A Slogan is Not a Policy

Moisés Naím / World Energy & Oil

In December 2017, the Trump administration released its National Security Strategy. It predicted that “For the first time in generations, the United States will be an energydominant nation.” The Strategy document outlined five priority actions needed to attain this objective: 1. Reducing Barriers to Energy Production by promoting clean and safe energy resources, while limiting regulatory burdens that encumber energy production and constrain economic growth; 2. Promoting Exports of energy resources, technologies, and services, helping allies and partners to diversify their energy sources and bringing economic gains to the U.S.; 3. Ensuring Energy Security by working with allies and partners to protect global energy infrastructure from cyber and physical threats; 4. Attaining universal energy access to affordable, reliable energy, including highly efficient fossil fuels and nuclear and renewable energy in order to reduce poverty, foster economic growth, and promote prosperity and 5. Furthering America’s technological edge through nuclear technology, nextgeneration nuclear reactors, better batteries, advanced computing, and carbon-capture technologies while continuing to lead in innovative and efficient energy technologies.”

This new policy seeks to complement two traditional goals of America’s energy policy: security of supply and independence from foreign sources. The goal is no longer just to make the U.S. more energy secure and independent but also energy dominant. This aim is, of course, aligned with President Trump’s overarching “Make America Great Again” theme.

How realistic is this objective? In recent years, new technologies have propelled the U.S. to the status of energy super-power. It now rivals and often surpasses the production of the traditional hydrocarbon behemoths, Saudi Arabia and Russia, and has become one of the world’s top exporters.

It is only natural that the successful performance of recent years would nurture the United States’ ambition to be one of the world’s energy leaders. Once energy security and independence were no longer aspirational goals but concrete realities, wanting more seemed the logical next step. And “more” means the ability to determine the trends of global energy markets and perhaps become the world’s price setter and production sheriff.

Surely this is an alluring possibility for American policy makers, and even more so for politicians. Under closer scrutiny, however the global dominance vision proves to be more problematic as a policy than it is as a slogan.

The dominated will resist dominance
In September 2017, the U.S. Secretary of the Interior Ryan Zinke stated “Under President Trump, we will put America first, and we will put America’s energy first.” He saw no conflict between the two policies. But as many analysts have noted, America First may lead to America Alone, for energy dominance may be impossible to achieve without the active support of foreign allies. Few industries are more global in nature than the energy industry. Its structure, organization and functioning do not mix well with protectionism, isolationism or America Alone.

The goal of making the U.S. the planet’s energy hegemon is presented by the Trump administration as a lowcost and largely friction-free policy that doesn’t need external support or foreign allies. It assumes that other nations, consumers and competitors, technology suppliers and energy companies will accept without a fight the new energy order imposed by Washington. Or that the cost of these frictions is small and worth paying if this leads to a world whose energy markets are dominated by the U.S. The validity of these assumptions is questionable.

For example, the recent strains between the U.S. and Europe on trade and military cooperation are largely byproducts of the America First policy. These strains could prove a deterrent to the expansion of U.S. energy exports to the European energy markets. The recent and partly successful oil and gas forays that the U.S. has made into European nations have already triggered a reaction from Russia, a formidable competitor to the U.S. in the energy markets of Europe and Asia. Kremlin spokesman Dmitry Peskov has called these attempts by the U.S. “unfair competition” and vowed to fight them. Although American oil and gas exports to Europe will certainly allow European nations to reduce their significant dependence on Russian fossil fuels, they are unlikely to replace the oil and gas infrastructure already in place linking Europe and Russia. Other large energy producers will not be passive observers of America’s attempts at cornering this critical industry.

U.S. actions related to putting America First tend to spark episodes of economic isolationism and hamper trade cooperation, and this could become a formidable obstacle to the expansion of U.S. oil and gas exports, a fundamental requisite for the proposed energy dominance. As Bethany McLean the author of Saudi America: The Truth about Fracking and How It’s Changing the World has noted, the U.S. needs to keep harmonious relations with the outside world. She writes “In a world where over 40 percent of the S&P 500’s revenues come from outside the U.S., the American economy is dependent on the global economy.”

Energy Dominance depends on fracking
U.S. proven oil reserves, at some 50 billion barrels, would last about 10 years at the current rate of production. However, shale oil resources that are yet undeveloped are very significant and could sustain large production levels for decades, thus allowing the U.S. to seek a dominant role in these markets. Therefore, resources are not the problem. Economics is.

In contrast to the state controlled production decisions of OPEC countries, U.S. oil production is driven by private companies, whose decisions on production levels and prices are more likely to reflect purely economic calculations. The continuous increase in oil production required to make the U.S. the dominant player cannot be guaranteed. In Saudi America McLean details the multiplicity of economic and geological factors that could limit the dramatic expansion of shale oil production needed to support a policy of Energy Dominance. These limitations include the rapid decline in production typical of shale oil producing wells and the significant capital resources required to support expansion.

