Home » ‘Dangerous Pivot’ on Overseas Oil and Gas Deals Splits Biden Administration

‘Dangerous Pivot’ on Overseas Oil and Gas Deals Splits Biden Administration

President Biden’s pledges to end U.S. financial support for international fossil fuel projects faltered as friendly nations sought help.

The Biden administration is retreating from its promises to stop funding oil and gas projects overseas, triggering a split among senior officials over whether to prioritize climate change or the diplomatic alliances the White House has deemed critical to counter Russia and China.

Federal agencies have approved funding for proposals like renovations to an Indonesian oil refinery and shipments of natural gas to Poland — sometimes over the objections of President Joe Biden’s special climate envoy, John Kerry, and Democratic lawmakers.

The policy shift shows how the fraught global political situation caused by the war in Ukraine and Washington’s tense rivalry with Beijing is threatening environmental goals. Democratic lawmakers and environmentalists fear the change could erode U.S. climate leadership as greenhouse gas emissions rise steadily and temperatures soar.

“The Biden administration continues to approve one fossil project after another, which completely undermines our international dialogue for a faster transition to renewables and undermines our credibility,” said Sen. Jeff Merkley (D-Ore.), who along with Sen. Ed Markey (D-Mass.) has pressed the White House for information on its policy for funding the oil and gas projects.

But defenders of the shift say it is a pragmatic change that acknowledges European allies are dependent on Russian energy exports and developing nations are wary of China’s growing influence.

“No one’s overlooking the climate consequences of these policies, but they are being weighed against the broader foreign policy, economic policy and security policies in United States,” said Landon Derentz, who worked on international energy policy at State, the Energy Department and the White House during the Obama, Trump and Biden administrations before leaving last year.

The White House did not provide a comment for this story.

Interviews with 21 administration officials, lawmakers, Capitol Hill aides, industry lobbyists, advisers to federal financing agencies and environmental groups show how the policy pivot is splitting the administration.

The internal policy collision erupted in late April when the U.S. Export-Import Bank was considering whether to approve $100 million in financing to help renovate a century-old oil refinery in Indonesia.

Shortly before the Ex-Im vote to finalize the financing, Kerry and Jon Finer, the deputy national security adviser in the White House, telephoned Ex-Im Chair Reta Jo Lewis to urge her to pull the project from the agenda and delay the decision, according to two administration officials, who requested anonymity because they were not authorized to speak about the incident.

Kerry and Finer believed the project was at odds with the Biden administration’s broader climate efforts, one of the officials said.

But senior staff across agencies had already approved the financing for the refinery in Indonesia, a country that has clashed with China’s territorial pushes into the South China Sea. Kerry and Finer’s last-ditch effort failed, and Ex-Im greenlit the project.

Since that incident, the administration has sought to clarify its guidance around potential exemptions to its effort for funding fossil fuel projects. The update may lead to greater scrutiny of the type of investments the agencies have increasingly backed in recent months.

Other deals have cropped up in the last 18 months at the U.S. International Development Finance Corporation, an international financing agency that can deploy up to $60 billion. Biden is leaning on the agency to help deliver on his international climate finance commitments, and DFC has pledged to reach net-zero emissions across its portfolio by 2040.

But last year DFC delivered $300 million to the Three Seas Initiative to bolster Baltic energy security after the Russian invasion of Ukraine. That initiative had started under the Trump administration with a focus on natural gas, though the Biden administration has not detailed what its financing will support, according to Ian Brzezinski, a resident senior fellow at the Atlantic Council who has held senior National Security Council and Defense Department positions, including NATO policy.

DFC also underwrote a $50 million insurance plan in 2022 for a natural gas power plant in Sierra Leone. And it financed a $400 million gas transaction last year for Moldova, the seventh-priciest deal in two decades, according to DFC’s March 31 update of its dealbook. That update omits a more recent and even bigger transaction: backing a $500 million Goldman Sachs investment to lock in gas shipments for Poland that DFC guaranteed in June.

Although an overwhelming majority of the administration’s financing flows to clean energy projects overseas, bankrolling oil and gas projects threatens to prolong the use of planet-heating fossil fuels that scientists say need to be phased out by mid-century to avoid catastrophic climate change. Activists say that’s especially concerning for regions like Southeast Asia and sub-Saharan Africa, where emissions are projected to grow while those from the advanced economies shrink.

