Establishing American “energy dominance” has been a key policy objective of the Trump Administration.
Since coming to office, President Donald S. Trump has made increasing U.S. energy production and energy exports a priority. And for a time, it looked like he might pull it off.
Oil production has doubled since 2008. This year American oil output exceeded 10 million bpd for the first time in decades. Production from the shale revolution, particularly the Permian Basin of Texas, has been booming. Investment into new leases both onshore and off has increased, as the Trump Administration has opened up federal land and the entire coastal plain for drilling.
The EIA predicts that U.S. production will continue to rise, exceeding 11.5 million bpd in 2019.
According to Secretary of Energy Rick Perry, Secretary of the Interior Ryan Zinke and EPA chief Scott Pruitt in a June 2017 op-ed, energy dominance “means a self-reliant and secure nation, free from the geopolitical turmoil of other nations that seek to use energy as an economic weapon.”
Energy dominance, in other words, means “energy independence,” an oft-repeated political slogan deployed by virtually every U.S. President since Richard Nixon.
But the United States cannot be completely independent from the global energy market. Nor cannot it achieve full self-sufficiency in energy consumption while insulating itself from changes in oil and gas prices.
The fallout from the killing of Jamal Khashoggi led a sudden increase in tensions between the U.S. and Saudi Arabia, the world’s top oil exporter. Prices ticked upwards based on fears that a diplomatic spat could disrupt Saudi oil sales to the U.S., which average around 1 million bpd according to the EIA. Related: Cold Snap Could Send Natural Gas To $5
The U.S. imports less from Saudi now than it did in 2008, when imports stood at 1.5 million bpd. But the incident highlighted the fact that the U.S. still relies on imports to cover domestic consumption: in 2017, imports averaged 10 million bpd.
According to the most recent EIA data, the energy trade gap has narrowed, but won’t disappear entirely if current consumption trends continue. Production will continue to rise, but infrastructure constraints will hold back increased output in the Permian.
The Trump Administration could alleviate the pressure by cutting back on consumption, but the government has done just the opposite. Federal fuel economy restrictions have been weakened and research into conservation and alternative transportation has been slashed.
Along with energy dominance, another key aspect of Trump’s policy has been to pressure Iran through economic sanctions, scheduled to go into effect on November 5. A months-long effort to restrict Iranian oil exports has succeeded in slashing them by a half, but this has placed the U.S. in a bind: it needs OPEC producers to keep pumping to make up the loss of Iran’s product on the market. Related: Iran’s Worst Nightmare Is Coming True
While fears of a supply crunch seem overblown, and the market may even be flirting with a glut going into the 2018-2019 winter season, the situation shows that U.S. hopes of energy independence are misplaced. There is no safety for the U.S. consumer in today’s globalized energy market, particularly when the U.S. government upends the market by targeting oil producers.
This realization seems to have hit the Trump Administration. The Wall Street Journal reported that Secretary of the Treasury Steven Mnuchin is urging caution in the administration’s response to the European Union’s attempts to work around Iran sanctions.
Iran is facing a bleaker situation, as oil prices fall and China suspends purchases of Iranian crude. The U.S. may succeed in bringing maximum pressure on Iran in the short term. But if the supply situation tightens, Iran’s crude might find markets again.
If energy dominance means re-positioning the U.S. as a major oil producer and exporter, the Trump Administration has succeeded in following the course set by the Obama Administration. But the U.S. shouldn’t hold out hope for true energy independence if it continues to rely on fossil fuel consumption. In today’s globally integrated world, such a thing simply does not exist.
By Gregory Brew for Oilprice.com
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