Why America’s energy policy is in a mess

Why America’s energy policy is in a mess

Why America’s energy policy is in a mess
Short Url

American energy policy under the Biden administration is a mess and Tuesday’s decision to draw down 50 million barrels of oil from US strategic reserves is just the latest symptom.
Captured by the powerful environmentalist lobby within the Democratic Party and hamstrung by the new aversion to fossil fuel investment on Wall Street, the policy has produced a domestic energy crisis within the US, with soaring costs of domestic fuels, from natural gas to coal right through to gasoline prices. This is a global phenomenon, of course, with energy costs rising everywhere, but the implications for the US are critical.
Several commentators have recently questioned whether the “rainbow coalition” of Democrats put together by Biden for last year’s successful election campaign could last the pressures of a full term with a knife-edge majority in Congress. So far, as far as energy policy is concerned, the question is not just whether the Democratic coalition will last, but increasingly whether it is equipped to deal with the huge challenges of the energy transition.
Christof Ruehl, senior research fellow at New York’s Columbia University energy policy unit, told an industry forum this week: “Biden is surrounded by people who know a lot about climate but very little about oil and gas. The result is no coherent energy policy.”
On this and several other fronts, Biden’s presidency appears to be running into serious trouble after just a year. The embarrassing and deadly withdrawal from Afghanistan, serious inflationary pressures in the US economy, and a slowdown in ambitious anti-COVID-19 plans are making him worry about the electoral effect this might have on midterm polls. The response has been to lash out at the traditional scapegoats: OPEC and the OPEC+ alliance led by Saudi Arabia and Russia.
The populist language coming from the US president and from his Energy Secretary Jennifer Granholm is once again framed around the idea of a “cartel” of oil producers conspiring to keep global oil prices high by restricting output.
They have opened the taps of America’s Strategic Petroleum Reserve in collaboration with the biggest energy consumers in the world in an effort to force prices down after OPEC+ stonewalled pleas to lift output. Forget for the moment the irony of arranging a consumers’ cartel to counter what the US claims is an illegal producers’ cartel (OPEC) and ask instead how America got into this mess.

The question is whether the Democratic coalition is equipped to deal with the huge challenges of the energy transition.

Frank Kane

Just over a year ago, admittedly under a different president, OPEC, Saudi Arabia and Russia were being lauded as the saviors of the global energy industry after they agreed the biggest cuts in the industry’s history. These cuts, followed by a steady and cautious monthly increase on an OPEC+ schedule due to run until the end of 2022, would restore the global balance. Oil prices began to recover.
But the new focus of Biden and Granholm was on renewables, climate change and global warming. Environmental regulations were tightened, planned pipelines axed and tighter financial conditions imposed.
American oil output has always been a price-sensitive business. When crude is trading at roughly above $55, it makes sense to gear up the rigs and start pumping. But despite prices being consistently above that level since the start of this year, that has not happened.
While OPEC+ production is almost back to pre-pandemic levels, American oil output is still significantly below that of 2019. That, in a nutshell, is the reason for the perceived global shortage: US oil, cowed by an environmentalist administration, has not stepped up to the plate.
Saudi Arabia, the leading producer within OPEC, will consider its response to the SPR release carefully. We will probably get a clearer idea after the meeting of OPEC+ producers next week. But there is absolutely no reason for the Kingdom to follow America’s lead and flood the market with crude. On the contrary, the SPR release could give OPEC+ sufficient justification to withhold its own planned monthly increases.
So, the effect of Biden’s energy policy will be the exact opposite of what he and Granholm had intended. Global crude markets indicated as much, as the price rose 3 percent in the wake of the sudden flood of new oil from Biden.
It all goes to show that the White House pandering to Wall Street, electioneering and environmentalism are bad substitutes for a coherent strategy on energy.

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view