Administration officials say the Biden shift to support the oil and gas projects was largely driven by Moscow’s February 2022 invasion of Ukraine, which put European allies at risk of fuel shortages as nations there scrambled to replace Russian energy supplies. The U.S. and European governments scoured the planet for new supplies — a significant amount of which came from emerging economies.

The war in Europe has dovetailed with U.S. efforts to counter China’s ambitions to grow its influence through its Belt and Road Initiative, an overseas infrastructure investment strategy. Though its energy spending abroad has slowed in recent months, Beijing holds a sizable chunk of the developing world’s debt as a result of that effort, which has included a focus on energy-intensive projects.

All those U.S. oil and gas investments have caused friction between climate stalwarts atop the Biden administration and the government’s foreign policy wing about advancing oil and gas investments.

To some of Ex-Im’s advisory council members, the decision to help fund the Indonesian refinery contradicted the Biden administration’s January 2021 climate executive order that called on agencies to “identify steps through which the United States can promote ending international financing of carbon-intensive fossil fuel-based energy,” as well as the November 2021 agreement the U.S. signed at the U.N. climate talks in Glasgow, Scotland, to end overseas oil and gas finance.

The Biden administration backed that U.N. pact up in December 2021 guidance to federal agencies that largely prevented federal investments in overseas oil and gas projects. But those agencies were left to determine for themselves whether proposals satisfied certain exemptions that would permit fossil fuel financing, such as national security or energy access and economic development where clean energy is not viable.

“There’s a disconnect between that and the actions of a lot of these agencies precisely because there isn’t a clear process,” said Kevin Gallagher, director of Boston University’s Global Development Policy Center, who said the Indonesia investment prompted him to walk away from another term on Ex-Im’s China advisory council. “These exceptions should be true exceptions. But to just call anything ‘security’ is just going to lead to insecurity in the future.”

A State Department official who was granted anonymity to speak candidly about the policy, which the Biden administration has never publicly released, defended the process as “iterative.”

“We’ll always be learning as cases come in” given the diversity of projects, geopolitical circumstances and agencies the guidance covers, the person said.

That process has fed a perception among industry, environmental advocates and lawmakers that the administration was taking an ad hoc approach to the investments.

That’s frustrated U.S. diplomats in developing nations who want clarity for building oil and gas projects they see as vital for stabilizing fuel prices and supplies. And it’s angered environmental activists who see enormous loopholes to justify gas and oil projects overseas.

“We’ve seen a really dangerous pivot,” said Bronwen Tucker, global public finance co-manager at Oil Change International. “It feels like we are in a moment where the administration is stepping away from its fossil fuel commitments.”

The latest iteration of the policy guidance will now hinge on the White House National Security Council granting a national security or development exemption for financing fossil fuel projects, according to one of the administration officials with knowledge of the process.

The new changes, which have not been previously reported, are designed to ensure consistency across the government. But it has encountered resistance from agencies who see it as impinging on their independence, the official said.

The U.S. policy and its opacity has confused allies who want the Biden administration to support their energy security needs, according to industry officials and Capitol Hill aides. Allies in Asia have sought U.S. financing for gas projects but cannot figure out how to press their case, according to one Republican Hill staffer who has had conversations with embassies in the region.

The ambiguity has a “chilling effect” on seeking U.S. financing, pushing nations toward China to fund projects, the aide said.

“We’re leaving territory up for grabs for our adversaries,” said the aide, who was granted anonymity to shed light on sensitive diplomatic discussions.

Other projects are drawing concern from the U.S. climate activists. They include a Bahrain oil project in Ex-Im’s queue, which also includes gas and petrochemicals proposals in Egypt, Guyana, Malaysia and Papua New Guinea, as well as an LNG project in South Africa under consideration at DFC.

To some, the newer posture is a necessary rebalancing of priorities. Other nations witnessed the U.S. speed liquefied natural gas to Europe after the Russia invasion, and Europe’s turn back to coal. Yet developing nations face energy security challenges daily, not just in times of war or acute crisis.

The State official noted that the administration views facilitating oil and gas shipments differently than bankrolling the construction of new projects. The official said the duration of investments is a key factor for consideration — the Biden administration does not want to unnecessarily lock in decades of additional fossil fuel consumption that would jeopardize global climate goals. The administration’s policy is still to “veer our resources” to clean energy, the official said.

“Energy markets are complex, what we’re seeing in the world is complex. It is not easy. It is not simple,” the State official said. “It’s not black and white. It’s never going to be black and white, and especially following Russia’s invasion of Ukraine.”