Suez Canal Fiasco Should Remind US Leaders of Importance of Bolstering American Energy Capabilities
The cargo ship that ran aground in the Suez Canal late last month made headlines across the globe as more than 400 vessels were delayed by the blockage. While the canal was not blocked for as long as many experts anticipated, the total cost of backlogged, lost or damaged goods is expected to exceed $10 billion.
Included in the back-up were ten crude oil tankers carrying about 13 million barrels of oil. Crude prices jumped briefly in the immediate wake of the event, rising about six percent the day after the ship was stranded, but the impact was largely muted. In total, energy prices moved only moderately.
That is a pretty remarkable outcome. Only a few years ago, an unexpected closure on the Suez Canal—which transports ten percent of the world’s crude oil and eight percent of its natural gas—likely would have thrown markets into a frenzy. Instead, it wasn’t much more than a blip on the radar.
The incident reveals two striking realities. First, that global energy supply chains remain vulnerable to disruption, weather from industrial accidents or geopolitics. Few would have predicted one of the world’s busiest maritime shipping routes—the Suez transports about 12 percent of global trade—could be shut down for a prolonged period by standard operations.
The second, and more notable, is that growing energy production and infrastructure investment here at home helped to largely mitigate impacts on consumers. Circumstance played a hand, to be sure. A slower than expected post-pandemic recovery reduced demand, which cushioned the impact. But even in a normal year, domestic shale production likely would have limited the effect on American consumers.
Together, those points offer a valuable lesson to U.S. policymakers—that it would be unwise to pull back on investment in U.S. oil and natural gas production or energy transport capabilities.
Through prudent investment and policy, the U.S. has made significant progress in the march to energy independence. In 2019, the U.S. became a net-energy exporter for the first time in 67 years. That is a huge accomplishment that owes to the extraordinary “shale revolution” over the past two decades that few experts could have predicted at the turn of the century.
However, that progress may be in peril. President Biden has taken aggressive action to rein in domestic production of traditional fuels, which risks creating a chilling effect on an industry already embattled by the global slowdown caused by the pandemic.
In his first week in office, President Biden signed a moratorium on oil and natural gas drilling leases on federal lands and waters. That affects about nine percent of U.S. production. In 2019, more than 954 million barrels of oil were produced on federal land, generating almost $6 billion in tax revenue.
An American Petroleum Institute study forecasts that the administration’s ban could wipe out 1 million jobs within the next two years. The impact would be particularly acute in energy-dependent states like Texas and Wyoming. A report by University of Wyoming professor Tim Considine predicts the ban, if made permanent, would cost the U.S. economy over $670 billion in lost jobs, lost wages and lost tax revenue. Wyoming collected over $457 million in royalties from oil and gas production on federal lands last year and $641 million the year earlier.
“Losing that revenue is devastating to our schools, devastating to our communities, and devastating to those small businesses that really depend on the energy sector,” Wyoming Governor Gordon told Fox News in February. “It’s a big deal.”
The administration’s targeting of fossil fuels is not only a big deal for energy-dependent states, it is also a big deal for everyday consumers. Domestic production has kept prices low, from the costs to fill up a vehicle with gasoline to the expenses to heat homes and run businesses. The incident in the Suez Canal is a reminder that without our growing domestic supplies, Americans could be subject to even greater costs caused by events on the other side of the globe.
It should not be a decision between supporting the U.S. oil and gas industry or so-called green fuels, and the President knows it. Oil and natural gas have provided a bridge in the transition to bring online renewable energy resources. Carbon emissions have steadily fallen, even as production has increased. As Vice President in the Obama administration, President Biden oversaw the largest expansion of oil and natural gas production in the U.S.
The U.S. is more secure, both at home and abroad, as a result of domestic tight oil and shale gas infrastructure development. The incident in the Suez Canal last month should offer a cautionary lesson to policymakers that undoing those gains will come at a hefty price not if, but when the next disruption happens.
Guy F. Caruso is a former Administrator, U.S. Energy Information Administration.