quotas, Chowdhury said.  

“All of those things combined led the world to really have low inventory,” he added, also mentioning a recent increase in demand for jet fuel, which may have to compete with diesel at the refinery.   

He added that the response to Russia’s invasion of Ukraine has also played a role in rerouting trade of the fuel as many European countries avoid Russian products, creating market inefficiencies.   

The big economic picture: Analysts say that this crunch is expected to worsen persistently high inflation not seen in the last four decades. High diesel prices may drive up shipping and heating costs.   

• “The rising costs of diesel fuel therefore impacts everybody, as diesel prices affect direct manufacturing, transportation and heating costs. As diesel prices rise, so do the costs of goods which in general are passed onto consumers,” said Suzanne Danforth, an analyst with Wood Mackenzie, in a written statement to The Hill.
  
• Danforth added that this could also help push the country into recession, as rising prices could curb demand for products.
  
• “Higher diesel prices have the potential to create even stronger inflationary pressures especially if the current price spike is sustained, adding significant downside risk to demand and increasing the chances of a global recession,” she said.   

Read more about the situation here.  

BIDEN TO PURSUE WIND ENERGY OFF TEXAS, LOUISIANA COASTS

The Biden administration has announced that it will pursue offshore wind energy off the coasts of Texas and Louisiana.

• The Bureau of Ocean Energy Management (BOEM) finalized two “wind energy areas” in the Gulf of Mexico.
  
• The first is a 508,000-acre area off the coast of Galveston, Texas, and the second is a 174,000-acre area off Lake Charles, La.  

The agency said the two areas are expected to be able to generate enough power to support 2.1 million homes and 740,000 homes, respectively.  

The backstory: The agency previously proposed the two gulf wind energy areas and shrunk their size from draft versions amid concerns about shipping, navigation and military operations. The next actions would be to take steps to initiate lease sales. 

OPEC forecasts fossil fuel surge through midcentury

The Organization of the Petroleum Exporting Countries (OPEC) called on Monday for trillions of dollars to be invested in the oil sector, projecting a surge in fossil fuel production through 2045.

With global oil demand projected to increase from almost 97 million barrels a day in 2021 to around 110 million barrels a day in 2045, the global petroleum sector will require a cumulative investment of $12.1 trillion, the group forecasted in its 2022 World Oil Outlook.

That’s equivalent to more than $500 billion each year, according to the outlook, released on Monday at the Abu Dhabi International Petroleum Exhibition and Conference.

The world economy is expected to more than double in size by 2045, while the population is projected to increase by 1.6 billion at that point, according to the outlook. 

Alongside those economic and population surges, the report forecasts that global energy demand will increase by 23 percent. 

While the report acknowledges that “all forms of energy will be needed to address future energy needs,” it predicts that oil will remain the biggest contributor to the global energy mix — accounting for a 28.9 percent share in 2045. 

Fossil fuels are collectively expected to make up a 69.6 percent share of the energy mix by that time, down from 80.2 percent today. 

Read more here, from The Hill’s Sharon Udasin. 

WHAT WE’RE READING

• Nebraska’s nitrate problem is growing worse. It’s likely harming our kids (Flatwater Free Press) 
• EU approves effective ban on new fossil fuel cars from 2035 (Reuters) 
• Along a withered Mississippi, a mixture of frustration, hope and awe (The Washington Post) 
  
  

Lighter click: Happy Halloween! 

That’s it for today, thanks for reading. Check out The Hill’s Energy & Environment page for the latest news and coverage. We’ll see you tomorrow.