Energy Security After Ukraine: What are the Challenges and Opportunities for the U.S. and its Allies?

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Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's Practice Groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of Practice Group Teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Jack Capizzi:  Welcome to today's Federalist Society virtual event. Today, October 10, 2022, we are excited to present "Energy Security After Ukraine: What are the Challenges and Opportunities for the U.S. and its Allies?" My name is Jack Capizzi, and I am an Assistant Director of Practice Groups at The Federalist Society. As always, please note that the expressions of opinion are those of the experts on today's call.

 

Today's panel includes George Fibbe, Partner at Baker Botts and the Former Deputy General Counsel at the Department of Energy, Professor James Coleman, Professor of Law at the Dedman School of Law at Southern Methodist University, and our Moderator, Daniel West, who is the Executive Committee Member for the International and National Security Law Practice Group here at The Federalist Society.

 

After our speakers have given their remarks, we will turn to you, the audience, for questions. If you have a question, please just enter it into the Q&A function at the bottom of your screen, and we will handle the questions as we can towards the end of today's program. 

 

With that, thanks for being with us today. Dan, the floor is yours.

 

Daniel G. West:  Thanks, Jack. Good afternoon, everybody, and thank you for joining us. Today we'll discuss energy security, a topic that is most pressing today in Western Europe but that has also become increasingly urgent with the United States and its allies elsewhere in the world.

 

We'll start by discussing the recent events in Russia and the Ukraine. The energy sector has played an important role in the strategies and events surrounding that conflict. We'll discuss the legal and policy levers available to the U.S. and ally countries to help Western Europe disentangle itself from dependence on Russian oil and gas and to suppress Russian exports from simply migrating to other countries.

 

We'll then shift to the Western Hemisphere and discuss energy security from the perspective of the United States. We'll consider the legal and policy levers available for the U.S. to increase the production of fossil fuels and renewable energy equipment and technologies for use both domestically and by our allies abroad. We'll also talk about the opportunities and challenges posed by the ongoing energy transition on the perspective of national security.

 

      So let's jump in and let's start with the headlines. Now, Russia's invasion of the Ukraine obviously jolted energy markets earlier this year. We saw oil prices spike well above $100 a barrel and natural gas prices rising as much as ten times their previous levels in some parts of Europe. But I'd like to start, actually, by backing up before the invasion. Do you think that European dependence on Russian energy emboldened Russia by creating or perhaps widening a perceived opportunity there? And have European nations, has Germany in particular, reacted differently than they would have if they had not been relying on imported them?

 

Professor James Coleman:  Yeah, so on the first question, I think it's undoubtedly true that part of the reason that Russia invaded was because they saw an opportunity caused by high energy prices. And I think that is actually more true than the idea that somehow the war caused high oil prices. So if you look at oil prices today, they're about 93 dollars. That's about exactly the same price that they were before the war started, and there has been a huge run up in oil prices from basically November 2020 to the start of the invasion which was in February of this year, 2022. And the basic reason for that was nothing to do with Russia but was simply an imbalance with global supply and demand which was that demand for oil came back faster than people were expecting after the pandemic, but oil production didn’t rebound as quickly.

 

      So basically, for the entire year of 2021, long before Russia invaded, the world was consuming more oil than it was producing. In fact, it was consuming about 100 million barrels per day of oil, but it was only producing 98 million barrels per day of oil. So it was 2 million barrels per day of oil short every day of 2021. You might ask how that's possible, and that's because oil can be stored. And so this was also before the strategic petroleum reserve releases, so this was all oil coming out of private stores around the world.

 

      And as we got to very low levels of private storage, oil prices tended to rise, actually basically double over the course of that draw down of our private oil reserves. And as a result, Russia saw an opportunity which is that its energy weapon of being able to cut off those oil and gas supplies to Europe or people that opposed it was never more powerful than before that. So I think that was one of the key motivations for Russia's invading when it did. 

 

George Fibbe:  So I would agree with Professor Coleman. And I guess, first of all, I'd just like to thank you, Dan, and thanks to The Federalist Society for having me join and Professor Coleman for having me share the panel with you. And I couldn't agree more with those initial comments.

 

      I guess what I would add to that beyond just the leverage that Russia perceived that it had, part of your question, Dan, was about would Europe have reacted differently than it did to the war has it not been so reliant on Russian gas and oil. And I think -- I guess one point I would like to make for folks is that that's a very different question if you're talking about Western Europe like Germany and the U.K. than it is if you're talking about countries that are closer to Russia and over the last however many years, 30 years, 20 years, have continued to be, and for good reason, more skeptical and less open to doing as much business with Russia. That is like Poland, for example. So if you were Polish and you were thinking about your relationship with Russia, it's very different from a country like Germany.

 

      Since you asked about Germany specifically, I guess the comment I would make there is that I think for sure their reaction in a lot of ways would be different to the war and Russia's invasion of Ukraine had they not been so reliant on Russia for natural resources. I just point out that it wasn't too long ago, the Germans were using words like -- they were calling the Americans neo-imperialists and things like that for suggesting that they were too dependent on Russian natural resources and trying to get them to pivot more to other sources.

 

      And so you look at Germany today and their economy or energy minister is a leading light in the Green Party. And so had they not been so reliant on Russia when something like this had come up, I think their politics would've been very different. The internal politics would've been very different in Germany. Whereas now, you have the same folks who were calling the U.S. neo-imperialists and other names have, to their credit, made a very quick pivot to a very practical engagement with their immediate, rather desperate needs for other sources of energy and have, as I understand it, made a lot of outreach to U.S. companies and others to try to fill the need that they're going to have this winter.

