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Is energy 'dominance' the right goal for US policy?

Posted on 18 July 2017 by Guest Author

Daniel Raimi, Senior research associate (Resources for the Future), Lecturer (University of Michigan Ford School of Public Policy), University of Michigan

This article was originally published on The Conversation. Read the original article.

In recent weeks, a new energy buzzword has taken flight from Washington, D.C., making stops in Alaska, North Dakota, Texas, Utah and more: “American energy dominance.” Taking a cue from a 2016 speech by then-candidate Donald Trump, top federal officials including Energy Secretary Rick Perry and Interior Secretary Ryan Zinke have begun to trumpet the notion of energy “dominance.”

Although no Cabinet official has offered a precise definition, it’s a recurring theme in a set of administration events organized around energy policy, including a planned speech by Trump emphasizing exports of coal, natural gas and oil.

So what does this new energy catchphrase mean, and how should we think about it?

Domestic boom

For decades, U.S. politicians have trumpeted the notion of energy “independence,” focused primarily on the need to eliminate oil imports from OPEC nations and other countries that may not share U.S. interests. But as other energy policy experts have observed, “independence” was never a smart energy goal. Isolating the U.S. from global energy markets is neither in the interest of domestic consumers nor newly resurgent oil and gas producers in the U.S.

For consumers, access to international markets ensures energy supplies at more stable prices. For instance, consider what would happen if a hurricane shut down production and refining along the Gulf Coast, the hub of the U.S. oil and gas industry. Without access to global markets, prices for motor fuels, home heating fuels and other products would be far more volatile.

As for producers, they have argued strongly for opening up, rather than sealing off, access to international energy markets. They’ve lobbied to lift restrictions on crude oil exports and encouraged exports of natural gas via new pipelines and liquefied natural gas (LNG) terminals.

Spurred by increased oil and gas production as a result of the shale revolution, these policy changes have resulted in dramatic growth in U.S. energy exports. In fact, net energy exports (energy exports minus energy imports) have risen to their highest level in decades. The United States could even be a net energy exporter by 2020 under one optimistic scenario.

The surge in oil and natural gas production in the U.S. means the country could become a net exporter of oil and natural gas. Energy Information Administration

This is a historic change, and administration officials are right to point out that the boom in energy production has benefited local economies, boosted tax revenues and increased U.S. leverage in diplomatic matters with countries like Russia and Iran. It has also raised important environmental and social concerns in impacted communities, such as soil and water contamination from oil and gas wastewater spills, increased traffic accidents and more.

But does does a strengthened oil and gas industry put the United States on track to energy dominance? In a word, no.

Pull of global markets

When people use the word “dominant,” they might think of the 2017 NBA Golden State Warriors, or Roger Federer in his heyday at Wimbledon.

“Dominance” suggests the United States could bend geopolitical adversaries to its will by wielding energy as some type of bargaining chip or weapon. But the buying and selling of oil, gas and other forms of U.S.-produced energy are directed by market forces, not government policy. For example, a large share of recently increased crude oil exports from the U.S. has effectively gone to Venezuela, hardly a close ally. (To be precise, these exports go to the island of Curacao, where a Venezuelan-owned refinery blends U.S. light oil with heavier Venezuelan crudes.)

Indeed, U.S. policymakers routinely object when other nations (such as Iran, Russia or Saudi Arabia) make decisions about buying or selling energy with geopolitical goals in mind. What’s more, manipulating energy exports to punish or reward other nations would almost certainly lead to retaliation, erecting new trade barriers that would ultimately harm the domestic and global economy.

And even if it were desirable, “dominance” of global energy markets in today’s world is simply unrealistic. There is no Roger Federer of energy.

Consider the Organization of Petroleum Exporting Countries (OPEC), maybe the closest thing to the Golden State Warriors of the energy world, which has struggled mightily in recent years to exert some control over consistently low oil prices. U.S. oil and natural gas producers, while reemergent as major players, do not have OPEC’s market power, let alone that of John D. Rockefeller in the late 1800s and early 1900s or the Texas Railroad Commission from the 1930s through the 1960s (see the excellent new book “Crude Volatility” for more on this).

And why is it unrealistic to expect U.S. producers to exert this type of power? The answer lies in the enormous scale of the global energy system, which is many times larger than in the heyday of Rockefeller or other effective market managers.

