Some of the measures that European governments have taken to keep electricity costs down can be described as a “Ponzi scheme” said Dan Brouillette, who served as energy secretary under 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 told CNBC’s Hadley Gamble on the sidelines of the Gastech conference in Milan on Monday.
Brouillette warned of the “inflationary impact” of such measures should governments employ such policies to tackle the spike in prices. The EU countries’ energy ministers will meet on September 9 to discuss methods to curb surging gas prices.
When asked about whether 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.
Europe’s gas prices jumped 30% higher on Monday after Russia announced that its main gas supply pipelines would remain shut indefinitely. Europe in recent months endured a sharp drop in gas exports from Russia, traditionally its largest energy supplier.
The former energy secretary said consumers can expect higher energy prices in the near term.
Oil markets around the world are “very tight,” and more oil is going to be used for heating and other purposes as winter approaches, said Brouillette. The prospect of an energy squeeze comes as Saudi Arabia toys with the prospects of an oil cut.
The answer to alleviating the scarcity is to “produce more,” said 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 said it’s important that United States return to pre-pandemic levels of production.
“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, also said that oil supply is still 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 told CNBC’s “Capital Connection” on Monday.
Brouillette added that it was a “strange request by the [Biden] administration” to encourage U.S. oil producers to stop their exports and prioritize American consumers.
U.S. energy secretary Jennifer Granholm recently sent a letter urging U.S. refiners to limit fuel exports, and to build fuel inventories instead] < have linked to Department of Energy’s press release.
Brouillette said such a move is “impossible,” because the oil market is in “backwardation.” A market in backwardation means that the spot price of the commodity is trading higher than its futures contract. That, according to him, means that producers have more incentives to put their product in the marketplace. He added that publicly traded companies that are in America have fiduciary responsibilities to their shareholders.