Dr. Sebastian Gorka recently referred to the U.S. as a Hyperpower. He is correct.
But power is not purely military. Power is also economic might and influence.
The two are inexorably linked to the other.
President Trump campaigned on energy independence for the United States. He immediately followed through on those promises by signing the Energy Independence Policy Executive Order, which unleashed a wave of U.S. energy production.
The price of oil has fallen from around $58 per barrel in January 2017, and is currently holding below $50 per barrel ($48.43). U.S. exports of light sweet crude from American shale production are surging. As noted somewhat reluctantly in a New York Times article:
Oil exports grew slowly through most of 2016, but this year there has been a surge reaching 1.3 million barrels a day — roughly 15 percent of domestic production — which even at today’s depressed prices is worth more than $1.5 billion a month.
Light crude is more highly valued as it can be used to blend with heavier crudes – such as those from the Oil Sands production in Canada. U.S. production is seen as a more reliable alternative to many other less stable oil-producing nations and importantly, reduces reliance on those same countries:
Suddenly buyers from all over the world are purchasing the new American supplies, from South Korea to India — even oil-rich Venezuela, which uses the light sweet crude that comes out of American shale to blend with its gooey heavy crude.
European countries are looking to American exports to reduce their dependence on oil from Russia and African countries that produce light crudes, particularly Libya and Nigeria, which are politically unstable and unreliable suppliers. And China, with slumping oil production and rising demand, wants a more reliable source than the Persian Gulf, which it now depends on.
And it’s not just oil.
U.S. coal exports are up more than 60% this year. The U.S. Energy Information Administration showed exports of the fuel from January through May totaled 36.79 million tons, up 60.3 percent from 22.94 million tons in the same period in 2016. Exports to European nations totaled 16 million tons in the first five months of this year, up from 10.5 million in the same period last year. Exports to Asia, totaled 12.3 million tons, compared to 6.2 million tons in the same period last year.
More importantly, the U.S. is moving rapidly towards becoming a net exporter of natural gas.
The U.S. delivered Liquefied Natural Gas (LNG) to Central Europe for the first time in June 2017. This is a significant event and allows Poland to reduce its near-100% reliance on Russian natural gas.
President Trump noted this in his speech in Poland:
We are committed to securing your access to alternative sources of energy so Poland and its neighbors are never again held hostage to a single supplier of energy [Russia].
The U.S. is still a very small player in the European LNG market. Russia is a primary supplier and is working on its Nord Stream 2 pipeline project. There is also the Trans-Adriatic pipeline, which will carry Caspian gas from the Azeri Shah Deniz field to Europe. And, of course, Qatar, the world’s largest exporter of LNG.
But the incremental supply of LNG to Europe remains a significant event. Natural gas is the energy source of choice for Europe. Any supply that reduces the European Union’s reliance on Russia is welcome.
The European Union is the world’s largest importer of energy. According to the European Commission’s Website:
The EU imports 53% of all the energy it consumes, at a cost of more than €1 billion per day. Energy also makes up more than 20% of total EU imports. Its import dependency is particularly high for crude oil (more than 90%) and natural gas (66%). Specifically, the EU imports:
- 90% of its crude oil
- 66% of its natural gas
- 42% of its coal and other solid fuels
- 40% of its uranium and other nuclear fuels.
About one quarter of all the energy used in the EU is natural gas, and many EU countries import nearly all their supplies. Many countries [within the EU] are also heavily reliant on a single supplier, including some that rely entirely on Russia for their natural gas. This dependence leaves them vulnerable to supply disruptions, whether caused by political or commercial disputes, or infrastructure failure. For instance, a 2009 gas dispute between Russia and transit country Ukraine left many EU countries with severe shortages.
A key part of ensuring secure and affordable supplies of energy to Europeans involves diversifying supply routes. This includes identifying and building new routes that decrease the dependence of EU countries on a single supplier of natural gas and other energy resources.
Many countries in Central and South East Europe are dependent on a single supplier for most or all of their natural gas. To help these countries diversify their supplies, the Southern Gas Corridor aims to expand infrastructure that can bring gas to the EU from the Caspian Basin, Central Asia, the Middle East, and the Eastern Mediterranean Basin.
Liquefied natural gas (LNG) imported to Europe through LNG terminals is a source of diversification that contributes to competition in the gas market and security of supply.
New LNG supplies from North America, Australia, Qatar, and East Africa are likely to increase the size of the global LNG market, and some of these volumes should reach the European market.
