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

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

More Top Reads From Oilprice.com:

• Can 'Fire Ice' Replace Shale?
• Why The Oil Price Implosion Didn't Drag Global Markets Down
• U.S. Refinery Products Are Taking The World By Storm