US Energy Renaissance Shifts Power

Exclusive: When President Obama addressed the global warming crisis last month, he linked progress on “green” energy with America’s greater natural gas production and strides toward energy independence, two themes that are quietly transforming global power relationships, writes Andrés Cala.

By Andrés Cala

The surge in U.S. output from shale gas and so-called “tight oil” is reshaping global economics by making Americans less dependent on foreign oil and freeing President Barack Obama to reorient the nation’s geopolitical strategies accordingly.

The supply-and-demand math of this new equation is simple. The U.S. economy has historically been configured to run on cheap energy, but for the past half century, rising oil prices have caused economic dislocations domestically while funneling trillions of American dollars to energy-rich regions around the world.

White House graphic showing the patterns of extreme weather.

The U.S. government also ramped up its security involvement in these areas, especially the oil-rich Middle East, frequently protecting ruling autocrats in exchange for steady supplies of oil.

Early in this new century, an expanding world economy and an expectation that energy supplies would dwindle kept prices high, enriching oil and gas producers, including American rivals such as Russia and Iran. Meanwhile, high oil prices put pressure on the economies of big consumers like the United States, often distorting U.S. global strategies. President George W. Bush partially justified his invasion of Iraq in 2003 by citing a concern over who would control that nation’s vast oil reserves.

Adding to energy-price inflation was the historic growth in the economies of nations such as China and India. Oil prices soared to records of nearly $150 a barrel before crashing in 2007-08 as the global economic crisis hit. Still, revived expectations of tight supplies and a resurgent demand lifted crude prices again, threatening the fragile U.S. economic recovery taking hold during the early years of the Obama administration.

However, by then, decades of private U.S. investment finally was delivering technological breakthroughs in the use of “fracking” technology to release shale gas and “tight oil.” By 2010, it was increasingly clear that the great potential of shale reserves was materializing and triggering a profound reassessment of global output forecasts for this decade and beyond.

A bullish price climb toward $200 a barrel, which was expected as recently as two years ago, has turned into a bearish price outlook of between $80 and $100 a barrel. This new reality is underscored by the U.S. Energy Information Administration 2013 Outlook, which projects that U.S. primary energy consumption will remain mostly flat for the next 30 years while the country’s gas and oil production will grow steadily.

In May 2013, U.S. crude output increased 20 percent from a year before to 7.3 million barrels per day, the highest since 1992, while oil demand has shrunk as the result of the economic crisis, increased fuel efficiency, more use of natural gas in transportation, and reducing consumer demand trends.

“Tight oil” output will contribute 2.4 million bpd by 2020, similar to Norway’s and Venezuela’s output, and similar to Iran’s exports before sanctions took hold. Natural gas production is also surging, and the U.S., which last decade built gas import infrastructure, is now expected to become a net exporter.

That means U.S. energy imports will decrease while exports increase, changing the old rules of the energy game not just for the United States but for the world’s other major energy producers and consumers.

Global Strategies Redrawn

Though the U.S. government had little to do directly with the rising energy output, which can be traced to high oil prices that made the new technology economically viable, Obama’s policies to rein in U.S. oil demand and to replace oil increasingly with natural gas has begun to redraw global strategies, from the Middle East and South America to China and Russia.

While the Obama administration, like its predecessors, has mostly addressed energy policy as a domestic issue – whether focusing on “energy independence” or “climate change” – the impact of the shifting energy markets is now foremost geopolitical.

For oil-producing countries – including Russia, Iran, Venezuela and the Mideast oil states – the lower energy prices will mean less revenue and, presumably, less geopolitical clout. And, as these new technologies are slowly transferred to other high-potential countries, including oil importers like China and Argentina, those nations are expected to become less dependent on outside energy suppliers.

Ironically, the unexpected U.S. domestic production gains of oil and gas also are fueling Obama’s reenergized “green energy” drive in his second term, after it stalled in his first. Obama’s plan to transition to greener and more sustainable energy in the future would be harder to sell to the public without the energy security provided by the resurgent production of domestic fossil fuels, which will still supply around 80 percent of U.S. energy for decades to come.

