Often one event will impact the energy sector in multiple ways. In 2020 it was the emergence and subsequent consequences of the COVID-19 pandemic that had a cascading impact on the year’s energy stories. We continued to feel the lingering impact even this year, as supply chain issues combined with an economic recovery caused energy prices to soar. However, another story emerged in 2022 that had a disruptive impact across the energy markets. That is the top story of the year, but it directly contributed to several major story lines for the year.
- Russia’s invasion of Ukraine disrupts the energy markets
Russia’s invasion of Ukraine had the biggest impact on energy in 2022. Russia is one of the world’s three biggest oil producers, and its invasion — and the subsequent decision by the Biden Administration to stop importing Russian oil — seriously disrupted the energy markets in 2022. That disruption had a number of cascading effects.
- Soaring energy prices
In the weeks and months after Russia’s invasion, global crude oil prices rose to levels only seen once before, in 2008. The Biden Administration made a decision to stop importing oil from Russia, and that caused serious disruptions in the refining sector. Much of what we imported from Russia was either finished products or partially processed oil.
The loss of Russian imports caused a disruption in gasoline supplies, and later diesel production during a period of high diesel demand. This all led to the highest weekly average diesel and gasoline prices ever in the U.S. These soaring energy prices were also a primary factor in inflation that rose to its highest level in 40 years.
- Historic SPR withdrawal
To combat rising energy prices, President Biden announced the largest release of oil from the Strategic Petroleum Reserve (SPR) in history. The U.S. created the SPR in 1975 following the 1973–1974 oil embargo, to protect against future oil supply disruptions. Although it is supposed to be used for severe supply disruptions, politicians have historically used it to try to stem rising gasoline prices — especially in election years. At its high point in 2010, the SPR level reached 726.6 million barrels. Since December 1984, the level has never been lower than 450 million barrels, but we are closing 2022 with the SPR at 378 million barrels, a decline of nearly 40% since the beginning of the year.
- Congress passes the Inflation Reduction Act
Despite its name, the Inflation Reduction Act (IRA) bill was widely viewed as a “climate change bill.” The combined investments are aimed at putting the U.S. on a path to roughly 40% emissions reduction by 2030. The bill represents the single biggest climate investment in U.S. history. The biggest winners in the bill were renewable energy companies, but there were also some provisions that helped large oil and gas companies that can afford to invest in new carbon and methane capture technologies.
- Keystone Pipeline leak
There were a number of candidates for the 5th spot on the list. There was a fusion breakthrough announced in December by Lawrence Livermore National Laboratory. However, as I explained to several people, this is more akin to the step taken by the Wright Brothers on the way to a manned mission to the Moon. A big step, to be sure, but there’s still a long way to go.
There was also the ongoing story of declining refining capacity in the U.S. which helped enable this year’s diesel shortages. That situation hasn’t been helped by the hostile stance the Biden Administration continues to take toward the U.S. oil and gas industry. However, despite that hostility, U.S. oil production rebounded this year, and will close the year with the second-highest production level recorded.
But, ultimately I decided to go with the December leak of the Keystone Pipeline. This pipeline has been in the news a great deal in recent years because of the on-again, off-again Keystone XL Pipeline expansion. Opponents of the expansion have argued that there could be a major pipeline leak that would be an environmental disaster.
On December 7, TC Energy Corp. (NYSE: TRP), the pipeline’s owner and operator, announced that the 622,000 barrel-per-day (BPD) pipeline had spilled 14,000 barrels of oil in rural Kansas. This was the third major spill by the pipeline in the past five years, and gives critics plenty of fodder to oppose future pipelines.
Those are the top energy stories as I saw them in 2022. I thank you for reading, and I wish you a Merry Christmas and Happy Holiday season.
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