Energy Myopia

Mark Green
Posted April 5, 2022

The Biden administration continues to be tripped up by its shortsightedness on energy from American oil and natural gas. Given independent projections of growing global energy demand and that oil and gas will supply nearly 50 percent of that energy in 2050, that’s risky for the nation’s economy and energy security.

Unclear is the cause. Perhaps the administration’s eagle-eye vision for renewable energy limits its view of the broader energy mix. Another possibility is there’s a misunderstanding of the planning, investment and time needed to develop oil and natural gas projects and infrastructure.

A symptom of this is that too often administration officials dismiss the need for additional natural gas and oil infrastructure and leasing. They say a pipeline wouldn’t help matters today, and imply, through inactivity, that not holding a new federal offshore lease sale for one, two or even three years is no big deal because of the number of currently active leases and permits.

Then a crisis or two invite problems arising from limited vision.

For example, we had a pandemic throw economies everywhere into reverse, followed by white-hot recoveries driving demand for oil and natural gas far above available supply – because the world runs on those energies (and will continue to, as noted above). Currently, there’s a war in Eastern Europe, creating chaos and anxiety and making already tight energy markets tighter.

In times like these it’s clear the best time to develop more American oil and gas or to build a needed pipeline, was yesterday – or a year ago or five years ago. As it is, policy is being captured by events.

Long before Russia invaded Ukraine and with pump prices increasing, the administration repeatedly begged OPEC+ members to speed up their rates of crude oil production. OPEC said no. Now, the Wall Street Journal reports, the White House wants Canada, America’s leading source of imported oil, to increase those oil volumes coming into the U.S.

Canada has the oil reserves – the plentiful oil sands in Alberta, whose greenhouse gas emissions intensity continues to decline – and it could ship more by rail or through existing pipelines. But, the Journal reports, those options are limited because rail is expensive and current pipelines are at or near capacity. The Journal:

Canada has ample reserves under its soil to meet U.S. demand, said Kevin Birn, an analyst with S&P Global Commodity Insights. It just doesn’t have enough pipeline capacity to pump it here, he said. “There’s not a limitation in terms of resource potential,” Mr. Birn said. “There’s a limitation of capacity.”

Canadian officials and industry analysts told the Journal that the bigger, better, more efficient option would be expanding the existing Keystone pipeline network – expansion along the lines of the Keystone XL pipeline project that was nixed by President Biden his first day in office. KXL was to carry 830,000 barrels a day of Canadian crude oil to Nebraska, where it would connect with other pipelines to transport the crude to U.S. refineries on the Gulf Coast.

Administration officials say they have no interest in reviving KXL, the Journal reports, because “it couldn’t be completed in time to address today’s shortfall and that the president is still committed to reducing greenhouse gas emissions from fossil fuels over the long term.” Myopia.

As we detailed last month, KXL was more than half complete when the administration pulled its cross-border permit, killing the project. It was on track to be finished this year, with operations starting in 2023. An argument could be made that just knowing KXL was on the near horizon would have been critically important to America’s energy picture. The moment isn’t lost on Canada, which wasn’t happy with KXL’s cancellation. Justin Brattinga, spokesman for Albert Premier Jason Kenney, to the Journal:

“We’re pleased to hear that there are discussions around enhancing North American energy security. Instead of going cap in hand to the Saudis, Iranians and Venezuelans to replace Russian energy, instead of replacing dictator oil with dictator oil, come to your liberal democratic friends and allies in Canada.”

America needs more oil and natural gas production, now and in the future. The president’s remarks last week, that this production is needed “right now,” suggests he believes a switch can be flipped and production will kick in.

It doesn’t work that way. American producers have worked against financial, supply chain and investment headwinds the administration started or compounded most of last year, chilling the investment climate and significantly complicating the desire for more energy now. This was heard last week, with the president acknowledging America needs more oil and gas – while also signaling he wants America to turn away from them. It shouldn’t surprise the White House if securing energy investment for new projects has become more problematic.

The reality is America could face a yawning energy gap in the near future because of the administration’s posturing and policy positions. It’s hindsight, but America’s energy security would be more secure today if that big pipeline from neighbor and ally Canada was still moving toward completion.