Although the global economy may be stronger and more resilient than many headlines suggest, the world is grappling with an energy crisis.
International prices for natural gas recently struck a record high, and there are factors pulling in opposite directions for oil, with historically tight supplies despite diminished economic growth expectations.
Specifically, commercial crude oil inventories appeared to increase since June 2022 in the U.S. and other advanced Organisation for Economic Co-operation and Development (OECD) economies. Yet, these increases were achieved with the help of historically large infusions from government-controlled or strategic petroleum reserves (SPR) in the U.S. and other OECD economies, which consequently fell to their lowest levels since 2004, according to the International Energy Agency (IEA).
Currently, advanced economies hold 18 fewer days of forward consumption than they did in 2019 — and fewer than 87 days of emergency supplies, according to OPEC. IEA’s guidance has historically been that member countries should maintain at least 90 days of supplies.
The current situation shows the need for increased development of domestic energy that is supported by cogent policies — including access to resources, infrastructure, and conducive trade and tax policies — that foster investment, job growth and therefore, economic growth and security.
However, there’s an inconsistency between America’s recent promises to supply energy to our allies in Europe and elsewhere internationally and a lack of strong domestic energy policies, including the recent veiled threat by U.S. Energy Secretary Jennifer Granholm to ban U.S. exports of diesel fuel and other distillates if winter conditions raise the need.
This is a quintessential policy inconsistency, and by nature it is reactive.
An approach such as this might suffice amid a calm geopolitical environment, or one in which energy consumption were falling. However, since every form of economic activity requires energy, even slow global economic growth would likely require more energy each year. And the global economic growth outlook has remained relatively strong. Recent IMF, World Bank and Bloomberg consensus projections are for GDP growth of around 3.0 percent this year as well as in 2023 and 2024. If this proves to be accurate, it would consistently exceed average growth over the past 20 years.
Consequently, official estimates suggest that the world could consume record-high volumes of oil and natural gas in the next year, including 101.5 million barrels per day of oil per the EIA and nearly 400 billion cubic feet per day of natural gas, per the IEA.
At the same time, strong demand contrasts with the historically low SPR level, which reflects policy choices made by the U.S. and other advanced economies. This could be a risky strategy given the recent state of global geopolitics.
How we’ve gotten to this point, with the lowest U.S. SPR in nearly 40 years, comes down to a handful of key drivers:
- Demand realities. Since early 2021, we’ve highlighted API data that showed the
- Supply aspirations. Since June 2021, we’ve highlighted API’s monitoring of U.S. capital investments and projects under construction, which fell due to workforce, supply chain, financial and energy policy headwinds.
- Policies that incentivize only oil and gas alternatives. Over the past year, we’ve discussed how a relatively fixed pool of global energy investment has been increasingly spread thin over a greater array of investment needs.
- A lack of risk management and crisis recognition. As Europe could attest, planning without contingencies can turn out badly in myriad arenas.
There is no panacea for the ongoing global energy crisis, but strong, compelling policies could make a difference in the path forward, for the U.S. and global consumers.
For more information, visit api.org or call (202) 682-8114.