For example, the debate over approving the Keystone connection to vast Canadian oil sand reserves often circles around climate change and the ideological divide with Republicans, but that overlooks the growing doubts about the need to increase import pipeline capacity at a time when imports are decreasing.

The surge in shale gas and “tight oil” has improved U.S. economic growth, too, easing the political pressure to ignore “global warming” in favor of “jobs, jobs, jobs.” A shrinking trade deficit – freed from massive capital outflows for oil – as well as the capital investments required for domestic energy production will create jobs and have a multiplier effect, creating boom times for some parts of the country.

But the short-term impact of the altered energy landscape should be greatest in global relations, including making the economies of some U.S. adversaries more fragile. Already, Washington has used the prospect of declining oil prices to pressure Iran, which had expected to offset sanctions against its nuclear program by pulling in higher revenues from a tight global oil market.

Yet the Islamic Republic is not likely to get that relief because of shrinking U.S. oil imports and oversupplied global markets. With its oil revenue declining rapidly, Tehran knows time favors the U.S. and its allies. That doesn’t mean the outcome of the nuclear standoff will be determined by oil prices, but both sides have recalculated their negotiating equations as a result of the new energy reality.

OPEC’s Challenges

Bearish energy prices are also reshaping the power relationships of the Middle East. Saudi Arabia and the broader Organization of Petroleum Exporting Countries, OPEC, are slowly losing their clout. Non-OPEC supply additions, especially from the U.S., are forcing the cartel to curb production into the future to keep prices around the $100 a barrel mark that Riyadh has set as fair price.

But that means Saudi Arabia will bear most of the cuts because no other country has the power to close and open the oil tap, especially with Iraq expecting to double or perhaps triple its output in coming years.

As the flow of its petrodollars tapers off – even if only gradually – Saudi Arabia will find its grip on the U.S. and world economies loosened, freeing the United States to pursue a more independent approach to the region, less compliant toward Saudi geopolitical interests. Indeed, the Middle East, which has been at the center of U.S. national security concerns for generations, may eventually recede in importance.

America’s newfound energy supplies are also affecting Venezuela, which is struggling as the current price range and future forecasts are below its breakeven fiscal prices. That explains why Caracas is playing nice to attract foreign investors and toning down last decade’s populist rhetoric at least when negotiating with Chinese, American, European and Russian corporations.

Over the years, improved U.S. energy security also could reshape geopolitics with Russia and China. The impact of oil price fluctuations in the U.S. is inversely proportional in Russia, which for decades has depended on its oil industry to advance its foreign agenda. As energy prices drop, the U.S. economy tends to grow, while Russia’s contracts.

Russia’s muscle-flexing using its huge oil and gas reserves is also blunted, especially in relations with Europe and China, but also with the former Soviet republics around Russia’s borders.

Ripples from lower oil prices may have the most profound effect in the long term on Asia’s strategic evolution. Already, the Obama administration has declared its objective to gradually pivot away from the Middle East and to strengthen its Asian interests.

China benefits from lower oil prices, but its energy trends run in the opposite direction of the U.S. Its import dependence is soaring, along with its energy demand to fuel its economy, but it lacks the reserves or production of the U.S.

In fact, China’s inroads in Africa and Latin America are designed to supply the raw material needed for China to build its economy and for its military to assert its power. But its energy dependence is also its biggest weakness.

China’s growing maritime assertiveness is meant to protect vital supply lines, as well as to impose its claim over vast underwater gas and oil reserves it’s disputing with Japan, the Philippines, Vietnam and several other countries.

So, the list of geopolitical repositioning – as a result of the altered energy realities – is long. Europe is looking to the U.S. for natural gas (which would decrease its dependence on Russia); Caspian countries, Turkey and North Africa have lost much of their anticipated energy clout; Canada now is looking toward China to sell its planned oil gush, and Latin America and Africa are recalibrating from an overhyped bonanza.

