Some of the measures European governments have taken to keep electricity costs down could be described as a “Ponzi scheme,” said Dan Brouillette, who served as energy secretary under the Trump administration.
“One of the simplest political moves if you will is you can pass a bill, appropriate money and give money to citizens to pay their electric bills,” Brouilette told CNBC’s Hadley Gamble on the sidelines of the Gastech conference in Milan on Monday.
Brouillette warned of the “inflationary effect” of such measures if governments were to use such policies to tackle rising prices.
Asked whether such measures resemble a Ponzi scheme, Brouillette replied: “You can describe it that way. There’s no doubt about it.”
“It eases 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 power company … it’s not a long-term solution,” he added.
EU countries’ energy ministers will meet on Friday to discuss methods to curb rising gas prices.
European gas prices jumped 30% higher on Monday after Russia announced that its main gas pipeline would remain shut indefinitely. In recent months, Europe has experienced a sharp drop in gas exports from Russia, traditionally the country’s largest energy supplier.
The former energy secretary said consumers can expect higher energy prices in the near future.
Oil markets around the world are “very tight” and more oil is going to be used for heating and other purposes as winter approaches, Brouillette said. The prospect of an energy squeeze comes as Saudi Arabia hints at cutting oil production.
The answer to alleviating scarcity is to “produce more,” Brouillette said.
“If we can produce more, create more infrastructure development in the US, in Europe – that’s the ultimate answer to the questions.” He said it is important that the United States return to pre-pandemic production levels.
“We’re still about … a million and a half barrels per day short 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 OPEC or OPEC+, but half of it is still from U.S. producers,” he told CNBC’s “Capital Connection” on Monday.
Brouillette added that it was a “weird request from [Biden] administration” to encourage American oil producers to freeze their exports and prioritize American consumers.
US Energy Secretary Jennifer Granholm recently urged the country’s refiners to limit fuel exports and build fuel storage instead.
Brouillette said such a move is “impossible” because the oil market is in “reverse transition”. Backwardation is when the current price of a commodity is traded higher than the futures price. According to him, this means that manufacturers have more incentive to put their product on the market. He added that listed companies that are in America have fiduciary responsibilities to their shareholders.