Why the Energy Boom Won’t Make America Into the New OPEC

Despite vast new oil and gas discoveries, the United States won’t be able to brandish its new reserves as a geopolitical weapon.

Uncle Sam flexes his muscles. 
National Journal
Coral Davenport
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Coral Davenport
Oct. 10, 2013, 5 p.m.

Forty years ago this week, a group of Middle East­ern petro-states in­tro­duced the world to a power­ful new weapon. After the U.S. sup­plied Is­rael with an ar­sen­al of mis­siles dur­ing the Yom Kip­pur War of Oc­to­ber 1973, the Ar­ab mem­bers of OPEC re­tali­ated by cut­ting the U.S. off from its oil sup­ply, knee­cap­ping the eco­nomy for months. And al­though the em­bargo ended in March 1974, it served for dec­ades as a re­mind­er of the United States’ ut­ter de­pend­ence on for­eign, and pos­sibly hos­tile, states for its en­ergy.

Un­til now. Over the past five years, the U.S. role in the glob­al en­ergy pic­ture has been rad­ic­ally trans­formed. Tech­no­lo­gic­al break­throughs have al­lowed com­pan­ies to crack open vast re­serves of oil and gas trapped in shale rock un­der North Dakota and oth­er states. Earli­er this month, the En­ergy De­part­ment pro­jec­ted that by the end of 2013, the United States will be the largest com­bined oil and gas pro­du­cer in the world, sur­pass­ing Saudi Ar­a­bia and Rus­sia.

Amer­ic­ans are already en­joy­ing the eco­nom­ic be­ne­fits of the oil and gas boom. It has cre­ated jobs and helped drive a man­u­fac­tur­ing renais­sance. But emer­ging as the world’s new­est en­ergy su­per­power brings geo­pol­it­ic­al be­ne­fits, too, and the Obama ad­min­is­tra­tion is start­ing to flex its fossil-fuel-pumped muscles in for­eign policy — where it can. “Amer­ica’s new en­ergy pos­ture al­lows us to en­gage from a po­s­i­tion of great­er strength,” Tom Don­ilon, who stepped down re­cently as Pres­id­ent Obama’s na­tion­al se­cur­ity ad­viser, said at a speech at Columbia Uni­versity earli­er this year. “It “¦ af­fords us a stronger hand in pur­su­ing and im­ple­ment­ing our in­ter­na­tion­al se­cur­ity goals.”

Many oth­er en­ergy su­per­powers bran­dish their re­sources as a weapon. Rus­sia, which sup­plies nat­ur­al gas to much of Europe, has shown no com­punc­tion about hik­ing prices or halt­ing sup­plies dur­ing freez­ing win­ters in an at­tempt to ex­ert con­trol over oth­er states. But for many reas­ons, the U.S. can’t wield its en­ergy ad­vant­age in the same way. For one thing, un­like in Rus­sia and the Ar­ab petro-states, the gov­ern­ment in Wash­ing­ton doesn’t con­trol the en­ergy sec­tor and thus can’t turn off the spig­ot with a word.

Still, Amer­ica can now use en­ergy to pun­ish its en­emies. Last year, in re­sponse to Ir­an’s urani­um-en­rich­ment pro­gram, which the U.S. says is aimed at build­ing nuc­le­ar weapons, Wash­ing­ton em­bar­goed pur­chases of Ir­a­ni­an oil and called on oth­er na­tions to do the same. Oth­er coun­tries feared that re­mov­ing nearly 1 mil­lion bar­rels of Ir­a­ni­an oil per day from the glob­al mar­ket would raise prices, but a surge in U.S. pro­duc­tion, mostly from North Dakota, flooded the mar­ket and kept prices stable — al­low­ing the sanc­tions to re­main in ef­fect.

“The sanc­tions against Ir­an proved more ef­fect­ive than people thought they would be,” said Jason Bor­doff, who un­til earli­er this year served as the top en­ergy ad­viser on the White House Na­tion­al Se­cur­ity Coun­cil.

The boom in nat­ur­al-gas pro­duc­tion also helps the U.S. ex­tract more from its friends. The United States doesn’t ex­port its abund­ance of nat­ur­al gas — yet. But the sup­ply boom means do­mest­ic gas prices are the low­est in the world: about $4 per Btu, com­pared with about $14 per Btu else­where. Oth­er coun­tries — par­tic­u­larly China, whose rap­idly grow­ing eco­nomy is raven­ous for cheap en­ergy, and Ja­pan, which is des­per­ately search­ing for new en­ergy sources after shut­ting down its nuc­le­ar-power plants in the wake of the Fukushi­ma melt­down — are hun­grily eye­ing the glut of cheap Amer­ic­an nat­ur­al gas.

So when U.S. trade rep­res­ent­at­ives ne­go­ti­ate with oth­er coun­tries, they have a new as­set in their port­fo­lio. In par­tic­u­lar, the prom­ise of ac­cess to U.S. nat­ur­al gas is play­ing a role in the Trans-Pa­cific Part­ner­ship, a series of trade ne­go­ti­ations among the United States and a group of nine coun­tries, in­clud­ing Chile, Ja­pan, Mex­ico, Singa­pore, and Vi­et­nam. At the table, U.S. ne­go­ti­at­ors are hold­ing out the prom­ise of spe­cial re­la­tion­ships with na­tions for nat­ur­al-gas ex­ports, in ex­change for a host of trade con­ces­sions.

“We are of­fer­ing up ac­cess to U.S. nat­ur­al gas in re­turn for what we want from oth­er coun­tries,” such as bet­ter ac­cess to for­eign tech­no­logy, ag­ri­cul­ture, and man­u­fac­tur­ing mar­kets, said Mi­chael Levi, an ex­pert on en­ergy se­cur­ity at the Coun­cil on For­eign Re­la­tions. These are among the first geo­pol­it­ic­al be­ne­fits of the boom, but deep thinkers are still fig­ur­ing out how to make the most of the new wealth. In 2011, the State De­part­ment es­tab­lished a six-per­son Bur­eau of En­ergy Re­sources, charged in part with work­ing on lever­aging this en­ergy sup­ply in­to great­er dip­lo­mat­ic strength. Today, the bur­eau has grown to 80 people, but work re­mains to be done. “We still un­der­punch our weight con­sid­er­ably on that agenda,” said Dav­id Gold­wyn, who ini­tially headed the bur­eau and is now a private en­ergy con­sult­ant.

But there’s one thing the new oil and gas sup­plies can’t do: in­su­late Amer­ic­ans against a price spike in the case of a ma­jor dis­rup­tion. Were the Ar­ab oil em­bargo to hap­pen today, the U.S. would have ac­cess to its own oil sup­ply, but the price shocks would non­ethe­less re­ver­ber­ate around the globe, hurt­ing all eco­nom­ies — in­clud­ing this one. That’s be­cause, the coun­try still can’t go it alone des­pite the boom in do­mest­ic pro­duc­tion: In 2005, the U.S. im­por­ted 60 per­cent of its oil; today, that’s down to 40 per­cent. Nev­er­the­less, Amer­ica is still nowhere close to pro­du­cing as much en­ergy as it uses.

“Our con­nec­tion to the oil mar­ket buys us new polit­ic­al cap­it­al,” Gold­wyn said, but he ad­ded, “We’re stuck be­ing in the Middle East for a long time to come.”

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