Regardless of these outcomes, it’s clear that the unexpected U.S. energy output surge is reshaping the world’s geopolitical map.

Andrés Cala is an award-winning Colombian journalist, columnist and analyst specializing in geopolitics and energy. He is the lead author of America’s Blind Spot: Chávez, Energy, and US Security.

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9 comments on “US Energy Renaissance Shifts Power

  1. rosemerry on said:

    I hope this writer is wrong!! The USA already has far too much clout, throws its weight around, bribes and threatens friend and foe, and wastes to extremes the excessive energy resources it already uses. Finding new sources, pretending to be “green” eg the terrible idea of using corn for cars instead of food) means that global warming is exacerbated and the USA stamps on more countries than it does now.

    • F. G. Sanford on said:

      Rosemerry, I think you have little to worry about. The author of this article is from Columbia, one of the few remaining Latin American puppet states, along with Chile and Panama. What they’re really worried about is the BRIC nations getting together and completing the infrastructure needed to fully exploit mutual trade benefits. That includes rail, road and pipeline systems to achieve energy security, trade routes and economic stability. And, rumor has it, there’s also a fiber optic cable system planned to eliminate Verizon spying on cooperating partners. They’re all shitting in their diapers and realizing that none of the fracking “cash cow” energy exploitation will change the big picture, unless that focuses on polluted American water and the occasional annoying earthquake caused by the garbage they pump into the ground to get that gas.

    • AnneC on said:

      We need to greatly increase use of solar power, especially in the southwestern US. This will decrease our dependence on foreign petroleum sources and decrease our motivation for excessive political interference in other countries. Almost every southwestern home and business should have solar panels on the roof. This could supply air conditioning and electric cars.

      The rocky mountain states have potential geothermal resources that are largely unused. Some areas with hot springs use this energy for domestic heating, but the technology for broader uses should be explored as rapidly as possible. Western Colorado and Wyoming could effectively use these resources for greater energy independence.

      Hydroelectric power has helped economic development in the southeast, but further development should consider other land and water uses. Dams can create environmental problems in some areas. Cultural and archeological issues also need to be considered. The southeast should explore more use of solar energy.

      Wind farms can create issues for migratory birds. Environmental impacts need to be considered carefully when determining siting. Wind power does have the advantage of being renewable and it does not contribute to global warming.

      Solar usage and geothermal development would decrease emissions of carbon dioxide and methane that cause global warming. They also would decrease our dependence on foreign oil. This could improve our diplomatic interactions with other countries.

  2. elmerfudzie on said:

    The world is awash in useable and extractable oil and there’s more science than speculation to support the theory that fossil fuels were not created from once living organic material. At issue here is simple burning, that is, breaking up carbonaceous molecules that in the presence of oxygen, release energy and carbon dioxide. Nuclear power frees us from the whole oxygen-carbon fuel cycle. Commercial nuclear power can be “tweaked” to accommodate Thorium 232 instead of “burning” U235 or PU 239. Thorium is the unseen energy answer in terms of raw ore availability. As a matter of fact, Thorium 232 is found in extractable quantities by a factor of two hundred times what is currently available in unprocessed fissionable(s) Thorium waste is much easier technically and financially to process and store. Thorium does not create terror issues as the Uranium family does and Thorium cannot make A-bombs. But I digress, the price of crude oil has always been an artificial number deliberately kept high for the age old reasons we all understand; greed, power, high finance and political control. Oil can easily and overnight, fall precipitously to forty dollars a barrel, there’s just a glut of it. Couple this idea with new and sizable natural gas discoveries as well. Brazil’s future economy can almost count on advances in drilling technology to tap it’s vast off shore holdings which exceed the known reserves in the entire middle east and lest we forget, Venezuela’s holdings, enough there to power China’s needs into infinity. The Saudi’s know all this and that’s why all their financial wealth has found it’s way into the Americas. Out of deference to it’s major trading partner the USA, China hasn’t sent a million marching men, with another million behind them in reserve, through Afghanistan and into Iran. This scenario, in a grand show to the world, it’s version of a “new world order”. However, China knows the limits of imperialism, been there, done that sort of thing. But beware, this aggression is a possibility and again beware, China has the finance to ratchet up oil dealings with our southern neighbors, Brazil and Venezuela. So keep shopin’ Walmart everybody, the stakes are REALLY high.