 

      At the same time, even in such a crisis, the German energy minister still says he doesn't want to be "too successful" in importing LNG and natural gas elsewhere because they still maintain their goals of largely or all removal of low carbon sources of energy by 2035. So to some extent, there's still a mixed message from Germany, but their actions have engaged very quickly with the reality that they're facing. 

 

Daniel G. West:  So recognizing the diversity of policies and political situations and just geographic situations across Europe, it does look like it's been painful so far and the winter may be even more painful ahead. What are the legal and policy tools available, whether it's to NATO, to the U.S., others around the world, to help Europe decrease its dependence on Russian energy? 

 

George Fibbe:  James, I can take the first shot at this one. I just say that the biggest issue here in a lot of ways is timing, is that there aren't a lot of short-term levers to pull when it comes to that legal, that we haven't already pulled that is, when it comes to legal and policy moves. There are much more medium and long term, and so when we were thinking about this webinar, I thought about the policy tools that are available to the Executive in particular in these kinds of situations. And the one that I came back to is the Defense Production Act. So if you think about specific legal authorities available to the President, this president in particular has been very willing to exercise that authority.

 

      I guess, just stepping back briefly, the Defense Production Act is a law that came into effect in 1950 during the Korean War and typically, fairly seldom used. But fundamentally what it can do -- it's a very broad authority when you look at it. And what it can do is allow the President upon declaring certain circumstances exist, I'll get to that because I think it's interesting what they are, the President can prioritize certain contracts for certain types of supplies that may be needed for national defense, can allocate scarce supplies in the U.S. economy to certain national defense needs, and then take other broad measures, essentially stepping into the economy and reordering things.

 

      The authority is broad. The details are very difficult and very complex. So not to get too much into the weeds about prioritizing and rating contracts and things like that, it can get very difficult very fast. But I would just say that the authority was invoked, I believe, twice in the Trump administration, once having to do with the pandemic with ventilators and things like that and once having to do with some critical minerals.

 

But in the short tenure so far, this administration's already used the Defense Production Act in the energy sector. And it's already used it multiple times, more times, I think, that it's been used and for different uses, so for California wildfires, fire hoses, for -- in a very defense oriented posture for parts and labor for Virginia class submarines, for critical minerals for clean energy, that is critical minerals for renewables. So this president has already used this authority to dip into areas of energy security and energy transition for the baby formula shortage and then most recently for what the presidential memorandum called green energy resources.

 

      So in other words, the President has said, and here's the key language, that there is a -- he needed to take this action to avert an industrial resource or critical technology item short fall that would severely impair national defense capability. And when it comes to green energy, the President made that finding as to solar energy, heat pumps, insulation, electrolyzers for hydrogen fuel cell production, things like that.

 

      So just looking at what authorities are available, this is a rather broad one that this president has already used in what I would say as fairly characterized as fairly aggressive way in the energy space. So just a thought there in terms of short term. You asked about legal levers. In the medium term, you want to talk medium to long term, you want to talk about LNG exports and even coal exports because, of course, Germany's now had to fire up coal plants and they need the raw materials to fuel those at full capacity to prevent problems this winter and the following winter.

 

      So anyway, I'll stop there and let James chime in but a couple quick thoughts on levers.

 

Daniel G. West:  Yeah.

 

Professor James Coleman:  Yeah. No, I agree with that. I mean, and I think the big challenge -- the whole reason he got into a crisis is because there are no short-term solutions that immediately solve the problem. But, of course, the short term eventually adds up to the long term, and I think that's one of the areas where we have seen the Biden administration not do everything they could because it is undoubtedly true that Europe and the rest of the world is looking to the United States for supplies of oil and gas.

 

      So going into the pandemic, the U.S. was the leading source of incremental oil and gas supplies. For Europe now with Russia gas supplies basically ran down to almost zero, they are looking to the U.S. for liquefied natural gas supplies. And we are sending them huge amounts of liquefied natural gas. In fact, our liquefied natural gas exports to Europe have surpassed that of Russian supplies which are now almost zeroed out.

 

      So what the U.S. needs to do is produce oil and gas. And unfortunately, we haven't been doing that. When we look at why our U.S. oil production, why didn't it recover from the pandemic when we started having high prices in the fall of 2020, winter 2021, and basically there are three reasons. One is that the oil industry had the same kind of supply chain challenges that other industries had with losing workforce, with losing equipment, with losing all the other things that they need to do to drill, complete a well, bring that oil and gas to market. But there's a couple other challenges that they face that are a little bit more unique.

 

      One challenge is that they are facing pressure from investors who question what is the long-term future of oil because remember, the President had, during the campaign, said look at my eyes, I'm going to end fossil fuels. So you can imagine that investors were wary of contributing to an industry's growth that the President had marked for its end.

 

      And then I think the third thing that happened is that there was specific regulatory decisions by the Biden administration that have created challenges for the oil and gas industry. The thing that the President has the most control over is leasing decisions on federal land, so offshore oil and gas as well as federal lands which were one of the big, crucial areas where the oil and gas production was growing in federal lands in New Mexico on the border of Texas there in the Permian Basin.

 

      And the President has leased less land than any of his predecessors going back more than half a century. So he really has prioritized limiting oil and gas production over increasing it, and that's creating big challenges for the entire world. It's not just Europe, but we're seeing outages caused by lack of natural gas in South Asia and Southeast Asia. We're seeing lots of the fuel priced base instability around the world. And that all could be alleviated by more American oil and gas production.

