Energy and the Presidents

Monday 6 March 2023

Energy transition has spawned a populist myth that governments around the world are inhibiting production of fossil fuels. The climate community only wishes that were true. There are no efforts in Canada, Australia, the United States, Mexico, South America or elsewhere in the OECD where policies, new or old, are acting to meaningfully constrain fossil fuel production. And there are certainly no climate or ESG policies at work in the Non-OECD—in China, Russia, or the Mideast constraining production in these regions either. You really have to laugh at the idea that high profile climate figures like Greta Thunberg have dissuaded, say, coal production. The climate community just spent the last seven years believing global coal production and consumption had peaked, back in 2014. Nope. In 2021, demand reached back to near all-time highs, and global coal production actually did reach a new high. And so did natural gas. Oh, the constraints!

The myth draws most of its oxygen from the very real and robust efforts global governments have undertaken to incentivize production of clean energy. Wind and solar now provide over 30% of electricity in Texas, California, and nearly 20% of electricity across Europe. Global EV sales reached over 10 million units last year, or, one out of every seven vehicles sold. Universities and other institutions curtailed new investments in oil and gas starting a decade ago, if not longer. The bitter and aggrieved commentary that often comes from the oil and gas sector fails to recognize that global investors simply decided that more attractive investments lie elsewhere.

The myth really comes alive when you look at global petroleum production. Western free market economies like Canada for example, where discretionary climate policies are supposedly in full control, are seeing new all-time highs of production. The same story is taking place in the United States, where the only cause of a temporary pullback in petroleum production was from the demand collapse during the pandemic—not policy.

US petroleum production in 2021, as depicted in the chart below, was just 3% off the all-time high in 2019. But now, the EIA has just reported that total United States field production of petroleum did indeed just hit a new, all-time high in 2022, at 17.81 million barrels a day. (The chart showing new all-time highs in US petroleum production in year 2022 can be found not in this essay, but in the subsequent essay further down). Canada and the US, by the way, compose nearly a quarter of total global petroleum production.

Now look at Middle East production. Does anyone seriously believe that countries from Saudi Arabia to Iran, Iraq, and the UAE are on a new climate campaign to stomp out fossil fuel supply growth? Mideast production was down 11% in 2021, from a high in 2016. And how about Russia, where production was down 6% in 2021 from the all- time high in 2019? These regions are producing less for various reasons (war, politics) but mostly because demand growth globally for petroleum has slowed, and because western producers (supposedly in the vice-grips of climate policy) keep growing output! The irony is delicious.

With petroleum production hitting new all-time highs in Canada and the US—and with total global production of all fossil fuels near/at all-time highs—what is left of the argument that governments are suppressing fossil fuel production? Does one make the claim: even though global natural gas, global coal, and US petroleum production and US natural gas production are at all-time highs, well, they’d be even higher-er without government interference? Good luck with that.

One of the more amusing versions of this argument can be observed each quarter in the respondent survey of the Dallas Fed, in which participants complain bitterly that the Biden administration is destroying the US oil and gas industry. The Biden administration has certainly engaged in some harsh rhetoric about oil and gas. But the rhetoric is all for show. There are no policies, outside the normal course of regulations that have lumbered forward in the US for a century, inhibiting US oil and gas production. The US is now a robust exporter of petroleum products, and as important, is the new giant of LNG exports, as it takes the number one position this year from Australia. Today, the US stands as a global titan of fossil fuel production, and ranks second only to China as a producer of energy from all sources. Constrained? Not even a little.

Americans mistakenly believe political rhetoric governs energy policy, but the fact remains that the United States runs a free market energy system. And in a free market system, price and technology are in control. Correlations between the political perceptions of various Presidential administrations and actual, realized energy outcomes remain exceedingly low, and in many cases negative. Yes, the EPA (created by Richard Nixon!) has churned out regulations for a half-century and American presidents can certainly bend both the discourse, and the regulatory state, in their preferred direction. But it’s truly remarkable to consider how the last four Presidents, in this century, oversaw energy outcomes that blatantly defied commonplace public perceptions. And these were not marginal outcomes, but central, large scale outcomes. Consider:

• George W. Bush, not only from Texas but who had worked in the oil industry, oversaw a relentless multi-year decline in US petroleum production from 7.669 million barrels per day (mbpd) in 2001 to 6.783 mbpd in 2008. That’s an 11.5% decline over eight years. Global oil prices spiked to the highest levels ever, and probably played a role in helping to trigger the great recession.

• Barack Obama, who came to office talking about restoring train travel and the need to grow clean energy production—and who was often accused by the political right (see if this sounds familiar) of destroying US energy output—oversaw the largest increase in a half-century in US energy production from all sources. Fossil fuel production soared during the eight year Obama administration, rising from 56.612 quadrillion BTU in 2009 to 65.437 quadrillion BTU in 2016. America’s energy deficit collapsed under Obama, falling from a 24.2% deficit in 2009 to an 11.6% deficit in 2016. And under which administration did the first wave of new LNG export capacity get approved? Under Obama, with that supertrend kicking off in 2014.

• Donald Trump came to office promising to deregulate and did indeed make good on that goal. Output of oil and natural gas continued to grow strongly, and Trump oversaw the actual moment of flippening in the US energy deficit in 2019, when the US deficit went from red to black. The big surprise however was that Trump was not able to do anything for the coal industry, a major reversal of expectations. US coal production continued to fall, from 774,609 thousand short tons in 2017 to 535,434 thousand short tons in 2020. The continued collapse of coal consumption was even more dramatic under Trump, falling over 33% from 716,856 thousand short tons in 2017 to 476,693 thousand short tons.

• Joe Biden came to office as the most vocal, aggressive US executive on the need to take action on climate change. His own rhetoric, and especially the communication from many members of his team on the topic of oil and gas, has been searing. And he and the Democrats have followed up on this posturing with bold legislation that spurs further the growth of wind, solar, batteries, and new energy technology. And yet, there has been no meaningful federal legislation that curtails the output of US oil and gas—both of which just reached (again) all-time highs. That’s why the flippening in the US energy balance sheet, moving ever more deeply into the black in 2021 and 2022, will surely steamroll onward. And US petroleum production, which suffered a hit from the pandemic demand collapse globally, has taken a very standard 12-24 months to not just recover, but reach a new high. A classic example of the free market, not policy, in full control.

What are some commonalities to the realized, rather than the theorized, outcomes from the four administrations in this century?