Affordable Energy Is Critical For… Everything

America is feeling the consequences of a growing global energy crisis, and as is starting to be made abundantly clear, the ramifications go so much further than just prices at the pump or higher energy bills.

Affordable energy is commonly brought up when talking about heating homes and supplying electricity, and rightfully so. But the many other facets of society that also rely on an affordable supply of energy can often be overlooked in discussions about the future global energy mix.

The reality is that everything – from the food we eat to the technology we rely on – is impacted by increased energy prices. And while Americans largely aren’t experiencing rolling blackouts and factories closing like those in Europe and Asia, the impacts of rising oil and natural gas prices are still hitting U.S. households hard. As the Wall Street Journal reports:

“High natural-gas prices today mean your electricity and heating bills will likely be expensive this winter. Next year, it could mean you will end up paying more to eat and to fill up your car.”

The New York Times takes this one step further, explaining that these rising costs are happening now:

“Thanksgiving 2021 is shaping up to be the most expensive meal in the history of the holiday.”

But why?

Domestic Energy Policies Matter

Thanks to the shale revolution, the United States has seen record-breaking oil and natural gas production and exceedingly low energy prices for the last decade plus. And there’s still enough to meet demand for generations to come.

In other words, at least in the United States, supply isn’t the issue. But getting that supply out to consumers around the country and across the globe amid surging post-pandemic demand has been. As USA Today recently reported:

“Are we going to run out of natural gas? Not anytime soon. [Tortoise Capital’s Rob] Thummel called the U.S. the Saudi Arabia of natural gas and estimated that the nation has a 100-year supply underground.

But what about the infrastructure needed to transport natural gas? That’s in short supply.

Basically, the U.S. doesn’t have enough export facilities, pipelines and storage to quickly increase capacity, Thummel, said. What’s more, he added, investors have rewarded energy companies in recent years for returning cash to shareholders rather than investing in new production. This confluence of events is undermining access to the fuel used to run your furnace.” (emphasis added)

Energy production fell in 2020 alongside a drop in demand because of COVID-19. But whereas in the past, U.S. producers would have ramped up again to meet demand, domestic policies and other factors have prevented that from occurring at the scale currently needed.

To be fair, the current administration hasn’t really been asking them to do so either, and has instead resorted to begging OPEC+ to increase its production and bring U.S. gasoline prices down.

Further, U.S. oil and gas markets are riddled with uncertainty as a result of domestic policies that have done little to help the energy crisis and could make it worse. From cancelling the Keystone XL within hours of taking office to not holding a single onshore lease sale this year, the Biden administration’s actions have sent the message that it seeks to limit the domestic supply of oil and gas and imports from countries with similar environmental standards.

Adding to this are provisions in the reconciliation package that could make producing these resources on federal lands costly and uncompetitive and will further burden U.S. consumers. For instance, the proposed tax on natural gas being pushed as a methane fee could raise consumer energy bills an average of $84 to $242 annually.

Global Markets Are Interconnected

It’s not just what’s happening within U.S. borders that’s impacting the prices of everything either. Supply chains are complex, and while there are multiple factors at play, one common denominator across industries and international borders is that they rely on having access to affordable energy.

So as the New York Times explains:

“Canned cranberry sauce will cost more because domestic steel plants have yet to catch up after pandemic shutdowns, and China is limiting steel production to reduce carbon emissions. As a result, steel prices have remained more than 200 percent higher than they were before the pandemic. The heftier price tag on that turkey-friendly California pinot noir reflects a 25 percent surge in energy costsexpensive delays related to labor shortages and the cost of glass bottles stuck on cargo ships coming from China. The average end-to-end shipping time from China to the United States was 73 days in September, up from 40 days two years earlier, said Katheryn Russ, a professor of economics at the University of California at Davis. And shipping expenses, she said, have tripled.” (emphasis added)

Shipping costs are going up, in part, because fuel prices are surging. China is shutting down plants to avoid blackouts as its ability to import needed energy is falling short. The energy crisis in Europe has shut down fertilizer plants that may not impact U.S. agriculture and food prices today, but as the Wall Street Journal explains, will have an impact as it forces farmers to plant more soybeans over corn and raises the cost of corn production impacting livestock and ethanol prices that are part of U.S. gasoline prices:

“’Demand destruction’ from high prices is necessary to balance the market, but these cascading effects illustrate that there may be less room to curb natural-gas consumption than one might think without causing substantial disruption to households’ essential needs. Industrial demand for natural gas seems disposable until it starts affecting food supplies. It is also a reminder of just how inextricably the world’s industries—even those that help curb emissions—are still tied to fossil fuels. This winter’s big chill could be felt far, long and wide.” (emphasis added)

Supply chains and global markets are complex but bringing down energy prices can go a long way to also prevent the costs of necessary goods and services from continuing to skyrocket. And in the United States, that means having domestic policies that allow for responsible energy development.

No Comments

Post A Comment