 

      Now, if the President was to change his mind and start leasing more land, it's going to take months, maybe a year, maybe more, for that production to come online. But with that said, remember, the oil and gas market had started flashing warnings as soon as they got into office in January 2021. So we had refineries shutting down. We had, even though they were elevated prices, oil and gas companies not investing in new development the way that they traditionally do. And so if he had changed course at that time and allowed more oil and gas production, that would be starting to help us by now.

 

      And I think it's important to understand that these high oil and gas prices that we are currently experiencing may well continue for quite a ways. When we look at natural gas specifically in Europe, most of the signs we're getting is that next winter will be worse than this one in terms of natural gas shortages and potential electricity shortages. As for oil, it's harder to predict, but it's very possible that we're going to have a further disruption.

 

      Now, one thing that the President has tried to do is release oil from the strategic petroleum reserve. Now, that is not as good a way to address these kinds of challenges because although it does lower prices temporarily, it leaves you more vulnerable to future disruptions. And in fact, I will talk about this more, but the President has half emptied the reserve. So it is levels -- it's half empty down to levels that it hasn't been since the 1980s. So we are less protected against an oil disruption than we have ever been in the history of the strategic petroleum reserve over the last 40 years. 

 

And so that suggests that maybe that will pay off and he's been able to lower prices, and we won't have a future disruption. But if we do have a future disruption, we're unfortunately less prepared for it. So I think that is a way to potentially, in a short term, lower oil prices but it's not a good way. It's a way that imposes its own risk.

 

Daniel G. West:  Now, James, if I could just follow up quickly. You and George both mentioned LNG, liquefied natural gas. Could you talk, just for the benefit of our listeners, what is LNG? How do we liquefy it? And why are gas prices more different in different geographies than oil prices are?  

 

Professor James Coleman:  Yeah. So this is really important to understand. And this is part of a bigger transition that our world is making because historically, the two energy commodities that created the modern world were coal for industries and cities and oil for transport because oil is a very energy dense fuel. It's the fuel you can carry with you to power your plane or your vessel, etc. And there's really nothing to replace oil.

 

      Now, we're going to cleaner sources of energy like natural gas and electricity. The big challenges with those sources, although they're cleaner—you can use natural gas and electricity in your house as long as you're safe about it, don't use coal or oil in your house generally—but the big challenge is transporting them because, of course, natural gas as a gas is very difficult to transport. And because it's difficult to transport, you get lots of price spikes and price volatility.

 

      Same thing is true of electricity supplies because with coal or oil, if there's a shortage somewhere and prices spike, of course, any place that has lower cost, oil or coal will send it to help smooth out that prices spike because you can send it by water, by rail, by road, by pipeline in the case of oil. By contrast, with natural gas or electricity, if there's a shortage of natural gas or electricity, there is no short-term way to just shift more supplies there. You would have to take years and billions of dollars to build a new natural gas pipeline or a power line.

 

      Now, one advantage natural gas has over electricity is it can be shipped overseas, although it is very expensive to do so. The way you do that is by liquefying it. And the way you liquefy it is you bring it down most of the way to absolute zero. So you refrigerate it to a very low temperature minus 170 Celsius, and it basically gets 400 times smaller. Now, the facility at which you do that, typically, they're going to run you about $30 billion. So they're very expensive facilities. The U.S. is now the world's number one liquefied natural gas exporter, has built a lot of that capacity on the U.S. Gulf Coast. After you refrigerate it until it's a liquid, you put it on a refrigerated vessel. That vessel costs a quarter of a billion dollars as well. You ship it overseas. And that's adding some flexibility to the market that U.S. liquefied natural gas is helping to meet Europe's current challenge. But it's nothing like the kind of easy transport, flexible movements that we take for granted in the oil and coal systems.

 

Daniel G. West:  Thanks for that.

 

George Fibbe:  The only thing I would add to that explanation of LNG there, I guess two points. It was referred to by my former colleagues at the Department of Energy, Mark Menezes and Steve Winberg, is as molecules of freedom when they were talking about exporting LNG to Europe. And so I don't want that phrase to die.

 

      But the only other thing I would add is Germany looking to LNG as a possible -- to help their situation has leased I believe four, maybe five, floating platforms to re-gasify the LNG. So when you offload the cargo, it has to be heated back up safely and turned back into natural gas and that's called a re-gas facility, and the floating platforms can do that. And Germany's quickly investing in whatever they can get a hold of in terms of those platforms.

 

Daniel G. West:  Molecules of freedom. That's a great term. Maybe using it as a segue to molecules of aggression that the Russian oil and gas today that's not going into Europe, where is it going? Is it shut up in Russia or not? It seems that shipments of Russian oil to China and India have actually significantly increased since the invasion. And they now account for over half of Russia's seaborne exports going to China and to India. And these transactions are increasingly taking place directly in rubles and Indian rupees or rubles and Chinese renminbi. They're abating the dollar based financial system.

 

      The Ukrainian foreign minister, Dmytro Kuleba, he recently said, "Every barrel of Russian crude oil delivered to India has a good portion of Ukrainian blood in it." So it's a nice contrast with your molecules of freedom there, George.

 

George Fibbe:  It is.

 

Daniel G. West:  And other Asian countries including Japan and South Korea have begun to phase out Russian oil imports. So the question for you is have the efforts to suppress Russian exports been effective? Do we expect any enduring impact on this conflict on energy production or are oil tanker routes and narrow supply chains, are they just going to reroute overtime into anti-Russia and Russia-tolerant blocks?

