American Energy Independence: The Great Shake-up

Posted May 26th, 2013 by Thanassis Cambanis and filed in Writing

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[Originally published in The Boston Globe Ideas section.]

EVER SINCE AMERICANS had to briefly ration gas in 1973, “energy independence” has been one of the long-range goals of US policy. Presidents since Richard Nixon have promised that America would someday wean itself of its reliance on foreign oil and gas, which leaves us vulnerable to the outside world in a way that was seen as a gaping hole in America’s national security. It also handcuffs our foreign policy, entangling America in unstable petroleum-producing regions like the Middle East and West Africa.

Given the United States’ huge appetite for ­fuel, energy independence has always seemed more of a dream than a realistic prospect. But today, nearly four decades later, energy independence is starting to loom in sight. Sustained high oil prices have made it economically viable to exploit harder-to-reach deposits. Techniques pioneered over the last decade, with US government support, have made it possible to extract shale oil more efficiently. It helps, too, that Americans have kept reducing their petrochemical consumption, a trend driven as much by high prices as by official policy. Total oil consumption peaked at 20.7 million barrels per day in 2004. By 2010, the most recent year tracked in the CIA Factbook, consumption had fallen by nearly a tenth.

Last year, the United States imported only 40 percent of the oil it consumed, down from 60 percent in 2005. And by next year, according to the US Energy Information Administration, the United States will need to import only 30 percent of its oil. That’s been driven by an almost overnight jump in domestic oil production, which had remained static at about 5 million barrels per day for years, but is at 7 million now and will be at 8.5 million by the end of 2014. If these trends continue, the United States will be able to supply all its own energy needs by 2030 and be able to export oil by 2035. In fact, according to the government’s latest projections, the country is on track to become the world’s largest oil producer in less than a decade.

Yet as this once unimaginable prospect becomes a realistic possibility, it’s far from clear that it will solve all the problems it was supposed to. As much as boosters hope otherwise, energy independence isn’t likely to free America from its foreign policy entanglements. And at worst, say some skeptics who specialize in energy markets, it might create a whole new host of them, subjecting America to the same economic buffeting that plagues most oil exporters, and handing China even more global influence as the world’s behemoth consumer.

The prospect is prompting a profound rethinking among America’s top diplomats, and experts across a broad swath of the foreign policy world are beginning to explore the kind of global shake-up it might bring. Some are optimistic. “The shifts are likely to be significant, with profound long-term implications,” wrote Citigroup’s Edward Morse in “Energy 2020: Independence Day,” a report published this spring. “Burgeoning US energy independence brings with it an opportunity to re-define the parameters of post-Cold War foreign policy.”

As much as the shift brings opportunities, however, it is also likely to open the United States up to liabilities we have not yet had to face. The consequences may be both good and bad, enriching and destabilizing for US interests—but they will certainly have a major impact on our geopolitics, in ways that the policy world is only just beginning to understand.

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WHEN RICHARD NIXON was president, America consumed about one-third of the world’s oil, importing about 8.4 million barrels per day chiefly from the Middle East. The status quo hummed along until the Arab-Israeli war of 1973. The United States sent weapons to Israel, and the Arab states retaliated with a six-month oil embargo, refusing to sell oil to America. It was the only time in history that the “oil weapon” was effectively used, and it made a permanent impression on the United States.

Over time, the American response to the embargo came to include three major initiatives that still shape energy policy today. First, the government promoted lower oil consumption by pushing coal and natural gas power plants, home insulation, and mileage standards for cars. Second, the country drilled for more of its own oil. Third, and perhaps most important from a foreign-policy standpoint, the United States promoted a unified global oil market in which any country had the practical means to buy oil from any other. That meant that even if some countries couldn’t do business with each other—say, Iran and the United States—it wouldn’t affect the overall price and availability of oil. Other countries could fill in the gap.

The dreams of energy independence crossed party lines. Though liberals and conservatives differ on the means—how much we should rely on new drilling versus energy conservation—both parties have endorsed the quest. It was one of the few issues on which Presidents Carter and Reagan agreed.

