The Ener­gy Indus­try is not just a glob­al busi­ness. It is a busi­ness with sub­stan­tial and mean­ing­ful geopo­lit­i­cal, envi­ron­men­tal, and nation­al secu­ri­ty impacts. The events unfold­ing in Europe cur­rent­ly high­light the impor­tance of sup­ply diver­si­fi­ca­tion. And since Amer­i­ca is among the lead­ing pro­duc­ers of oil and gas, along with Sau­di Ara­bia and Rus­sia, it is from Amer­i­can ener­gy com­pa­nies that much of this cru­cial role needs to be filled. 

Think of this in terms of num­bers. The EU imports more than 95% of the crude oil and petro­le­um prod­ucts that it uses, and more than 25% of this comes from Rus­sia. 35% of the nat­ur­al gas used in cen­tral and west­ern Europe comes from Rus­sia. Of sim­i­lar sig­nif­i­cance, nat­ur­al gas must be the ful­crum mol­e­cule in the ener­gy com­plex dur­ing the Ener­gy Tran­si­tion. It is the clean­est burn­ing and fastest-grow­ing fos­sil fuel, now account­ing for about a quar­ter of glob­al elec­tric­i­ty gen­er­a­tion. Nat­ur­al gas is wide­ly believed to be the only fuel that has a prac­ti­cal abil­i­ty to sub­stan­tial­ly replace coal dur­ing the next two or three decades of the Ener­gy Tran­si­tion, espe­cial­ly in under-devel­oped and ener­gy-poor coun­tries where the need for rapid expan­sion of pow­er gen­er­a­tion will take pri­or­i­ty over zero car­bon until min­i­mum liv­ing stan­dards are achieved. And nat­ur­al gas-fired pow­er plants are capa­ble of pro­duc­ing secure and con­sis­tent base load elec­tric­i­ty while at the same time being able to han­dle peak­ing demand situations. 

Nat­ur­al gas prices in Europe are very vul­ner­a­ble to dis­rup­tions caused by open com­bat that can dam­age pipelines. The announce­ment that the start-up of the com­plet­ed Nord Stream 2 pipeline is to be delayed means that gas vol­umes from it will not reach full vol­ume lev­els until much lat­er in 2022, assum­ing that this con­flict is resolved fair­ly quick­ly. Gas prices in Europe will like­ly be sus­tained at uncom­fort­able high lev­els through all of 2022, and this means that elec­tric pow­er prices will be high­er as well. The sit­u­a­tion is mit­i­gat­ed in some mar­kets where long-term price con­tracts are in place. But keep in mind that peo­ple have to pay for ener­gy, so high­er ener­gy prices will low­er all kinds of dis­cre­tionary spending.

Liqui­fied Nat­ur­al Gas, or LNG, has become a cru­cial sup­ply fac­tor because the tech­nol­o­gy allows for the trans­port and deliv­ery of nat­ur­al gas from source fields to mar­kets that are often far away. It is methane, with some ethane mixed in, and it is cooled to ‑260 degrees Fahren­heit where much greater quan­ti­ties can be car­ried in a lim­it­ed space. Spe­cial­ly designed ships can car­ry this liq­uid form. Last year, the Unit­ed States, Qatar, and Rus­sia account­ed for about 70% of Europe’s total LNG imports, and the Unit­ed States became the largest source of LNG in 2021 at 26%. In Jan­u­ary the Unit­ed States sup­plied more than half of all LNG imports into Europe.

The tra­di­tion­al mod­el for LNG devel­op­ment has to be changed to make the process faster so that the US can export much more of its nat­ur­al gas as LNG to help bal­ance the glob­al gas mar­ket. Ener­gy is a phys­i­cal busi­ness and adding more LNG sup­ply into Europe is not an easy thing to do fast, because there is lim­it­ed import capac­i­ty avail­able now and there is strong com­pe­ti­tion from Asia for the gas. Cur­rent high lev­els of ener­gy costs threat­en the health of glob­al economies and the liveli­hoods of most of the world’s pop­u­la­tion. The Unit­ed States should work to exceed 100 Bcf per day of gas pro­duc­tion as soon as pos­si­ble, both to pro­tect economies and to help dis­place much dirt­i­er forms of ener­gy pro­duc­tion that are oth­er­wise inevitable in the near term. 

As for crude oil, the nature and dura­tion of poten­tial sanc­tions will deter­mine the impact. It might be that Europe could need to find oth­er sup­pli­ers to off­set about 2.5 mmb/​d of crude oil and con­den­sate it gets from Rus­sia and about 1.5 mmb/​d of petro­le­um prod­ucts it gets from Rus­sia. Part of the Druzh­ba pipeline goes through Ukraine and it remains to be seen if it will be shut or dam­aged. Indus­try and gov­ern­ment in the Unit­ed States should aim for 15 mm bpd of crude oil pro­duc­tion to ensure that ener­gy can­not be weaponized. Those who say that we should imme­di­ate­ly reduce our pro­duc­tion should con­sid­er the like­ly impacts in terms of con­flicts, ener­gy depri­va­tion, soar­ing ener­gy prices, and wide­spread suf­fer­ing. As a nation, we can encour­age, sup­port, and even sub­si­dize the Ener­gy Tran­si­tion, but it can­not be done overnight and we should beware of unin­tend­ed consequences.

Glob­al under­in­vest­ment in the tra­di­tion­al ener­gy com­plex can be dan­ger­ous. There is plen­ty of cap­i­tal for old ener­gy and new ener­gy; they can coex­ist for the time being. Cap­i­tal flows into the Ener­gy Com­plex, from exist­ing sources, and from new sources, must accel­er­ate rapid­ly, and Amer­i­can pro­duc­ers of nat­ur­al gas and crude oil should increase their activ­i­ty. Now is not the time to starve the tra­di­tion­al ener­gy busi­ness of cap­i­tal, regard­less of whether it’s a pub­lic For­tune 100 com­pa­ny or a pri­vate mid­dle-mar­ket company.