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Robert Rapier

Robert Rapier

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The U.S. Desperately Needs To Revamp Its Energy Policies

  • The world is grappling with energy supply constraints and demand continues to soar.
  • The United States has taken a number of missteps that have led to the current high price climate.
  • It may be time for the country to rethink its energy policies and add further support for the oil and gas industries.
Energy Policies

About a decade ago, a friend asked how high I thought gasoline prices might rise. I said “One day you will pay $10 a gallon for gasoline.” He replied that he would refuse to pay that much, and I asked what he would do if the price rose to $10 a gallon tomorrow. He finally conceded that he would, in fact, pay $10 a gallon for gasoline.

Then oil prices plummeted in 2014, and again in 2020. I am sure my prediction looked pretty stupid to him when gasoline fell under $2.00 a gallon.

Why did I make such a prediction? Because I had already seen gasoline prices approach that level when I was living in the Netherlands in 2008, and the roads were still packed with cars. Energy demand just isn’t that elastic in the short term, so people pay what they have to pay to get to work.

Here is how I saw things playing out. I imagined that energy demand would continue to grow, but supply would have a hard time keeping up. At times, there would be supply/demand imbalances that would spike prices higher and higher.

However, over the past decade supply has managed to keep pace most of the time. At times, the market was oversupplied and prices crashed. There have also been periods of spiking prices, but then demand growth would slow down and supplies would catch up.

At the same time, alternatives like electric vehicles, and to some extent biofuels have helped mitigate oil demand growth. But it wasn’t enough. Oil demand kept growing (until the Covid-19 pandemic hit), albeit a bit slower than if there had been no alternatives.

Related: Oil Prices Rise As EU Leaders Agree On Partial Russian Crude Ban

The risk I always saw was that if policymakers believed alternatives would scale fast enough to replace oil demand growth — and they passed policies unfriendly to our domestic oil companies — they could be setting up a very nasty price shock in the future.

This is why I was so adamant that canceling the Keystone XL Pipeline was the wrong decision. It’s not because I love fossil fuels, it’s because I recognize the risk of needing supplies and not having them. We have seen that it doesn’t take much of a shortfall in oil supply to have a disproportionate impact on the price.

Hence, what we are seeing right now is one of the possible consequences of the energy transition. When alternatives don’t scale up fast enough to fill the gap between oil supply and demand, oil prices skyrocket.

I know that many people who have opposed any additional fossil fuel development saw a different scenario unfolding. They believed that alternatives would scale up fast enough, and that we wouldn’t need the oil.

Here’s the thing, though. If we invest in fossil fuel development — and we don’t need the oil and gas because alternatives do scale up rapidly — that’s a loss the fossil fuel companies would take. That is the risk they are taking, for the potential reward that demand will be there in the future.

What’s the downside of continuing to support our domestic oil industry? That it will simply continue our addiction to fossil fuels?

That’s where we have to also make sure we are doing as much as possible to encourage alternatives. Today’s fossil fuel investments would be ready to supply the market if needed, but alternatives will be trying hard to make sure they aren’t needed.


That’s the win-win energy policy we need.

By Robert Rapier

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  • Mamdouh Salameh on June 04 2022 said:
    The only way for the United States to revamp its energy policies is to accept along with the rest of the world the realities staring them in the face and act upon them.

    These realities are:

    1- There will neither be a post-oil era nor peak oil demand throughout the
    The 21st century and probably far beyond. The reason for the first is that there could never be an alternative to oil as versatile and practicable as oil itself in the next 100 years. The reason for the second is that global oil demand will continue to grow well into the future albeit at a slightly decelerating rate underpinned by a growing world population projected to rise from 7.9 billion currently to 9.7 billion by 2050 and a growing global GDO projected to grow from $91 trillion currently to $245 trillion by 2050.

    2- The notions of a total global energy transition and net-zero emissions are illusions. They aren’t going to happen in 2050 or 2100 or ever.

