Publications: Notes at the Margin

US Energy Dominance: "All Hat, No Cattle" (March 1, 2021)

 

It is too bad the Texas energy system collapse occurred after Joe Biden became president. It would have been fun to listen to then-Secretary of Energy Dan Brouillette explain how the nation he touted as "energy dominant" could not keep the power on in its leading energy-producing state.

 

Four months before the Texas disaster, Brouillette touted the US success in a speech at the Baker Institute at Rice University.[1] The Trump administration’s "all of the above energy policy" was the talk’s theme. Brouillette noted that the administration had cut taxes and "harmful regulations." It had also "pursued all energy sources and technologies, unleashing American energy dominance, and our Nation is the safer for it." As a result, "As the world’s top energy producer, we can pursue our own agenda with OPEC and energy-producing nations, as opposed to being beholden to them."

 

Brouillette concluded, "I believe strongly that by pursuing dominant energy production here at home and promoting energy exports abroad, we are contributing to a more stable, peaceful global order."

 

Early in his talk, he makes a statement everyone in Texas will now find ironic: "Probably the best description [of the nation's success] would be that we experience energy…come home at the end of the day, flip the lights on…there's energy providing you electricity."

 

These are famous last words. For most of the week after Valentine's Day, Texas’s lights did not go on. Hundreds of articles have been written on this. Thus, our contribution will be limited, mainly because our expertise in electric markets is not extensive. Here we focus on a few key fossil fuel links to the electric issue that played an important part in the catastrophe and the steps taken to avoid problems in other parts of the country.

 

Our title this week is "All Hat, No Cattle." As Ken Herman wrote in 2018, "When intending to insult somebody for being a phony, a proper Texan says that person is 'all hat and no cattle.'"[2]  So, our first discussion centers on the debacle in Texas.

 

We then turn to the global crude market. Prices have doubled in four months. Global inventories have declined. Some believe prices will rise, perhaps even reaching $100 per barrel, a view shared by our "but for" model. However, this perspective is not shared by investors. Key indicators of price expectations see a continual rise but not to $100.

 

On the other hand, the economic recovery appears to be happening faster than projected. The Biden economic stimulus could boost US consumption back to December 2019 levels by the end of 2021. Thus, the prospect for higher prices is good absent significant output increases by Saudi Arabia and other key oil-producing countries.

 

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