The year-old war in Ukraine has had far-reaching effects on energy markets over the past year, redrawing the global map of oil and gas flows and creating a new boom market for US producers.
Europe has shown that it can live without Russian oil and gas, reducing Russian imports below 20% of total consumption. The EU owes the United States, above all, the flexibility that allows it to achieve this rapid transition without throwing the continent’s economy into chaos.
US exports of crude oil, refined products and liquefied natural gas (LNG) have been critical to the success of Europe’s efforts to wean itself off Russian energy — a transition that is almost complete.
US LNG shipments to European ports more than doubled in 2022 compared to 2021, accounting for more than half of Europe’s LNG imports. The deliveries helped the region overcome a 54% drop in pipeline gas supplies from Russia – and made the United States the world’s largest exporter of LNG.
US LNG exporters increased shipments to the EU to more than 55 billion cubic meters in 2022, a 150% increase over 2021 levels, according to the Institute for Energy Economics and Financial Analysis.
U.S. LNG exports increased last year, even as one of the nation’s largest export facilities, Freeport LNGit was taken offline after an accident last summer, making America’s contribution to global supplies even more impressive.
The story of oil is similar. US crude exports to Europe rose by about 70% from a year earlier to 1.75 million barrels per day. This has helped Europe reduce its dependence on Russian oil imports from around 2.3 million barrels a day before the start of the war against Ukraine to today’s proverbial trickle. Moscow now has to ship its oil to China and India at a 40% discount instead of delivering it directly to European households.
The dramatic restructuring of global oil and gas markets would not have been possible if America had not established itself as an energy powerhouse over the past 15 years. Without the US shale boom in previous decades, Europe would be at the mercy of the OPEC+ cartel, which still considers Russia a critical member.
There are many lessons to be learned from Russia’s war against Ukraine, but perhaps the most important is that energy security—and the blessing of America’s energy abundance—should not be taken for granted.
And although energy prices have fallen, it is not time to be complacent. Continued concerns about a possible global recession and mild winters help explain the recent drop in oil and gas prices, but supply constraints remain a real concern.
Energy supplies are a global commodity. The analogy of a giant bathtub is often used to explain how reducing the supply of energy anywhere in the world reduces the amount available on the market and increases competition – and the price – for that supply everywhere.
Moscow recently announced output cuts of 500,000 barrels per day, which will take effect next month. Removing these barrels from the market will increase the price of oil. There are also concerns about the impact of flights underinvestment oil and gas companies in the United States of America. Goldman Sachs warns clients against potential lack of goods later this year, including energy, where Brent will rise to $105 per barrel and LNG to $55 per million Btu.
This poses a potentially huge problem for the global economy, which is still struggling with high inflation and demand has not fully returned to pre-pandemic levels. The importance of abundant US energy resources has come to the fore on the world stage over the past year as a calming, balancing force for markets roughed up by geopolitical turmoil.
This is why the previous administration sought an “energy dominance” agenda — to ensure Americans are insulated from shocks in the energy market and to help address global supply crises when they occur.
The Biden administration continues to treat the domestic oil and gas industry as the villain in recent events, blaming price increase, war profiteering, and, ironically, underinvestment in exploration and development of new supplies despite federal policies that thwart domestic production at every turn. President Biden remains committed to the “Keep It in The Ground” strategy despite his rhetoric against high energy prices.
The approach of Biden and his Democratic coalition on Capitol Hill to leasing federal lands and waters, permitting new pipelines, general reform of the federal permitting system, or any initiative that promotes domestic production continues to frustrate America’s energy security goals.
Biden continues to double down on the energy transition, a decision that may pay off in the long run. For the foreseeable future, however, America – and the world – will continue to depend on oil and gas to drive their economies. Until the reservoirs run on solar power, oil will continue to determine energy security – and energy security is national security.
After the bloody events of the past year, Americans should reflect on the abundance of North America’s resources. Yet they should be just as concerned about the direction of US energy policy and the unnecessary risk it poses to the nation.
Because while no one denies that the transition to a low-carbon economy is underway, it will take decades to happen. Meanwhile, America must maintain its status as an energy superpower capable of bailing out its allies—or the entire global energy market—in turbulent times.