Free Secretary Granholm

Pragmatic US energy policy is possible from an unshackled Energy Secretary

The mostly mocking, “gotcha” hot takes from US Energy Secretary Jennifer Granholm’s November 23, post-SPR release presser miss what could well mark an important, overdue, and much welcomed rhetorical shift on the part of the Biden-Harris Administration toward pragmatism and moderation with its energy & climate policies. Time will tell. I am an optimist by nature.

For the first time that I can recall in its long-running presidency — err, sorry, its only month 10 — the US Administration via Secretary Granholm:

• Called for higher US oil production.

• Called for a re-hiring of US oil workers (somewhat indirectly admittedly, but always good to see oil workers acknowledged).

• Recognized that the USA will not be “flipping a switch” to non-fossil fuel energy anytime soon.

• Acknowledged that a poorly managed transition will hurt the least fortunate among us via a lack of available or affordable of energy supply.

If you’ve made it this far, many of you are uttering some combination of ‘its about time’, ‘no kidding’, or, more likely, ‘gimme a break, they haven’t changed one bit’ and less polite versions of all of those phrases. Some of you will undoubtedly note the much quieter call from the Administration for higher US oil output versus the much louder remarks from the President himself on the urgency of OPEC+ to produce more. This isn’t an exercise in purity. This is American politics. Dems have a progressive, left-wing base just as Republicans have right-wingers. It is what it is for both parties. That is until the great middle of this country starts producing more Substacks and actively engaging to have their voices heard. Resist the extremes!

Back to energy & climate policy: I am old enough to remember all the way back to January 2021 and the concerns Wall Street in particular had that Biden/Dems would ban fracking, cease issuing new permits, and take a raft of other shale-killing measures. As I wrote in Retro Biden here, the Administration has instead heretofore taken what I view as a series of “high-profile, low-impact” steps that were risking a worst of all words outcome: spiking energy prices for consumers with no change to the CO2 emissions trajectory.

Nothing in this post should be viewed as an endorsement of any proposals or policies that have been put forth by the Administration. And they may well revert back to the “worst of all worlds” energy & climate policy path. All I am doing is noting what I thought was a clear rhetorical shift in what was otherwise a generally panned roll-out of the SPR release.

Cautionary statement and disclaimer

I know defending Secretary Granholm is a bad idea for Super-Spiked post #4, but I vowed to myself to write what I strongly believe, follower/subscriber counts and unfavorable comments be damned! In my view Secretary Granholm’s November 23 White House press conference potentially marked an important and much welcomed rhetorical shift on the part of the Biden-Harris Administration. However, it was overwhelmed by the hot takes and meme-ification of her non-answer to a basic question she should have known the answer to. The “avoid politics” in me wants to skip this post. It has been over-ruled by my contrarian, “push-back on lazy consensus narratives” instincts. You can let me know in the Comments section below how dumb my decision was.

So before I go on, let me interject the disclaimer. I am not a political person. I despise partisan politics. I have never been a registered Democrat. I am currently an “Independent”—right-leaning on some stuff, less so on other items. I prefer as limited of a government as possible. But I am against anarchy, making some amount of government necessary. I love capitalism. I hate socialism. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue.

Resist “gotcha” sound-bite clips that aim to gas-light and miss the bigger story

With that out of the way, Secretary Granholm was ridiculed for not knowing current US oil demand when asked (it is about 20 million b/d). Even usually thoughtful Twitter participants labeled her “dumb”. She may not be perfect; she is a Democrat after all (relax, that was a mild joke). And she definitely should know current US oil demand as Energy Secretary. But I will promise all of you that she is no dummy. She is part of an administration that rhetorically, if not policy wise, was in a very different place with energy & climate between Inauguration Day and the November 23 presser. It appears that the surge in oil prices and inflation expectations is providing some healthy, long overdue, and much-needed moderation to the worst progressive instincts of the Biden-Harris Administration. “Build Back with the Best of Moderate Right and Moderate Left Ideas” isn’t such a catchy slogan, but ideally is where they should be headed. Let us pray.

The link to the full 48 minute White House briefing is posted in the Appendix below; Secretary Granholm’s remarks cover the first 20 minutes. I recommend watching at least her part in full. When Twitter is exploding with only a small snippet of a longer event, you know you are probably not getting the full picture and potentially being gas-lit. As part of the longer video, the not knowing US oil demand sound bite doesn’t get any better. But much of the rest of it I think was rhetorically much better for the reasons noted above. Time will tell if pragmatism and common sense holds; there is no guarantee it will.

As a reminder, the US Secretary of Energy is not akin to an Oil Minister and has a fairly limited toolbox to impact major portions of US energy policy. The ability to affect pragmatism is in some respects limited to her influence on the President. I have personally had the good fortune in recent years of speaking at a small number of events that featured then former Michigan Governor Granholm as the keynote. She was outstanding, winning over both left- and right-of-center audience members including yours truly. Her remarks were thoughtful, forward looking, and, most importantly, pragmatic in her energy & climate commentary.

