Biden’s unforced energy mistakes lead to global oil crisis
Much of the past week has been spent debating whether we are in a recession, after Thursday’s GDP report revealed economic growth fell for the second consecutive quarter. The White House argued it was not a recession but a “transition”, while right-wing critics accused President Biden of gaslighting.
But all this debate is a distraction from the conversation we should be having. Instead of discussing the definition of a recession, we should be talking about something much more pressing: the ongoing energy crisis.
It’s actually worse than a distraction; by trying to fix inflation, the Biden administration is making the energy crisis worse. Consider the Biden administration’s decision to release huge amounts of oil from the Strategic Petroleum Reserve (SPR) to drive down gas prices. Not only has this not had a significant impact on gas prices, but it makes us less safe. What we should be doing is allowing accelerated oil wells and pipelines to ensure stable supply in the future.
Or consider the Federal Reserve’s decision to raise interest rates aggressively in an effort to calm the overheated economy and fight inflation. This is the exact opposite of what it should be doing: boosting the energy investment needed to keep the lights on and the air conditioning running.
We don’t have to look far to see the consequences of these failed policies. Europe, acclaimed for its “advances” in energy transition, is now running out of natural gas as winter approaches. Electricity prices in Europe have soared to historic highs and as a result countries may have to ration energy supplies.
The situation is so serious that Deutsche Bank recently issued a warning that Germans will have to burn wood to stay warm this winter! European natural gas costs several times the price of a barrel of oil and ten times the price of natural gas here in the United States, despite the usefulness of petroleum products for transportation.
Meanwhile, Austria and France are asking their industries and utilities to upgrade their facilities so they are able to burn crude oil for electricity, reflecting the disconnect in prices and the risk of further disruptions in the economy. natural gas supply. Other European and Asian countries are not far behind, having burned up to two million barrels a day of oil and petroleum products for heat and power last winter, and potentially burning up to five million this winter.
We also risk that the energy crisis and the conflict with Russia will turn into an oil crisis. SPR releases are expected to end in October, shortly before Europe and Asia begin burning oil for power and heat, and shortly after OPEC+ production quotas have been set. steadily rising by hundreds of thousands of barrels a day, every month.
At the same time, ESG-driven divestment from our domestic oil and gas industry, along with a heavy regulatory burden and limited pipeline and drilling permits, have created a near-record gap between the price of oil and the number of active rigs here in the US
The lack of oil supply growth despite much higher oil prices is an unforced policy error. And the European and Asian energy crisis is poised to exacerbate oil shortages, potentially driving oil prices much higher and limiting supply in a new oil crisis.
Our leaders seem to think that OPEC+ could “open a valve” and produce more oil for America and the world. Sadly, it shouldn’t have been surprising that the Saudis didn’t agree to provide more oil during Biden’s visit.
OPEC+ is nearly running out of spare capacity, potentially leaving an oil market deficit of 2.6 million barrels per day when it is most needed, potentially exacerbating the oil crisis and the energy crisis.
There is no safety valve for this emerging oil crisis, and OPEC+ is certainly not one.
And yet, as the energy crisis turns into an oil crisis, the Federal Reserve and central banks around the world are raising interest rates and choking off capital that could be used to invest in financing oil production and development. infrastructure and to replenish desperately needed additional supplies. .
And the Biden administration’s regulations aren’t helping, with pipelines and leases canceled on his first day in office, and repeated speeches claiming the oil industry is “going away” — not exactly a call for new investments in the oil industry!
Despite the likely negative impacts on the economy and our standard of living, the looming oil crisis presents an opportunity to reinvigorate the US economy. Our country’s energy sector is depressed, and there is an opportunity to dramatically increase the number of rigs, increase production, and bring back the hundreds of thousands of jobs that have been lost in the sector. This would likely lower oil and gas prices at the pumps and help alleviate runaway inflation that has hurt American consumers.
It goes without saying that the above cannot happen without stimulating new investments from the private and public sectors. To attract new capital, policymakers need to reduce the regulatory burden on companies operating in the oil and gas sector and could boost our economy by encouraging new investment.
If our leaders can move from hostile to supportive, depressed valuations and private capital allocation in the oil and gas sector could normalize, attracting capital to produce more energy and suppress inflation.
The magic of the 1980s economic boom and inflation crash was not Volker; it was Reagan who cut taxes and regulations.
Josh Young is the founder and CEO of Bison Interests, an investment fund focused on publicly traded oil and gas stocks.
The opinions expressed in this article are those of the author.