America has made steady progress over the years, to the point where the nation’s total oil consumption has actually begun to drop. As this has happened, the high cost of global energy has also made it profitable to increase domestic production of natural gas and oil. A few months ago, both the US Energy Information Administration and the International Energy Agency predicted that if current production trends continue, the United States will overtake Saudi Arabia and Russia as the world’s largest oil producer in 2017.

Taken together, our slowing appetite and booming production mean that with a suddenness that has surprised many observers, the prospect of energy independence—technically speaking, at least—looms in the windshield.

Energy independence looks different today, however, than it did in the oil-shocked 1970s. For one thing, the energy market is a linchpin of the world order, and any big shift is likely to have costs to stability. Some analysts have warned that America’s growing oil production will create a glut that lowers prices, eating up the profits of oil countries and destabilizing their regimes. (That’s in the short term, anyway; worldwide, oil demand is still rising fast.) Falling prices mean that countries that depend on oil will face sudden cash shortages. It’s easy to imagine how destabilizing that could be for a natural-resource power like Russia, for the monarchs of the Persian Gulf, or for the dictators in Central Asia. No matter how distasteful their rule, the prospect of an unruly transition, or worse still, a protracted conflict, in any of those countries could cause havoc.

In the long term, this is not necessarily a bad thing: Weakening oppressive or corrupt governments could ultimately be beneficial for the people of those countries. And a shift in the balance of power away from the Gulf monarchies of OPEC and toward the United States could have a democratizing effect. In any event, though, lower oil prices and a dynamic energy market make the current stable order unpredictable.

China’s economic rise has also changed the global energy equation. For now, China is largely without its own petroleum supplies and is ­replacing the United States as the largest importer. As China steps into the United States’ shoes as the world’s largest oil customer, it will gain influence in oil-producing regions as American influence wanes. It might also feel compelled to invest more heavily in an aggressive navy, fearing that the United States will no longer shoulder the responsibility of policing shipping lanes in the Persian Gulf and elsewhere—a costly security service that America pays for but which benefits the entire network of global trade.

Domestically, there’s also the “resource curse,” which afflicts countries that depend too heavily on extracted commodities like minerals or petroleum. Such industries don’t add much value to a society beyond the price the commodity fetches at market, and that price is notoriously fickle, meaning fortunes and jobs rise and fall with swings in global prices. The resource curse often implies corruption and autocracy as well. But economists are less concerned about that, since the United States already has an effective government and laws to thwart corruption, and because oil will still make up a minuscule overall share of the economy. Last year oil and gas extraction amounted to just 1.2 percent of the American gross domestic product.

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THERE ARE STILL plenty of people who think that energy self-sufficiency will be an unalloyed good. Jay Hakes, who has pursued the goal as an energy official under the last three Democratic presidents, says that America will reap countless political and economic dividends. It will help the trade deficit, give American companies and workers benefits when oil prices are high, and insulate the country from supply shocks. It will also give Washington wider latitude when dealing with oil-producing countries, on which it will depend less. “There are some downsides,” he acknowledges, “but they’re outweighed by all the positives.”

One benefit that self-sufficiency won’t bring, it seems clear, is a sudden independence from the politics of the Middle East. The region produces about half the world’s oil, and Saudi Arabia alone has so much oil that it can raise its capacity at a moment’s notice to make up for a shortfall anywhere else in the world.

Already, America is largely independent of Middle Eastern oil as a consumer: Only about 15 percent of our supply comes from the region. But we do depend on a stable world market—even more so if we become a net exporter ourselves. So even if we don’t buy Saudi oil, we’ll still need a stable Saudi regime that can add a few million barrels a day to world flows, at a moment’s notice, to offset a disruption somewhere else.

Michael Levi, a fellow at the Council on Foreign Relations and author of the book “The Power Surge: Energy, Opportunity, and the Battle for America’s Future,” believes that the biggest risk of achieving a goal like energy independence is complacency: Without the pressures that importing oil has brought, we may have little reason to innovate our way out of fossil fuels altogether. The policies themselves have achieved a great deal of good, he points out—stabilizing the world’s energy markets, reducing consumption, and pushing us beyond “independence” toward renewable sources like wind and solar power (though today these still make up a vanishingly small portion of the US energy supply).

