Efforts to keep energy costs down are like a Ponzi scheme

Some of the measures that European governments have taken to keep electrical energy costs down could be described as a “Ponzi scheme,” in accordance to Dan Brouillette, who served as energy secretary underneath the Trump administration.

“One of the easiest policy levers if you will, is that you can pass a bill, appropriate money and give money to citizens to pay their electricity bills,” Brouilette instructed CNBC’s Hadley Gamble on the sidelines of the Gastech convention in Milan on Monday.

He warned that such measures might have an “inflationary impact.”

When requested about whether or not such measures resemble a Ponzi scheme, Brouillette replied, “You could describe it that way. There’s no question about that.”

“It alleviates the immediate pain of not being able to pay the electricity bill, but the money just moves in a circle … It just goes from the consumer to the electricity company … it’s not a long-term solution,” he added.

The EU international locations’ energy ministers will meet on Friday to talk about strategies to management surging fuel costs.

Europe’s fuel costs jumped 30% increased on Monday after Russia introduced that its major fuel provide pipeline would stay shut indefinitely. Europe in latest months endured a sharp drop in fuel exports from Russia, historically its largest energy provider.

‘Produce extra’

The former energy secretary mentioned customers can count on increased energy costs within the close to time period.

There's a 'false calm' about oil markets, says International Energy Forum's secretary-general

Oil markets world wide are “very tight,” and extra oil goes to be used for heating and different functions as winter approaches, mentioned Brouillette. The prospect of an energy squeeze comes as Saudi Arabia hints at slicing its oil output.

The reply to assuaging the shortage is to “produce more,” mentioned Brouillette.

“If we can produce more, create more infrastructure development in the United States, in Europe — that is the ultimate answer to the questions.” He mentioned it is necessary that the United States return to pre-pandemic ranges of manufacturing.

“We are still roughly … a million and a half barrels short per day of what we were producing just two and a half, three years ago. So I think it’s very important that we get back to that number.”

Joseph McMonigle, secretary-general of the International Energy Forum, additionally mentioned that oil provide remains to be lagging behind demand. “A lot of people think the gap between supply and demand is all OPEC or OPEC+ but half of that is still from U.S. producers,” he instructed CNBC’s “Capital Connection” on Monday.

EU energy chief urges China and India to support a price cap on Russian oil

Brouillette added that it was a “strange request by the [Biden] administration” to encourage U.S. oil producers to cease their exports and prioritize American customers.

U.S. energy secretary Jennifer Granholm not too long ago urged the nation’s refiners to restrict gas exports, and to construct gas inventories as an alternative.

Brouillette mentioned such a transfer is “impossible,” as a result of the oil market is in “backwardation.” Backwardation is when the present worth of a commodity is buying and selling increased than its futures worth. That, in accordance to him, signifies that producers have extra incentives to put their product within the market. He added that publicly traded firms that are in America have fiduciary obligations to their shareholders.

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