The dual opinion pieces in the Nov. 23 Journal, one by Steve Pearce, head of the New Mexico Republican Party, and the other by Paul Gessing of the Rio Grande Foundation, are the latest salvo in a campaign to discredit the energy transition.
They argue that Europe is experiencing an energy crisis. The United States and New Mexico will face that same crisis unless they bow down to the oil and gas industry, which Pearce describes as “a golden goose that cannot be slain.”
Europe’s energy crisis has many causes, only one of which is too-rapid shuttering of fossil fuel power plants. Around the world, the pandemic led to lower oil and gas production, and slower deployment of renewable energy facilities. The rapid economic rebound once vaccines were deployed caught the global economy by surprise, and every sector has been trying to catch up. Russia has slowed gas supplies to the European Union and Norway’s gas supply has maintenance issues. Limited supplies in a global market are driving up prices everywhere.
The governor and the president are hardly to blame. The president called for a pause on leases on federal land – not on permits, as Gessing states. But the industry has 23 million acres of unused public lands leases and thousands of unused permits. The administration has issued permits at a faster pace than the Trump administration, and the State Land Office has also been issuing permits at a rapid clip.
The problem lies largely with industry. Oil companies are using the high prices to pay shareholders and investors, not to increase production. One reason: according to a Deloitte study, fracking operations had a net negative free cash flow of $300 billion, impaired investment capital of $450 billion and nearly 200 bankruptcies since 2010. On the gas side, the industry has shifted significant natural gas production to exports. While industry profits now exceed pre-pandemic levels, their actions are a direct cause of domestic supply crunches and higher prices. However, blaming the governor and the president has clear political value heading into the 2022 elections.
Industry disregard for U.S. consumers and business has forced the government to step in. The president’s call for domestic and foreign producers to increase production is a necessary measure. However, we are in a global energy market; it was Russian and Saudi Arabian squabbling that led to the astonishing negative spot price in spring 2020. Combined with the pandemic, this led to the rapid collapse of New Mexico revenues and an industry-wide write-down of over $150 billion, 10% of combined market capitalization. This was hardly the fault of the Biden administration, which took office a year later.
The president is not alone. China, India, Japan, the U.K. and others are all tapping into their strategic reserves to dampen the market, and are providing emergency subsidies and other support to consumers and businesses. The impacts of industry instability and profit-seeking fall to governments – of wildly varying ideologies – to resolve.
Every sector is under increasing pressure from shareholders, insurers and the public to account for climate risk, but the oil and gas sector feels this pressure the most. A recent OilPrice.com article described the massive, multitrillion-dollar problem the oil and gas industry has with stranded assets from the rapid transition to clean energy sources as one that will increase catastrophically if the industry does not plan adequately.
We are at the start of a transition the world has never seen before: the intentional, rapid shift from one energy source to another as the economic driver. It will be immensely difficult and it will not be smooth. But it is happening. The global energy transition needs everyone to get together to make it work for everyone.