Levi argues that an American oil bonanza could easily remove the political incentives for long-term planning and sacrifice. “I get scared that we’ll become complacent and make foolish decisions because we believe we’ve become energy independent,” Levi says. Energy independence was a useful slogan to motivate America, but in reality, a sensible energy policy has to balance a plethora of competing concerns, from geopolitics and the environment to consumer demand and fuel’s importance to the economy.

“The real way to be energy independent,” he said, “is actually to not use oil.”

4 Responses to “American Energy Independence: The Great Shake-up”

  1. Guy Weyl says:

    The oil embargo by the Arab nations during and after the Yom Kippur war affected many nations. Though we were affected in the United States the situation was not catastrophic because we were producing oil. The situation was much more serious in Japan which depended entirely on middle east oil. I was dismayed at the time that we made no effort to supply one of our closest allies with oil. We could have diverted some of our oil from the west coast and shipped it across the ocean. I noticed that this caused a dramatic change in the attitude of Japan toward the US. It became much more independant in order to pursue its own policies and to seek other markets for its energy needs.

    The US subsequently tried to encourage other technologies for its energy needs. These were much more expensive than oil and all the Arab nations needed to do was to reduce the price of their oil to drive the budding businesses to the ground. Which they did!

    My comment is that the cost of extracting oil from oil shale extraction is quite high. Let us say ( I do not know the exact cost) that it is around $70 a barrel. Oil from Saudi Arabia is, as you wrote, plentiful and also cheap to produce ( around $ 15 a barrel). If the Saudis decide to develop their reserves and to flood the market at a price way below $ 70 a barrel, they may well drive the American companies extracting oil from shale bankrupt.

    What we can do and what may bring us to be less dependent on the good will of the Arab countries is to develop our huge reserves of natural gas. If we liquify the gas and ship it to the Pacific nations we can reduce their reliance on oil and also do something to reduce the production of green house gases.

  2. [...] in the Boston Globe (“American energy independence: the great shake-up” May 26, 2013, available here) is an example of flawed analysis derived from incomplete assumptions. He warns us of a world [...]

  3. Ted says:

    Thanassis Cambanis’ piece (“American energy independence: the great shake-up” May 26, 2013) is an example of flawed analysis derived from incomplete assumptions. He warns us of a world where- through the exploitation of ever more fossil fuels- America may achieve the goal of energy independence only to become exposed to new dangers from formerly oil-rich states in disarray. While it pretends to give us a clear vision into the world of the future, it is blinded by the technological wizardry of the oil industry.

    In a distressing lapse for a scholar, Cambanis inexplicably ignores the screamingly obvious fact that we simply cannot burn all the new-found fossil fuel. Doing so would create damage to the international order that far surpasses the risk of a few collapsed oil regimes. Global warming, accelerated by the new cornucopia of tar-sands, fracked gas, methane hydrates and Arctic drilling will create dis-order and global consequence on a civilization shifting scale. Cambanis and his intellectual fellows are mesmerized by the glittering corporate capabilities of the present and miss the underlying realities of a climate-damaged future, something that should embarrass anyone who writes under the title of “The Internationalist”.

    Cambanis’ essay represents a think tank community so insular and in thrall to the powers of the present, so narrowly focused and blinkered in its outlook as to produce this incomplete analysis. A livable future demands choices between the fantasy of endless oil consumption and the disruptive reduction in carbon emissions that planetary limits demand. Those who consider themselves in the intellectual vanguard should be not making a simplistic linear extrapolation from the present, nor cheerleading for the oil companies, but instead should be discussing the options society must consider to build a sustainable future.

  4. Mark Bohrer says:

    I came here to say how distressed I am that a serious writer could have an analysis on the future of US energy policy and say nothing about climate change. Stunning! And on the front page of the Sunday Boston Globe Ideas section! How could the Globe editorial board even publish it? Where are the editors? The piece blithely assumes we can burn everything we can extract. Well, we can’t without wrecking our future, and handing the entire generation living today and the next generations to be born a destabilized climate that will bring death and suffering to millions.

    I couldn’t agree with the previous commenter more.

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