As Russia’s invasion of Ukraine enters its second day, worry has risen about what this conflict will mean for global energy security, reliability, and supply. Such concern isn’t unwarranted: High gas prices have been a significant contributor to global inflation, the value of oil has rebounded from its 2020 lows, and Russia is a major supplier of oil and natural gas to energy players in Asia and the Eurozone. Countries opposed to Russia’s invasion also realize that fossil fuels are a significant part of the federation’s economy, and are retaliating against Russia where they hope it will hurt: Germany halted certification of Nord Stream 2, the gas pipeline that connected it directly to Russia, and the United States has issued sanctions targeting the company overseeing the pipeline, a subsidiary of the Russian state-owned corporation Gazprom.
Given the chaos, the American right has begun to air out “drill, baby, drill” talking points, arguing that the Biden administration’s rhetoric around addressing climate change is directly responsible for Russia’s actions. Meanwhile, even liberal pundits have begun to stress the supposed need to expand fossil fuel developments and exports, and former oil industry insiders claim in major newspapers that fracking will be a “powerful weapon against Russia.”
Gregory Brew, a historian of the Cold War and oil markets who’s a fellow at Yale University, contested this inchoate set of ideas in a Twitter thread Thursday morning. Brew noted various aspects of global energy markets that resist these narratives: that Russian oil is far different from U.S. oil, that several countries have strategic reserves on hand, that new oil and gas development is far too slow to have short-term effect, that Russian energy is not so vulnerable to sanctions as many think, and that a better way for global energy to stabilize would be to wean off fossil fuels altogether.
I spoke with Brew on Thursday to discuss his thread, and to ask what people are missing in the conversation around Ukraine’s invasion and hydrocarbons. Our conversation has been edited and condensed for clarity.
Nitish Pahwa: One of the first things you mention in your thread is seeing rhetoric around the need for energy independence—which, for a lot of people, entails more oil and gas drilling, domestically or elsewhere. How would you counter that perspective if you were explaining it to a layperson who may be convinced by that argument?
Gregory Brew: I would point out that this idea of energy independence is pretty nebulous. I suppose it refers to the idea that the United States or another state or nation could be self-sufficient in energy consumption, that it could produce all of the energy that it would need to meet its own domestic needs. That simply isn’t feasible, particularly for a nation like the United States, which is very large and has an immense domestic market that tends to be separated by things like geography and distinct needs. The U.S. has always imported energy, even going back to the early 20th century, particularly on the West Coast or on the industrial Northeast. That’s an important thing to remember.
We can continue to identify oil and natural gas as important sources of energy but, at the same time, recognize that there is a need for accelerated development of renewable sources. Not only for the mitigation of carbon emissions, but also for issues like energy security. Both the United States and Russia are major oil producers. Russia produces about 10 million barrels a day. The U.S. at the moment produces about 12 million barrels a day, which is close to historic highs. The country has seen an immense increase in oil production in the past decade or so as a result of the “shale revolution,” or the fracking revolution. If the suggestion is we need to produce more oil to make ourselves less dependent on sources like Russia, I would point out that the United States is already producing a lot of oil, and there are questions as to how much more we can produce. The Energy Information Administration suggests that we could maybe produce another 500,000 or 600,000 barrels a day in the next six to 12 months.
The other thing to point out is that the oil that Russia produces is very different from the oil that the United States produces. It’s of a different material. It tends to be heavier. It’s used for different oil products. Not all oil is used to make gasoline. It’s used for dozens, if not hundreds, of different products. So imagining a world where Russian oil could simply vanish and could be replaced by American oil is a bit far-fetched.
And the United States does not import much Russian oil. We import about 500,000 barrels a day, which sounds like a lot, but is around 4 percent to 6 percent of our intake. That oil could be replaced by turning to other sources. Europe, however, imports an enormous amount of Russian oil and Russian natural gas. So the question of how Russia’s invasion of Ukraine will affect global energy is in many ways a European story, but will affect the global market as a whole. My basic answer to the question would be that the U.S. can’t pump its way out of this problem.
Instead of trying to pump out more oil and more natural gas, what should the U.S. be doing in response? The European Union seems to be planning a different tack, strategizing to “double down on renewables” in order to “increase Europe’s strategic independence on energy.”
My approach to this question, going back long before this crisis started to materialize, looks at how long-term U.S. energy policy needs to grapple with the threat of global climate change as well as the question of energy security and sustainability. While we are producing a lot of oil and natural gas, there’s no real sense of how long those reserves will last, whereas renewable sources—wind, solar, geothermal—are longer-lasting and provide a much firmer basis for long-term energy security. So, the threat posed by Russian military aggression toward Ukraine and perhaps the rest of Europe, what it should suggest is moving away from dependence not only on Russian fossil fuels, but on the fossil fuels produced by other authoritarian states or other states that are potentially unstable or potentially unpredictable. What that suggests is there are energy-security implications to adopting renewable energy, wind, solar, and geothermal.
