2022: Continuing the Year of Bad Government Decisions

Guest blog by S. A. Shelley: It is very difficult to keep up with all the energy changes in the world. Every week, some Big Government Agency, NGO, International Think Tank or Big Company proclaims some new solution to the looming global energy problem of too much of the wrong kind of energy and too often from the wrong place. While most of the analysts and prognosticators seem knowledgeable and well intentioned, OWOE analysts cannot conclude for certain that the resultant big government plans foisted through bureaucrats onto ordinary citizens are based upon sound knowledge and understanding of energy markets, resources, technology and costs.  I emphasize technology and cost because most government edicts are based more upon woke and vote political expedience than anything technically attainable without causing significant long term economic pain, e.g., recent decisions to shut down nuclear reactors. Nor have governments shown themselves to understand the political issues of energy supply, as we now see with Europe stuck paying for Russia’s conquest of Ukraine. We have some insightful and interesting comments about the Russian war, but these won’t be discussed in this blog – maybe later.

There are so many bunny blah blah decisions being made in Western Capitals, that we cannot keep track of all of them. Nevertheless, some recent government actions that have further destabilized energy markets, exacerbated consumer pain and even aggravated the climate beyond keeping the planet comfy and cozy for humanity need to be addressed.

Earlier this year, in response to the Russkies invading the Ukraine, the U.S. Administration ran all around the world trying to find more oil supplies both for domestic consumption and for its European allies.  The U.S. went to OPEC, the U.S. went to Venezuela, and the U.S. went to Iran. But the U.S. did not go to Canada or Mexico, let alone Alaska, Texas or North Dakota. Apparently, U.S. policy priority is to buy oil and gas from totalitarian regimes while championing freedom; Words are cheap but cheap all and gas are better. In this regard, the U.S. is following the European, and in particular, the German playbook (see WSJ.com and CNBC.com). Then the U.S. administration decided on March 31 that it would start plundering the Strategic Petroleum Reserve (SPR) at the rate of 1 million bbls / day. Officially, this was to relieve price pressure domestically and hopefully free up more oil internationally for the Europeans. If we look at the effect on oil prices, WTI and BRENT, we see that the release of oil from the SPR had an insignificant impact on prices (Fig. 1).

Figure 1: WTI and Brent Oil Prices for the Last Few Weeks

In the long run, the policy of releasing oil from the SPR is more likely to drain the reserve than alleviate price pain at the pumps. This government action is an attempt to manipulate market supply, not curb market demand: As long as oil (energy) demand is steady and growing, the price pressure will always increase regardless of short-term supply dumping, because demand is a long-term factor (OWOE’s First Law of Energy Markets) There has been a continued draw down of the SPR for quite some time (Fig 2).

Figure 2: US Strategic Petroleum Reserve Capacity

When established, the SPR was meant to be a commercial reserve of oil in case of a major supply disruption, such as the1973 Arab Oil Embargo. What happens if the Russkie invasion of Ukraine turns global and Russkie aircraft start lobbing KH-35U missiles at oil tankers headed to America? The U.S. burns through about 20 million bbls / day of oil, of which about 8 million bbls /day is imported. In other words, the US has about 81 days of oil imports stored in the SPR. There is not enough people power and machinery available to turn up the American shale oil fields fast enough to produce 8 million bbls / day within 90 days of a global emergency. Strategic reserves are meant to overcome strategic problems, not temporarily reduce consumer price pain at the pumps. In addition, there are a number of financial analysts who believe any such attempt to artificially lower gas prices will increase demand, further increase inflation, and ultimately make the supply situation worse (see FoxBusiness).

Just before the commencement of Russkie hostilities in Ukraine, but well into the buildup of Russkie armor and troops at the Ukraine border, the U.S. Administration announced a program to spend $5 billion over 5 years to make EV charging infrastructure available to more Americans. This means that on average, maybe 20,000 EV charging stations will be built each year. Again, OWOE analysts understand the great benefit of EVs with respect to Green House Gas (GHG) emissions reduction. But there are better and quicker ways to reduce GHG that will have a quicker impact on the climate than forcing ordinary people to buy and use personal EVs. For one, as we’ve noted before, methane is a far more potent GHG than the CO2 emitted by personal gas powered vehicles, and thus spending $5 billion on capping leaking wells or stopping methane leakage will be far quicker and effective means of reducing GHGs. Investing money on EV fleets is also a better use of government resources than forcing American families to buy EVs that are still priced above affordability for the average family.

But America isn’t the only country afflicted by dumb government policies and actions when it comes to energy. With a war raging on the flanks of Europe, someone in France decided that it would be a good time to simultaneously take offline 50% of France’s nuclear reactors. One can’t make this stuff up. France gets about 70% of its electricity from long-term, stable nuclear power, but last week a cold snap coupled with the ‘planned’ shut down of 50% of France’s nuclear reactors for routine maintenance resulted in record electricity prices in France, with a spill-over to European neighbors. The cold snap may not have been foreseeable, but the Russkie war has been raging openly for some time; surely someone in France could have said “Nyet” to the idea of scheduling all that reactor maintenance at the same time?

There are some bright spots in the world with respect to government planning for energy security and sustainability, and in our humble assessment, Finland which is focusing both on nuclear power and wind power is one such place.

Then, on the other hand, there is Canada, a place that totally messes up its energy security and stability. Canada is still one of the worst energy and climate hypocrite nations on the global stage. Canada continues to be one of the largest coal exporters, and Canada continues to operate and support the extremely environmentally hazardous Line 5 Pipeline through Michigan’s state waters. If asked by anyone in any other government about what to do with respect to energy security and decarbonization transition, OWOE analysts always respond with “Do the opposite of the Canadian Federal Government, and then you’ll be on a good path.” A dedicated blog highlighting the historical, current and forthcoming expensive energy follies in Canada will come shortly. Such a “Canadian” blog is becoming sadly repetitive, and it is OWOE’s hope that someday soon, someone at the Canadian government level will smarten up about energy and the environment. It is a quickly fading hope.

Vive l’Alberta Libre! Shut Down Line 5!


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