Energy Crisis is an Opportunity for U.S. Leadership

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AdobeStock_by-Daniel-Thronberg

The United States and the world are experiencing an energy crisis. AAA reports that the national average for a gallon of gasoline is over $4.61, pushing record inflationary pressures on groceries and daily costs even higher. News from Arkansas, California, Illinois, and Michigan report the possibility of electricity interruptions with brownouts and blackouts this summer. Overseas, Europe and Asia face short supplies of natural gas, diesel, and other refined products necessary to supply the inputs critical for agriculture, medicine and modern materials. 

War in eastern Europe has exacerbated the problems, but they are not the sole cause of them. The energy crisis is fundamentally a supply problem. Artificial political constraints are undermining growth and investment in oil and natural gas resources in the United States, while real physical constraints are limiting demand from being met efficiently. This imbalance harms everyone, but is more devastating to the lower class.

At the start of the latest Ukraine invasion by Russian forces in February 2022, U.S. Energy Secretary Jennifer Granholm implored to oil executives at the CERAWeek by S&P Global conference that, “we are on a war footing. We need oil and gas production to rise.” The contrast between the Biden Administration’s rhetorical aims and their policy actions have been stark. The administration has limited federal leasing, unleashing a “whole of government” approach to constraining domestic oil and natural gas production. They have consistently berated companies to provide both low-cost energy and eliminate necessary production assets in favor of costly government-sponsored alternatives.

There have been few bright spots. Recognizing energy security as a higher priority, the Biden Administration made new commitments to the European Union to supply them with liquified natural gas (LNG), and approved two new export terminals from the Gulf Coast to help fill those orders. Similarly, recognizing the importance of low-cost energy to the American public, President Biden made the decision to draw down an unprecedented level from the Strategic Petroleum Reserve in an attempt to stall a climb to even higher prices. While these steps are positive for Americans and our allies’ energy security and well-being, they are entirely temporary, and will not fix the fundamentals of demand growing faster than supplies.

Diesel prices have jumped 56 percent, more than two dollars a gallon since January, and are rising faster as inventories of the fuel stored at commercial tank farms have plummeted. This is particularly challenging in the Northeast U.S. There, pipelines are limited, which is leading to supply shortages. While gasoline stockpiles are slightly below normal seasonal levels for this part of the summer, diesel is significantly lower as demand soars, and refineries struggle to produce enough to keep up. 

Demand is exceeding supply, leading to soaring prices which typically attracts more investment to ramp up production activity. That is the case in Texas, where oil and gas producers will set new overall production records in 2022, surpassing the previous records set in 2019. Unfortunately, supply chain issues, coupled with federal policy uncertainty, have limited the rest of the country from getting back up to full production at pre-COVID levels.

Policies that shrink domestic oil and natural gas production do not transition the U.S. to demand alternatives. Instead, they will make us more heavily reliant on overseas production to balance global markets, and meet our own demands for heavier crude supplies to match our refineries. This seems counter to priorities on the environment, not only in terms of climate, but also clean air and water, advancement of labor rights, and economic well-being. U.S. oil production leads the world thanks to technology, innovative production techniques and robust private property rights.

Despite what those who want to “Keep-It-In-The-Ground” proclaim, importing more of our energy from countries with lower environmental standards results in higher rates of emissions. The reason is twofold. First, the United States produces oil and gas more efficiently keeping methane and CO2 emissions lower per barrel than other top global producers. Second, by increasing production from Russia and Venezuela, you increase emissions significantly. One analysis by the Global Energy Institute found methane emissions per barrel are 63% higher in Russia than in the United States. 

The bottom-line is the world needs energy, the majority of which will come from fossil fuels. With global energy consumption continuing to rise, where should it be responsibly sourced from? Reducing global emissions starts with prioritizing domestic energy production, which is also where consumers can rely on fair labor standards rather than outsourcing heavy mining or assembly to countries that rely on child and forced labor to meet their supply chains.

Texas producers pioneered hydraulic fracturing and horizontal drilling, which were the key technologies and techniques necessary to unlock the shale revolution. This revolution enabled the U.S. to quadruple natural gas production over the last decade. Texas also has the most miles of pipelines and the most seaports and LNG terminals necessary to help balance global markets. Beyond good rock and good pipe, the Texas oil and natural gas workforce is robust, resilient and rapidly growing in response to the right signals from the market and Texas regulators. 

Those factors make responsible energy production secure, clean, and affordable. Texas is well-positioned, but so are many states like Louisiana, Montana, North Dakota, and Oklahoma who embrace the opportunity and responsibility over their natural resources for the benefit of their state residents, and their future generations.

U.S. producers can continue to lead and meet the energy needs at home and abroad, but they need a partner in Washington willing to embrace low cost energy for the American consumers, jobs, investments here at home, cleaner fuels, energy security and reliability. Congress and the Administration should work to review executive actions limiting domestic energy production. For environmental regulations, do they improve the overall environment by displacing dirtier fuels domestically, or expanding opportunities for cleaner American fuels to compete globally? 

On shareholder regulations, do they allow American producers to compete globally, or encourage outsourcing pollution to countries with lower environmental and labor standards? On tax policy, are they rewarding investments and jobs in the United States or punishing it? On trade policy, are we maximizing our relationships in North America with our top trading partners in Canada and Mexico, or putting Venezuela and Iran ahead of them? 

These are good national questions, but we should also encourage lawmakers and policy makers closer to home to embrace the vision of secure, affordable, and clean energy sourced from Texas. Lawmakers should continue to look at the state tax code to find solutions on high property taxes. State regulators, facing continued growth in production, should work with industry groups and innovative producers to find solutions to air and water concerns with predictable regulation.

Texas and the United States have a role to play in meeting the world’s growing energy demands. The energy crisis has been made worse by artificial political constraints that undermine growth and investment in oil and natural gas resources in the United States. It has led to higher prices and a growing dependency on overseas to map our future. Voters will weigh in soon to give Congress direction on the path Americans are looking for.

Jason Modglin serves as the President of the Texas Alliance of Energy Producers.

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