PTQ Gas 2022 Issue

Continuing role of natural gas

Core energy independence plans should balance investment in renewable energy resources with strategies to build resiliency and security into the natural gas supply

BRYAN MANDELBAUM and CARINA WINTERS Black & Veatch

F ollowing Russia’s invasion of Ukraine and subsequent actions to ban or reduce demand for Russian oil and gas exports, global oil and gas markets have been thrown into disarray. The invasion and ongoing instability in other key oil-producing regions of the world are raising pressure on the US and Europe to accelerate efforts to achieve true energy independence as well as shore up global oil and gas markets. In early March, US President Biden banned the import of all Russian crude oil and certain petro- leum products, liquefied natural gas (LNG), and coal to the US. This step was announced as part of an effort to deprive the Russian economy of resources necessary to continue the war against Ukraine. Europe, in a more difficult position than the US due to its higher over- all reliance on Russian oil and natu- ral gas, announced in mid-March it would draft a proposal to eliminate the European Union’s use of Russian energy products by 2027. As of late March, the EU even considered a full embargo of Russian oil as a method of hardening the West’s response to the war on Ukraine, further compli- cating the global oil and gas market and spurring a spike in prices. While many nations have been steadfast in their choices to ban or wean themselves off Russian oil and gas products, the global market is feeling the squeeze at every level. At the end of December 2021, the price of Brent crude stood at about $78 per barrel. By early March, it had sky-rocketed to $128. In the same time frame, the price of natural gas jumped from $3.73 per MMbtu to $4.53 per MMbtu. Long-term solution The US is adapting to the shift in

several ways, starting with the release of 50 million barrels of oil from the Strategic Petroleum Reserve to help lower prices and address the mismatch in supply and demand. Though helpful, this is not a long- term solution, as history shows that each time we access the reserve, gas prices ease for only two to three weeks. The US is also working with other oil-producing countries in different capacities, hoping to position them as potential suppliers of oil and gas. Such efforts are being replicated by nations across the world, but they speak to the larger question coun- tries are asking themselves: what can be done to safeguard national oil, gas, and energy systems against similar, future global crises? To many, the answer seems sim- ple: increase reliance on domestic renewable assets and decrease the use of oil and gas. While this is a potential solution, its simplicity fails to account for the interconnection between the burgeoning renewables market and the established natural gas market. While stabilising energy and fuel prices relies on lowering dependence on the global oil and gas market, this move will, in some part, rely on nat- ural gas. The cyclical nature can be dizzying, to say the least, but suffice to say, the two will work together to modernise and insulate domestic energy markets. Energy independence For several nations, the elusive ‘energy independence’ has been a goal for decades, though this term can mean different things to differ - ent audiences. In the US, the term came into public conversation in 1973, when President Nixon cre- ated Project Independence to work

toward self-reliance in the energy sector, although it was ultimately unsuccessful. Since then, every president through President Obama has implemented some goal around domestic ‘energy independence’. This expanded during the Trump Administration where the terminol- ogy centred on ‘energy dominance’, although the goal was similar. Though the US is now in a position where it produces more natural gas than it consumes, considered by some to be a marker of energy independence, much of this product enters the global market rather than staying in the US. This global market is, generally, the deciding factor in domestic oil and gas prices, which to some extent dictate energy prices. In the eyes of many, true energy inde- pendence is achieved only when a nation’s energy prices are protected from the volatility of global mar- kets, a position the US has yet to achieve. While many countries covet this status, few have accomplished it. Some countries can insulate their prices from shock because the gov- ernment treats their oil and gas industry as a national security mat- ter, maintaining a certain amount of spare drilling capacity that can be turned on and off as needed. In the US, where oil and gas pro- duction is privately owned, the government has no way to quickly ramp up or slow down produc- tion, leaving the nation more vul- nerable to global market spikes. Complicating matters further is the fact that almost all oil is produced via hydraulic fracturing or ‘frack- ing’, which takes months to move from drilling to market, meaning it cannot be quickly put into action.

38 Gas 2022