The New Normal (Part IV)
"Good energy policies don't have to be financially painful for anyone."
-Jerry Spalvieri, Buckeye Exploration
The first half of this report was first written in early July:
It's been 18 months since energy policy directions have drastically changed. We see so many conflicting messages that it's hard to pursue a viable energy business model for the future. The record high Inflation and low growth we are seeing in the Biden administration is similar to the Carter presidency in the late 70's. Today though, we are also contending with the relentless push to eliminate fossil fuels in favor of "green energy." I can still recall Biden's mid-2019 campaign promise to climate activists, "I guarantee, I guarantee I will put an end to fossil fuels."
Obviously that message has resonated in a negative way for energy producers. Since then, Biden's energy policies have been directed towards that goal. In fact, on the first day of his term, he began issuing Executive Orders to do just that.
Are these kinds of policies realistic without the public paying an enormous price?
To those of us paying attention, of course not! Transition at the speed this administration is pushing is not possible. And complete transition away from fossil fuels in the near term would be disastrous, both in terms of human suffering and death, and environmentally. All countries will maintain some energy mix that includes fossil fuels for many decades.
How can we protect ourselves from this hyperinflation?
Things will get worse before they get better. If we don't course-correct, they will get much worse before they improve. One way to correct course is by adopting sound energy policies that address energy needs and problems in realistic ways. We cannot transition into alternative energies overnight by completely eliminating our current sources of energy. In fact, Sri Lanka, Ghana, and the Netherlands are learning the hard way what happens when you push too hard too fast.
Climate activists embrace extreme tactics and constantly declare climate emergencies to push their agendas. Those agendas place so much financial hardship on the general public that they cannot bear it. At the same time, most people are beginning to understand that an energy transition will take many decades to achieve. This disconnect between the climate alarmist agenda and a realistic course of action is what is driving the civil unrest we see spreading across Europe. We should continue to develop and produce our abundant, dependable, affordable, and clean natural gas. It's actually the greenest thing we currently have. Then, with our energy security intact, we can continue developing alternative energies.
Every country, city, and household requires their own energy mix to work efficiently. An energy mix plan should be formed and tailored to each entity's needs. Otherwise, it is likely that energy security will be greatly diminished. For an effective, well managed, and equitable energy transition to take place, the responsible management of oil and gas will remain vital.
Even after transition, fossil fuels will remain vital in a lot of industries.
In the meantime, our goal here at America First Energy Coalition is to be good stewards. We will do our part to produce oil and gas as cleanly and efficiently as possible, while supporting research and development of clean and efficient energies.
Commodity price incentives make it worth it to the producer. However, things are much different this time than the six or seven previous cycles I have experienced. In the past, the oil and gas industry went from low marginal pricing and profits, to boom periods of higher prices and profits. I’ve said it many times in recent months, “the business is not coming back like it has in the past.” From the majors to the small independents, service companies, equipment suppliers, and individual workers, the overall business and investment has been very, very slow to react to these incentive high prices. This is because investments based on long-term supply and demand estimates grind to a halt when faced with a hostile administration. The promise to “end fossil fuels” is directly responsible for the lack of rebound we are experiencing.
(Pause here for one month)
I wrote the above portion of “The New Normal Part IV over a month ago, in early July. I then stopped to wait and see what the political climate would be regarding the so-called "great transition."
It appears that the highly negotiated Schumer-Manchin $739 billion Inflation Reduction Act will be passed. If so, whether we like it or not, or if it raises taxes for everyone, at least we will have some direction and hopefully some certainty of how to pursue our energy objective goals going forward during the so-called “great transition.”
The plan now does call for an energy mix, as we originally wrote and advocated for as a necessity. And again, why is this important to us? Because it gives us direction. Whether you believe in climate change, energy transition, reducing inflation, “The Inflation Reduction Act” is going to pass.
So, let’s get ready for the New Normal Part IV
The question becomes, as a small independent producer of oil and gas, what should we be doing? I’ve given a lot of thought to this question in recent months. What I believe is that this bill will make inflation worse in the short and median term (next 5 to 10 years). Investment in the oil and gas sector has been lacking the last several years. There is a risk of global oil and gas supply shortages in the next five years if the current trend of limiting industry investment persists.
Even if wind and solar account for 40% of global energy consumption by 2050, the lack of sufficient available capital for oil and gas projects will see supply struggling to meet demand. In the short term, no one wants the fossil fuel tap turned off too quickly for any reason.
Therefore, we here at AFEC and Buckeye believe that energy investment in oil and gas, and especially natural gas, should remain extremely strong and highly profitable for at least the remainder of this decade. Remember, natural gas currently accounts for the highest majority of electricity grid generation.
If we are reading this right, what we are seeing indeed could be “The New Normal” on steroids, where the so-called “Inflation Reduction Act” in many ways could make the economy much, much worse.
Let’s hope not, but let’s be ready by increasing our own oil and gas product!