 

Professor James Coleman:  Well, the first thing I'd say about this is it's not 100 percent clear to me that we have really looked to reduce Russia's exports of energy. And maybe that goes back to your first question. Because Europe and the world is so dependent on Russian oil and gas, actually cutting off completely if Europe -- basically, Russia has stopped sending natural gas to Europe. It's not that Europe cut off use of Russian natural gas because Russia found more utility in foregoing the money and just saying I'm going to let you freeze in the dark than Europe had the courage to block it off. And maybe that would've been different if they had had more natural gas supplies, both domestically and from the United States.

 

      The same thing is true of oil, right? So when the Biden administration said okay, well, we're not going to import Russian oil products. Well, the U.S. really imported very few Russian oil products. There were a couple situations where it was mildly useful, but it really wasn't -- that wasn't a big thing. And the Biden administration, I think, our signs are really intended that oil to go elsewhere because the problem is if that oil isn't sent elsewhere and really, Russia stopped producing it, that would have a big impact on these global pretty liquid oil markets which is that if you lose some supply, that means everybody else has to bid up those amounts. And remember, the Biden administration is going around the world asking everybody for more oil. So the last thing they want is for Russia to actually reduce its production.

 

      So I would say that's mostly for show. One way we can tell is that in the response to those initial sanctions, some companies stopped taking Russian oil because they basically -- it wasn't worth the PR headache, right? And so there was a famous [inaudible 25:41] Shell had taken and they said well, it was a really good deal. And then they wanted to back off of that. But one thing that the Biden administration was kind of saying behind the scenes on that was like no, please don't stop taking oil because if people really stopped taking Russian oil, it would have -- oil prices would spike again.

 

      So I don’t think that's the intent of the Biden administration. So I think they're not too worried about other countries taking oil because basically, if those countries buy more Russian oil, that leaves more oil for somebody else to take. And so basically, supplies just shuffle around and prices shouldn't be too affected.

 

George Fibbe:  So, Dan, I'd add just a little bit to that. So I think it's too soon to tell in terms of rerouting, of reordering of trade blocks or anything that dramatic. Just way too early to tell about that. I think that traditional rivalries or relations amongst states will persist like, for example, the Chinese and Indian relations. It's not like they're likely to form any kind of voluntary trademark even if their behavior may ultimately be the same in terms of buying Russian oil or what have you.

 

      But I guess I would also add, when it comes to specific sanctions and things like that, I think what's more interesting to watch is Russia's access to the capital markets and to technology that could ultimately have effect on Russia in the long run in a big way.

 

      And as to your quote one, the Ukrainian government saying there's blood on that oil, I think the nations that are going to be open to buying the commodity are in some ways desperate to have it. I don't think, as powerful a statement as that is, I don't think that's brow beating is going to make much of a difference in terms of buying and selling of the commodity.

 

Professor James Coleman:  Yeah. Let me say one more thing. So in early December is when we might have some kind of embargo or Russian oil price cap. That's another thing that has supposedly been negotiated, and the idea is that we're going to try and say that countries shouldn't pay too much for Russian oil. Now, that has been in flux for months and months. Whether it's actually implemented, we'll see. If the response of the Russian government to that is well, then we just won't sell it, again, that would be just like taking oil off the global market from Russia that could have a big run up in oil prices.

 

      So there is this uncertainty point in coming in early December. My assumption is that we'll see what we've seen before which is that nobody really wants Russia to stop selling its oil, but we'll see.

 

Daniel G. West:  Well, so, let's just end from Europe over here to the United States and let me ask, what can we do to increase our own energy security? What are the options available to us here at home? And what are the challenges for us to increase our own energy security? And let's start first with oil and gas and then let's move later to nuclear power and renewables. 

 

George Fibbe:  So, Dan, I'll kick it off with a few thoughts. First of all, I think thinking about energy security, I'll echo some sentiments from some of my former colleagues at the Department of Energy. There was a lot often described as an all of the above strategy or an all-in strategy. I think fundamentally, a lot of folks think about energy security rather simply in terms of more energy. Just more energy, more diverse sources of it, and more redundancy is a fairly straight forward way to think about energy security. Each particular source of energy we'd be looking at, we can start with talking about oil and gas, has its own particular features that have security benefits and drawbacks. They're well-known. We don't need to rehash those here in terms of what the security traits are.

 

      I would say, though, when we're trying to think about this panel, I went back and thought about the last time, maybe not the last time, but one time in American history when energy security was front of mind, particularly in the 1970s with Jimmy Carter. I mean, it's absolutely fascinating to go back and watch President Carter's speeches in early 1977 when they created the U.S. Department of Energy and unveil their comprehensive energy policy when we were really, really in a bad situation.

 

      And Carter, just to kind of kick off the conversation, the upshot of Carter's speech was that we've got a big problem, that we're beholden to foreign supplies of oil and gas, we were going to run out of gas in the very near term, and so we need to do several things. Number one, we need to conserve. So conversation was the hallmark. Number two, we need to invest in coal because we've got a lot of it. It's plentiful and can supply our energy needs. And then we also need to invest in renewable energy technologies.

 

      It's a very interesting program when you look back on it in retrospect. And shortly after that, Congress even passed a law known as the Fuel Use Act which prohibited new natural gas generation for -- that law stayed on the books for a little less than 10 years, I believe, before it was repealed. But those were very aggressive steps. I think it's very interesting to think about conservation. Now, we would call it energy efficiency as a sort of -- people don't really think about that as part of the energy mix but it really is. From an economic perspective, using less of something is just as good as having more of it. The only question is what the cost of that is.

