Some of the measures European governments have taken to keep electricity costs down can be described as a “ponzi scheme,” according to Dan Brouillette, who served as Secretary of Energy under the Trump administration.
“One of the easiest policy levers, if you will, is that you can pass a bill, provide money, and give people money to pay their utility bills,” Brouilette told CNBC’s Hadley Gamble on the sidelines of the Gastech conference in Milan on Monday.
He warned that such measures could have “inflationary effects”.
When asked if such measures resembled a Ponzi scheme, Brouillette replied: “You could describe it like that.
“It alleviates the immediate pain of not being able to pay the electric bill, but the money just goes in circles… It just goes from the consumer to the electric company… it’s not a long-term solution,” he added.
Energy ministers from EU countries meet on Friday to discuss ways to stem rising gas prices.
Europe’s gas prices rose 30% on Monday after Russia announced its main gas supply pipeline would remain closed indefinitely. In recent months, Europe has had to contend with a sharp drop in gas exports from Russia, its traditionally largest energy supplier.
‘Produce more’
The former energy secretary said consumers could expect higher energy prices in the short term.
Oil markets around the world are “very tight” and as winter approaches, more oil is being used for heating and other purposes, Brouillette said. The prospect of an energy shortage comes as Saudi Arabia has indicated it will cut its oil production.
The answer to relieving scarcity is to “produce more,” Brouillette said.
“If we can produce more, create more infrastructure development in the United States, in Europe — that’s the ultimate answer to the questions.” He said it’s important for the United States to return to pre-pandemic levels of production.
“We’re still short of about … a million barrels a day and a half from what we were producing 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 oil supply is still lagging behind demand. “A lot of people think the gap between supply and demand is just OPEC or OPEC+, but half of that still comes from US producers,” he told CNBC’s Capital Connection on Monday.
Brouillette added it was a “strange request from the [Biden] US government” to encourage US oil producers to halt exports and prioritize American consumers.
US Energy Secretary Jennifer Granholm recently urged the country’s refiners to limit fuel exports and instead build up fuel inventories.
Brouillette said such a move is “impossible” because the oil market is in “backward motion.” Backwardation occurs when a commodity’s current price is trading higher than its futures price. In his opinion, this means that manufacturers have more incentive to bring their product to market. He added that public companies in America have fiduciary duties to their shareholders.
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