In an ideal world, developed countries like the U.S. and Germany will continue to rapidly deploy renewable power and electric vehicles. Fossil fuel usage will plummet. Therefore, there is no need for a Keystone XL pipeline expansion. No need for Germany to rely on Russian gas.
But reality is different, and when reality collides with idealistic policies, ordinary people suffer. As I pointed out in the previous article, the U.S. imports more than half a million barrels per day (BPD) of oil from Russia. They are our 3rd largest supplier.
The Keystone XL Lesson
The on-again, off-again Keystone XL pipeline — ultimately canceled by the Biden Administration — would have had a capacity of up to 830,000 BPD. It would have transported oil from Canada and from the Bakken Formation in the U.S. It would have moved more oil than we get from either Russia or Saudi Arabia — and nearly as much oil as we get from OPEC.
In an ideal world, we didn’t need Keystone XL. In the real world – without all of the delays that have gone on for years — it could have been completed by now (or at least close to it). It could have been displacing oil from places like Russia.
The vast majority of Russia’s revenue comes from its oil reserves. Right now, the world is dependent on Russian oil. If it was removed from the market today, the price of oil would skyrocket far past the previous record price set in 2008. If only part of Russia’s oil was removed from the market, then they might make more money selling smaller volumes of oil due to the ensuing price spike.
Of course, renewables and electric vehicles will help alleviate this dependence over time. But, in the real world so can American energy. We should produce as much oil as we can, while working hard on ways not to need oil.
The reason canceling Keystone XL was such a bad policy decision is that the pipeline would have been there if needed — paid for by a private company. If ultimately oil demand falls and Keystone XL isn’t needed, then that’s on the company that owns the pipeline.
That brings me to Russia’s natural gas. I just read a really informative Twitter thread on this by someone who knows more about this than I do. Nikos Tsafos is the James R. Schlesinger Chair in Energy and Geopolitics with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS). He explains in great detail the dynamics of Europe’s current dependence on Russian gas.
Can Europe live without Russian gas right now?— Nikos Tsafos (@ntsafos) February 26, 2022
(Let’s ignore for a second whether this is a good political weapon—as in, do you think Putin will pull rethink the war if Europe stops buying Russian gas? I doubt it).
Let’s just focus on numbers.
In the short-term, one of the issues is Europe’s liquefied natural gas (LNG) import capacity. Some areas have enough capacity to replace the gas they get from Russia, and some don’t. So in the longer term, they probably need to boost the ability to receive more LNG.
But where will they get it? Let’s consider the natural gas industry in the U.S.
The Power of U.S. Natural Gas
Over the past 15 years, the U.S. has been one of the fastest growing natural gas producers in the world. According to the 2021 BP Statistical Review, in 2005 Russia produced 20% more natural gas than the U.S. One fracking boom later, the U.S. is the largest natural gas producer in the world, and now produces over 40% more natural gas than Russia.
In 2010, U.S. LNG exports were 1.5 billion cubic meters (BCM). Russia’s were 13.5 BCM. A decade later, U.S. LNG exports have grown to 61 BCM, surpassing Russia’s 40 BCM. (For context, Australia and Qatar were the world’s leading LNG exporters in 2020, each with 106 BCM).
However, Russia also supplies up to 200 BCM to Europe each year via pipeline. Further, although U.S. natural gas production has grown, U.S. demand has grown nearly as quickly as coal-fired power plants switched to natural gas. In the past decade, U.S. natural gas production has grown by 339 BCM — enough to completely supply Europe if our own demand hadn’t rapidly grown.
U.S. natural gas production growth shows a great capacity for alleviating Europe’s dependence on Russian gas. The growth of U.S. LNG has already helped reduce Russia’s power in this market. So, just as we need to do with oil, we need to keep growing America’s natural gas and LNG export capabilities, while working on ways to displace LNG demand with renewable sources of energy and nuclear power.
This strategy is another way to weaken Russia’s grip on the world.