I would offer that if Secretary Granholm was able to architect a full rhetorical shift without encumbrance, I will guess that the bulk of my Substack & Twitter following would actually like what she had to say (adjusting for the fact that she is a Democrat serving in the Biden-Harris Administration). To be sure, up until November 23, we had not seen even a hint of that version of the Secretary. I am a glass-half-full kind of person. For the benefit of this great country, we can only hope the rhetorical shift was indeed an inflection to a better direction. From what I know of her views, I’d welcome the Secretary having greater influence on President Biden. I think most of you that follow me would as well. Some of you have asked what would constitute sensible US energy policy. That is for another day. In the meantine #FreeSecretaryGranholm.

Be careful what you wish for if you trade energy equities or commodities

This is not investment advice. Let me repeat: this is not investment advice, explicitly or implicitly. It is an observation based on 30 years covering the sector, primarily as a Wall Street equities research analyst. Oil and energy are a “bizarro world” sector (a Seinfeld reference for non-Americans; Season 8, episode 3 now streaming on Netflix here).

What’s good is bad and what’s bad is good. In a nutshell, ESG/climate/progressive policies that aim to “keep it in the ground” are overall more bullish for oil/energy commodities/equities than right-wing chants of “drill-baby-drill”. In the case of Biden-Harris’s potential rhetorical moderation, the key takeaway for me is that it further reduces Black Swan policy risk (i.e., “frac ban”). However, it is a far cry from drill-baby-drill. Perhaps a sweet spot of sorts?

Regards,

Arjun

Appendix: Play-by-play of Secretary Granholm’s November 23 White House presser

Pro tip: watch all press conferences at 1.25X speed and use a YouTube player that allows you to skip forward by 15 seconds through boring parts. Time stamps below are approximate and per my YouTube player.

Prepared remarks from Secretary Granholm

0:00-2:50 - Introduction and opening remarks.

The Secretary starts with standard political talking points about caring about regular people and reducing the burden of high energy prices. Good (unverified) factoid: low income families spend up to 30% of their income on fuel. The Secretary makes broadly accurate comments that no President can control the price of gasoline, and acknowledges that oil markets today are being driven by recovering demand and lagging production.

My take: So far, so good. Standard political blah blah blah. Nothing inaccurate and it is always good to remember the least fortunate among us. You can skip but it is not super painful to sit through.

2:50 - 3:25 Brief comments on FTC price gouging.

The Secretary highlights the differential between finished and unfinished gasoline and suggests retail gasoline prices would be about 30c per gallon lower if historic differentials existed; hence, the reason behind the President asking the FTC to investigate what is going on.

My take: She really didn’t spend very much time on price gouging. My strong suspicion is that she/they understand that it is highly unlikely that illegal behavior accounts for the wide differentials—political theatre at its worst. This issue has been investigated numerous times over many presidents over many decades. Even the White House press pool (presumably non-energy experts) appear to broadly understand this is not a real thing to focus on given the dearth of follow-up questions and skepticism expressed in prior pressers.

3:25-6:20 - Using every tool to shield families from rising cost of fuel.

The Secretary mentioned LIHEAP, the American Rescue Plan, tapping the SPR, and speaking with other major economies on what can be done to tame high oil prices. It was noted that oil prices have fallen during the time the Administration has been highlighting it may tap the SPR. The Secretary stated that the SPR exchange is intended to bridge the time between current tight inventories and projections for looser balances in the future.

My take: The majority of Americans, in my humble estimation, don’t want handouts. Democrats tend to lead with the social programs, for better or for worse; for some of you, let’s put this in the “we agree to disagree” bucket as its tangental to this discussion. Defining the SPR release as a “bridge” between currently tight and expected future looser markets is a unique spin. As a markets-oriented investment analyst, it is not a line of thinking I subscribe to. But from a political standpoint, it doesn’t seem outrageous either. That said, if the SPR is going to be used for future “market management”, more meaningful changes to the SPR would be needed (beyond the scope of this note…a topic to come back to).

6:20-9:45 Stop relying on one source of energy especially from volatile sources.

The Secretary noted we have a short-term issue and a long-term issue. America needs to stop relying on so-called “volatile” sources of supply from regions that may not have our country’s best interests at heart. She stated that the Administration is working faster than ever to diversify America’s energy sources. That it wants to add more clean energy sources like solar, wind, hydro, geothermal, and advanced nuclear, which they believe is the best long-term strategy. They believe the bi-partisan infrastructure law will help, as it adds EV charging and domestic battery manufacturing. It also creates an entire EV ecosystem and provides R&D dollars for clean hydrogen and advanced nuclear. Build Back Better is the second part of the Administration’s plan. The Secretary ends by noting that the Biden-Harris Administration is laser focused on tackling the existential threat of the climate crisis by transitioning to clean energy while ensuring that in the short-term every American has access to affordable energy.

