The Energy Lesson From Europe Continues

Mark Green
Posted December 8, 2022

Europe continues to teach America on energy. If policymakers in Washington aren’t already paying close attention, they should be.

Europe is struggling in the aftermath of decisions over a number of years to become overly reliant on unproven, unreliable energy sources – as well as unreliable suppliers (Russia). Bloomberg’s Javier Blas writes that while energy prices in Europe have fallen recently, they’re still higher than historical averages, and winter is just starting.

An emerging narrative, that the worst in Europe is over, should be greeted skeptically, Blas writes. Consumers could still experience energy rationing, with local blackouts possible. Across Europe recently, he writes, the wind nearly stopped, forcing grids in some cases to rely more on coal. Blas notes that last week Germany produced 40% of its energy from coal. More from Blas:

Last week, Thomas Schaefer, one of the most senior executives at Volkswagen AG, publicly said what many other business people and policy makers had only raised in private. “When it comes to the cost of electricity and gas, in particular, we are losing more and more ground,” he said, warning that unless prices fall quickly, investment in Europe will be “practically unviable.”

American natural gas producers support U.S. allies in Europe through liquefied natural gas (LNG) exports – activity that spurs domestic production, jobs and economic growth benefiting American families. In September, Reuters reports, nearly 70% of U.S. LNG exports headed to Europe. Dustin Meyer, API vice president of Natural Gas Markets:

“Since the beginning of the conflict in Ukraine, Russia has been blatantly weaponizing its energy resources, especially natural gas, with flows to Europe dropping sharply throughout 2022. Fortunately, the U.S. has stepped in to fill the gap. Through September, more than 600 cargoes of American LNG have landed in Europe since the beginning of the year – nearly double the amount sent for all of last year. As Europe heads into winter and gas demand peaks, it’s important to understand just how vital U.S. LNG is to keeping their energy system secure and intact.” 

That’s American energy leadership in motion. Yet, the point remains that America need not go down the same road as Europe. The Heritage Foundation’s Jack Spencer writes that Europe’s struggle is due to an overreliance on “unreliable energy sources that are not yet commercially viable.” Others point to a lack of supply diversification. “In terms of foreign suppliers, Russian gas was just the cheapest,” Tim Schittekatte, a research scientist at the MIT Energy Initiative, told CNBC earlier this year. “Rather than diversifying suppliers, routes to import Russian gas were diversified.” The Brookings Institute’s Constanze Stelzenmüller wrote in June:

Germany is a case study — perhaps the case study — of a Western middle power which made a strategic bet on a full embrace of interdependence and globalization in the late 20th century: it outsourced its security to the U.S., its export-led growth to China, and its energy needs to Russia. It is now finding itself excruciatingly vulnerable in an early 21st century characterized by great power competition and an increasing weaponization of interdependence by allies and adversaries alike.

The Financial Times has more on Germany’s broken business model.

Certainly, wind and solar energy are important to America’s overall energy portfolio, now and in the future. As are natural gas and oil, which supplied nearly 70% of the energy Americans used in 2021. Policies that restrict American natural gas and oil production today and/or discourage new investment and production in the years ahead could have significant negative impacts on the U.S. economy and U.S. energy security. American natural gas and oil are strategic assets and should be treated as such by policymakers.

JPMorgan Chase CEO Jamie Dimon told CNBC’s “Squawk Box” this week that a key lesson from the past year is that the world is not ready to turn away from natural gas and oil as leading energy sources. Dimon:

“If the lesson was learned from Ukraine, we need cheap, reliable, safe, secure energy, of which 80% comes from oil and gas. And that number’s going to be very high for 10 or 20 years. … Higher oil and gas prices are leading to more [carbon dioxide emissions]. Having it cheaper has the virtue of reducing CO2, because all that’s happening around the world is that poorer nations and richer nations are turning back on their coal plants.”

The world needs more natural gas and oil, not less, and America should lead in providing them, at home and around the world. U.S. natural gas and oil are produced under some of the highest industry standards and environmental safeguards – and with the right policies in place they can drive key economic benefits in the future. A recent analysis found that natural gas and oil could spur nearly $200 billion in direct investment and generate more than 226,000 jobs by 2035.

This is the energy path that’s available to Washington policymakers. As for the path that leads to reduced American natural gas and oil investment and production, Americans don’t have to guess what that future looks like. Europe tells that story.