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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Little Protection Forecast from U.S. Oil Boom

When crude oil prices settled above $100 per barrel during the first quarter this year, the International Energy Agency noted that psychological risks were infused into oil markets. Tehran, at the time, was threatening to close the Strait of Hormuz, the conduit for about 20 percent of the world's oil transport. The IEA said there were no physical disruptions in the markets, however, suggesting the price reflected a concern about something other than oil directly. A study from Harvard finds that long term, it’s these factors that will define the international markets and energy security in the United States.

In the 1970s, Washington decided that oil was a strategic national interest, specifically oil from the Middle East, that required military assets to defend. By 2012, though advancements in technology have revealed new and more lucrative deposits, it's still the decisions world leaders make and the subsequent geopolitical ramifications that matter.

A study from Harvard suggests the "real problems" in terms of the international oil market aren't so much oil production as "political decisions and geopolitical instability." The study finds that, of all the major oil-producing countries in the world, only four – Iran, Mexico, Norway and the United Kingdom – show a long-term decline in production capacity by 2020. The loss of production in Iran and Mexico, the report finds, is due largely to political factors. Mexico, for all intents and purposes, is a narco-state. With sanctions set to go into force against Iran in a matter of days, Tehran has already acknowledged oil exports were down by as much as 30 percent.

The Harvard study, by former Eni executive Leonardo Maugeri, find that by 2020, gross global oil production from current fields could add another 49 million barrels per day to the markets by 2020. That's twice the current level. A significant portion of that production comes from North American tight oil deposits.  But 2020, says Maugeri, the United States will move to the No. 2 position behind Saudi Arabia. These North American crude oil volumes will lead to a "tectonic shift" in geopolitics as the Western Hemisphere passes the rest of the world in terms of the rate at which oil production increase.

So what's that mean for the U.S. market? Partisan debate is centred on right-wing leaders who are clamouring for more oil drilling and their critics who say much of that motivation comes from the pocketbooks of international oil companies. Maugeri said North America could move toward "theoretical oil self-sufficiency" given current forecasts for oil production. Moving to the No. 2 position is a significant gain by 2020, suggesting that, at least in terms of raw numbers, the U.S. economy will be insulated from the rest of the world.

That would be a political coup for lawmakers today pressing for more domestic drilling. But Maugeri states that "theoretical" self-sufficiency becomes "quasi" self-sufficiency when considering external factors. In the United States, the Keystone XL oil pipeline from Canada is emblematic of U.S. energy security. In Canada, however, a large part of that symbolism lies in the Northern Gateway, a pipeline meant for Asian exports. If commercial factors won't protect U.S. markets from foreign oil and there is a physical glut, Maugeri says "geopolitical and psychological factors" make the idea of self-sufficiency "irrelevant."

By. Daniel Graeber of Oilprice.com




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