Daniel Yergin, author of The Prize: The Epic Quest for Oil, Money & Power, argues if you try and move too fast toward greener energy it is going to be quite disruptive, a view that channels economist Jean Pisani-Ferry, And that is the position in which Europe finds itself. Self-inflicted tight oil, tight natural gas and tight coal markets have skyrocketed energy prices there. The continent’s dependence on Russian energy, supplying almost 40 percent of its natural gas imports and over a quarter of its oil imports, has made it difficult for governments to impose sanctions on Russian energy exports which would cause further pain on consumers. This has enabled Russia to march into Ukraine. President Biden, who announced that oil and natural gas sanctions were off the table, is as putty in Putin’s hands. Buying oil and natural gas from Russia, which the United States is also doing, gives Russia revenues to continue its rampage in Ukraine, particularly with oil around $100 a barrel on world markets. Losing out on those revenues would be hard for Russia, which relies heavily on energy exports to finance its government operations and support its economy. Oil and gas exports provide more than a third of Russia’s national budget.
Biden and the United States unlike Europe, have another avenue for the needed energy: our own domestic resources. The United States, at current domestic consumption rates, has enough technically recoverable resources to last 94 years for natural gas, 285 years for oil, and over 800 years for coal. All Biden has to do is change his anti-oil, gas, and coal policies, such as reversing his “temporary” ban on oil and gas leasing on federal lands, removing onerous regulations against oil, natural gas and coal, allowing the Federal Energy Regulatory Commission to approve pipelines that are critical for moving natural gas to processing centers and approving the Keystone XL pipeline. In other words, if Biden were to just get out of the way of U.S. energy businesses, all would be well.
According to Yergin, as the United States moved from being an oil importer to an oil exporter, people quickly forgot about the energy security that had been a national topic of discussion for over half a century. And recently, there have been short-sighted policies–driven in part by government themes–about investing in the development of new resources. Oil demand, for example, is still increasing and is likely to increase at least for the rest of this decade and likely into the next decade. Biden has begged OPEC, namely Saudi Arabia and the United Arab Emirates, to increase production. But, even if OPEC agrees to do so, there is not a lot of spare capacity in the world for extra oil production. In fact, from 2010 to 2019, 81 percent of the global increase in oil production came from the United States. Global oil prices breached $100 a barrel recently, and analysts say they could increase $20 or more. Inflation, already at multiyear highs, could gain steam with unpredictable political consequences. Since Russia produces one out of every 10 barrels of oil the world consumes and up to a third of Europe’s natural gas supplies, petroleum gives it strategic leverage.
Biden and environmentalists will be calling for more wind and solar energy. However, wind and solar do not directly replace oil and gas that are not only used to produce gasoline and diesel to run vehicles, but also for manufacturing plastics, with hundreds of uses including in medical technologies, and producing fertilizers to enrich crop production, to name just a few. The world runs on these products. Further, wind and solar technologies are not cheap. Average electricity prices have increased by 55 percent since the United States passed federal tax incentives and state mandates to encourage building more wind and solar capacity, while coal and natural gas prices have been relatively flat or declining through most of that period.
And these renewable technologies rely on critical metals, which Biden also does not want the United States to mine, as his administration has been opposing mines around the country. President Vladimir V. Putin and China’s Xi Jinping have acquired strategic materials found around the world necessary for renewable energy adoption and for electric vehicle batteries. Electric vehicles need batteries containing critical minerals like lithium, cobalt, copper, nickel and rare earths often found in unstable countries. China has a dominant position in refining many of those minerals, and could easily be the prime energy, economic and security rival of the future. As such, the world may be swapping a dependency on oil and gas for a dependency on critical minerals, whose current production and processing are actually significantly more concentrated in fewer countries than either oil or gas.
“If the United States is [energy independent], then we don’t beg people in the Middle East or Russia to help us. If the oil price [is] moderate, the economies in the West thrive, and Vladimir Putin doesn’t have financial reserves that can subsidize as an invasion.”
That means energy security must be a priority. Not paying attention to energy security means more disruptions and more turbulence and more dictators who believe that they can do as they want. The United States needs to get serious about its energy policy and preserve its place in the geopolitical order or risk relinquishing its position as a superpower. Europe stands as an example of what happens when “green energy” becomes the priority over energy security. IER has been arguing for some time that energy weakness breeds weakness of all kinds.