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David Blackmon

David Blackmon

David Blackmon is an independent energy analyst/consultant based in Mansfield, TX. David has enjoyed a 38-year career in the oil and gas industry, the last…

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Is The U.S. Close To Achieving ‘Energy Dominance’?

USA

If you hadn’t heard, the Trump Administration has declared this week to be “Energy Week”, a week during which the President and his senior officials are focusing on the theme of “U.S. Energy Dominance.” Not “energy independence” or “energy security”, both themes past presidential administrations have focused upon – “energy dominance.”

So, what does it all mean, and can the United States actually achieve it? Good questions. Here are some answers.

First, when President Trump talks about his goal of Energy Dominance, he’s referring to a plan that envisions implementing policies that encourage four major elements:

• Taking full advantage of America’s amazing abundance of oil, natural gas and coal;

• Increasing exports of all three of those fossil fuels and their related products;

• Relying more on imports of oil from Canada, Mexico and other Western Hemisphere nations, and less on imports from the Middle East and North Africa; and

• Leveraging all of those three elements to enhance U.S. bargaining positions in its foreign policy initiatives.

Right on cue, we saw the President engage in a bit of energy-leveraging during his discussions this week with Indian Prime Minister Narendra Modi, folding India’s growing reliance on U.S. LNG imports into his request for a lessening of the rapidly growing nation’s import tariffs on U.S. goods. We should expect to see the President rely more and more on this sort of leverage as U.S. exports of oil, LNG and coal continue to rapidly grow in coming years. This, more than anything else, is what the President means when he talks about Energy Dominance.

Critics point to the reality that the U.S. currently imports about half of its daily crude oil needs, but they miss the point. This is not a discussion about energy “independence” – the President clearly understands that the U.S. will always be a net importer of crude oil. Related: Is Big Oil’s Bet On Petrochemicals A Bust?

The point of the Energy Dominance discussion is to change that import mix so that the U.S. is mainly importing from friendly governments in more stable parts of the world, rather than from often hostile governments in the extremely unstable Middle East and North Africa. Achieving this goal not only will lessen the incentives for the U.S. to constantly be intervening in conflicts and civil wars in those unstable regions, but would also provide the President and his State Department with greater leverage in the complex and often seemingly-intractable negotiations with the region’s governments.

Of course, the big potential stumbling block in all of this is that the U.S. cannot take full advantage of its oil and gas resources unless its thousands of independent producing companies can be profitable by continuing to drill wells. The ability of the federal government to encourage rising domestic production is limited – no amount of reversing of bad regulations or holding of new lease sales on federal lands and waters can provide the industry with that it most needs: sustainable prices for oil and natural gas.

As I write this, the price for WTI is hovering between $44-$45/bbl, which is not a sustainable price for the sort of boom in U.S. production envisioned by the President. The price for natural gas is around $3.10, again, not a price level that is going to produce a long, sustained boom in production and continually rising exports.

We also have to quit kidding ourselves that OPEC is now some sort of toothless dragon that can no longer control the price of oil. As we witnessed in 2014, Saudi Arabia alone could crash the price for crude in very short order by simply deciding to open its massive spigot.

Yes, U.S. shale producers have become a far more influential player in determining the oil price, thanks to their demonstrated ability to rapidly ramp-up overall production. But that very ability, combined with the fact that the U.S. government cannot exert actual control over the industry’s behavior, is what has led to the current dip in prices, and, unless some element of that equation were to shift, will lead the industry to drill itself into a lower price situation again in the future anytime the price for WTI goes back above $50/bbl. Related: Goldman Sachs: Oil Crash Unlikely To Continue

The U.S. industry has found itself in a similar price paradigm related to natural gas for six years now, due to the same factors of amazing abundance and the ability to rapidly increase overall production whenever the price rises to a more sustainable level. Thus, rather than the sustained boom in U.S. oil and gas production that feeds a massive increase in exports that the Administration envisions, the more likely scenario is for years of ups and downs that produce a slower rate of overall production growth.

