American consumers are still suffering from record gasoline prices as the summer driving season kicks off. President Biden recently proclaimed that these prices were driving an “incredible transition” that will make the world “stronger and less reliant on fossil fuels.” The unfortunate reality is that oil is as secure as it gets. America should expand production of cleaner alternatives, but it is dangerous to expect more security from sources far less flexible and far more tenuous than America’s oil supplies.
Although burning oil causes pollution, the great advantage of oil is its energy density. Little space is needed to fit much energy, which makes it easy to transport and store. Oil is the energy you can carry with you. That’s why oil provides virtually all the energy for international shipping and travel, powering airplanes and vessels that make our global economy possible.
The world is moving to rely more and more on cleaner energy sources, especially electricity and natural gas. The challenge with electricity and gas is that, compared to oil, they are far more expensive to transport and store. This is not a mere inconvenience; this is a crucial problem for the affordability and reliability of the global energy system.
If there is a shortage of oil anywhere in the world, it can be affordably shipped by tankers, trucks, vessels, and pipelines to help smooth global prices. And if there is an anticipated shortage of oil, it can be cheaply stored in strategic reserves and private stores to help smooth the future shortage. It is far more expensive to store electricity or natural gas to meet future shortages. And if there is a regional shortage of electricity, little can be done without building new, expensive power lines, which require years of planning, permitting and construction. Reaching an area starved of natural gas requires either new pipelines, which face similar challenges, or new facilities to liquefy and re-gasify the fuel, which cost tens of billions of dollars.
Increasing reliance on electricity and natural gas will highlight the difficulty of smoothing shortages of these energy sources by storing and shipping supplies. Think of the contrast with oil. For all of 2021, the world was consuming 100 million oil barrels daily and producing just 98 million each day — resulting in a year-long 2% oil shortfall (See page 33, table 3a here). As prices doubled, the world was able to live off its oil stores while markets adjusted.
However, we simply do not have today the kind of electricity storage or electricity trade to mitigate temporary shortages that we take for granted in oil markets. The events of February 2021 in Texas during a massive winter storm are a good example: For just over four minutes, Texas’ electrical grid, which is self-contained, had more energy demand than supply. That caused the grid’s frequency to slip below the needed 60 hertz level (potentially causing permanent physical damage to equipment that moves power around the state). As a result, prices increased by more than 10 fold and large sections of the state grid experienced blackouts for days.
The same story is now playing out in Europe, which is experiencing electricity prices and natural gas prices that are at times 10 times greater than the 2021 starting price. And if Russia or the European Union cuts off natural gas trade, those prices may rise even further. There are simply no cheap and rapid options to ship more gas or electricity to Europe to meet these shortages.
That said, the world is working toward making electricity and gas markets more flexible. Within the last five years, the United States has built enough liquefied natural gas capacity to become the world’s biggest exporter, helping direct its abundant gas supplies where they are needed most. The U.S. is also looking to develop more batteries and electricity storage to make electricity supplies more flexible. On the margin, these efforts can increase American energy security by diversifying energy supplies.
But the brutal reality is that for the foreseeable future natural gas and electricity will be far more expensive to transport and store than oil. And the United States faces particular challenges to the President’s goal of a greater reliance on electricity for transportation and heating. America is not even among the top 10 nations producing the kinds of critical minerals, such as cobalt and lithium, necessary to build more electric batteries — a stark contrast with its position as the uncontested leading producer of oil and gas.
Energy security is just one consideration to balance along with the environmental consequences and affordability of our energy system, but consumers and policymakers both need to be clear-eyed that the alternatives to oil will make Americans even more subject to energy prices shocks.