    • AnneC on said:

      Fossil fuels WERE created from once living organic material. That is why they are called fossil fuels. Once we use them up they will not be renewed within the time of our civilization. There are substantial reserves left but there will be increasing environmental and social costs for obtaining them. Right now the biggest effort should be to collect solar power wherever there are enough sunny days.

  3. Will on said:

    Is it just me or does that read like press release.

    Greg Palast likes Robert Parry, or at least recommended Parry’s book in his latest email update, perhaps Robert Parry ought to read Greg Palast’s recent book; Vultures Picnic.

    Palast sheds some light and some doubt on the new miracle of Americas energy independence through fracking, and lays bare absolutely profound corruption of the energy sector.

  4. elmerfudzie on said:

    AnneC, be advised that inconceivable amounts of methane were found deep beneath Iceland, and thus, directly linked to the huge meteoric collision with earth that initially formed the land mass. No alternative methane formation theory or hypothesis is possible here. A more comprehensive review of abiotic origins of petroleum compounds can be researched at the following web pages: http://www.enviroliteracy.org/article.php/1130.html; http://rense.com/general65/naty.htm; http://www.viewzone.com/abioticoilx.html,
    http://vaticproject.blogspot.com/2012/04/abiotic-oil-theory-worth-exploring.html; These references are not intended to subtract from evidence(s) of a biotic origin but do open up the possibility of alternate origins to carbonaceous or fossil like materials such as crude oil.

  5. AnneC on said:

    elmerfudzie, the links you provided were interesting. The first one for “enviroliteracy” cited an article in Nature by Barbara Sherwood Lollar et. al. The first paragraph of the Nature article concluded that “we can now rule out the presence of a globally significant abiogenic source of hydrocarbons.” The authors of this article in Nature are saying there is not enough methane, ethane, propane or butane produced by geological activity to provide us with an energy source at all comparable to fossil fuel. Methane has one carbon surrounded by four hydrogen atoms. Methane is found in many places in the solar system. In the distant past the atmosphere of the earth contained quite a bit of methane and only a little bit of oxygen. Titan, a moon of Jupiter, still has a methane atmosphere. Methane can be made by geological processes or produced by microbes. The authors of this article are concluding that most of the methane was produced by microbes. Other researchers agree (Nature 440, 516–519 (2006)). Ethane has two carbon atoms, propane has three carbons and butane has four carbons. These molecules can be formed from methane molecules.

    Although crude oil contains some methane most of the molecules have more carbon atoms. There is no doubt that crude oil was formed by the decomposition of biological materials that were pressed under the rocks above them and heated. As Sherwood Lollar et. al. comment “Natural hydrocarbons are largely formed by the thermal decomposition of organic matter (thermogenesis)”.

    The “enviroliteracy” website is saying the opposite of the scientific article they cite. According to sourcewatch this website was created by a former speechwriter for Dick Cheney. The funding includes money from the Koch foundation. Sourcewatch notes that this website tries to cast doubt about global warming.

    The thermodynamics described in your second website reminded me of creation “science” articles I have read. I skimmed the other sites and did not see anything that would contradict the conclusions in the article in Nature.

  6. elmerfudzie on said:

    Continue to read the references I provided, such as the Vatic web site http://vaticproject.blogspot.com/2012/04/abiotic-oil-theory-worth-exploring.html. I still maintain that there are MIXED sources and origins to carbonaceous materials other than the traditional, fossil one