For the past few months now, people in the United States have been concerned over rising gas prices. And we’ve already seen after last night’s invasion, oil shot up to $100, I think for the first time since 2014, the same year the Crimea annexation happened. You also have different European currencies getting devalued, while on the other hand, the dollar is getting stronger in comparison. So with these short-term economic concerns in mind, what do you think the messaging should be for people who are worried and currently hit by gas prices and how this conflict stands to affect those?
The approach that I would recommend to this question is, unfortunately, patience. As you say, we’ve seen prices edge up and up and up over the last several weeks. I actually, Wednesday night, right before I went to bed, tweeted, “I fully expect Brent [crude oil] to be in the $105-110 range when I wake up.” And sure enough, there it was, $105 by 8 a.m. Thursday morning. However, while markets are very tight at the moment and have been tightening, there are some indications that, later this year, supply will begin to exceed demand. There are indications, for instance, that the United States is close to reaching a deal with Iran over its nuclear program. If that deal were to be reached and sanctions on Iranian oil exports were to be dropped, as much as a million barrels a day may enter markets. That would have a considerable impact—downward pressure on prices—and would alleviate prices at the pump for Americans.
At the same time, other members of OPEC, such as Saudi Arabia and the United Arab Emirates, have spare capacity that they may begin to bring online if high prices continue. The concern that oil producers like the Saudis or the Emirates have with high prices is that the longer they last, the more they might cut into demand. They don’t like to see demand go down. As we get further into 2022, if high prices are maintained, we may start to see movement on the supply side that will start to bring prices down.
The unfortunate thing about gas prices is that we can’t do a whole lot to change them in the short term, but in the longer term, market fundamentals may begin to change that will alleviate pressure on domestic U.S. gas prices. I wouldn’t anticipate much movement on gas prices in the near term. However, I would anticipate a decline in domestic gas prices later this year, particularly if an agreement is reached with Iran.
Despite this administration’s promises not to expand oil drilling on federal lands, it has been, in fact, expanding drilling on federal lands. Is that enough to stock the Strategic Petroleum Reserve in the meantime? Right now, you’ve got a lot of pundits panicking online saying we don’t have enough on hand, it’s time to frack. What does that situation materially look like in terms of how much oil the U.S. should have on hand?
This gets to something important, which is that the United States is not like other developed nations. We don’t have a centralized energy ministry. What we have are dozens, if not hundreds, of private oil companies that have to make a decision whether to invest in new production. Over the past year, since the effects of the COVID pandemic have gradually started to decline, the economy has started to pick back up. What we’ve seen is a greater amount of wariness and concern among investors about pumping billions more into new fracking ventures. There’s been a lot of caution about returning to shale, about restarting wells, about turning rigs back on. The concern is about returns: A lot of investors got burned by shale. They saw a lot of money get lost in ventures that didn’t pan out. So if the pundits are calling for more fracking, it’s not the president they need to convince. Biden has offered more drilling leases than Trump ever did.
As I mentioned before, if prices stay where they are, you might start to see other producers such as the Saudis and the Emirates turning out more oil to try to bring prices down a little bit. Then you might not see an increase in U.S. shale. It’s really a balancing act.
I feel like there’s always this back-and-forth in the discourse with climate and environmental concerns and rhetoric like, In these times of conflict, we are going to need more energy pumping because of all this instability. But the thing is, many geopolitical conflicts, now and in the future, have themselves been worsened, or even provoked, by climate change. It’s like we need to do the thing that worsens climate change, in order to have relief for conflicts that have been affected by worsening climate change.
I’m glad you linked this idea that climate change is going to influence, aggravate, or exacerbate geopolitical conflict. There’s not much doubt in my mind that’s what we’re looking at moving forward. Preparing ourselves for that is important. This discourse you mentioned, it’s much older than people believe, going back even to the 1950s and 1960s: that the United States needs to produce more oil and more natural gas and more coal to prevent vulnerability to foreign instability. It’s no coincidence that the individuals who make these arguments are very often working or closely tied to the domestic oil and gas industry.
There’s been a durability of this discourse, the idea that we have no other option. But now we do have an option: the technologies and the innovations and the resources that become available by embracing the energy transition. That transition is already taking place. Renewable energy has captured the largest share of annual demand growth for the last two years in a row. There was a recent storm in Texas, which many people thought would create conditions similar to last year’s winter storm, millions of people without power, hundreds of people dead. The energy grid didn’t go down, in large part because the state’s wind turbines kept spinning.
Which is completely counter to the “clean energy causes energy instability” narrative a lot of people pushed last year.
In my view, what is encouraging, and good reason for optimism, is that the green energy industry is growing and has developed its own discourse. We’ve started to see a greater emphasis on these new sources of energy and these new technologies.
I would argue the best long-term strategy to prevent shocks in the price of gasoline is to build more EVs and more charging stations. And invest in the infrastructure that would allow for those EVs to be widely adopted. The best way to secure our energy infrastructure from the shocks that might come from a geopolitical crisis half a world away is to invest in more wind turbines and more geothermal stations and more solar panels. The energy transition is a path toward greater energy security, and a path toward avoiding the volatility that comes with relying on the global oil and gas market.