The new energy abundance in the US has given President Trump a historic opportunity not just to expand the country’s economy at home, but also to expand its leadership globally. To maximise this opportunity, he should think about energy as more than a driver of economic growth, overcome the powerful political forces favouring isolationism and retrenchment, and rein in his tendency to alienate countries that should be energy allies of the US.
The embrace of new technologies to extract oil and natural gas at an unprecedented rate has transformed one of America’s enduring vulnerabilities into a strategic asset. Thanks largely to fracking — hydraulic fracturing of rock — the US is now the largest producer of oil and gas combined in the world.
America consumes large quantities of energy, so this expanded production has not yet made the country energy independent. But it has greatly decreased its dependence on foreign energy: About a decade ago, the US imported nearly two-thirds of the oil it consumed; that percentage is now closer to one-fifth.
America is now the largest exporter of refined petroleum products and, in the past year, has also become an exporter of crude oil and liquefied natural gas. The benefits of this surge in production go well beyond cheaper gasoline, an improved trade balance and a stronger economy.
The boom has also improved the country’s sources of soft power, in part by underscoring America’s enduring edge in innovation and ingenuity. The new output has forced changes in the structure of energy markets in ways that are favourable to the US.
American producers of oil from shale rock have introduced a new business model to the scene: Small investments in exploration and production can bring oil to the market quickly.
This weakens Opec, by making it more difficult for its production cuts to result in sustained increases in oil prices. For the first time in more than a century, the market determines the price of oil with much less influence from any group, commission or band of big oil companies.
New supplies of natural gas — and ever cheaper technologies for liquefying it and transporting it — have helped integrate formerly fractured natural gas markets and made them more efficient. These changes have empowered the consumer of natural gas over the producer — a big reversal from recent years.
The energy boom has also weakened many of America’s competitors, particularly Russia, by both decreasing its revenues and reducing its ability to use its energy resources as a political cudgel. The boom also expands opportunities for the US to forge new partnerships.
For instance, given China’s growing dependence, and America’s waning reliance, on Middle Eastern oil, Beijing may be more likely to work with the US to stabilise that part of the world. Such changes put America in a stronger position to reinforce the international order.
Domestically, Trump has made energy a centrepiece of his efforts to strengthen our economy and create jobs, but he needs to do more than loosen restrictions on oil and gas production: Many non-energy policies of the Trump administration undermine the energy boom and all its potential advantages.
Trump’s protectionist impulses, for instance, do not square neatly with a booming energy sector. Pulling out of the Trans-Pacific Partnership, renegotiating Nafta under the threat of withdrawal and the questioning of the free-trade agreement with South Korea weaken the strong links between trade, global growth and rising energy demand; flagging global energy demand will hurt prospects for American exports of oil and gas.
On climate, Trump’s pledge to withdraw the US from the Paris agreement could also hurt the American energy boom. Natural gas stands to gain as the world takes strides to tackle climate change: As countries transition to more sustainable energy, they often move away from coal to natural gas.
American natural gas exports could benefit from this transition — but not if countries like China and India also weaken their commitment to tackling climate change and drag their heels in curbing coal consumption.
Similarly, Trump’s talk of retrenchment overseas has made friends and foes nervous about America’s willingness to continue to use its vast sea power to maintain open shipping lanes. Over half of the world’s oil supply and a growing percentage of the natural gas it consumes is transported through these waterways.
The aggressive orientation of the Trump administration toward Mexico is also a potential problem for America’s energy sector and the pursuit of energy security. Mexico is by far the largest foreign consumer of American natural gas — a trend that will increase with recent Mexican electricity reforms.
Yet Trump’s talk about a border wall has spurred a revival in the presidential candidacy of Mexico’s own populist, Andrés Manuel López Obrador, who is committed to reversing these and other energy reforms. That would not only shrink the largest market for American natural gas but would also dull prospects of the US, Canada and Mexico of reaching North American energy independence.
The Trump administration clearly recognises that America’s energy position is a huge asset to it. But if it wants to fully embrace the opportunity at hand, it needs to integrate its welcome passion for America’s energy revolution into its broader thinking on foreign policy — and make sure that it is not undercutting the strategic value of the boom with its non-energy policies.
— New York Times News Service
The writer is a professor at Harvard University’s Kennedy School.