 

      And so anyway, just a few opening thoughts that if you go back and look at when we were really in a previous crisis, we made a lot of pretty dramatic policy decisions including the creation of the strategic petroleum reserve, which James mentioned. And I do want to -- we can come back to this if you are because I agree with James's comments earlier that the drawdown this administration is talking about on an emergency basis of the SPR is a bit concerning for all the reasons that James mentioned. If there is an issue in the Middle East, if there's another major hurricane that wipes out production in the Gulf of Mexico for a period of time like Katrina did, then it's a tool that we could've had available and we won't.

 

      So I'll echo, when it comes to oil and gas, I'll echo that the drawdown on SPR, the way it's being done, like now, we're in emergency basis, maybe not a great idea. So, couple thoughts. Hopefully, that'll help kick off a little more discussion.

 

Professor James Coleman:  Yeah. Here's the way I think about it is that really, a security comes from having energy transport and energy storage because if you can transport energy, then you can take if from where you have abundant energy and bring it to the place that's experiencing a shortage. And if you have energy storage, then you can store it in anticipation of higher prices in the future or a shortage in the future.

 

      And so I think those are two of the basic requirements for a secure, affordable, and really smooth, reliable energy system. And they are just much more challenging with new sources of energy. I do think it's important to think about. Carter was looking at a time where there was still a fair amount of oil power, right, at that time. And there was a lot of coal power. And those are sources you can basically store a lot of them pretty easily. And that meant look, conserve a little. We'll just use a little bit less. We'll have a little bit more. We will have to draw a little bit less out of storage, etc.

 

      With natural gas and especially with renewable energy, it's a very different challenge because we're moving our grid, our energy system in general, not just electricity but also transportation and heating, to dependence on electricity, right? Because we're moving towards electric vehicles. We're moving towards electric heating and heat pumps, right?

 

      Now, the big challenges, the electric system is just more fragile than our traditional oil and coal-based systems. And the reason I say that is the electricity grid has to manage every second how much power is being provided from all the hundreds of power generators attached to it and balance that exactly with how much power is being demanded every time you plug in your phone, plug in your laptop, your air conditioning kicks up, your dishwasher goes on, you plug in your electric vehicle, that needs to be kept in exact balance. And if there's even a slight imbalance, the whole grid can go down and we have a giant catastrophe.

 

      So remember, 2021, that whole year, we're two percent short of oil. In Texas, the blackouts that we had 18 months ago, right, those blackouts, one of the big major causes of that was for just four and a half minutes, there was a tiny imbalance between how much power was being put on the grid and how much power was being taken off. More power was being taken off, and so the grid fell by about one percent. Its frequency typically oscillates 60 times a second, fell down to 59.3. And that started to break the machines attached to the grid and basically make them kick off the grid which started a chain reaction so there wasn't enough power on the grid. And as a result, we had almost a week of blackouts, billions of dollars of damage, and it could've been even a much worse catastrophe.

 

      And so you think about the contrast between our oil system where we can go a year without balancing that system and the electricity system which always has to maintain exact balance. And it's possible, but it's only possible if you have enough storage of energy in one form or another and enough transport to get that energy where you need it. And frankly, it's getting harder to build a lot of that transport and storage.

 

So it's harder and harder to build natural gas pipelines. It's getting harder to build electricity pipelines. It's getting harder to build any of those big infrastructure projects that are necessary to make sure we can get natural gas and electricity where it's needed to always maintain the grid imbalance. And that has huge human consequences if it means that our -- if we're making our transport system and our heating system depend on the reliability of this system that can be quite fragile if we don't have enough transport and storage.

 

      So really, I think, and this is well-understood, solar and wind don't help us meet that challenge. They provide some extra electricity sometimes, right? And that's great. There's nothing wrong with that. It lets us -- it means we don't have to run our natural gas powerplants as often. But in terms of the actual security of the system, you should be looking for storage. So it's like batteries. So other methods of storage. So there are people who use pumped hydro storage. There are lots of different kinds of storage that are available, but those are really the key to ensuring that we have a reliable and secure energy system. And this is just going to get more and more challenging as we move away from those dirtier but quite useful sources, oil and coal.

 

Daniel G. West:  Let's talk more about that, James. You mentioned electric power. And when you think about renewables and nuclear power, even before the subsidies included in the recent Inflation Reduction Act, wind and solar power generation had been growing rapidly, especially during -- all three of us live in Texas and it's huge, sometimes over 20 percent of our electric power comes from renewables.

 

      Nuclear, on the other hand, has not grown materially in decades across the United States but it does produce reliable carbon free domestic power. And a lot of countries around the world, France and South Korea are two common examples, get a great deal of their power from nuclear. So what is the role for these types of technologies, both renewables and nuclear, to play in U.S. energy security? And can you discuss the challenges they pose to U.S. security, particularly with respect to the supply chain for key minerals and components in renewables and nuclear? 

 

Professor James Coleman:  I can start out with this because it's a little related. So I think the things to understand, one, about nuclear -- let me tell you why we absolutely need to keep running the nuclear power plants that we have because if we shut them down, that means just having to find a lot more power capacity and that's all the challenges that go into insuring that it's reliable, building out that new infrastructure. It's very challenging.

 

      And obviously, one of the most heartening things you see is every time one of those countries, Germany, etc., says that they're going to keep their nuclear power plants open, one of the worst things you see is that two weeks when later they say well, maybe not. We just got another headline 45 minutes ago saying maybe not. So we don't know what's going to happen with that.

