Released August 16, 2022 | SUGAR LAND
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Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The fight against U.S. inflation and the push for an all-of-the-above energy sector depends largely on matters outside of the United States, a new report finds.
The stunning destruction of demand for fuels during the worst of the COVID-19 pandemic opened a door for alternatives. Businesses closed and those who could do so worked from home--or not at all. Crude oil prices actually turned negative, so it was time to move on.
In 2021, the talk of the industry was not so much about oil or natural gas, but about hydrogen, fuel cells and carbon storage. Then Russian military forces crossed into Ukraine in February of this year and the situation changed. Russia is a global leader in supplies of everything from natural gas to crude oil and wheat, and the Western response to the crisis provoked a sharp uptick in commodity prices as those supplies were sidelined by war, sanctions or both.
The window of opportunity to move away from fossil fuels for the sake of energy security closed, because the world is not yet fully capable of living without them.
The Western response to Russia's war in Ukraine is Exhibit A as global demand for fossil fuels overwhelmed dwindling supplies. Crude oil prices at one point reached highs not seen since 2014, while retail gas prices hit record levels. Most major Western economies are flirting with recession in large part because of those price trends.
Working for much of the year to combat rising prices, U.S. President Joe Biden was able to push a watered-down version of an all-inclusive bill meant to control inflation, while at the same time advancing a more climate-friendly energy policy.
"The Inflation Reduction Act is the single-largest investment in climate action in American history that will also create new clean jobs and lower energy costs for American families," said U.S. Rep. Frank Pallone, Jr., a Democrat representing New Jersey and the chairman of the House Energy and Commerce Committee. "It includes many provisions from the Energy and Commerce Committee that will drive down dangerous methane pollution, deploy low- and zero-emission technologies nationwide, and reduce energy usage through home energy efficiency upgrades."
That in theory puts the energy transition back on track. Elsewhere, it offers something for conventional energy as well. It renews leases for rights to drill for oil and natural gas in the U.S. waters of the Gulf of Mexico, with at least one lease set for later this year. So far, new leases offshore have been stuck in political limbo.
That earned praise from the National Ocean Industries Association (NOIA), but drew a mixed response from the American Petroleum Institute (API). NOIA praised it as all-of-the-above legislation, while API said it put undue financial burdens on the industry.
"From a new corporate minimum tax to an $11.7 billion tax on crude oil and petroleum products to a new natural gas tax, this legislation imposes additional costs on American families and businesses at a time when policymakers should be looking for solutions to provide relief," said API President and CEO Mike Sommers.
Norwegian consultancy Rystad Energy, meanwhile, notes that while the measure does support some of the all-above strategies domestically, it is a global market that moves on global events.
A lot depends, Rystad says, on China. Case in point: a decision to lower interest rates in China to avert a dramatic economic slowdown took 5% off the price of oil in early Monday trading. That rate decision did something the White House has struggled mightily to accomplish--lower the price of oil.
And consider this--all the lease sales in the world do nothing for energy security unless the discovered resources have a place to go. That means pipelines, and the U.S. lacks the iron and alloy steel to make them. And the minerals used in electrical vehicles? Those aren't in abundance in the U.S., either.
Rystad adds that it's China's stimulus policies that will impact global inflation, not those from the U.S. And it's largely supply-chains and manufacturing in China that set the tone for the global market.
"Cost inflation in the U.S. energy industry has hit operators, manufacturers and suppliers hard--and the Inflation Reduction Act shows no signs of addressing that in the near term," said Matthew Fitzsimmons, a senior vice president at Rystad. "The fate of the industry's future inflation or deflation lies firmly in the hands of the Chinese, fittingly, as U.S. policymakers attempt to build and strengthen a domestic supply chain and attempt to avoid such reliance in the future."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
The stunning destruction of demand for fuels during the worst of the COVID-19 pandemic opened a door for alternatives. Businesses closed and those who could do so worked from home--or not at all. Crude oil prices actually turned negative, so it was time to move on.
In 2021, the talk of the industry was not so much about oil or natural gas, but about hydrogen, fuel cells and carbon storage. Then Russian military forces crossed into Ukraine in February of this year and the situation changed. Russia is a global leader in supplies of everything from natural gas to crude oil and wheat, and the Western response to the crisis provoked a sharp uptick in commodity prices as those supplies were sidelined by war, sanctions or both.
The window of opportunity to move away from fossil fuels for the sake of energy security closed, because the world is not yet fully capable of living without them.
The Western response to Russia's war in Ukraine is Exhibit A as global demand for fossil fuels overwhelmed dwindling supplies. Crude oil prices at one point reached highs not seen since 2014, while retail gas prices hit record levels. Most major Western economies are flirting with recession in large part because of those price trends.
Working for much of the year to combat rising prices, U.S. President Joe Biden was able to push a watered-down version of an all-inclusive bill meant to control inflation, while at the same time advancing a more climate-friendly energy policy.
"The Inflation Reduction Act is the single-largest investment in climate action in American history that will also create new clean jobs and lower energy costs for American families," said U.S. Rep. Frank Pallone, Jr., a Democrat representing New Jersey and the chairman of the House Energy and Commerce Committee. "It includes many provisions from the Energy and Commerce Committee that will drive down dangerous methane pollution, deploy low- and zero-emission technologies nationwide, and reduce energy usage through home energy efficiency upgrades."
That in theory puts the energy transition back on track. Elsewhere, it offers something for conventional energy as well. It renews leases for rights to drill for oil and natural gas in the U.S. waters of the Gulf of Mexico, with at least one lease set for later this year. So far, new leases offshore have been stuck in political limbo.
That earned praise from the National Ocean Industries Association (NOIA), but drew a mixed response from the American Petroleum Institute (API). NOIA praised it as all-of-the-above legislation, while API said it put undue financial burdens on the industry.
"From a new corporate minimum tax to an $11.7 billion tax on crude oil and petroleum products to a new natural gas tax, this legislation imposes additional costs on American families and businesses at a time when policymakers should be looking for solutions to provide relief," said API President and CEO Mike Sommers.
Norwegian consultancy Rystad Energy, meanwhile, notes that while the measure does support some of the all-above strategies domestically, it is a global market that moves on global events.
A lot depends, Rystad says, on China. Case in point: a decision to lower interest rates in China to avert a dramatic economic slowdown took 5% off the price of oil in early Monday trading. That rate decision did something the White House has struggled mightily to accomplish--lower the price of oil.
And consider this--all the lease sales in the world do nothing for energy security unless the discovered resources have a place to go. That means pipelines, and the U.S. lacks the iron and alloy steel to make them. And the minerals used in electrical vehicles? Those aren't in abundance in the U.S., either.
Rystad adds that it's China's stimulus policies that will impact global inflation, not those from the U.S. And it's largely supply-chains and manufacturing in China that set the tone for the global market.
"Cost inflation in the U.S. energy industry has hit operators, manufacturers and suppliers hard--and the Inflation Reduction Act shows no signs of addressing that in the near term," said Matthew Fitzsimmons, a senior vice president at Rystad. "The fate of the industry's future inflation or deflation lies firmly in the hands of the Chinese, fittingly, as U.S. policymakers attempt to build and strengthen a domestic supply chain and attempt to avoid such reliance in the future."
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
