BHP oil chief Mike Yeager, a genteel Texan with a sea mustache, took us on a flight over the forests and grasslands of the Eagle Ford in a helicopter, took us to see production wells and introduced us to county officials ( population 20,000 ) generating $71 million in gas tax revenue. BHP will spend an additional $20 billion developing the field before eventually selling it to BP for just $10 billion. He had bought at the top. This investment rollercoaster was on my mind because it was the last time serious new money was spent on oil and gas development. Since then, investments have fallen by 60%. With this, the stock of proven ‘reserves’ – fossil fuels found and viable for extraction – has been reduced by more than 50%. Now comes the reckoning. With Russia cutting supply, prices are soaring. Since January of last year, US natural gas prices have nearly tripled. European gas increased sevenfold. Bills follow suit. This is largely due to Putin. But the reason we are so exposed to the whims of a murderous dictator is underinvestment. Why has there been such dramatic underinvestment and why are producers hesitating, when they would normally respond to rising prices by boosting production and investment? Well, after the slate write-offs, governments and corporate governance busybodies didn’t just let the losers lick their wounds. They organized a campaign to permanently shut down investment in the lifeblood of the global economy – energy – in the name of saving the planet. What we are facing now are the consequences of those decisions. The errors span governments, continents and decades. They will cause untold hardship to millions. They threaten not only our economy and health, but also the resilience of the Western alliance. What’s more ridiculous is that they risk making coal’s role as an emergency backup semi-permanent when it’s the dirtiest fuel of all. The original mistake was not with the science of climate change. It wasn’t with the idea that we should phase out coal. But sometime around 2014-16, regulators, lawyers and politicians started running with the idea that ditching ‘big oil’ (and so on) led by students in winged war bonnets was inexpensive, popular and green. What followed was a concerted effort to exhaust fossil fuel production, seemingly without thought to the vastly different environmental impacts of natural gas versus coal, or the need for Western economies and people to enjoy a reliable energy supply. In 2015, then-Bank of England governor Mark Carney (yes, him again) gave a speech citing the risk of climate “stranded assets” – energy investments that would be rendered worthless by climate change legislation. The EU has removed natural gas and nuclear from the list of “green” technologies eligible for “sustainable” grants, investments and the like. The United Nations issued ethical investment guidelines that discouraged new money from being put into fossil fuels. Theresa May scrapped net zero in Parliament without cost control and slapped a “price cap” on utilities, which soon began to collapse by the dozens. Last year, Rishi Sunak added “support for the net zero transition” to the Bank’s mandate. And the more production we closed, the more virtuous we felt. It wasn’t just in Europe. American officials have also taken up the mantle. States passed net zero laws that, like ours, had no accompanying energy strategy. Bureaucrats from California to New York began pressuring insurers and oil companies to account for fossil fuel investments or answer to the courts for “climate fraud.” The Keystone XL pipeline was blocked. The investors, usurped by righteous and financially illiterate “environmental, social and governance experts”, pressured oil companies to stop investing and banks to stop financing them, then went on a marketing binge to sell expensive “ethics” investment products. The industry saw the writing on the wall. Utilities closed long-term gas contract segments and began buying gas at the day’s current price, fatally undermining security of supply and making new investment unfinanceable. Fossil fuel producers began returning money to investors. Even state-owned producers such as Qatar cut back on investment on the grounds that Europe (including the UK) had become an unreliable customer. In the first half of this year, even as Russia began to turn the screws, the seven largest Western oil companies spent more on dividends and share buybacks than on capital investment. They only did as they were told. And now? Well, now, as “big oil” might say: “We just walked in to find you here with that sad look on your face.” Europe needs natural gas. He begs for gas. Instead of flying the media to gas fields to court capital, the oil and gas men are taken to the capitals of Europe and begged to invest. Despite the incredible prices, they hesitate. The meeting goes like this: “We need you!” say the politicians. Producers scratch their heads at the thought of $20 billion, 20-year investments, and wonder if, when the war is over and the green band is back in town, the politicians will sound so sweet to them. “Your green targets still say we need to close by 2030,” they point out. To which Europe says, “Well, of course. Fossil fuels are bad!’ The result is that the market is broken and it is the governments and the actors who broke it. They broke it recklessly, recklessly, advertising their holy intentions, and now we are all reaping the consequences. The only way to resurrect it is with more government intervention. A plan outlined by Lambert Energy Advisory would see the EU and UK collectively coordinate utilities to offer 15-year contracts for enough natural gas to replace supply from Russia, using a dynamic pricing mechanism (ie, apparently not we lock in 2022 prices for 15 years). Producers filling contracts can come from anywhere except enemy states. Get it right and just watch the liner taps – and then the gas taps – turn on full flow again. And given the lower gas emissions versus carbon, the planet doesn’t even have to suffer. The alternative is to continue with a policy of self-sabotage on a truly industrial scale. Politicians can rant about windfall taxes and price freezes all they want. If they don’t fix the market, it’s irrelevant. Meanwhile, the wrecking ball of a self-created natural gas crisis is hovering over Europe. Will any of our leaders act to stop it?