 

      But in terms of building new nuclear power plants, I'm not very optimistic about the United States doing that, and the basic reason is this. So remember, the whole challenge with the electricity grid is you have to always manage exactly how much is being provided with how much is being demanded. And so that means the least valuable source to you is one that you can't control when it goes on and off. So that's like an intermittent source.

 

      But there's really, to oversimplify, four categories of sources. So you have that intermittent supply which is like you're already trying to balance this grid and this one, you don't have any control over. So that's not very valuable, right, even if it's cheap to provide. The next least valuable is frankly a base load source where it's just always on because sources like -- coal's a little bit different but coal and nuclear tend to sort of just be on or off and kind of run straight out. And keep in mind, that doesn't help you meet the peaks and demand that happen over the course of the day. You need something else, a ramping source, to fill that up.

 

      And in between that base load and that peaking capacity which typically is met by natural gas, maybe in the future, will be met more by batteries or other technologies, geothermal maybe, you have maybe a load following source that can kind of ramp up a little bit when more electricity is required and a little bit down.

 

      And so I would say that the big challenge for nuclear is that frankly, the combination of renewables plus natural gas is very cheap in the United States and it's historically made it very difficult to justify the massive investment in a new nuclear power plant, in part because we have a very fragmented regulatory system where cost recovery for those nuclear power plants is determined in these individual state proceedings. So it's hard to have the kind of economies of scale that have typically led to big booms and nuclear power.

 

      So I'm more -- I think there will continue to be a boom of renewable energy. I don't think that's very important because it basically just means you use your natural gas plans more often, but you can't depend on them. I think as for nuclear, I'm a little skeptical and more bullish on its chances in places that really need to massively expand their electricity supply, including their base load supply like India, etc. But I would love to be proven wrong.

 

George Fibbe:  Let me make a couple comments there on nuclear and renewables. I guess the first thing I would say is the lens for this whole discussion is national security and energy security. And one thing I would say is when it comes to nuclear, a lot of the problems, James, that you mentioned about the oil and gas industry and lack of production in the oil and gas industry are true in spades in the nuclear space. We haven't built a new nuclear power plant in the United States in about 40 years. There's one under construction now. It's a Vogtle plant.

 

      And when that happens, U.S. domestic capabilities, human capital, human resources, the ability to do it and the ability to be a leader in a civilian nuclear power space is degraded. That capability is degraded. That's bad for U.S. national security. Setting aside the economics that you were discussing about how we've set up the economics to provide our citizens with affordable, reliable, and hopefully as clean as we can get power, there are these externalities where the civilian nuclear power industry and the U.S.'s role as a leader in it is a pretty important national security feature in and of itself.

 

      And so we can talk a lot about nuclear. It is a whole lot of power, low emissions, no emission more or less, and so how to deal with that is hard to know. There are a lot of advances in nuclear that are promising. There's a joke among some folks in the nuclear industry that whether it's fusion or small nodule reactors, whatever it is, that that's the future of the nuclear industry and it always will be. And so I hope that's not true because I think there are a lot of substantial advances, and the federal government has been very involved in that. The U.S. National Labs and the Department of Energy have been very involved. And here in the Inflation Reduction Act, there is a tax credit for nuclear there, specifically designated for nuclear.

 

      So I'm interested to see where that goes in terms of nuclear. There are a lot of positives if we can find our way past -- or not past but to work through the regulatory challenges that we have as well as the regulatory, political, and economic challenges. That sounds like a lot. If we can find our way through that, then you may end up on the other end with a really valuable source of massive amounts of energy.

 

      So I don't want to sleep on that. I think there's such tremendous promise there from a security perspective. And when it comes to renewables -- well, let me step back one spot and that is, James, you talked a lot about transporting energy whether that's transmission lines, and as we move to this electrification of everything, transmission's critically important and the fragility of the grid as you described it.

 

      I guess what I would say there is that's no joke. And being sure that we have a grid that is secure it extremely important to say the least. And so there is an interesting, rather small and under the radar regulatory story. I won't get into the weeds of it, but fundamentally, the previous administration issued an executive order having to do with equipment that you connect to the volt power supply, to the bulk electrical system that we shouldn't -- essentially prohibiting companies from attaching things to the grid in critical ways that are manufactured by adversarial nations like China, that the Biden administration suspended that order upon taking office. I think the concern was that that order somehow impeded the development of renewables but that's speculation on my part, and then ultimately revoked that executive order and that rule.

 

But at the same time, I think the current administration is clearly grappling with that problem, as they should be. How do we keep the grid safe and secure? That could be one of the greatest energy security issues that this administration, the next one, whoever it is, are going to be facing as long as we're going to be increasingly relying on the grid. And that's not to say I want to over-emphasize the fragility of it, but it is very complex and things like that, having to do with supply chain, where we're getting equipment that's attached to the grid, is important.

 

      Our grid, interestingly of course, our grid is not one grid but a patchwork of multiple grids throughout the country. That is a benefit and a detriment, depending on how you look at it or what the context is. So just a couple additional thoughts there on supply chain nuclear.

 

Daniel G. West:  One more question for you both, but first I want to pause and invite the audience to get your questions ready. So, Jack, could you please share with the audience how they'll submit questions for us.

 

Jack Capizzi:  Sure. You can enter your questions in the Q&A function at the bottom of the screen, but we actually already have a couple. If you'd like, I can read them off for you.

 

Daniel G. West:  Oh, one more question for the panelists and then we'll --

 

Jack Capizzi:  Okay. Great, great.

