August 25, 2022

In Brief: Biden’s Energy Crisis Will Get Even Worse

Biden blames Putin, but there’s a lot the U.S. could do to minimize the pain Russia and Europe caused.

Energy prices of every type are up quite a bit since Joe Biden stumbled into the Oval Office last January. That’s because his first day began with attacks on fossil fuels, and it hasn’t gotten any better over the last 17 months. In fact, Scott Ruesterholz warns that it’s going to get even worse.

Over the past year, Americans have been hit with surging gasoline prices, which have fallen from their high but are up 20% from a year ago, and rising utility bills. Because of energy prices and other inflation, real disposable per capita incomes are down 7.3% from a year ago. Essentially, you are working a year for just 11 months of purchasing power.

As bad as it is here and now, we face the potential for a prolonged energy crisis, and the Biden Administration and his European counterparts apparently lack the resolve to take action. In the end, it will be the American people, who pay the price.

Ruesterholz points to Vladimir Putin’s invasion of Ukraine, not as Biden does in saying it’s the sole reason for high gas prices, but because it actually did affect an already ailing market. The natural gas Putin sends to the rest of Europe is “just 20% of normal volumes.” This has a cascading effect on global prices. But the problem started long before Ukraine.

In 2010, Europe produced twice as much natural gas as it imported from Russia; last year, it imported twice as much from Russia as it produced domestically. Europe waged war on its own energy industry in favor of dependency on Russia, a catastrophic error we should remember as we debate the importance of a vibrant domestic fossil fuel and energy industry.

As bad as you may feel looking at your utility bill, the pain is even worse in Europe, which is now paying 9x as much for natural gas as we are. Indeed, extremely high European gas prices are a reason why our natural gas prices have risen from $4 at the start of the year to $9 now. Because Europe is paying up to $80, they are bidding up US LNG exports where we have limited capacity. As producers would rather sell on the expensive LNG export market, that leaves less gas for domestic needs, pushing up prices we pay.

The answer, as usual, is to lead the world in production.

After World War II, American factories dominated the world because Europe’s manufacturing base was destroyed by the war, ushering in our era of economic dominance. Thanks to our abundant energy supplies, we can do something similar today. If Europe wants help in fighting back against Putin’s gas war, we should push them to sign long-term supply contracts, which would unleash our capacity to build more export facilities, pipelines, and gas production.

Instead, Biden has sanctioned Russia without boosting U.S. production, putting Europe and our own nation in a bind.

If we want to have enough energy to meet demand at a reasonable price, exploit our abundant gas reserves to attract global manufacturing, and marginalize Russia’s ability to weaponize gas for geopolitical gain, we need to commit to massively ramp up our natural gas production and export capacity. If Biden ignores this crisis and opportunity, we know who to blame if energy prices rise again this winter.

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