Executive viewpoint
Markets ignored geopolitical risks to the global oil supply chain for so long, that one could be forgiven for thinking nothing could move prices. Traders barely flinched, when Saudi Aramco’s oil processing facilities in eastern Saudi Arabia were knocked offline by drone attacks last year. Even the extended trade war with China, the world’s fastest-growing demand market, was little more than a hiccup. The Libyan oil production crisis was another significant event that, in the past, would have affected oil prices.
The market basically ignored all those price signals, because traders were confident that there’s enough spare production capacity to meet any short-term outage. Until recently, it seemed that nothing could shake markets. Indeed, it took substantial demand destruction to move oil prices.
The rapid spread of the Coronavirus, and the collapse of the production cut agreement between OPEC and Russia, was a double whammy that spooked markets; not out of fear of an oil shortage, but that there wouldn’t be enough buyers for all the available barrels.
Central to the market’s confidence has been America’s position as the world’s top energy producer, which ING Bank credits with reassuring traders, who… “appear to fret less about supply disruptions… or at least the risk of disruptions, thanks to the impressive growth we have seen in U.S. output over recent years.”
America’s energy renaissance was no accident. It took years of private sector investment to locate resources deep underground and devise new drilling techniques to unlock them from tight shale formations. The dedication of a few pioneers resulted in an energy revolution that more than doubled oil production to nearly 13 MMbpd and set natural gas output records almost every year for the past decade. Such energy abundance brought lower energy prices, falling greenhouse gas emissions, and a booming jobs sector.
Thanks to growing natural gas use in the electricity sector, emissions have dropped 2.1% in the past year the economy has expanded. That’s a win-win that we should celebrate and work hard to maintain.
America’s energy production revival is not only good for domestic consumers, it also offers buffers against geopolitical tensions and coercive use of energy by regimes often hostile to the U.S. In the same vein, our supply abundance now puts into clearer focus the collective needs of our foreign allies and trading partners worldwide. Our continued energy dominance is far from assured, though, especially now that prices have dropped in response to the Coronavirus crisis.
While the Trump administration has recognized the benefits of surging domestic energy production, Democrats are waiting in the wings to ban fracing, stop pipeline construction, prohibit natural gas hook-ups for new buildings, and curb our ability to sell surplus supply overseas. Voters, who appreciate low-cost energy, jobs and other economic benefits that come from domestic production, should keep that in mind when they listen to the presidential debates.
A new API report helps quantify how a ban on federal leasing and hydraulic fracturing would impact Americans. According to the analysis, a ban would mean the loss of 7.5 million jobs in 2022 and result in a $7.1-trillion cumulative GDP loss by 2030. Additionally, consumers would feel the pain on their energy bills, as household energy costs could increase by more than $600/year.
The economic repercussions are clear. But while natural gas is abundant across the country, it’s not available everywhere. Ultimately, U.S. energy growth, and the benefits it delivers to countless economic sectors, is not sustainable without investment in safe, efficient infrastructure.
Thankfully, the Trump administration recently took steps to streamline the federal permitting process, and improve the outlook for energy projects of all types, including renewables.
The White House Council on Environmental Quality has proposed updates to how the National Environmental Policy Act (NEPA) is implemented, to improve the regulatory process, not only for energy development but for all critical infrastructure projects. Among the recommendations are requiring deadlines for permitting decisions, increased cooperation among different federal agencies involved in a NEPA review, and reducing opportunities to politicize the permitting process or use litigation to tie-up projects in the courts.
Modernizing our environmental rules to reduce unnecessary regulatory burdens is important, not only for maintaining current production levels, but to ensure that oil and gas can be moved safely and efficiently to where they’re needed. Much of our nation’s energy network and transportation infrastructure predates the 21st century. Increased investment is needed to ensure it meets capacity and long-term sustainability requirements.
We’ve made too much progress as a country to reverse course now. The current crisis is a temporary disruption that will be all the easier to bounce back from, if we have a healthy, robust oil and gas sector, both as an employer and as a provider of abundant and affordable energy.
Unfortunately, in their quest to win the hearts and minds of American voters, Democrats have found a whipping boy in the energy sector. Sadly, this type of anti-prosperity rhetoric isn’t new. But with the dawn of a new decade, perhaps America shouldn’t be so quick to take aim at a sector that has brought tremendous benefits to Americans and moved this nation from energy scarcity to energy abundance, especially when it’s facing the same challenges as the rest of the global economy.
