After the canceling of the Keystone XL oil pipeline the previous week, a new Executive Order dominated the oil and gas headlines the last week of January. President Biden has halted new leasing and drilling permits on U.S. lands and waters for 60 days. The order will impact Wyoming and New Mexico the most but a number of legal challenges are forthcoming, especially if the administration tries a permanent ban and/or goes after already existing leases. Currently, the U.S. gets around 20-22% of its oil and 10-12% of its natural gas from federal areas.
Americans should realize that oil and gas account for 70% of our energy supply. The reality is that blocking pipelines and development does nothing to lower demand, it just makes getting access to these irreplaceable products more difficult – and more costly. Oil in particular has no material substitute, with still niche market electric cars being far more expensive and much less convenient. In addition, oil and gas revenues offer states billions of dollars to pay for schools, hospitals, roads, bridges, and other critical infrastructure – explaining why “blue state” New Mexico might already be fraught with buyer’s remorse.
Not just easily the world’s largest oil and gas producer, the U.S. is quickly becoming a major exporter of these essentials, rivaling Russia and Saudi Arabia for oil and Russia, Qatar, and Australia for natural gas. Even though global oil demand fell 8% in 2020 through the pandemic to ~92 million b/d, U.S. oil exports stayed the course and remained much stronger than one might suspect (Figure). Demand this year should increase to 97 million b/d as travel normalizes, with still the potential to rise to 109 million b/d by 2040. There is simply no evidence that global oil demand is in structural decline: “Goldman Expects Oil Demand To Rebound To 100 Million Bpd By August.”
U.S. natural gas exports have also remained very high through perhaps the worst energy demand destruction in centuries (Figure). Global gas demand fell 3-4% in 2020, for instance, the first yearly decline on record. U.S. liquefied natural gas (LNG) exports did drop in summer when many industrial facilities were closed, but they have quickly rebounded since and been setting records at over 11 Bcf/d.
Kicking off as big business in February 2016, the U.S. has been exporting LNG to over 40 countries. Our supply is absolutely essential to buffer the extending influence of heavily-resourced Russia, with Vladimir Putin aiming to boom his country’s market share of global LNG supply five-fold to 25% over the next 10 years. And the Biden administration must realize that we have a chance to supply a clean, modern fuel like natural gas to an energy-deprived world, where 85% of humanity resides in still developing nations.
Too many environmental groups have seemingly ignored: our OECD energy advisor, the International Energy Agency, has directly credited the use of natural gas as to why the CO2 reductions in the U.S. have been “the largest in the history of energy.” Globally, there are 500,000 MW of higher emission coal generation in the works, which would be a 25% expansion of the current global fleet. Natural gas emits 50% less CO2 than coal when combusted, explaining “DOE pick Granholm signals support for LNG exports.”
The appetite for gas will surely be there. Global gas demand is expected to rebound and grow 3-5% this year. Longer term, LNG demand alone is projected to about double to 100 Bcf/d by 2040, with more gas a centerpiece strategy of decarbonization goals. California is actually the best example of this, where the state has used decades of mandates and tens of billions of dollars to force as much wind and solar onto the grid as possible, yet natural gas still generated 46% of the state’s electricity in 2020.
Jude Clemente is Editor at RealClearEnergy.