Energy, Russia and American Power Biden’s war on fossil fuels helps Putin, as the Ukraine crisis shows.
Russia’s invasion of Ukraine is a 3 a.m. wake-up call to President Biden and America’s liberal political class: Cease your war on U.S. energy. Europe’s climate obsessions have rendered it vulnerable to Vladimir Putin’s extortion, and the U.S. is in danger of repeating that tragic mistake.
No less than Igor Sechin, CEO of Russia’s state-owned Rosneft, warned Europe last summer: “Some ecologists and politicians urge for a hasty energy transition, yet it requires an unrealistically fast launch of renewable energy sources and faces issues with storage, ensuring reliability and stability of power generation.”
Europe’s hefty renewable subsidies have rendered nuclear and coal power economically uncompetitive. Governments have also forced loads of nuclear and coal plants to retire prematurely, believing wind and solar could replace them. Hello? Renewables don’t provide reliable power 365 days a year, 24 hours a day.
Europe has been left to rely increasingly on natural gas to keep the lights on. But governments have effectively banned hydraulic fracturing, which would have let them charge their economies with domestically produced gas. Europe now imports almost all of its gas, with 40% coming from Russia.
Sluggish wind last summer sent natural gas demand and prices soaring. Some manufacturers had to shut down. Then Russia slowed gas deliveries, limiting Europe’s supply heading into the winter. Strategic advantage: Putin.
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The Biden Administration has been left scrambling to supply gas for Europe amid Kremlin threats to cut off supply. Shippers have redirected liquefied natural gas (LNG) cargos to Europe from Asia. Asian economies have shifted to burning more coal. In other words, Europe has reduced its CO2 emissions by outsourcing them.
Europe’s anti-carbon policies will have zero impact on global emissions. China has six times more coal power under development than all of Germany’s coal-fired capacity. China has promised to reduce emissions before 2030, but if you believe that, Mr. Putin has a promise of peace to sell you.
Mr. Biden ought to be exploiting America’s homegrown energy advantage. Instead he has spent a year disarming a la Europe. He has suspended leases in Alaska’s Arctic National Wildlife Refuge, halted oil and gas leases on federal land, and killed the Keystone XL pipeline, which would have helped Canada develop its oil sands.
Green groups and Democratic states have compounded the masochism by obstructing new pipelines, thereby limiting development of LNG export facilities, especially on the Atlantic Coast. In 2018 the Northeast had to import Russian LNG owing to a shortage of pipeline capacity. Mr. Putin can thank Andrew Cuomo, New York’s deposed Governor, for that.
The pandemic caused U.S. production to fall as demand and prices plunged. But crude prices have exceeded the break-even point for most oil plays since December 2020. U.S. oil production is nonetheless 1.5 million barrels a day below the pre-pandemic peak and 15% below the Energy Information Administration’s late 2019 forecast.
Production has increased in the Permian Basin, where break-even is about $35 per barrel. But the oil-and-gas giants have slashed investment in other plays and redirected money to subsidized renewables. Companies respond to political signals as well as prices, and they have to consider long-term risks and returns.
Democrats have promised higher taxes on oil and gas—including $100 billion in Build Back Better—as well as new regulatory burdens that will reduce their return on capital. Blackstone, the private equity firm, is black-listing new oil and gas investment, Bloomberg reports. “It’s not a moral or ethical stance,” said Blackstone’s Environmental, Social and Governance (ESG) global head Jean Rogers. “It is reading the signals in the market.” Well, yes.
Energy CEOs aren’t conspiring to fatten profits. Prices respond to fluctuations in supply and demand as well as market expectations. Crude prices surged this past year because production hasn’t kept pace with demand. “The world risks a severe deficit of oil and gas,” Rosneft’s CEO noted last summer. “The world consumes oil, but isn’t ready to invest in it.”
He’s right—at least about the West. Russia is investing heavily to develop its oil and gas resources, especially in the Arctic. And guess who benefits from high prices? Oil at $100 a barrel funds the cruise missiles hitting Kyiv. Mr. Putin will be the victor of the self-defeating U.S. war on fossil fuels.
The casualties will be hundreds of millions of Americans, forced to pay more for energy that will become less reliable. Higher energy prices will crimp economic growth and standards of living. If Ukraine’s strategic shock doesn’t awaken Democrats to this reality, Republicans need to bang voters on the head with it every day through Nov. 8.
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