The post-pandemic future of energy looks much like today

As businesses continue to reopen at home and globally, there is much speculation about the future economic situation. How long will the economy struggle, and how robust can we make the recovery? The temptation to use this crisis to remake the economy and promote certain businesses and industries, as we did after the last recession, is growing. 

Democrats in Congress already are talking about economic legislation of “Rooseveltian proportions.” After the 2008 financial crisis, recovery policies promoted certain alternative energy companies and resulted in high-profile mistakes and millions of dollars wasted. We shouldn’t make the same mistake again. The best way to facilitate a quick and resilient recovery is to use the inexpensive, flexibly produced and accessible oil and gas that we already have. 

After the 2008 financial crisis, there was growth in the alternative fuel sector, but this was largely driven by centralized market planning from the United States and Chinese governments. Domestically, federal grants and loan guarantees led to serious mistakes such as Fisker and Solyndra. More importantly, the legislation also failed to significantly impact the use of fossil fuels. Instead of using an economic catastrophe as a time to force expensive changes on the energy market and on consumers, we should benefit from cheap fuels now to jumpstart our economy.

There is a natural inclination to hope that a traumatic economic event will lead to major changes, but artificially forcing a change in our energy situation would not help us create the quickest and strongest recovery. The International Energy Agency (IEA) noted recently that during this pandemic alternative energies actually have taken a larger role in power production globally. What the IEA misses is that alternative energies recently have accounted for a larger share of the market because of their inflexibility. 

Whereas oil and gas production decreased during the pandemic, solar and wind power, for example, is either used or wasted. The industry cannot easily decrease solar and wind power production to meet lower demand, and, similarly, it cannot easily increase production to meet the needs of an economic recovery. As the economy recovers, it is simpler, more cost effective and much quicker to increase oil and gas production and draw on fuel from inventory.

Because of the economic disruption, we now have fuels available at unprecedented low prices, and these low prices will serve as a booster for economic growth as soon as any demand returns. Time and again — and particularly in the past two months — oil and gas have proven to be elastic and flexible to changes in demand. This makes them prime fuels for the expected growth in demand for a recovery. Plus, we have record amounts in storage, waiting to be purchased at low cost as soon as we are ready to get back to work.

We cannot ignore the losses caused by this pandemic to the oil and gas companies and, more importantly, to oil and gas industry employees. But hope is not lost, because for a strong recovery we will need oil and gas. Cheap fuel will cut costs for transportation of goods, allow travel businesses to rebuild profits and help the finances of American commuters and homeowners. The oil and gas industry professionals who have lost their jobs or now fear layoffs will be vital to powering the economic recovery to come.  

The recovery from our last economic recession was gradual, and that may be distorting our perspective. This recovery can be much quicker. In fact, historically, economic recoveries usually happen rapidly and are much more robust than the recovery that began in 2009. Cheap oil and gas will be one of our strongest tools if we are able to execute a rapid turnaround. 

In the U.S., we currently have 532.2 million barrels of oil in inventory, and that number continues to grow. Furthermore, U.S. oil production has dropped by more than 1 million barrels per day and it probably will decline further. However, that also means it has room to grow during a recovery. As a result, we will continue to benefit from low prices even in the ideal situation of rapid economic growth.

It’s exciting to think of futuristic ideas such as a world powered by alternative fuels, but that’s not the reality we live in. Policies to further disadvantage the fuels we need to power economic growth and force consumers and businesses to spend more instead of less on energy will only prolong the economic pain. Rather, as we rebuild and as we surely regrow our economy, we need the benefits provided by reliable oil and gas. In fact, cheap, flexible and accessible oil and gas will lead the way in our return to economic prosperity.

Ellen R. Wald, Ph.D., is a senior fellow at the Atlantic Council’s Global Energy Center and the president of Transversal Consulting, a global energy and geopolitics consultancy. She is the author of “Saudi, Inc.,” a history of Aramco and how the Saudi royal family controls this multitrillion-dollar enterprise. Follow her on Twitter @EnergzdEconomy.