Daniel Yergin is a serious guy. He started in 1992 with his epic oil history book The Prize. Thirty years and two books later, Yergin has become the world’s most thoughtful, accurate and respected source of the big picture of global energy, geopolitics and the future of the fossil fuel business. Yergin is the vice-chairman of S&P Global, a leading supplier of global energy intelligence. At 75, he’s seen it all.
On July 11 Project Syndicate published a piece by Yergin titled, “The Energy Crisis Will Deepen.” It begins, “Is today’s energy crisis as serious as similar previous ones – particularly the 1970s oil shock?” His answer is yes. “This energy crisis is as serious. In fact, today’s crisis is potentially worse,” because unlike the 1970s, it also involves natural gas, coal, and nuclear fuel.
Making it worse is that established global markets for almost everything have become fragmented and “more vulnerable to disruption, crimping economic growth.” The Russia/Ukraine war deepens political and ideological tensions and rivalries between Russia, Europe and the U.S. There were no nuclear powers fighting over energy in the 1970s.
The problems began long before Russia’s invasion of Ukraine. Energy demand and prices surged as the world emerged from the COVID-19 pandemic lockdown and China began buying more coal. Normally big producers like Russia would have increased supplies of fossil fuels in response to higher prices. But it didn’t, forcing prices even higher. “The Kremlin may have well been preparing for war,” Yergin concludes.
His view is that Putin believed Europe would protest the invasion but not intervene. Instead, Europe supported Ukraine in every way but mobilizing its armed forces. Plus, it took steps to reduce Russian fuel purchases.
In response, “Putin has opened a second front in the conflict by cutting back on the contracted volumes that Russia supplies to Europe. The goal is to prevent Europeans from storing enough supplies for next winter, and to drive prices higher, creating hardship and political discord.”
Other factors are continued sanctions against Iran with a new nuclear deal unlikely; how much extra production OPEC actually has even if U.S. President Joe Biden makes peace with Saudi Arabia; demand recovery when China ends its COVID-19 lockdowns; and tight global refining capacity with Russian products pushed out of western markets.
Yergin states that the only counties that might be able to increase production materially and quickly are Canada and the U.S. Canada could increase production by the equivalent of 300,000 barrels per day later this year and the U.S. by up to 1 million barrels per day in the next year. In the near term these counties have “far more additional production than the rest of the world combined.”
The next six months are critical. “There will need to be more informed collaboration between government and the industry that manages the energy flows on which modern economies depend,” Yergin writes.
The tragedy is that these two countries have elected governments which ran on platforms to get out of the fossil fuel business. Oil and gas were a problem, not a solution.
It hasn’t always been that way. One of the reasons the oil crisis of the 1970s went away was because Canada and the U.S. took major steps to increase output.
Canadian governments accelerated oil sands production with cash investments in Syncrude and helped spur exploration off Canada’s East Coast.
While U.S. conventional production was declining, America ensured the huge deposits on Alaska’s North Slope reached markets through the completion of the Trans-Alaska pipeline from the Beaufort Sea to Prudhoe Bay in 1977. It was built in only two years and conquered some of the most hostile terrain and weather conditions on earth.
These projects helped permanently alter the geopolitical oil balance. World oil prices collapsed in 1985 and didn’t rise materially for 18 years.
After oil spiked in 2008, North America rescued the world again. Over the next 14 years Canada and the U.S. would increase oil output by over 10 million barrels per day. This caused the price to collapse in 2015, providing the world with cheap and secure energy for the next six years.
To the point that security of supply was taken for granted. This exacerbated the current mess.
Should North America decide it wants to restore order to global energy markets, it could easily do so a third time. Canada and the U.S. have the geology, expertise, equipment and capital to vastly increase oil and gas production.
The largest reserves of natural gas in responsible hands in the world for LNG are in Canada. But eco-politics has ensured this gas couldn’t get to market for the past ten years. Obstruction continues today on the Coastal GasLink pipeline.
The U.S. could ramp up light tight oil production plus do more in the Gulf of Mexico and Alaska. But 21st century eco-politics have been more about suing and slurring the industry than the collaboration Yergin seeks. Don’t forget Michigan’s relentless and continuing crusade to shut down Enbridge Line 5.
The governments of Canada and the U.S. have become, by accident, the most important in the world to help resolve the current global energy crisis.
We should talk about that.
David Yager is an oilfield service executive, oil and gas writer, and energy policy analyst. He is author of From Miracle to Menace – Alberta, A Carbon Story.
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