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
Add to Briefcase
See more stories about...
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.”

What We're Following See More »
SAUDI ARABIA BILL
Veto Override Scheduled for Wednesday in Senate
1 hours ago
THE LATEST

Senate Majority Leader Mitch McConnell said this afternoon that the Senate on Wednesday will take up an override of President Obama's veto of legislation that would allow the families of 9/11 victims to sue the government of Saudi Arabia. "The vote is expected garner the two-thirds majority necessary to override the veto."

Source:
MEDIA SHOULD HOLD TRUMP RESPONSIBLE
Reid Devotes Senate Floor Speech to Trump’s ‘Racism’
2 hours ago
THE LATEST

"Donald Trump is a racist," announced Senate Minority Leader Harry Reid from the Senate floor this afternoon. Reid said all of us are occasionally politically incorrect, but "I don't know of anyone that when that happens doesn't acknowledge it and, if necessary, apologize quickly." But Trump, he added, says things with "full intent to demean and to denigrate." Reid argued that the media isn't holding Trump to account, and should explicitly call him a racist.

ABSENT FROM LIST: GENNIFER FLOWERS
Most Trump Guests Have Military Ties
5 hours ago
THE LATEST
TOP OF MIND
Trending on Google: ‘Why Should Trump Not Be President’
5 hours ago
THE DETAILS
WHO PLAYED THE DONALD?
Longtime Clinton Aide Played Trump in Mock Debates
8 hours ago
THE DETAILS

After keeping the information private for most of the lead-up to the debate on Monday, it has been revealed that longtime Clinton aide Philippe Reines has been playing the role of Donald Trump in her debate prep. Reines knows Clinton better than most, able to identify both her strengths and weaknesses, and his selection for a sparring partner shows that Clinton is preparing for the brash and confrontational Donald Trump many have come to expect.

Source:
×