My take: Some standard Democrat talking points, but good to see advanced nuclear mentioned. Notably, she ended by emphasizing the need for all Americans to have access to affordable energy during the transition. This may sound boilerplate, but, in my view, it is notable progress in acknowledging that a messy transition helps no one.

Q&A portion

9:55-11:35 - Press reporter question: Why hasn’t domestic production returned to pre-COVID levels?

Secretary Granholm’s answer: Noted we have fewer oil rigs, yet there is plenty of acreage leased and plenty of permits issued. Profits are back to pre-COVID levels but cash flow has gone to shareholder returns. Said they want to encourage industry to increase supply. Stated they want supply to be increased both in the United States and around the world. Noted there are 150,000 fewer oil worker today.

My take: This got me excited! The US Administration for the first time audibly argued for higher US oil supply. Yes, I haven’t heard the President himself speak vocally on this. Sure, it was in response to a question, not part of the prepared remarks. No one said Rome was built in a day.

11:35-14:05 Press reporter Q: Question on COVID and gasoline prices.

Skip this one. Kudos to the Secretary for a polite answer.

14:05-17:00 Press reporter Q: US oil demand question that suggests SPR release is a drop in the bucket.

My take: You’ve all seen the 20 second clip of the Secretary’s non-answer a million times on Twitter already. It is not a defining moment even if it is an entertaining, easily-mocked “gotcha” clip. I still remember visiting a Goldman client in Europe during the Super-Spike era and being asked about the level of US gasoline prices at the time. I rarely filled up my Toyota Camry (was early in my career) those days and didn’t have the foggiest idea what current US gasoline prices were. I knew they were above $2/gallon and probably below $4/gallon. But man did I seem uninformed. It was politely laughed off as jet lag. And, frankly, the price of retail gasoline didn’t matter to the major oils I covered. But the Goldman Sachs Super Spike analyst damn well better know the price of US gasoline when asked. Lesson learned. We all draw blanks at times we shouldn’t. Seriously, how about we all show some grace to the Secretary. (Today, the US national average is $3.40/gallon...thank you Google and AAA website.)

17:00-18:00 - Press reporter Q: How soon and for how long will prices at the pump drop.

Again, kudos to the Secretary on her politeness in answering an unanswerable question, though she did unfortunately circle back to price gouging.

18:00-18:40 Press reporter follow-up question: Good follow-up from same reporter on whether this is a short-term band-aid?

Answer: The Secretary correctly stated it is very difficult to forecast gasoline prices and that the SPR release is intended as a bridge. Noted its a short-term pinch and that they are trying to even out the market. The long-term solution is to build clean.

My take: This is the second important takeaway. Secretary Granholm has clearly transitioned to acknowledging that the energy transition may well be messy, which is in not in anyone’s interest. Again, baby steps but progress.

18:40-19:40 - Press reporter Q: Is this one-off SPR release or this now ongoing US policy to try to balance the market? What is China doing?

Answer: Noted we are in an unusual situation coming out of a pandemic. Deflected question on what China will do

My take: This is a topic to come back to in the future. How should we think about and utilize the SPR going forward? Should it be to try to smooth price cycles in addition to being an emergency stockpile? If so, what restructuring steps are needed? I am not a technical SPR expert. I will endeavor to better understand what could be done with a forward looking view of inventory management.

19:40-20:25 - Press reporter Q: How do you reconcile the short-term message of drill for more oil with long-term climate goals.

Answer: The Secretary noted that we are in a transition that does not happened overnight. They recognize we are not going to flip a switch and be completely all clean. This is a short-term strategy to make sure people are not hurting and there is a long-term strategy to build clean.

My take: Building on the answer given in the previous Q (18:00-18:40), the Secretary again emphasizes the need to try to avoid a bumpy transition. Kudos to her/them.

20:25-20:45. Press reporter Q: What other tools are being considered?

Answer: She said President Biden will announce other tools when he is ready.

We can only hope that the rhetorical turn toward the pragmatic lasts

We can only hope this important rhetorical shift to recognizing that an energy transition will be long-term, that you can’t just flip a switch, and that we need higher US oil production to be part of the solution will persist. Given that crude oil markets appear to be on-track to remain reasonably tight in coming years assuming a continued recovery in global GDP growth — along with the reality of 2022 mid-term elections — I am hopeful this more pragmatic turn for the better is not a one-off. I strongly suspect the pragmatic approach is the goal of Secretary Granholm. We can only hope that the Administration frees her to have the kind of positive impact on our short- and long-term energy policies that she is capable of having.