A better objective

When viewed on this global scale, the resurgence of U.S. energy production looks more far more modest. The scale of current and projected global energy demand is so vast, changes in trends of U.S. energy production hardly make a dent. As a share of global energy demand, U.S. production has actually declined from 24 percent in 1980 to about 15 percent today, and is projected to decline further – even under a scenario where domestic oil and gas production grows more rapidly than expected – to 13 percent by 2040.

Even with surging oil and gas production, the U.S. still only supplies a small portion of global demand, which limits its geopolitical influence. Energy Information Administration

To craft smart energy policies, decision-makers need to clearly identify their objectives, then work toward meeting them. These objectives should focus on enabling widespread access to reliable, affordable and sustainable energy sources.

Like its forerunner, energy “independence,” the notion of American energy “dominance” is unrealistic, given the outsize role global markets play compared to U.S. policy, and it unwisely distracts from the goals that should be shaping U.S. energy policy.


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Comments 1 to 6:

  1. The "energy independence" thinking is understandable, but it seems like a very inward looking, fortress mentality that has a lot of problems as well.The whole idea does indeed erode the whole idea of free markets and trade in general, and the benefits this brings. It assumes that trade is high risk and highly unreliable, but that really isn't the case in the main historically. There was admittedly the1970s opec oil crisis, but you can't let your thinking be ruled forever by that sort of thing, that was very temporary anyway.

    The only real argument is that energy is critical to national self defence, but America could form trade alliances critical to the military with friendly countries or a wide diversity of countries, rather than trying for total independence, which is near impossible anyway.

    It also begs the question why stop with energy independence, and not other products? Where do you draw the line?

    Energy independence and national planning of this is also hypocritical, given America preaches to the world about free markets, small government and capitalism.

    "Energy dominance" is just wishfull thinking. America is no longer big enough to dominate energy and other areas, as other countries and alliances have become huge. America has many hugely good qualities and can lead in other more enlightened ways.

    America is hardly likely to dominate coal markets, and the whole coal market is stagnant with no furure. Global production has stalled and numbers of new mines has dropped considerably. What use is dominating that sort of market? What is the purpose other than just an empty, symbolic power play?

    Here we have America and Britian turning inwards and backwards to the past. It looks like fear. Virtually every other country is embracing some form of liberalism, free trade and globalisation, not without problems, but that is the direction things are going in, and it looks inevitable.

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  2. I find it incredibly ironic that the author sees nothing unusual in demand for fossil fuels continuing to increase so significantly in the future.  Contrast this with the earlier SkS article on Mission 2020, where emissions need to peak in 2020 and then decline to zero over about 20 plus years.  Can nobody put two and two together?  Reducing emissions at such a high rate demands that fossil-fuel use decline at a similarly high rate.  I give up.

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  3. #2: "incredibly ironic"

    I don't think so - the guest author simply relies on one of many possible scenarios / projections. It may well be BAU or something similar. For the time being it is hard if not impossible to say where things are heading - many are quite pessimistic if the Paris Agreement goals will be met or at least be met in a wider timeframe.

    So, the author is free to use a BAU demand - it may be more realistic than other demand projections.

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  4. ajki @3

    We know business as usual leads to catastrophe, but it's too difficult even to contemplate a safer course so, what the hell, let's enjoy our fossil fuels while we can.  Right?

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  5. #4, most people living aren't particularly enjoying anything while depending on the use of fossil fuels in many indirect and invisible ways. They don't have anything to decide regarding energy regimes, food chains, infrastructure.... within their whole lifetime. And then there are the unborn of exactly the same people - for them the living demanders strive for at least some amount of the wealth of the rich people (nothing fancy). When even the rich part of the world currently seems unable or unwilling to change the trend of using fossil fuels, then 8 billions or more of the 12 billions in 2050+ can't even think about any catastrophe to come - they are struggling with the catastrophe they're living by. So: wrong, nothing ironic or whitty here.

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  6. ajki @5

    I'm being sarcastic, not witty.  And when I talk about "we", I mean all of humanity — rich and poor alike.

    Yes, the rich should be driving the transition away from fossil fuels, but if you think fossil fuels are essential for the poor to thrive, you are flatly wrong.  There is no reason why the poor cannot benefit from the transition.

    I recall an article — unfortunately I cannot remember which one — in which the point was made that the above transition in the global economy would require full employment for about thirty years.  To me that sounds like a good thing for the poor.

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