[ad_1]
What looked like a run-of-the-mill partisan dustup among American politicians this week might someday, with the benefit of hindsight, seem like a snapshot from a turning point in history.
Members of Congress gathered for an energy-committee hearing and the Democrats who organized it stuck to the scheduled topic: talking about electric vehicles. The Republican participants fumed about what a pointless exercise this was, especially now, amid tension with Russia, when the committee should be talking about a more immediate energy crisis: sky-high gas prices.
“Eastern Europe is on fire. A tyrant is raging through Ukraine,” Ohio Republican Bill Johnson said, calling for more oil production.
“It is absurd to me that we’re spending our time today talking about electric vehicles rather than how we use America’s [oil] resources to hold him at bay and to address skyrocketing inflation here at home.”
He went on to question the entire push for electric cars now, when China controls so many of the critical minerals that run their batteries, and said it would leave the U.S. vulnerable to an even bigger adversary.
WATCH | High gas prices could have ripple effect on Canada’s economy:
With gas prices hitting record highs, Canadians are being warned to brace themselves for higher costs on groceries, electronics and other consumer purchases. 2:01
A historical inflection point for energy
In short the Republican position at the hearing was: drill, baby, drill.
At the same time, Americans are searching Google for electric vehicles at a higher rate than ever, twice as frequently as last year, as people seek refuge from punishing fuel prices.
Crises have a way of revealing historical inflection points.
And this historical moment involves energy and the global race to curb planet-warming emissions — it’s about what forms we’ll use, where we’ll buy them and how fast we’ll transition to clean tech.
The Democratic committee chair at the hearing countered that this crisis with Russia is a perfect time to be talking about diversifying energy sources, and shift faster to cleaner, renewable fuels.
“We need to double down on alternatives,” said New Jersey’s Frank Pallone. “Our reliance on fossil fuels makes us weaker — subject to the whims of dictators.”
The long-term outlook for oil
One thing to note is fossil fuels will be around for quite a while. There are different scenarios out there but most projections show oil consumption growing for a few years, peaking, then plateauing or dropping slightly.
Even in a scenario where we achieve net-zero carbon emissions, the International Energy Agency says the world would still use about one-quarter of present oil levels in 2050.
So what’s making prices so high right now, for a commodity that’s supposedly yesterday’s technology?
Chalk it up to the most fundamental law in economics: supply and demand. It’s the textbook recipe for high prices. Around the world, supply of oil is down, demand is up. Global consumption of oil outpaced production last year by more than two per cent, or a couple of million barrels per day.
Why the market’s ‘gone berserk’
One Canadian-based analyst points to several reasons for that, and they start with the unprecedented drop in human activity early in the pandemic. Rory Johnston said storage facilities suddenly filled with unwanted crude, and the industry faced the prospect of widespread bankruptcies.
The OPEC cartel cut production, and Johnston credits that action with stabilizing prices and saving the industry from a catastrophic collapse.
But consumption returned to normal faster than expected last year, and the planet nearly used its pre-pandemic levels of oil — closer to 100 million barrels a day, said Johnston, the founder of industry research newsletter Commodity Context.
Demand suddenly exceeded supply and we’ve been churning through the backlog stored up during the pandemic “massively, at a pace we’ve never seen before,” Johnston said.
Now several factors are keeping prices high, he said.
The first is sluggish output — OPEC is restoring production gradually, while U.S. shale producers struggle to scale up. U.S. investors, he said, are wary of over-producing and sinking prices again. Also, companies are struggling with supply-chain bottlenecks for equipment and labour shortages.
And of course, there’s a war that’s disrupted supply chains. Overnight, Americans dumped Russia as a provider, and the U.S. has sought new sellers while Russia seeks new buyers.
“That’s why the market’s broken — at least temporarily. It’s gone berserk,” Johnston said.
It’s not like the U.S. lacks access to oil itself. It actually produces more than it uses domestically, and is a net exporter of petroleum. In addition to that world-leading domestic production it gets millions of additional barrels each day from Canada, plus more from Mexico.
But that’s not how pricing works. Oil is traded internationally and its prices are set on a global market, subject to global supply and demand.
Politics and Keystone XL
Politics also plays a role. Johnston said investors might be scared off by government regulations and activist campaigns to cut off financing for the industry, though he views that as a comparably minor factor in current prices.
For example, he said the anti-pipeline movement, over time, might be stifling Canadian exports by a few hundred thousand barrels per day, but he doubts the much-discussed cancellation of one single pipeline, Keystone XL, has made such a dent, if its promised 830,000 barrels a day are currently moving by rail.
Yet the role of politics dominated this week’s hearing in Washington.
Democrats celebrated their green energy moves, including a recent infrastructure law that spends historic sums to create a network of new electric-vehicle charging stations. Now the party hopes to revive a budget bill that invests even larger sums in clean energy and electric vehicle-production in the U.S., an issue that’s caused friction with Canada.
Republicans pinned the blame squarely on Democrats for high oil prices. They accused their anti-oil, anti-pipeline policies of scaring investors away from fossil fuels.
Those complaints about the Biden administration drew support from one group testifying at the hearing: the fossil fuel industry-affiliated Institute For Energy Research.
The group’s president, Tom Pyle, bemoaned an investor chill based on multiple government actions: administration regulations, tax credits that favour renewables, and a halt on new oil and gas leases on public lands.
WATCH | World leaders mull ban on Russian energy exports:
The European Commission is releasing a plan to cut Europe’s reliance on Russian natural gas, while U.S. President Joe Biden is facing bipartisan calls to ban Russian oil imports. 4:00
“We have created a Byzantine structure of rules and regulations,” he said. “It’s not shocking to me that they’re not following the price signals like they have in the past.”
He said the energy problems go beyond oil: He cited Maine’s recent halt of a Hydro-Quebec power line, and century-old U.S. shipping regulations, as examples of how it’s too complex to deliver power.
Projection for 2022: More barrels, some price relief
Could the U.S. ramp up quickly? Some analysts told CBC News they think so, at least to some extent, and Johnston said U.S. shale producers could scale up within months.
The U.S. government projects global production will ramp up by nearly two per cent, and that prices will stabilize this year. Prices in fact dropped significantly one day this week.
So expect a bumpy, winding road in the energy transition.
A recent piece in Foreign Affairs magazine made numerous predictions about the path ahead, and although it was written late last year, one of its projections is swiftly taking shape. It predicted that new geopolitical alliances would form, as the turbulence in old fuel markets and new renewable markets creates new trading partners.
It said Russia would turn to China. The piece predicted Russia would fare poorly in the energy transition, would eventually struggle to unload fuel supplies, and would become dependent on China as a customer.
A new left-right consensus on energy?
Fast-forward to this week and a co-author of that piece voiced a deeper wish in a podcast interview: that energy would stop being so divisive.
The writer, Meghan O’Sullivan, a former senior official in the George W. Bush administration, said in a podcast that she hoped Americans might come together as they did in a past international crisis, after the 2001 terrorist attacks.
She said she hoped people on the right might come to accept that developing green energy is a long-term matter of national security; and that people on the left accept that producing more U.S. oil assists national security in the short term.
Johnston shares that all-of-the-above view: “We need to do both.”
[ad_2]
Source link
