Home Optimal energy Ray Perryman: We need to advance technology to burn cleaner fuels | Columnists

Ray Perryman: We need to advance technology to burn cleaner fuels | Columnists

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Oil prices are reaching an altitude not seen since peaking in the summer of 2008, pushing gasoline prices into uncharted territory and raising other costs in their wake. The situation in Ukraine and the financial markets’ efforts to forecast it are behind the immediate price spike, but even before Russia’s invasion, prices tended to rise as the global economy rebounded from the COVID-19 and that demand was growing faster than supply.

Russia is the third largest oil producer (after the United States and Saudi Arabia), and military action increases the risk of supply disruptions. Moreover, since oil and natural gas are the mainstays of the Russian economy, some countries (including the United States) simply say “no”. This action is effective in diminishing the financial resources supporting Russian aggression, but it also takes a significant portion of the world’s fuel supply off the market (at least for some countries for a period of time).

The geopolitical risk of depending on Russian energy has become evident and measures must be taken to permanently mitigate the situation. The only practical path to true energy security for the foreseeable future is to support the development of oil and gas resources even as we tackle very real climate issues and promote the development of renewable energy. Facilitating increased supply is also the optimal mechanism for controlling prices over an extended period.

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Supply responses have lagged for a myriad of reasons, from OPEC policy to the financial recovery of companies devastated by the pandemic-induced price crash. There have also been difficulties in raising the necessary capital for small and medium-sized energy companies (driven to a large extent by climate-focused political demands and pronouncements). Various federal policies have hindered development, discouraged capital formation, and increased the perceived risks of future exploration and production.

Simply put, it’s time for a reality check. Renewable energies are essential to achieve climate goals and must be developed rapidly. However, they cannot be implemented quickly enough or with sufficient consistency to meet global demands. In fact, baseline forecasts from the Department of Energy reveal the need for a 34% increase in oil resources by 2050, even as renewables have nearly quadrupled. It is indisputable that cleaner-burning conventional fuels will be essential, and the Permian Basin of Texas and New Mexico has by far the lowest carbon footprint among major land fields in the world. Until there is greater acceptance of this inescapable fact, we will see production grow more slowly than necessary, with the inevitable result of higher prices, greater uncertainty and increased geopolitical risk.

Rather than stifling domestic industry, we should be advancing technologies to burn conventional fuels cleaner. As the current disruption has brought him home, it is imperative that this change happens now.

Economist Ray Perryman is president and CEO of the Perryman Group, a Waco-based economic research and analytics firm.