Moreover, other nations also have significant reserves of shale oil and gas and they too could boost their production and add to downward pressures on prices, and U.S. energy dominance may need high prices to sustain enormous levels of shale oil and gas production. High prices are difficult to sustain with booming production levels.

America’s Energy Dominance is bad for the environment
The March 2017 executive order of the U.S. president on the Promotion of Energy Independence and Economic Growth revoked most of the provisions that previous administrations had enacted to deal with global warming and the impacts of climate change, as well as the regulations concerning carbon emissions standards. It also rescinded the 2013 Climate Action Plan and the 2014 Strategy to Reduce Methane emissions. The new presidential document also ordered an immediate review of all Environmental Protection Agency actions that “potentially burden the development of domestic energy resources, particularly coal, oil, nuclear and natural gas resources.” These decisions, together with the withdrawal of the U.S. from the 2015 Paris Accord, signaled a total reversal of the U.S. government’s previous acknowledgment of global warming as a major threat to the planet. It also affirmed the decision to expand production of contaminant fossil fuels such as coal and oil.

These decisions have placed the U.S. in a collision course with most other countries, which are both more “green” and the intended clients of a major export drive of coal, oil and gas by the new U.S. administration. As the global environmental crisis becomes more acute, the pressure will build for the U.S. government to water-down or even abandon these carbon-intensive energy dominance aspirations.

An infrastructure designed for energy interdependence, not dominance
Although the U.S is already the world’s leading oil producer, at some 11 million barrels per day (mbpd), the country still depends on net imports of about 4 mbpd, mostly from Canada, Mexico and Saudi Arabia. For geographical and logistical reasons the U.S. also exchanges about 2 mbpd with neighboring Canada and Mexico. This has been going on for decades and as a result a massive and complex logistical and distribution infrastructure has developed that tightly intertwines companies located in these different nations.

Energy dominance will require a different kind of infrastructure. The still significant size of U.S. net energy imports and the necessary energy interchanges with its neighbors create a situation of energy interdependence unlikely to be easily or substantially revamped in the foreseeable future.

Today’s industry is fragmented and hard to monopolize
The current global energy picture shows an abundance of exportable energy resources in the hands of both the traditional OPEC oil-producing nations and an array of new actors. No less than 20 countries in Africa, Latin America, the Middle East and Asia, both OPEC and non-OPEC members, already export volumes of 500,000 barrels per day or more. They all have long-term, solid commercial relations with some of the most important energy consumers such as China, Germany, India, Japan and South Korea.

The world of the “Seven Sisters,” the large, vertically-integrated oil “majors” that controlled all aspects of the global hydrocarbon industry is long gone. It has been replaced by a global, complex and rowdy ecosystem that includes all kinds of new players–from independent oil companies, to agile fracking players and from fast-moving traders, private equity firms and hedge funds to companies that manufacture wind and solar systems or large scale batteries. Making them play by a single script mandated by Washington is going to be a very hard, if not impossible, undertaking.

An approach politically driven and thus highly unstable
Public statements by members of the current administration suggest that the policy of Energy Dominance is a decision essentially based on political and ideological considerations rather than in hard-nosed, economic criteria. In justifying the policy, Secretary of Interior Zinke has bluntly stated that: “The Obama administration had too much environmental regulation, which was ideologically motivated and which unfairly targeted fossil fuels.” In an op-ed in the Washington Times, Secretary Zinke, Secretary of Energy, Rick Perry and then Environmental Administrator, Scott Pruitt stated that dominance meant “freedom from the geopolitical turmoil of other nations that use energy as an economic weapon. An energy dominant America will increase its global leadership and influence.”

In other words, the U.S. would now go from playing the anvil to being the hammer. Such a reversal of roles, if at all possible, would be expensive and take significant time to take place. The expansion of domestic oil production and the construction of oil and gas export facilities that will be needed to fulfill the aspiration of dominance will take years or, even decades, if the frequently dramatic oscillations which take place in the global energy market are duly taken into account. For the policy to materialize it would need to be shared by future administrations, which is a lowprobability scenario.

In summary
Energy dominance means being able to influence or determine the global production, distribution and pricing of energy and to become the world leader in exports of oil, gas and coal. To accomplish this objective, the U.S. would be starting from nearly zero. It is a net importer of oil, scaling up natural gas exports will require major changes in infrastructure and current coal exports only represent about 0.5 percent of the world’s total consumption. U.S. Energy Dominance works better as a slogan than a policy.