This week is "Energy Week," when the Administration of U.S. President Donald Trump emphasizes its policy towards oil and gas, particularly its general goal of increasing American production and exports while limiting or altering imports for domestic consumption.
Like "Infrastructure Week," the Administration has been a little light on details. It's stated goals, however, are quite straight-forward and focus on the concept of "energy dominance."
"An energy dominant America means self-reliant," explained Secretary of Energy Rick Perry. "It means a secure nation, free from the geopolitical turmoil of other nations who seek to use energy as an economic weapon."
"An energy dominant America will export to markets around the world, increasing our global leadership and our influence." Energy dominance focuses on increasing exports while only permitting imports of crude oil from stable states allied to the U.S.
At face value, this all seems pretty familiar. The goals laid out by Perry mirror the declarations of U.S. President Richard Nixon, who after the 1973-74 oil crisis and OAPEC Embargo emphasized the importance of "energy independence" for the purposes of U.S. national security. Nixon's program was followed up by President Jimmy Carter, as well as all subsequent U.S. presidents.
The conversation around "energy independence" grew more nuanced over time and was re-focused around the idea of "energy security." The idea that the United States could be self-sufficient (or as Perry puts it, "self-reliant") is unrealistic given the global nature of energy and the formation of the international energy system. "Energy security," however, emphasized less dependence on "insecure" sources of energy in the Middle East, Latin American and Africa in favor of North American or European sources. Accomplishing this has been a stated U.S. goal for decades and has been a major influence on American policy in the Middle East since the 1980s, the First Gulf War and the invasion of Iraq in 2003. Related: Shale Rebound Runs Out Of Steam At $40 Oil
How, then, is "energy dominance" different? The key lies in Perry's emphasis on exports. The surge in U.S. shale since 2010 has created a boom in U.S. oil production, but it is natural gas which is the main target for the Administrations' plans. Exports in the form of liquefied natural gas would allow the United States to form new trade links with energy partners abroad, potentially expanding American influence in the form of energy exports.
This does not necessarily constitute a break in U.S. policy. Under President Barack Obama, the decades-old ban on crude exports was lifted in December 2015, while the federal government authorized a host of LNG-export projects, including Cheniere Energy's terminal at Sabine Pass.
President Trump plans on going further. He intends to offer leases for new coal mines on federal land, knock down regulations inhibiting the construction of new pipelines, and reduce further regulations on methane gas emissions from natural gas production.
"Energy dominance" also indicates the tone the Administration wishes to set around this new energy-focused initiative. President Trump seems keen to re-position the United States as a major energy exporter which can use its status as a source of political leverage. It implies that customers of U.S. LNG or crude will have to submit to other aspects of U.S. foreign policy. A message touting this idea was present when Trump met with Indian Prime Minister Narendra Modi on June 26.
That could be a dangerous policy. For one thing, potential customers will be wary of accepting U.S. energy if there are strings attached. Other sources of energy, particularly bountiful LNG exports from Australia, Qatar or Iran may look more attractive. Analysts have also warned that the ability of the U.S. to increase geopolitical leverage through energy exports shouldn't be overstated, particularly in areas like Eastern Europe, where Russia has been pursuing energy-centric foreign policy for years. Related: $30 Oil Could Spark Contagion In Energy Markets
The policy is based upon the ability of the U.S. to produce at competitive levels, and at competitive prices. Right now, the price of both crude oil and natural gas is stuck at historic lows. American producers have proven extremely resilient and are continuing to increase output, but that may not last if prices hover below $50 or drop still further.
"Dominance" implies the U .S. out-competing all rivals, including OPEC, Russia and other energy producers. So far, the bulk of U.S. LNG has been shipped to Latin America and East Asia. It faces stiff competition in both of these areas from other producers. Even as the U.S. increases output, domestic demand will continue to grow, while the EIA estimates that the overall U.S. share of global energy production, which fell from 24 percent in 1980 to 15 percent today, will decline to 13 percent by 2040 as new sources come on line.
"Energy dominance," if it coalesces into concrete policy, will be good news for companies like Cheniere that are focusing on increasing LNG exports. The policy may take advantage of market conditions that allow the U.S. to seize market share from other exporters. But in the long-term, changes in the market and fluctuations in price could have unintended consequences for the Trump Administration's ambitious agenda.
By Gregory Brew for Oilprice.com
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Dr. Gregory Brew is a researcher and analyst based in Washington D.C. He is a fellow at the Metropolitan Society for International Affairs, and his… More
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