Donna Kennedy-Glans is Alberta’s former associate minister of electricity and renewable energy and author of Teaching the Dinosaur to Dance: Moving Beyond Business as Usual.
Politicians know that they will be held accountable if they can’t fix the problem of out-of-control energy prices.
It’s a tricky place for political leaders: They can’t waver in their commitment to green energy, they don’t control the price of oil and they can’t really force any hydrocarbon producer – within OPEC or domestically – to ramp up production.
One in every 10 barrels of oil produced in the world comes from Russia. With Russian President Vladimir Putin’s unprovoked invasion of Ukraine under way, not only are consumers being slammed, but global energy companies are in a state of shock – grappling with the implications of an unprecedented exodus of investors from Russia.
What’s more, OPEC+ – the 13 OPEC members plus 10 of the world’s major non-OPEC oil-exporting countries that produce nearly half the world’s oil – is co-chaired by Russia’s Deputy Prime Minister, Alexander Novak.
How did we get to this precarious place where energy security could be so threatened and prices so volatile?
Some blame the zealous push to net-zero emissions. In our quest for green, we turned our backs on oil and gas producers in the West by making it more difficult to build requisite energy infrastructure (such as pipelines and export terminals), restricting access to hydrocarbon frontiers (including offshore and in the Arctic), constraining fracking and redirecting R&D dollars to wind and solar.
The COVID-19 pandemic exacerbated these underlying conditions. Oil and natural gas producers drastically cut back production two years ago, not knowing what was ahead. And now, with demand for energy expected to pick up as the pandemic winds down, we find ourselves in a squeeze. This is only further amplified by Russia’s invasion.
To be clear, we’re in a crisis and assigning blame isn’t useful. The challenge now is finding solutions. And shouldn’t leaders of energy companies shoulder some of the responsibility we’re assigning to politicians? Most of the world’s oil is produced by state-owned energy companies, but in Western countries, an arms-length relationship between oil companies and politicians is expected. No cozy capitalism, please!
Of course, that doesn’t preclude political leaders from calling on these companies in times of great need to do their civic duty by ramping up production and easing consumer pain. It’s an option for desperate politicians to encourage engineers to pull hard on the levers of hydrocarbon production.
In Canada, after years of equivocating on liquefied natural gas export terminals, Prime Minister Justin Trudeau now speaks to German Chancellor Olaf Scholz about the potential for future co-operation on LNG.
In the United States, President Joe Biden commiserated with citizens during his recent State of the Union address about inflation’s human toll and reeled off a list of actions being taken by government in the short term to ease the pain. The U.S. will tap into strategic emergency oil reserves, rebate gas taxes and apply pressure to OPEC to ramp up production.
Good ideas, but there is only so much they will do to solve the crisis in the short-term. It’s not a simple thing to quickly ramp up output and delivery of oil and natural gas. LNG terminals take time to build. And what happens when emergency reserves are drawn down but not replenished, the cost of internationally priced commodities keeps rising and OPEC+ refuses to change course?
Fuel tax rebates (or even holidays, as promised to Albertans by Premier Jason Kenney) may be politically astute but won’t fix the underlying problem.
Moreover, scarcity drives prices up. And frankly, that’s to the benefit of energy investors, shareholders and executives. It’s a harsh view that makes people wince in times like this, but for corporate leaders leery of environmental, social and corporate governance (ESG) and other beyond-compliance corporate accountabilities, the profit motivator reigns supreme.
Over the past decade, North America has played host to several technologically driven hydrocarbon strategies. At its peak in 2014, nearly US$34-billion was invested in projects to develop Canadian oil sands. In the U.S., the shale revolution created a boom in drilling that transformed the country from an energy importer to a net exporter.
Now, the facts are changing. Oil sands investment in Canada has slowed down and large shale drillers in America are running out of prime drilling locations. Corporate leaders are adopting low-growth or no-growth business strategies, and share buybacks and the reinstatement of dividends to shareholders is becoming routine.
Back to the politicians. Inflation is a legitimate worry for consumers. If OPEC+ isn’t dependable in a crisis, corporate profit-takers are clamouring for their cash and renewable energy is not yet reliable, political leaders need a Plan B.
A healthy dose of pragmatism may be what’s needed to move beyond the renewables-versus-hydrocarbons binary. If the European Union can recognize natural gas and nuclear energy as “green energy” under their sustainable finance guidelines, and Elon Musk can get behind the idea of ramping up oil and gas output even if that seems averse to the interests of Tesla, surely a way forward can be designed in a crisis.
It’s easy to be cynical. What’s more worthwhile is figuring out how to discern genuine motives across a wide range of energy players, and separating the leaders who mouth ESG platitudes from those willing to play a role in finding solutions to serious challenges.
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