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President Biden directs U.S. Federal Trade Commission to investigate oil and gas markets

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Elaine Johnston

Partner, Co-Head Antitrust

New York

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Noah Brumfield

Partner

Washington, D.C.

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Hugh Hollman

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Brussels

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Puja Patel

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Nicholas Putz

Associate

New York

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19 November 2021

On Wednesday, in a letter to U.S. Federal Trade Commission (FTC) Chair Lina Khan, U.S. President Joe Biden urged the FTC to investigate potential anticompetitive conduct in the oil and gas industry.

President Biden pointed to increasing industry profits amidst rising gas prices and decreasing gas costs to strengthen his call for action. He noted that he appreciated that Chair Khan had already “directed the Commission staff to strengthen oversight of mergers in the oil and gas sector” but went on to ask the FTC to “further examine what is happening with oil and gas markets, and that you bring all of the Commission’s tools to bear if you uncover any wrongdoing.”

Renewed scrutiny in the oil and gas sector

Previous administrations under Presidents Obama, George W. Bush, and Clinton have all made similar requests of the FTC.

This is also not the Biden administration’s first attempt to spur the FTC into action. In early August, National Economic Council Director Brian Deese called upon the FTC to look into anticompetitive conduct in the oil and gas industry. In response, Chair Khan outlined three specific actions that the FTC would take to address these concerns: (1) identify legal theories to challenge fuel station mergers and ensure divestitures are not contributing to further consolidation; (2) impose prior approval requirements for mergers; and (3) investigate the franchise gas segment.

The FTC has quickly responded to previous calls to investigate the oil and gas industry in the past. For example, following Hurricane Katrina and accusations of price gouging, the Commission expended considerable resources in an effort to identify wrongdoing. This included utilizing its authorities under Section 5 of the FTC Act to issue Civil Investigative Demands (CIDs) to investigate “unfair methods of competition” and under Section 6(b) of the FTC Act to issue requests for information, without requiring a specific law enforcement purpose, to inform broad industry studies.

As part of the post-Katrina investigation, the FTC issued 139 CIDs to “a wide spectrum of petroleum industry firms” such as refiners, pipeline owners and operators, terminal owners, and petroleum marketers and issued an additional 99 Section 6(b) requests to retailers. After more than a year of investigating, the Commission eventually concluded in May 2006 that normal market trends explained the pricing. The current enforcement environment, however, has greatly changed since 2006. More recently, the FTC Commissioners have discussed using Section 6(b) studies as a tool for fresh rule-making and potentially even enforcement actions.

FTC action is increasingly likely, but unclear in what form

Given the already heightened attention on the oil and gas industry, the FTC’s response in the past, and now President Biden’s explicit requests of the FTC, energy industry participants should expect further increased scrutiny in the near future. The form that scrutiny will take, however, remains to be seen.

Most recently, when facing public dissatisfaction with the general competitive conditions of an industry (e.g., the technology industry), the FTC turned to its authority under Section 6(b) of the FTC Act. Section 6(b) orders function similarly to CIDs and provide the FTC with an alternative mechanism for obtaining information from companies. There is a possibility that the FTC will use Section 6(b) to investigate the oil and gas industry, especially as FTC Commissioners have recently expressed support for deploying Section 6(b) more widely in other industries.

Another option for the FTC, similar to its approach in its post-Katrina price gouging investigation, is to issue CIDs under Section 5. In recent months, it has become easier for the FTC to issue CIDs in priority enforcement areas, which are defined broadly enough to potentially capture oil and gas industry participants. In July and September, the FTC passed a series of omnibus resolutions authorizing the FTC to issue CIDs in priority enforcement areas with approval of only one FTC Commissioner, instead of the standard consensus requirement.

For companies before the Commission on other issues, they can expect the Commission to address supply chain issues in that context, as well. We have seen, for example, FTC staff ask about supply chain constraints in other sectors during the course of the FTC’s merger review notified under the Hart-Scott-Rodino Act.

Regardless of the FTC’s ultimate course of action, those in the oil and gas industry should prepare for the realistic possibility of FTC action in the near future, which may begin with orders to turn company information over to the FTC.