That said, even such a slower growth rate can work to the advantage of a president who is willing to make use of it. That is something that President Obama was unwilling to do. President Trump, as we have all seen, is very different when it comes to taking advantage of America’s amazing abundance of fossil fuels.

Mr. Trump may not be able to achieve the Energy Dominance he seeks, but there is no doubt the U.S. oil and gas industry can and will provide him with plenty of Energy Leverage in the coming years.

By David Blackmon for Oilprice.com

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  • Lee James on June 28 2017 said:
    Good to see discussion of the geopolitics of oil and oil production. "Energy Dominance" is so Trump. Really, it does seem that what we want is friendly, sustainable oil ... not oil dominance. We do need to consider where our oil comes from and our prospects going after our domestic light tight-oil. Reduced reliance on oil still counts!
  • Mark Battey on June 29 2017 said:
    The Trump administration is ignoring the obvious fact that the other nations will accelerate their adoption of renewables in order to avoid being dominated.
  • Marcus Rönningås on June 29 2017 said:
    REgardless of what Mr Trump says I will still by my electricity for our cars and home with COO's (Certificate of Origin) for Wind. However, oil and probably gas will have an important part for the next ~10 years or so, but after that - nothing besides making other products such as plastics etc.

    But using fossile fules for energy ? No way. What's started now with renewables can not be stopped. Next step after COO's will be to produce our own energy with solar. Even though we live in Sundsvall/Sweden the offer for solar I recently got would give us ~15 000 kWh / year. A nice contribution to our energy consumtion, but a bit to costly for us. For now, that is. Within 5 years we will defenitely have solar on our roof.
  • John Brown on June 30 2017 said:
    Clearly the U.S. is in a position with better technology making more production available to market much faster than ever before, at a much lower break even price point, to insure reasonably low energy costs for the foreseeable future. However, right now there is not reason for a barrel of oil to be above $30 a barrel. Oil is sloshing around and still being stored on tankers while the entire industry, and support industries do all withing their power to talk to price up.
    That may be a good thing for the USA. Oil at or near $50 a barrel allows the USA to continue to increase production, but its not being driven by supply and demand.
  • R. L. Hails Sr. P. E. (ret.) on July 02 2017 said:
    This good article leaves out some defining facts which will dominate the world energy market.

    The entire economy of Saudi Arabia is based on $105/ b crude oil. They tried to kill the US supplier industry by cutting the price to $30/b (which they can sustain for a while) but the plan back fired. US frackers fought back and matched their classic market war tactic. Oil may float between $45 to $55/b for the foreseeable future but $100/b is history. (Currently there is a glut on the market; the tanks are full and tankers steam in circles in the ocean.) In 5- 6 years, Saudi Arabia will go broke, while surrounded by religious societies who want them dead.

    Trump may want to leave.

    If New England would stop their decades long refusal to allow gas pipes to be buried in their dirt, it would give them a cheap, reliable energy source and open a US market. Who knows what will happen.

    Trump likes buried fuel pipes.

    The US has centuries of cheap coal but Obama almost killed this industry. If the robotic technologies which make fracking possible, were applied to coal mining and if mine mouth power plants were once again allowed (some laws would have to be repealed with Obamacare), and if wires were allowed to convey energy from mine to city, generator to load, coal might compete with everything. If it does not make the seas rise in a few centuries.

    All of the US nukes under construction now lay in bankruptcy, along with most of our engineering expertise. The most recent US nuke to come on line (last year) began construction in 1973. The concept of a cost controlled nuke with a certain license schedule, within the US, has become a joke, a sophism, or nightmare. We fill libraries with unread studies and regulations, which no one understands. The vitally needed DoE Spent Fuel Repository at Yucca Mountain Nev, which by law was to open by January 1998, lies abandoned. The money, tens of billions, is gone, was spent. For nothing. Every existing nukes uses a hideously expensive Plan B, to keep running.

    China regularly builds bigger nukes, many of them, in less than 6 years.

    Trump spent energy week tweeting about two weird reporters who hate him. None of the above was widely reported.

    Before he strives for dominance, he should work on simple competence in US energy policy.

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