    3- Even a partial energy transition wouldn’t succeed without huge contributions of natural gas, nuclear power to some extent and coal (yes coal).

    4- Renewables can’t on their own satisfy the electricity needs of the world now or ever because of their intermittent nature.

    5- Calls for ditching oil and energy in order to accelerate energy transition have proven not only a total failure but they have precipitated the serious energy crisis that that has been enveloping the EU since January 2021 long before the Ukraine conflict came on the scene.

    6- Incessant pressure by the environmental activists and also the call by the hapless IEA to stop new investments in oil and gas have led to a chronic global underinvestment, a tight market and a shrinking global spare production capacity, hence the rocketing energy prices.

    The solution is for the United States and the rest of the world to accept first and foremost that fossil fuels are here to stay well into the future. The other thing is to realize that the most practical and rational way to combat climate change isn’t to reduce the use of fossil fuels arbitrarily but to reduce emissions from them. Yet another thing is to accept that we are in a state of energy diversification. The higher the share of renewables in global electricity generation the lower the need for natural gas, coal and even nuclear energy. So more investments should go into renewables.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Lee James on June 06 2022 said:
    The writer brings up a number of interesting issues.

    I think we need to recognize what has been taking place in recent years, on energy supply. I do not see our recent under-investment in fossil fuel as being caused by a policy decision. I see fossil-fuel investment as largely a result of market conditions. Petroleum production underperformed for almost a decade because the cost of production could not handle the market price of even $60/bbl.

    Now, we want to ramp up U.S. fossil fuel production to help make up for short-fall in Europe. I support that idea. But I think we will find the going a little tough to simultaneously ramp up both fossil fuel AND alternative energy production. We are seeing supply chain difficulties for both kinds of energy, in addition to the idea of ramping up across the energy board.

    We might be to a point that we either accept much higher energy prices, or we use energy more wisely and sparingly. It might be an era of no pain/no gain, folks.
  • T G on June 11 2022 said:
    It seems to me that building small nuke plants whose sole purpose is to power carbon capture plants would be much more efficient than going the EV route where there are many problems like mining lithium and a much bigger electrical distribution.
  • John Galt on June 22 2022 said:
    @Mamdouh Salameh, with all respect the only way your prediction comes true is if all innovation in alternative energy mysteriously comes to a grinding halt inches short of becoming the cheapest sort of reliable energy.

    For over 60 years, the prices for solar panels (lifetime normalized and depreciated cost per kWh) and batteries (similarly, the lifetime cost per kWh stored and released) have dropped in an almost perfect exponential decline. Solar panels dropped by half about every 3.5 years; batteries about every 6.5 years. Ultimately of course that progression WILL end - but history tells us that will only happen when we hit the limits of physics and/or the prices for raw materials and labor. We are nowhere near that yet.

    Lithium will not be practical for grid storage. The quantities are simply too large to be met. However, other battery technologies such as Form Energy, which uses cheap and safe materials like iron, water, and salt will scale readily to the needed capacity. Solar still has at least one, perhaps two mor major leaps - first to 40% efficient, and possibly to 80% efficient. 40% is “enough” to get us there. Not only does it reduce the total cost of the panels (fewer required), but also cuts installation costs by half for the same capacity (requires only half as many panels for the same capacity).

    We may indeed continue using hydrocarbon fuels through he end of the century, but they too will likely transition from petroleum based to clean burning synthetic carbon neutral analogs. Search “ Engineering catalysts that turn seawater into fuel”

    We will continue to use petroleum as chemical feedstocks. But, unless some calamity strikes or humans simply run out of new ideas, the notion that we will still largely depend on fossil fuels for energy is the least likely outcome.
  • Richard Hutchinson on June 25 2022 said:
    We have had solar since 2012 and is quite capable in daylight,but realistically the country cannot operate on solar and wind . Battery cost to carry enough power cannot be practical so Chris Bowen will have to eat humble pie. To build 10,000 kilometers of power lines cannot be justified and we cannot afford loss of farmland. Please we need to be realistic.

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