The increase in European natural gas and power prices being exacerbated by Russia’s invasion of Ukraine could create a US manufacturing advantage for a couple of years if domestic power and gas prices remain lower than in Europe, experts said April 1.

To address current energy policy challenges, it is important to look at the origins because it is easy to blame current commodity price increases on Russia’s actions, “but let’s recall we had an electricity and natural gas crisis in Europe prior to the Russian invasion,” Brenda Shaffer, senior advisor for energy at the non-profit research institute Foundation for Defense of Democracies, said during a webinar hosted by Our Energy Policy. OEP is a non-profit energy topic discussion platform.

During winter 2021, a simultaneous cold snap in Asia and Europe made LNG cargoes expensive and hard to find, “and we saw a mini energy transition from natural gas to fuel oil, diesel and coal,” Shaffer said.

Although people are focusing on the Russian war in Ukraine as an oil crisis, it is as much an electricity and natural gas price crisis, hitting every market, she said. This will leave the US with a manufacturing advantage for a year or two because energy is the biggest input in that sector, and higher power and gas prices in Europe and Asia will give the US, where those prices are lower, an advantage, Shaffer added.

Energy transition considerations
Shifting the conversation to discuss the energy transition more generally, Yossie Hollander, co-founder and chairman of the Fuel Freedom Foundation, a group dedicated to ending US oil dependence, said the US made a political decision in electricity markets to dial back coal and nuclear development.

That mostly leaves gas and some renewables, “which can never sustain full 100% reliability, so we need to reopen optionality in the electricity market,” Hollander said.

For example, Florida has one major natural gas pipeline and without it in a week there would be no electricity in Florida, he said.

Asked about the role of fossil fuels in the transition to cleaner energy, Shaffer said it was important to remove the binary rhetoric of renewables versus fossil fuels because the current generation of renewables works with a baseload of generally fossil fuels.

“It’s not like you can have renewables and not be using natural gas and have that baseload running,” Shaffer said, adding that she hopes US, and European policy makers will look at treating natural gas differently than the other fossil fuels because “clearly oil and coal are in completely different categories regarding climate impacts.”

The adamant opposition to all fossil fuels by some groups risks throwing away something that can lower air pollution in many places, Shaffer said.

“I think we accept the climate imperative and that the energy transition is inevitable, in process and technology is evolving, but we have to be realistic and pragmatic about the timescale over which this change can occur,” Dean Foreman, chief economist at the trade and lobbying group American Petroleum Institute, said.

It is important to consider global energy poverty and that energy systems are intertwined so thinking more holistically about policy is critical, he said.

Europe has a higher percentage of renewables than in the US in the electricity market and once Europe passed a certain threshold “the market stopped functioning and they are actually scaling back right now,” Hollander said.

“I think we’ll see much greater scaling back in Europe because I forecast a recession hitting Europe as a result of the huge energy crisis,” he said, adding there is no shortage of capital in the renewables market but there is a shortage in the base market which is still the largest market so there is not enough capital to keep whatever is functioning afloat.

The key to sound energy policy is not focusing too narrowly in a single area, the panelists said.

“We need to hit all our goals in tandem. There is no way we can say let’s forget about national security or economic prosperity and just focus on climate or just focus on national security and price and not care about climate and the environment,” Shaffer said.

Black and white answers of just “drill baby drill or no more fossil fuels” are naive and “we have to think about the interconnectedness of global energy markets,” Hollander said.
Source: Platts