Is the United States energy dominant, as the Trump administration purports?

Is the United States energy dominant, as the Trump administration purports?
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"For the first time in generations, the United States will be an energy-dominant nation,” President Donald TrumpDonald John TrumpNFL freezes policy barring players from protesting during anthem McConnell spokesman on Putin visit: 'There is no invitation from Congress' Petition urges University of Virginia not to hire Marc Short MORE’s first National Security Strategy (NSS) asserts.

The document explains the notion of energy dominance by emphasizing America's central position in the global energy system. The criteria the document uses to justify its description of the United States as energy dominant is U.S. "leadership in production, consumption and innovation as well as the commitment of the United States to ensure free markets.”

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But is the United States really energy dominant? Is it superior to other countries in energy-industry importance or influence?

 

The shale revolution has certainly made the United States less dependent on energy imports. In fact, the country has finally matched the peak domestic oil production it achieved in 1978.

Advancements in shale technology and expansion of the United States’ pipeline network and oil export infrastructure have enabled it to export hydrocarbon resources for the first time in decades.

This rapid increase in U.S. oil and gas production is transforming the global energy market. Supply has exceeded demand, slashing oil prices from over $100 a barrel to the mid-50s.

The U.S. oil and gas revival has helped shift the price-influencing landscape from OPEC to non-OPEC countries. One of the winners is European countries, which are longtime energy importers; they gained leverage in the oil and gas markets that they have not had for a long time.

Despite the United States’ surge in production and ability to influence global energy prices, it is still an oil importer. In fact, it still imports 30 percent of its need.

But the impact that growing U.S. output has on the global market is real. It is one of the factors that prevent one country, Saudi Arabia, from being able to shape market dynamics the way it once did.

While importers have learned that it is a buyer’s market, they also know that it's not a free market. Leading petroleum exporters such as Saudi Arabia and Russia can influence the market in a way that proves that.

History has shown that when these two countries decide to intervene in the market, the  landscape can change radically.

One example is the 1973 oil embargo that the Saudis used to punish the West for supporting Israel in the Yom Kippur War. The embargo led to oil shortages that caused prices to soar.

Another example is the Kremlin’s threat of cutting off oil and gas to Europe, which is dependent on Russian energy, to try to muffle European criticism of the Kremlin’s seizure of Crimea in 2014 and its support for eastern Ukrainian secessionists.

In some ways, Moscow’s energy muscle-flexing has backfired, with European countries taking steps to cut their dependence on Russian oil and gas. But breaking the dependence will take another decade or two, which means the Kremlin will continue holding an energy sword over Europe’s head.

Some U.S. politicians would like the world to believe that American government policy has played a key role in creating today’s abundance of oil and gas, crimping Saudi Arabia and Russia’s ability to use energy as a foreign-policy hammer.

While U.S. government policy to promote the shale revolution has helped, what has really made the difference are organic industry processes, particularly advances in shale technology. Those advances have led to shale producers being able to lower their costs to remain competitive as oil prices have dropped.

Although the United States could have devised additional policy initiatives to change the global energy market the past two decades, it has been hamstrung by its longstanding worship of free-market principles. This commitment means that its main policy-influencing tool has been facilitating more oil production and exports.

Can other countries besides the United States claim energy dominance these days?

The definition of energy dominance that is in the NSS certainly means Russia can call itself an energy-dominant nation.

Even before OPEC decided to cut oil production in 2016, Russian output surpassed Saudi Arabia’s. It’s also a huge gas producer and is located on the flanks of two of the largest gas-consuming regions in the world — the European Union and China.

Russia’s integral role in the oil-volume reduction deal that OPEC and non-OPEC nations forged last year underscored its major influence on oil markets.

Until Russia’s ascent, Saudi Arabia had been the only market-swing producer — that is, the one country that could decide which way oil volumes, and thus prices, headed.

The volume-cut deal of 2016 showed that the Saudis have lost their ability to determine prices single-handedly. They need Russian support to make production deals happen so that prices don’t plummet again.

Russia’s ability to influence the Saudis makes the United States, the Saudis’ longtime ally and Moscow’s enemy, vulnerable in the Middle East and elsewhere.

In addition to being one of the world’s biggest petroleum-products consumers, China also produces a lot of oil and gas. In fact, it is the fifth-largest oil producer and second-largest petroleum-products consumer after the United States. And the International Energy Association says that more than half of the growth in energy demand in the next 30 years will come from rapidly developing countries such as China and India.

This means China has the potential to become energy dominant as well.

So is the United States really energy dominant? No. Is it energy abundant? Yes.

Is it committed to the free-market principles in oil and gas that other countries can turn their back on? Yes.

The problem is that this puts it at a disadvantage compared with countries such as Saudi Arabia and Russia that are not committed to free markets and are more interested in results than process — including both economic and foreign-policy results.

Rauf Mammadov is a resident scholar on energy policy at The Middle East Institute.