 

Daniel G. West:  -- we'll come back to that.

 

Jack Capizzi:  Sounds good. 

 

Daniel G. West:  This last question is -- we've talked about a lot, right? We've talked about oil and gas. We've talked about the conflict that we're seeing in the world today. We've talked about the energy transition. Given all of that together, do you view energy as a source fundamental strength or weakness for the United States in our position in the world? I'd ask the same question about our allies and our adversaries.

 

Professor James Coleman:  Yeah. So undoubtedly, it's an area of our strength. We are by far the world's number one oil producer. We're by far the world's number one natural gas producer. We are the number, at least from the start of this year, we've been the number one liquefied natural gas exporter. And I mean, frankly, we have the resources, markets, and industry to help the world basically get through the current crisis, smooth crises, and move towards cleaner energy because the world as a whole, the biggest source of electricity in the world by far is coal. And so our liquefied natural gas exports are helping the world get/ off of coal. We're helping Europe remove its dependence on Russia, get through this crisis. They're helping a number of developing nations expand their electricity supply. So undoubtedly that our resources help the world -- are helping the world transition to cleaner energy sources and more secure and reliable energy sources.

 

      Okay, with that said, we face a big challenge which is that critical minerals, some of the minerals that are most necessary for the energy transition, is a very different story. So if you look at some of those minerals like lithium or cobalt that are most key to ramping up battery or electric vehicles, we're not in the top 10 producers, right? If you look at the processing of those critical minerals, more than half of most of them takes place in China.

 

      So we have some serious security deficits that if we're going to go very rapidly to these new energy sources, we're putting ourselves in a position of dependence on some of these other places. So I think the short term and the current transition from coal to natural gas, I think we're very strongly positioned for that. Some of those longer ones, clearly, we're either going to have to figure out some way to permit a lot more mining in the United States than we've traditionally have done, a lot more access to these minerals, or figure out some other ways of addressing them whether it's carbon capture, increased use of hydrogen, etc. So there's a lot of uncertainty about that long term future, but there are some challenges on the horizon.

 

George Fibbe:  Couldn't agree more. Absolutely, it's a strength and not just in one or another area but almost every are of potential energy production in technology, we are a leader. Again, I'll put in a word that very much among general public underappreciated the U.S. National Labs and how much investment goes into energy technology there that hopefully will redound and does redound to the benefit of all of us.

 

      I'll pick a little bit with the -- I'll share a brief thought on the concept of energy transition or the terminology of energy transition. I do think we use that term all the time and it often obscures more than it reveals, the way we use it, because my friends at the Baker Institute here at Rice University in Houston in the Center for Energy Studies there will always tell you we call it energy transitions because it depends on -- it's not just one thing. It's very dependent on geography.

 

      You're transitioning from one thing to another thing depending on what you've got and all sorts of other factors. Generally speaking, not trying to quibble, generally speaking, you're talking about movement toward more electrification, toward lower emission sources of energy and that's fine.

 

The other point I would make, just to parrot my friend the former secretary of energy, Dan Brouillette, he likes to say that we talk of energy transitions, again, in terms of moving to lower emission sources but really, we've never transitioned away from any source of energy. We've just used more and more and more. And the mix may change, but fundamentally, when you look at historically with maybe the exception of whale oil, we've not transitioned away from a source of fuel. Even now, you're looking at the increased use of biomass, which, again, is wood.

 

      And so President Carter in his speech I mentioned earlier said we have two energy transitions. One was a couple hundred years ago form wood to coal, and the other was a few years ago from coal to oil and natural gas for transportation. But some others might argue, as I said, that we've really just used more and more, and that doesn't appear to be going away any time soon.

 

      So I know we want to leave a few minutes for questions. Looks like my friend John Melco(sp) has asked a couple in the comments here. So --

 

Professor James Coleman:  Well, let's find out which one we're going to pick, Mr. Moderator.  

 

Daniel G. West:  There's a feast of questions here. We'll get through as many of them as we can in our next five minutes here. So yeah, we'll start with your friend John. He asked Carter's policies were in the peak phase of peak oil and the belief that there were no substantial natural gas reserves, obviously, which has changed in the decade since particularly through Shell evolution. So John asked, if offshore and onshore restrictions are returned to historic levels circa 2019 and pipeline permitting issues, U.S. would again be a net exporter, wouldn’t it, with the question is the U.S. a net exporter today and would the U.S. be a net exporter again without restrictions? 

 

George Fibbe:  Well, I guess -- sorry, just to be sure I'm following the question. Essentially, what would it take for us to be a net exporter again? Is that what we're getting at? I think that John's question does hit it -- James mentioned earlier, the infrastructure permitting issues and there's no question that the ability to build the infrastructure to transport energy is one of the biggest impediments we have right now.

 

      I do think -- I'll give a nod to a Federalist Society webinar from about a week or two ago where former DOJ lawyer Eric Grant mentioned a need for reform. He talked a lot about a need for reform and how much we need it. I agree with that. Generally, I think it's complicated as to what that reform would be, but I think if permitting were to ramp up -- and first of all, I don't think that's going to happen by just saying to the federal bureaucracy, go faster. I don't think that typically works. I think more meaningful and comprehensive reform is required, but I think absolutely, the U.S. has the ability to be a huge net exporter of energy and that's a huge source of our power.

 

Professor James Coleman:  And the answer is yeah, I think we are likely to be a net petroleum products importer. But really, these are huge volumes both ways, and they almost net out to zero and they have. But I think when you think about energy more broadly, we are now a major next exporter because of our natural gas exports. And that includes both the liquefied natural gas exports to Europe and Asia but also our natural gas exports to Mexico.

