Home Business How sanctions and policies ensure that the energy crisis will only get worse from here

How sanctions and policies ensure that the energy crisis will only get worse from here

by SuperiorInvest

As various governments in Europe, including the EU, seek to apply “price caps” to seemingly every imaginable element of their energy supply chains in a desperate bid to avoid economic and humanitarian disaster, new studies and general industry trends suggest that the widening crisis will it will only make it worse.

Rig counts in the United States, the biggest current producer of both oil and natural gas, have been flat since early July, suggesting that Europe and other parts of the world should not expect a significant relief in supplies from the US shale industry. anytime soon. With both Baker Hughes
BHI
and Enverus With the number of rigs showing a significant reduction in active rigs last week, it seems likely that the number of rigs in operation will not increase until at least the first of the year when the new drilling budgets for 2023 come into play. Even then, there is at least the same reason to expect a decrease in active rigs rather than an increase in the number.

The Biden administration has been very successful in its efforts to limit new leasing and drilling activity in the US new study of Rystad Energy found that Biden’s philosophy of capping oil and gas lease prices has become a global phenomenon, resulting in the reduction of licenses for new drilling blocks and total acreage to a 20-year low. The study’s authors note in the report that their research “shows that acreage granted so far this year has shrunk to a 20-year low of 320,000 square kilometers and the total number of leases is expected to be 44 this year, down 14 from 2021.” and the lowest level since 2000.

The authors go on to state that “also contributing to the decline in licensing is the political landscape, with many governments suspending or halting leases and encouraging companies to cease exploration in already awarded blocks. Rystad Energy believes this trend is likely to continue as governments become less eager to invest in fossil fuel generation and instead look ahead to a net-zero future.

Even if production suddenly started to recover, it would still be hampered by increasing limits on the amount of available refining capacity around the world. AND new study International Energy Forum (IEF), written in collaboration with S&P Global, found that global fuel distillation capacity has fallen by 3.8 million barrels per day (bpd) over the past two years. It’s the first time in more than two decades that number has fallen. In addition, the report’s authors found that various sanctions and embargoes have displaced nearly 3 million bpd that cannot be easily redirected.

A summary of the report points out that “Russia and China are the main two countries with available refining capacity, but sanctions limit Russian exports and domestic policies limit China.” It also notes that “more than 2 mb/d of net capacity is scheduled to come online by the end of 2023, but history shows that delays and operational problems could halt progress. These are likely to be the last large fuel-oriented greenfield refineries to be built as the energy transition will reduce the need for conventional refining capacity in the future.

This last point is key in the US, as refiners are loathe to even attempt to implement plans to invest in building new refining capacity given the current public policy environment. Building a new, high-capacity refinery would involve an investment of $10 billion or more and take more than a decade from concept, through financing, permitting, to opening. With Biden administration officials like Energy Secretary Jennifer Granholm and Transportation Secretary Pete Buttigieg regularly touting their desire to eliminate oil and gas from the U.S. energy mix over the next 10 to 12 years, any effort to increase domestic refining capacity would be a high madness.

This reality has major implications for Europe, whose governments continue to struggle to secure new sources of oil, refined products and natural gas to replace lost volumes from Russia resulting from their own sanctions regime. The scale of the problem escalated this week with the revelation that Germany is now facing a shortage of AdBlue, a fuel additive that helps reduce emissions from diesel-powered cars. Bloomberg news that AdBlue prices have skyrocketed this year as natural gas supply shortages have pushed up the price of ammonia, one of the additive’s key ingredients.

So we see policies and sanctions causing scarcity; scarcity leading to rising prices; and rising prices cause further scarcity. Europe’s plan to impose a series of “price ceilings” on essential commodities will only serve to ensure greater scarcity of these commodities in what has become a self-perpetuating and worsening crisis.

Unless and until politicians in the Western world step back and recognize that their policies are the source of the problem, the crisis will only get worse from here.

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