The Smart Response to the Global Energy Crisis

Mark Green
Posted October 14, 2022

History is a good teacher, the Washington Post concluded a few days after OPEC+ announced its crude oil production cut, in an editorial that advised a “coolheaded short-term response followed by smart longer-term strategy.” The Post (emphasis added): 

Ultimately, the 1973 oil embargo backfired on its authors because it shocked the United States and other industrialized countries to use energy much more efficiently. A smart response can turn the OPEC Plus production cut to the United States’ ultimate advantage as well.

America – or at least the White House – certainly has been shocked again, and the U.S. absolutely needs to be smart in its short- and long-term responses. They’re one in the same and not that complicated.

Washington should do everything possible, in policy and in messaging from the White House podium, to signal that domestic oil and natural gas production is vital to American energy security, now and in the future. The Biden administration should make clear that America will now double down on American oil and natural gas production for now and decades to come.

Unfortunately, the administration continues to look in the wrong places for solutions to address America’s and the world’s energy crisis.

Bloomberg (subscription required) reports that the White House is again looking at limiting U.S. gasoline and diesel exports – the potential harmful impacts of which API and the refining sector detailed recently. That, and continued efforts to get more oil production from other nations has repeatedly been proved to be the wrong course – recalling the aphorism about trying something over and over and expecting a different result. API President and CEO Mike Sommers, in an interview with Fox:

“The truth of the matter is that dependency on foreign countries for … oil and gas is a choice, and it's a choice of this administration has made repeatedly, unfortunately, with the policies that they've they have pursued so far.”

The administration’s renewed focus on refined petroleum product exports is an example of a shortsighted and incorrect energy policy that could harm allies counting on America for vital products – while potentially backfiring on American families and businesses. The Post editorial:

One probably counterproductive step would be restricting U.S. exports of petroleum products. Supporters argue that this would shield domestic customers from foreign competition, thus reducing upward price pressure. More likely, it would punish the Latin American and European countries that buy U.S. products while reducing incentives for U.S. refiners to expand production for everyone. The net impact could even be higher prices at the pump.

As API has asserted for weeks, the solutions for the current energy predicament are right beneath our feet – American oil and natural gas. Yet, aspirational goals for other energy sources have blinkered policymakers to the growing crisis and the logical solutions.

Chevron Chairman and CEO Mike Wirth – who also chairs API’s Executive Committee – told the Financial Times (subscription required), a premature effort to move to other energy sources had resulted in energy insecurity from Europe to California. Wirth:

“The conversation [about energy] in the developed world for sure has skewed towards climate, taking affordability and security for granted. The reality is, [fossil fuel] is what runs the world today. It’s going to run the world tomorrow and five years from now, 10 years from now, 20 years from now.”

Wirth said the White House’s responses to the global energy crisis have been “all tactical” and built on a misguided belief that the world can move from one energy system to another very quickly and easily. “It’s not that simple,” Wirth said.

JPMorgan Chase CEO Jamie Dimon this week called for the U.S. to produce more oil and natural gas to help alleviate the global energy crisis – comparing the situation to a national security risk of war-level proportions. Referring to Russia’s invasion of Ukraine in late February, Dimon told CNBC:

“In my view, America should have been pumping more oil and gas and it should have been supported. America needs to play a real leadership role. America is the swing producer, not Saudi Arabia. We should have gotten that right starting in March. … We have a longer-term problem now, which is the world is not producing enough oil and gas to reduce coal, make the transition [to green energy], produce security for people. I would put it in the critical category. This should be treated almost as a matter of war at this point, nothing short of that.”

It's a concern that that some in Washington apparently have not yet understood the crisis in such terms. The White House has talked around the issue, saying it hasn’t stood in the way of increased U.S. production. Facts say otherwise. The administration:

• Paused new federal oil and natural gas leasing throughout much of 2021 and into this year.
• Held no quarterly onshore leases – required by law – in 2021 nor in two of this year’s first three quarters.
• Canceled infrastructure.
• Demonized the oil and natural gas industry over gasoline prices, which the facts say are mostly linked to the global cost of crude oil. Again, more American production could help address the market and put downward pressure on prices at the pump.
• Signaled uncertainty to Wall Street about the future of oil and natural gas in the U.S. energy mix. Example: proposed offshore leasing program that includes a zero-lease sales option. A recent survey of executives by the Dallas Federal Reserve identified administration negativity toward the industry as a key factor in chilling the investment climate for new projects.

There are more examples, but these help reinforce the point above – that a course correction is needed in Washington to support a vital American industry, an industry uniquely able to play a major role in lifting the U.S. and the world out of the current energy crisis.

By now it should be clear the solutions America requires will not come from other places, but from our own oil and natural gas resources, industry, ingenuity and technology. It’s a lesson that should have been learned by now.