As I sit down to write about the global energy crisis, Americans are feeling the pain at the pump with the national gas average at $4.325. Before the Russian invasion, gas prices had steadily been on the rise, and now we are facing prices higher than the previous all-time-record average of $4.11 set in 2008.
While the previous record was $4.11 in 2008, that price was not adjusted for inflation. If we adjust the cost of gas for inflation, that takes us to the OPEC oil embargo of 1973.
The National Museum of American History explains, "With the OPEC oil embargo of 1973, oil prices jumped 350%, and the higher costs rippled through the economy. Although business and government asked consumers to help by conserving energy, and entrepreneurs worked on solutions, the economic crises worsened. As things got more expensive, businesses laid off workers. Inflation and economic stagnation produced 'stagflation' and shook confidence in the American dream."
Those who lived through the energy crisis of the 1970s understand why the current global energy crisis is so frightening.
The global energy crisis is much bigger than the sticker shock we are facing at the gas pumps. Natural gas prices and coal prices are also skyrocketing.
AP News reports, "Natural gas prices in the U.S. are approximately 60% higher than a year ago."
60% is bad, but to put what is happening globally in perspective – European natural gas prices went up almost 600% in 2021.
We depend on energy sources, such as petroleum, crude oil, natural gas, and coal. Everything we use, from transportation to food production, requires it.
Without it, we're in trouble. As it becomes harder to obtain (or pay for), our lives will become more difficult.
What's Happening with Russia Now
The ongoing Russian invasion is changing the cost and supply of energy sources every day. Let's break down what is happening and why it affects the entire world.
AP news explains, "The world is already facing high energy prices and a supply crunch that has hit consumers with high utility bills and pain at the gasoline pump. Russia's attack on Ukraine has whipsawed energy markets, not least because Europe depends on Russian supplies of natural gas. Russia is also a major oil producer."
When it comes to energy sources, what happens in one part of the globe affects the rest of us. This is because energy functions as a global market.
For example, the U.S. Energy Information Administration reports, "In 2021, Russia was the largest natural gas-exporting country in the world, the second-largest crude oil and condensates-exporting country after Saudi Arabia, and the third-largest coal-exporting country behind Indonesia and Australia. Although OECD Europe received most of Russia's crude oil and natural gas exports last year, countries in Asia and the Oceania region received most of Russia's coal exports."
The United States also imported crude oil, natural gas, and coal from Russia.
On March 8, 2022, President Biden issued a ban on the import of Russian oil, liquefied natural gas, and coal to the United States.
According to the White House Fact Sheet, "Today's Executive Order bans: The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal. Last year, the U.S. imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia and this step will deprive Russia of billions of dollars in revenues from U.S. drivers and consumers annually."
The U.K. also issued a ban on the import of Russian energy supplies.
Since Russia is one of the major producers of energy supplies, a global energy crisis is on our doorstep.
Even Before 2022, a Global Energy Crisis Was Brewing
While the ongoing Russian invasion is undoubtedly playing a significant role in the global energy crisis, this has been on the horizon for many years for various reasons.
- Pandemic: The supply and demand issues of the pandemic resulted in slow-downs and steep pick-ups as far as energy usage. Energy Wire explains, "The roots of the problem go back to the beginning of the pandemic and the recession in 2020. Oil and gas prices fell so fast then that many producers, particularly in the U.S., simply stopped drilling. […] With the economy beginning to recover, demand for gas has gone up, but there's not enough supply to go around."
- Transition to Renewable Energy: The push for more climate-friendly renewable energy sources also plays a role in the global energy crisis. Ultimately, the transition from fossil fuels to renewable energy sources requires time, which we don't have. Economist Ed Yardeni is quoted by Forbes explaining, "Renewables aren't ready for prime time. So instead of a smooth transition, the rush to eliminate fossil fuels is causing their prices to soar and disrupting the overall supply of energy."
- Lack of Coal: Coal has been replaced by more environmentally-friendly energy sources. Sources report, "Between 2010 and May 2019, 290 coal power plants, or 40% of the US's coal generating capacity, closed."
- Rising Energy Demand: As the population grows, so do our energy demands. Reuters reports, "Global energy consumption is likely to increase by between 50% and 100% from present levels by 2050, underscoring how challenging it will be to satisfy rising energy demand while simultaneously reducing net emissions to zero."
- Dependence on Other Countries: As mentioned, energy functions as a global market. However, when wars or pandemics occur, it isn't easy to transport energy sources across borders. For instance, you can technically transport crude oil, but it's much harder to transport natural gas without a pipeline already in place.
How the Energy Crisis Affects All Of Us
We are already well aware of how the current gas price hikes are hurting our wallets. But a global energy crisis of this magnitude affects much more.
The American Petroleum Institute explains, "At U.S. refineries, crude oil and natural gas liquids become fuels and feedstocks used primarily to manufacture chemicals, synthetic rubber and a range of plastics found in a variety of items that Americans use every day. These include soaps and detergents, cell phones, clothing, solvents, medicine, fertilizers, pesticides, synthetic fibers, paints, epoxy resins, flooring and insulating materials."
Let’s take a closer look at the impact this will have on food.
With the gas prices skyrocketing, transportation costs will rise. It will cost farms and manufacturers more money to transport food to local grocery stores. Hence, a rise in food costs. This one is pretty obvious.
However, API noted that energy sources are used in a variety of items we use every day – including agriculture.
Context explains, "The relationship between oil and natural gas and the food we eat goes beyond the trucks, boats, planes and trains that carry crops from farms to grocery stores. In fact the food security we enjoy today would not be possible without something made from oil and gas feedstocks: synthetic fertilizers."
Fertilizers rely heavily on natural gas, the price of which has skyrocketed.
The CEO of a Norwegian fertilizer giant Yaro claimed in November 2021, "To produce a ton of ammonia last summer was $110 […] And now it's $1,000. So it's just incredible."
The significantly higher cost of fertilizer will make it much more difficult for farmers to afford and produce crops at the level they are used to.
Additionally, plants are unable to make the fertilizer given the high cost and inability to get the ingredients necessary, resulting in a shortage of nitrogen fertilizers.
Experts already believe there will be "reduced world production of crops like wheat and corn."
Remember that energy sources are also used in food processing and manufacturing.
When energy costs rise, you can expect inflation.
What You Can Do to Prepare
The global energy crisis is not some potential threat. It is real, and it is happening. Unless you are a billionaire with plenty of money to spare, you will feel the effects.
Take time to prepare.
Stock up on food. Food costs will continue to go up. Instead of going broke shopping for groceries, invest in emergency food. Save this food for when the prices hit astronomical figures, or use it to eat budget-friendly today.
Build your skills. Now is the perfect time to learn how to grow your own food and become more self-sufficient. Begin hobby farming. Build a chicken coop. Plant a vegetable garden. Start using sprouting seeds.
Avoid panic shopping. Don't give in to the mass hysteria and rush out to shop. When people panic shop, they buy things they don't really need. During the start of the pandemic, people were panic buying hand sanitizer when there were better, cheaper ways to clean your hands (soap and water). Rather than waiting until the last minute, stock your pantry now.
Don't let your gas tank hit empty, friends. Stay alert.
Preparedness Advisor, My Patriot Supply