 

      So I think the world -- the thing is a little bit comical about the president running off to Venezuela or wherever else asking for oil. If the rest of the world, when they want more oil and gas production, they're looking to the United States. We undoubtedly have that potential, and we've had challenges because we didn't have enough infrastructure where we're flaring natural gas, just burning it off, because we can't get it to the markets that desperately need that natural gas as a cleaner source of energy.

 

      And so we can both improve the economics of our industry but also its environmental performance while at the same time helping to address the environmental and economic challenges of the rest of the world that needs more energy -- critically needs more energy supplies but also needs alternatives to coal, cleaner alternatives for their air quality. So I think we have a potential role to play in both those respects.

 

Daniel G. West:  Great. Another question here from Tom Palmer, and he says the sectional component of our grid in California was attacked a few years ago. Was the origin of that solved and are we doing something across the country to protect our grid from cyber-attacks and other malicious action? 

 

George Fibbe:  I'll maybe take the second part first and the answer is I think in the previous administration, I know the Department of Energy was very focused on grid security and not just that agency but others as well. So I think it is -- most of the people who are truly experts on the grid, utility companies, owners of the infrastructure, as well as government folks who are focused on cyber security and things like that, are focused on -- I don't know the answer on that specific attack on California, but I would say just for an example of how some of this works, it's all very public, in what I believe was December of 2015, the Russians tested their ability to attack or tinker with the Ukrainian grid. And there was a malicious attack where they interrupted, I believe, it was a sub-station there. And that's just sort of an example of the types of vulnerabilities we're talking about.

 

      But I think there are many, many folks, the experts, who manage the grid who are most definitely focused on the issue and being sure that we're decreasing those vulnerabilities as best we can.

 

Professor James Coleman:  I think the question about this 2013 rifle attack on a subsidy, and I don't think we ever actually found out who was responsible for that. Although, there was some suspicion it was an insider, at least that was reported. But I do think, yeah, the cyber-attack side is certainly an area that there is growing concern about with what happened with colonial pipeline shutting down refined product supplies to the East coast and some question whether to what extent Russia as a country was involved. So yeah, it's certainly a big issue going forward.

 

Daniel G. West:  Great. And last question, I think this is a good one to end on here. This is from Kristoff Lutz(sp) who asked given the current situation, how long do you think it will take Washington to reevaluate the priorities of U.S. energy policy? Do you believe that Co2 reduction will stay as important for U.S. energy policy as it is today?

 

George Fibbe:  Well, James, you got that one?

 

Professor James Coleman:  Uh, yeah. I don't know. It's an interesting question. Well, it's hard to say because certainly, during -- President Biden has been less extreme than he promised in his campaign because he made some very extreme promises. And it was sometimes difficult to tell what he was saying but he said look at my eyes, I'm going to end fossil fuels. He said he was going to stop not only new leasing but new permitting as well, which would've been -- even if you've already paid for your lease, you need a permit to drill a well. So that would've been an incredibly radical step. And you know, legal, but it would've been something that could've made a lot of trouble for oil and gas companies.

 

      So when he started making steps back from that, I was hopeful that he would move towards a more pragmatic energy policy. So far, we haven't seen that. In fact, it's like every day, they propose another terrifyingly bad policy or they leak one so that they're -- there's been a suggestion that maybe they would ban refined product exports from the United States, which would cause massive problems for our allies, for our trading partners, for the developing world, and likely, unfortunately, not help prices -- it would probably help prices here in Texas but it may hurt prices on the U.S. East Coast given the lack of infrastructure.

 

      So in any event, so there's a lot of bad policies that are floated and then not adopted. Now, on the plus side, you say well, at least they're not adopted. On the unfortunate side, these are exactly proposing extremely destructive and frankly bizarre things constantly is exactly the kind of thing that makes investors wary of investing in an industry, right? And fundamentally, the challenge is when you're investing in an industry, you have to -- it can often take 10-15 years, etc., to get a return. And so when the President has never really officially backed down from his promise that he's going to end your business and do his best to bankrupt you, it's a challenge to get investment in those areas.

 

      And so I would say that mostly the policy has been incoherent. It's been one day, we want more refining, we want more production. And then you ask well, do you really want more refining five years from now? And they say, well, maybe not. And so I don't think they've established a coherent policy, and I think if they did, that would give investors a lot more certainty. But given how long it's been and given that they haven't gotten there yet, I'm a little bit skeptical that they'll get there.

 

Daniel G. West:  George, last word.

 

George Fibbe:  Last word is I agree and defer to Professor Coleman on that one. I agree. I don't think the policy -- it's really hard to tell where it's going to go, and I don't see any real viable strong consensus developing until there are a lot more -- first of all, until Congress steps up and exercises its proper role in our structure of government and actually really helps set policy because I think the Executive seems to play off of James's comments very much -- and this isn't just unique to this administration but also kind of darting from one headline to the other, today's problem to tomorrow's problem but not to a real long-term perspective.

 

      So I think it's really hard to know when we'll congeal, when we'll cohere in one set of energy priorities, absent, hate to say it, a very clear and present crisis.

 

Daniel G. West:  Great. Well, George Fibbe, Professor James Coleman, both energy experts and impressive thinkers, thank you guys both for making time to join us today and share that expertise. And thanks to the audience for tuning in.

 

Jack Capizzi:  Thank you all for your time. We are adjourned.

 

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Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.