Russia is the EU’s largest supplier of energy – and the largest supplier of natural gas. In 2015, Russia accounted for 35% of the EU’s natural gas imports. This reliance has the EU worried.
As noted in an article by the Financial Times, LNG exports are a strategic component of U.S. trade policy.
They are also a strategic economic weapon against Russia.
As John McCain famously stated, “Russia is a gas station masquerading as a country”. It’s one of the few things McCain has gotten right.
Russia’s economy is predominantly dependent on exports of oil and natural gas. More than two-thirds of Russia’s foreign income is derived from oil and gas exports:
Russia became the world’s leading oil and natural gas exporter last year , according to BP’s annual statistical review of world energy. The country has overtaken Saudi Arabia in crude exports, and retained the top spot in exports of natural gas. Three-quarters of Russia’s oil production went for export in 2015. Exports of Russian gas reached 33.7 percent of overall production. The country also exported 41.8 percent of its coal. Russia is the leading oil and gas supplier to Europe, accounting for 37 percent and 35 percent of European respective consumption.
You may find a chart showing current crude oil production by country here.
Russia is the number one producer of crude, followed closely by Saudi Arabia – with U.S. in a reasonably close third place. The falloff from there is dramatic.
Our increase in energy exports is not only an economic goal, it is a foreign policy goal. In many ways, one cannot be removed from the other. They are integrally linked.
The United States still imports more oil than it exports, in large part because many American refineries were designed for heavy crudes from Mexico, Venezuela and Canada. But that dynamic is rapidly changing. Forecasts are now calling for the U.S. to be a net exporter of energy as soon as 2020 – a position that was previously almost unthinkable. The steps being taken may be seen here.
U.S. exports of energy have far-reaching implications. Especially for Russia.
Russia has already cut prices for natural gas with the opening of LNG terminals in Poland and Lithuania. As noted by an article from Foreign Policy:
The mere availability of U.S. natural gas in the global market can be a boon to countries even when they don’t physically receive gas. Gazprom was forced to slash its price for Lithuania by 20 percent after the small Baltic country opened its floating LNG terminal, simply because it suddenly saw the prospect of competition in the future.
Increased U.S. production of light crude is having a large impact on oil prices. Which directly – and negatively – impacts Russia.
For those who still believe Putin wanted Trump to win, they might want to consider the ongoing economic fallout to Russia from Trump’s long-stated energy plans:
One of Trump’s primary policies has been dramatic US energy expansion and export. Cuts to heart of Russia economy. Putin wanted Hillary
— Jeff Carlson, CFA (@themarketswork) August 10, 2017
Oil prices $50. US exporting to Europe -incl LNG. Russia export flows down. Russian economy – all energy ~1.3 Trill vs US 18 Trill.
— Jeff Carlson, CFA (@themarketswork) August 10, 2017
The ramifications flow beyond Russia. A weakened Russian economy also weakens the economies of those regimes supported by, and aligned with, Russia.
For those who have wondered at Russia’s ongoing involvement and historical destabilization of international affairs, consider the following:
Supply and demand are the factors that determine the price of any good. Demand on a world level for oil cannot be easily manipulated. It is what it is. Supply is an easier factor to impact – at least in the short-run. Creation of instability and interference – in the Middle East for example – is a wonderful way to artificially increase the price of oil…
But, it requires significant economic and military scope to successfully and continually engage in these global tactics. And new, unexpected areas of supply diminish their impact.
Lower prices for energy impact Russia to a degree probably not shared by any other nation – as the Russian economy is already so weak. For perspective, Russia’s nominal GDP is barely above that of Australia and Spain – and only 20% above Mexico.
As I noted in my tweet, our energy production and energy exports give us substantial leverage over Russia. Actions by the U.S. in regards to our energy policies can have truly huge implications for Russia.
It’s not just Russia either. China has now become the single largest foreign buyer of U.S. oil. China’s energy demands far outstrip its domestic production capacities. China is expected to import more than 70% of its oil requirements in the coming decades. Russia and Saudi Arabia are, predictably, the two largest suppliers to China. China is eager for supply diversification – and stability. The U.S. provides both elements. LNG sales to China is another area of U.S. export growth.
Economic leverage is an area in which President Trump has specific expertise. As does Treasury Secretary Steve Mnuchin and Commerce Secretary Wilbur Ross. They have been utilizing it to the fullest from the start of President Trump’s Administration.
If you’re not convinced, look no further than the 15-0 unanimous UN resolution against North Korea.
Our move towards energy self-sufficiency is not only good for our economy – it’s good for world stability.
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