The solution to high gas prices, to some energy executives, is obvious. But only in Europe.
French energy executives, including the chief executive of Total, one of the world’s largest oil companies, recently sent an open letter for the French people to “collectively take action on energy demand by reducing our consumption.”
Europe depends on natural gas especially for much of its heat and electricity that — although this is likely changing — greatly comes from Russia. The chief executive officer of Shell, which is based in London, said earlier this week that a “turbulent period in the world energy market is coming as Europe tries to replace natural gas that will likely be cut off from Russia.”
In other words, one way to lower energy prices and aid in the Ukraine war effort is to slow demand. Conservation can come in a variety of forms: driving less, lower temperatures in buildings in the winter, carpooling, using public transportation, replacing gas furnaces or working from home. In other words, asking consumers — who have been putting incredible strain on energy resources through surging demand — to use less.
But if Europeans could be eventually forced by Russia to do so, Americans often bristle at the very idea they should consume less.
That’s because Europe — and parts of Asia — have energy conservation and efficiency woven into their politics and economies in a way that the energy-rich United States does not.
Europe is acutely aware of the energy supply-and-demand problems
Natural gas and oil stockpiles are shrinking, and Europe especially expects to face a massive crunch in the winter, as gas demand goes up for heat and Russian supplies are expected to approach zero. There are other ways to get gas besides fixed pipelines — namely shipping liquefied natural gas (LNG) — but there are major constraints there as well. For one, the Freeport terminal was heavily damaged in a fire and likely won’t be operational for the rest of the year.
Europeans are not the only countries deeply dependent on gas and oil imports — South Korea, Japan and China are snapping up what liquefied natural gas they can.
“There will be more LNG supply coming into Europe, but will there be a lot of extra new LNG supply to plug the gap? I don’t think so,” Shell’s CEO Ben van Beurden said, according to Bloomberg.
But the European calls for conservations have not been matched by the United States — at least not yet.
“Europe and Asia and other developed industrialized nations take energy conversation a lot more seriously and have done so since the 1970s,” explained Gregory Brew, an oil historian at Yale University. Europe and Asia tend to be far more reliant on imported oil and gas, whether from the Middle East or the Soviet Union and now Russia, making energy conservation a matter of national security and survival after the Arab Oil Embargo and the rise of oil prices in the 1970s.
Meanwhile, the natural gas market tends to be more localized because it largely has to be transferred along a fixed pipeline infrastructure; liquefied natural gas can be exported and shipped internationally.
“I don’t think our natural gas situation is nearly as dire as Europe’s. We’re not in a situation where our supplier of 40 percent of our gas is in the process of cutting us off,” said Harrison Fell, a senior research fellow at Columbia University’s Center on Global Energy Policy.
“Conservation has always made sense and had political support,” Brew explained. “We don’t have that anymore in the U.S.; the main reason is that we have this very large, politically powerful fossil fuel industry that produces energy inside the U.S.”
That power has only expanded with the shale revolution, turning the U.S. into an oil exporter and gas-producing superhero that could exercise “energy dominance” on world markets.
“The reason [President Joe] Biden and Republicans aren’t talking about conservations is that it flies in the face of energy dominance that has been promoted by [Donald] Trump and [Barack] Obama. Instead of cutting demand, we should increase domestic product. … That’s why we don’t hear about conservation right now,” Brew said.
America looks past energy conservation in the conversation about high gas prices
Without conservation efforts, American businesses and consumers may be forced to conserve by the harsh logic of high prices — and it may already be happening.
When it comes to “changing our habits to reduce energy usage,” explained Fell, “the primary mechanism for that has been price, the price gets high enough, we start traveling less, the price of gas goes up enough, we change thermostat settings.”
In short, the president doesn’t put on a sweater; consumers look at their heating bills and decide to anyway; a national 55 mile per hour speed limit isn’t implemented, but maybe drivers try to keep a lower, more steady speed.
“There could be increased subsidies for public transportation, energy efficiency measures implemented for state and public buildings and institutions, and even the Department of Defense could be encouraged to cut its energy use,” Brew said. “The president could use the bully pulpit to encourage people to drive less carpool and stay home; these measures were effective in the ’70s.”
According to Brew, thanks to Nixon, Ford and Carter, energy conservation policies were effective and managed to cut down on oil imports and gasoline demand. Most famously, the federal speed limit was reduced to 55 miles per hour, along with a raft of voluntary conservation and efficiency programs. There was also an effort to persuade Americans to use less energy and cut down on oil imports by President Jimmy Carter, who put sweaters on his torso and solar panels on the White House. While Americans actually did respond to these pleas — even if harsher measures were not implemented by Congress thanks to energy industry protests — the approach to politics faded away with Carter’s defeat in the 1980 presidential election and low oil prices in the 1980s.
Lately, gas prices have slightly moderated, falling to $4.87 a gallon from just over $5, according to the Energy Information Administration, with prices for gasoline delivery in the future having fallen by over 50 cents in the last month.
But when demand for gas surged last winter, a group of Democratic senators requested that the Department of Energy ban gas exports.
The only tool the U.S. has turned to is trying to increase supply — even when there’s not much slack left in the system
In the United States, the Biden administration has largely tried to shame the oil industry into drilling more. And while productivity is up, it remains well below the frenetic activity of the 2010s, when American gas and oil production boomed, leading to the U.S. becoming one of the largest oil exporters and approaching energy self-sufficiency.
Since then, investors in the industry have severely tightened the reins, becoming much less willing to throw money at the oil patch, fearing another boom-and-bust cycle of more drilling leading to lower prices and mass bankruptcies.
And, of course, cars, trucks and airplanes don’t run on crude oil, they run on refined products. The refinery industry has lost capacity since the onset of covid-19, as American and Canadian refineries closed because of the industry’s expectations that demand for refined products would be permanently lower.
That means that the remaining refineries are running at or near capacity, churning out profits for their owners — and risking mechanical failures and accidents. In the Gulf Coast region, which is vulnerable to what’s expected to be a major hurricane season, refineries are running at almost 98 percent capacity, while in the West Coast, which famously has the highest gas prices, they’re running at 85 percent capacity.
“My sense is that we’re in for a bad hurricane season. Refinery and LNG capacity are working at full capacity; that’s a recipe for mechanical failure,” Brew said. “I wouldn’t be surprised if there are other Freeport outages and accidents. If we got ahead of that problem now, that would ease the situation up a little bit.”
Thanks to Lillian Barkley for copy editing this article.