On June 29, 2017, President Trump gave a speech at the Department of Energy regarding his planned Energy Policy. He proposed a program to achieve “Energy Dominance” in which the US would “export American energy to The World to establish Dominance”. To a world already largely dependent on energy from Russia and Arabs with respect to supply and price determination the idea of being further dominated by the United States must not have seemed very attractive.
President Trump outlined factors by which the US would establish this dominance:
- Expand domestic US nuclear power for electricity generation
- Remove barriers to financing foreign coal-powered electric plants
- Build a pipeline to export gas to Mexico
- Sempra Energy will begin negotiations to export Liquefied Natural Gas to South Korea
- Two applications to export LNG from Louisiana have been approved
- Initiate a new offshore US oil and gas leasing program in areas previously closed to leasing.
A few days later, Secretary of Energy Rick Perry defined Energy Dominance:
“An energy dominant America means self-reliant. 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.”
The clear emphasis by the President was on exporting “energy” but in what form was not clear.
None of the President’s six points nor the Secretary’s definition offer a clear means of establishing “Energy Dominance”, self-reliance, or freedom from geopolitical turmoil. If Energy Dominance means self-reliance that sounds much like energy independence which has been an objective of every American President since Nixon thought he had an Energy Crisis in the 1970s.
The US is not in a position to establish Dominance by exporting coal, nuclear plants, electricity, natural gas, or oil “to the World”.
Exporting coal must contend with restrictions imposed by climate and emissions considerations. Expansion of nuclear power for electricity generation is a worthwhile objective for many reasons: reduced emissions, increasing electricity demand, and a reduced physical footprint compared to solar and wind methods. The rest of the world has moved forward with nuclear technology while the US has not built nuclear plants for decades, however, and the US has reduced its nuclear manufacturing capabilities. From a weak position, the US would be entering a market already supplied. Development of nuclear power by the US will mainly be for domestic use.
The US has developed domestic gas supplies to the point we are the only advanced industrial nation to meet the reduced emission requirements of the Kyoto treaty. We did it by replacing coal-fired electric power plants with natural gas. Abundant natural gas supplies were developed with a combination of horizontal drilling and hydraulic fracturing which environmentalists oppose with their own peculiar version of logic. The Europeans also refuse to apply these technologies to develop their own gas supplies preferring to continue hand-wringing and complaining about being dependent on Mr. Putin’s sympathies.
With our large domestic supplies of natural gas and low prices for power we have stimulated investment and expansion of new manufacturing facilities in the US. We can export natural gas or electricity to our neighbors, Canada and Mexico, and have historically done so. Both of these countries have large domestic supplies of energy, however, so exporting to them is based on convenience of location of supply, markets, and transportation facilities and cannot be expected to establish World Energy Dominance.
Exports of US gas to other parts of the world as Liquefied Natural Gas increased significantly in 2015, mostly to Latin America, but they have not yet reached the level of a strategic commodity to achieve dominance. These gas exports are entering a market with abundant sources of supply and with transportation routes and facilities already established. US gas supplies are not in a first-supplier position or shortage environment to establish dominance in most of these markets. EIA estimates that US gas exports will not exceed 10% of domestic production. I have been through several cycles of abundance and shortage and have reservations about exporting resources we may need later.
Which brings us to oil. Oil is the elephant in the room with respect to international financial relationships, foreign policy, supply and pricing relationships, and strategic concerns for several reasons. First: A reliable oil supply at tolerable cost is necessary to establish and maintain a modern economy. Second: Oil is the largest component of international trade. Third: Oil is priced and paid for in international trade in US dollars, known as Petrodollars. This price system and the size and critical nature of the oil markets supports the US dollar as the international reserve currency, tightly intertwines the oil markets with the international financial system, and causes the value of the dollar and Federal Reserve actions to significantly impact the price of oil. Fourth: Many major industrialized advanced economies are large consumers of oil but have no significant indigenous supplies of oil and many nations with major supplies are not major consumers. Therefore maintaining trade between consumers and producers is critical. Fifth: The US imports over 8 million barrels of oil per day. Sixth: For all the previous reasons, oil is a major consideration in foreign policy but is understood by few people making that policy.
The US, with considerable expenditure of capital, time, effort, and other resources and over 200 oil company bankruptcies has developed and applied oil-well horizontal drilling and hydraulic fracturing methods which have significantly increased US oil production by more than 4 million b/d; this increase has been widely publicized and recognized. In addition, US demand has decreased somewhat.
The salient point, however, is that the US still imports over 8 million b/d of oil.
The US is not self-sufficient with respect to oil supplies. All oil exported by the US must be replaced by increased imports. To reach oil supply independence and develop an additional significant export capability would require the US to increase sustained production by about 3 times as much as it already did. This is an unrealistic objective; it will not happen.
In our foreign affairs we are confronted by China, Iran, and Russia. Each of these confrontations involves oil in some fashion and each of these countries is heavily involved in Venezuela.
Vladimir Putin has an obvious foreign policy; he is using energy to dominate Europe either directly with Russian resources or through Russian companies, particularly Rosneft, which invest in and gain control of strategic oil and gas supplies worldwide. Rosneft is now negotiating a takeover of Venezuela’s oil fields.
Venezuela is still supplying oil to Cuba, Nicaragua, and Bolivia and supporting other Latin American socialist paradises despite the failure of its domestic economy. This in a country where the oil industry was initially discovered and developed by American companies and which produces a relatively heavy oil which American Gulf Coast refineries were designed to process decades ago. The US has announced it may not buy any more Venezuelan oil. Would Rosneft sell it to us? They have plenty of customers: China, India, etc.
So: Who is the Dominator? Who is the Dominatee?
Because they are so closely inter-related, the US needs clear, strategic, and realistic foreign, energy, and financial policies. We do not need policies based on unattainable results and offensive slogans. Who is formulating these policies and who is establishing strategy? The domestic industry currently provides a strong position from which to establish new supply, market, finance, and price relationships.