U.S. energy independence
is a myth.
Oil is a globally traded commodity, so no matter how much oil and gas emerges from the Great American Shale Boom, the price we pay at the pump will remain dependent on supply and demand in the rest of the world, including the Middle East.
As ITG Energy Research Director Judith Dwarkin told us recently:
“…the notion that the US is less exposed to disruptions in international crude trade now because it imports less oil reflects a lack of understanding about how the world oil market actually works. The world oil market is a single, integrated market — meaning an oil crisis anywhere is a crisis everywhere. In this world, it’s the sum of demand and the sum of supplies that determines prices. So unless the US decides to control crude prices within its own territory (a truly horrible idea), it isn’t insulated from price shocks related to disruptions in oil trade outside its borders, whatever the reason for the disruptions.”
But that does not mean the boom has all been for nothing.
Here are five ways ‘Saudi America’ is is reshaping geopolitics.
We put sanctions on Iran without roiling oil prices
Western sanctions took 1.5 million barrels of Iranian crude out of the market. But as S&P’s Peter Rigby told us in June, a large portion of lost Iranian oil was made up for by North American shale production:
…as Iranian supply came off the global market, new US supply was coming on line to contribute to meeting global demand.
So even though US supply, for all practical purposes, does not go onto the global market, it contributes to global supplies. The price is still global, which the US pays, adjusted, of course, for transportation and crude quality differentials.
So, all else being equal, had the embargo gone into effect without that new 1 million barrels per day from the US, there would have been upwards price pressure on crude.
One million barrels is not an insignificant amount, as evidenced by the changing crude oil shipping patterns that are emerging.
We will soon be supplying large quantities of liquefied natural gas to Europe and Asia
Natural gas exports do not face the same restrictions as crude, and the U.S. has approved four new liquefied natural gas (LNG) terminals since the advent of the shale boom to take product to countries with which we have no free trade agreements. And there are a lot of them. An additional 6.27 bcf of gas a day can now be shipped abroad. 10 more terminals are awaiting approval.
And some countries are now already relying on us for much of their petroleum products
Here is a list of the countries importing the largest quantities of oil products, showing along with what proportion of their consumption that would represent (it’s not totally one-to-one as some countries like Panama are transit points):
- Panama: 126,000 b/d, up 147% from 2007, equivalent to 100% of Panamanian domestic consumption
- Chile: 148,000 b/d, up 179% from 2007, equivalent to 44% of Chilean domestic consumption
- Mexico: 565,000 b/d, up 102% from 2007, equivalent to 27% of Mexican domestic consumption
- Netherlands: 239,000 b/d, up 195% from 2007, equivalent to 24% of Dutch domestic consumption
- Canada: 464,000 b/d, up from 120% from 2007, equivalent to 18% of Canadian domestic consumption
- Venezuela: 89,000 b/d, up 304% from 2007, equivalent to 12% of Venezuelan domestic consumption
Here’s a map showing countries receiving the most overall products:
Carbon emissions have been cut, potentially derailing climate change reduction policies
Some analysts say America may lose sight of climate change as a result of its shale production. That’s in part because low natural gas prices has sent coal consumption down -12% since 2011 — and in the process, reduced CO2 emissions. Between 2010 and 2012, they fell-5% in the U.S., and helped slow global emissions growth to 2%, according to BP data.
“This extraordinary rate of [shale] development is good for our country in terms of jobs and energy prices, but bad in that we are not worrying as much about the greenhouse gas problem as we are about exploiting gas with hydrofracking,” Penn State geosciences professor Susan Brantley told The Guardian.
Fracking did not stop President Obama from instituting new rules for coal plants. Plus, there’s debate about whether, over the long term, natural gas production does impact the climate.
But the current numbers are undeniable, and the State Department now has an active program devoted to helping countries promote their own shale industries.
The Russian and Saudi economies may get upended
Just because the U.S. will always remain as exposed to global oil markets, it doesn’t mean countries heavily reliant on oil won’t see turmoil. In an open letter to the Saudi monarchy earlier this year, billionaire investor Prince Alweed warned that the country should begin examining how to further diversify its economy should American and Asian shale production start eating into Saudi market share. This week, the country announced it would begin ramping up its unconventional gas production.
The greater danger may actually be to Russia, whose economy heavily depends on elevated natural gas prices. Once the aforementioned U.S. gas exports come on line, those prices will begin to come down. As Southern Methodist University’s Bernard Weinstein has written, “…by exporting liquefied natural gas (LNG) from the U.S. to Europe and Asia we can help break Gazprom’s hold on those markets. At the same time, we should continue transferring our fracking technology to China, Poland and other countries with substantial shale resources to diminish their dependence on Russian gas.”