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Until very recently, the Biden administration persistently blamed OPEC and its allies for the upward pressure on energy prices. The OPEC, led by Arab producers, had every reason to ignore Washington’s calls for more oil. In Riyadh, Biden acknowledged OPEC’s vital role in stabilizing world oil markets. Biden, who in the 2019 campaign pledged to make Saudi Arabia a pariah state, now refers to the Saudi kingdom today as a “strategic partner.” Saudi Arabia has not changed. Energy prices worsening inflation caused by Biden’s bad policies changed, and voters’ priorities were reflected in the polls. Climate change is no longer a priority for an electorate distressed by the cost of living.
In its Net Zero 2050 report a year ago, the International Energy Agency (IEA) recommended no investment in new fossil fuel supply, outside of projects already committed, after 2021. And no new oil and gas fields, no new coal mines or mine extensions, as recommended by the IEA. At the UN Climate Conference in Scotland, 21 countries pledged to stop public financing of fossil fuel projects by the end of 2022, while the economic contraction from closures during the COVID-19 pandemic caused energy investments to fall by around 20%. A year later, rising energy prices and the failure of green energy, compounded by European dependence on Russian gas amid the war in Ukraine, are forcing Washington and Brussels to backtrack in disarray in the short term.
In July, EU lawmakers hypocritically voted to invest in natural gas and nuclear power as “green,” putting on a par the one non-fossil energy they previously dismantled, despite being the only economically viable and technically reliable one, with the fossil fuel on which Europe is most critically dependent. Energy Secretary Jennifer Granholm told American oil industry representatives in March that the priority was more oil and gas supply right now. The Group of 7 agreed in Germany to a short-term increase in supply using reserves and working with allies. OPEC finally responds to them with “minuscule” output hike.
The G7 governments, with Washington at the helm, are desperately seeking short-term solutions to lower energy prices. But the oil and gas business runs on long-term investments. Except for hydraulic fracturing production in shale, putting more oil and gas on the market would involve a huge capital-intensive investment with very long payback periods. Investors will commit that capital only if they are sure the demand will be there for years to come. The same governments that are today calling for more oil and gas investment and production remain committed to ending demand for these fossil fuels in the coming years.
Qatar tried to sign a long-term natural gas supply contract with Germany, but Berlin, tied to Russian gas, which it declares it does not want to depend on, refuses on environmental grounds. Qatar will sell to China, and other Asian markets, with long-term contracts to ensure supply for many years. Norway announced in May 2022 that if Europe committed to long-term purchases, it could replace Russian gas. There is no commitment.
Nor are U.S. oil and shale gas producers now risking capital investment to put more oil on the markets, despite having more room than traditional producers to operate in the short term. Let’s be clear, just in July Biden issued an executive order to make electric vehicles half of all new cars by 2030 in the United States. And the European Union is keeping its “green” targets for 2030 and 2050 intact.
Guillermo Rodríguez is a professor of Political Economy in the extension area of the Faculty of Economic and Administrative Sciences at Universidad Monteávila, in Caracas. A researcher at the Juan de Mariana Center and author of several books // Guillermo es profesor de Economía Política en el área de extensión de la Facultad de Ciencias Económicas y Administrativas de la Universidad Monteávila, en Caracas, investigador en el Centro Juan de Mariana y autor de varios libros