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This week in Bidenomics: Drill baby drill – Yahoo Finance

Joe Biden, Oilman?

He’d never characterize himself that way, given that he wants his presidency to mark the most decisive move yet toward green energy. But uncomfortable realities are forcing President Biden to tacitly condone new U.S. oil drilling and offer federal support for the increased production and export of U.S. natural gas. It could turn out to be the biggest unannounced pivot of his presidency.

After Russia invaded Ukraine on Feb. 24, the United States and many other countries imposed biting sanctions that will damage much of the Russian economy. But Russia continues to sell valuable oil and gas to nations that haven’t boycotted its energy products, including most of Europe. Russian gas is especially important in Europe, which needs it for household heat and electricity production. About 40% of that gas comes from Russia, and there’s no easy way for Europe to turn off Russian gas and get it from somewhere else.

Biden and European leaders have been working on a plan to replace Russian gas with new supplies from the United States and other exporters. But it isn’t simple. Gas can move easily and quickly in its original form through a pipeline. But if there’s no pipeline, gas has to be converted into a liquid, laden onto a tanker or other transport vessel, then converted back to gas on the receiving end, for consumption. That’s a complex process involving costly equipment some nations in Europe don’t even have.

Students walk through crop field with oil well at Arvin High School, Arvin, High School, Kern County, California, USA. (Photo by: Citizen of the Planet/UCG/Universal Images Group via Getty Images)

The United States is the world’s largest natural gas producer, and the second-largest exporter, after Russia. But getting gas to Europe from the United States is much harder than getting it there from Russia. Most Russian gas arrives in Europe by pipeline, but there’s no pipeline to Europe from the United States. So the challenge is replacing Russian gas mostly arriving by pipeline with gas from other sources that has to be shipped in.

On March 25, the White House and the European Union announced a plan to “reduce Europe’s dependence on Russia’s fossil fuels.” The U.S. role is to increase U.S. shipments of liquified natural gas, or LNG, to Russia by about one-third this year, and by slightly more through 2030. That’s not nearly enough to replace all the gas Europe gets from Russia. But it would be a start, and other major LNG exporters such as Qatar and Australia might eventually be able to supply more to Europe, as well. There’s also a plan for Europe to reduce power demand through conservation and other efforts.

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Europe will have to build new port terminals, pipelines and other facilities to process more LNG. An expansion of LNG export facilities is already underway in the United States, and it’s possible that could go more quickly or broaden in scope as European demand for American LNG intensifies.

This fossil-fuel buildout, however, is the exact opposite of what’s supposed to be happening in Europe and the United States, as governments on both sides of the Atlantic push for a reduction in fossil-fuel use and the widespread adoption of wind and solar power and other forms of renewable energy. The White House says there’s a second part to its plan: the eventual displacement of gas in Europe with renewables. That’s why some of the new European energy infrastructure is supposed to be dual-use materiel able to process renewables once the gas is passé.

Climate activists, who thought they had a friend in the White House, aren’t buying it.

“Instead of supporting further LNG development, the U.S. and Europe should ramp up investment in cleaner, smarter and safer ways to power our future,” the Natural Resources Defense Council said in a statement. “Every dollar that the U.S. government steers towards fossil fuels is a dollar robbed from green energy.” NRDC argues that more clean energy and better efficiency could replace two-thirds of the need for Russian gas in Europe by 2025.

That’s a tough sell for politicians, however, and 2022 is shaping up as the year that ambitious climate goals collide with household budgets stretched by soaring energy costs. The shift from fossil fuels to renewables has been incremental so far, and there’s not enough renewable infrastructure in place yet to speed the transition in the event of a crisis—which is what we’re facing with the possible loss of Russian energy. A fossil-fuel shock might generate more urgency to invest in renewables, but until they arrive, consumers could be stuck with alarmingly high prices and even shortages, which they might find politically unacceptable.

Here in the United States, Biden is likely to preside over record levels of oil and gas production within the next couple of years, driven in part by demand for exports. The U.S. Energy Information Administration forecasts that U.S. natural gas production will hit a new record high by the end of this year, and that the United States will surpass Russia as the biggest gas exporter, as well. The EIA thinks domestic oil production will hit a new record high in 2023, driven largely by high prices that make it more profitable to drill. Developments related to Russia and the effect of sanctions could push production even higher than forecasts.

That’s probably not something Biden will brag about—but it could help him immensely. A surge in gasoline prices, to well above $4 per gallon, has torpedoed Biden’s popularity. Home heating and electricity bills are up, too. There’s not a lot Biden can do to lower energy prices. But producers can do a lot, by boosting supply. President Biden and the fossil fuel industry are heading toward a stealthy alliance neither party wants to acknowledge.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.

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