The Geo-Political Impact Of America’s Energy Independence

In January of this year, Forbes Magazine reported:

The U.S. Energy Information Administration (EIA) recently published their 2019 Annual Energy Outlook. Whenever your optimism on the prospects for U.S. energy infrastructure waivers, this will restore your confidence. The outlook for domestic energy production is bullish, and in many cases more so than a year ago.

For example, in their 2018 report, the EIA’s Reference Case projected that the U.S. would eventually become a net energy exporter. Now, thanks to stronger crude and liquids production, they expect that milestone to be reached next year.

We have reached that milestone. So what is the impact? Fist of all, we are free of the threat of an oil boycott by OPEC (Organization of the Petroleum Exporting Countries). The oil embargo placed on the United States by OPEC in the early 1970’s rapidly increased gasoline prices and caused shortages at the gas pumps. We don’t want to do that again. Aside from the impact on average Americans, we need gas to fuel our military. However, being energy independent does not entirely free us from having to be nice to Arab countries that don’t like us. Because of an agreement made between Richard Nixon and Saudi Arabia, oil is traded in American dollars. This is one of the reasons American dollars still have value despite our large national debt. The Saudis have been responsible for seeing that oil continues to be traded in American dollars, so it is in our best interest to be nice to them. The Saudis are also moving toward a friendlier relationship to Israel because of fear of Iran. Being energy independent allows us to support the nation of Israel without fearing another oil embargo.

American energy independence also has a potential impact on our relations with Russia and Europe.

In July 2018, The Washington Post posted an article about Europe’s dependence on Russian oil.

The article notes:

Putin has proved through his actions that he views everything as a potential tool to gain an advantage economically, politically and militarily. One of his most powerful tools is Russia’s energy resources, and he has used Europe’s reliance on these resources to strengthen his position. Some European leaders have been all too willing to take the bait.

This was the point President Trump was making at a NATO summit this month. He caused a stir for speaking undiplomatically in a room of diplomats. He was also pointing out what everyone in the room already knew: Europe’s reliance on Russian natural gas undermines its security.

Trump also understands, as he demonstrated this week in his talks with European Commission President Jean-Claude Juncker, that the United States can and should help solve this problem. By supplying our own natural gas reserves to Europe, the United States can loosen Putin’s economic grip on the region.

The article concludes:

By increasing exports of American natural gas, the United States can help our NATO allies escape Russian strong-arming. America is the world’s leading producer of clean, versatile natural gas. There are two export facilities in the United States. able to ship natural gas overseas — one in Maryland and one in Louisiana. Three more are due to be operational by the end of this year, and at least 20 additional projects are awaiting federal permits. We must speed up these approvals to give our allies alternatives to Russian gas.

We have plenty of natural gas to meet Americans’ needs and increase our exports. Independent studies have found that prices will remain low even with significant gas exports. Now we just need to clear away the regulatory hurdles and show our European allies that U.S. natural gas is a wiser option than Russia’s.

When Putin looks at natural gas, he thinks of politics, he thinks of money and he thinks of power. It is in America’s national security interests to help our allies reduce their dependence on Russian energy. We need to make clear how important it is for their own security, as well.

Our NATO alliance is strong. Ending Europe’s dependence on Russian energy will make it even stronger.

An energy-independent America is good for America, good for Europe, and good for Israel.

The Power Of Energy Independence

America is now energy independent. We now export oil and natural gas. This gives us some degree of leverage against what used to be the monopoly held by OPEC (The Organization of the Petroleum Exporting Countries). Yesterday Townhall posted an article that illustrates the influence America now wields because of its energy independence.

The article reports:

In the midst of the oil price spike scare, President Donald Trump warned the Organization of Petroleum Exporting Countries (OPEC) on Monday to “take it easy” on raising the price of oil.

This is the tweet:

So what were the consequences of this tweet?

The article reports:

Since this morning, the price of crude oil dropped by more than a dollar per barrel in just an hour. Bloomberg reported today that New York saw a 2.7 percent decrease in oil prices, which is the lowest drop in two weeks.

“Analysts attributed the price rise to improving trade talks between the U.S. and China, unrest in Nigeria and Venezuela, Libya’s refusal to restart production in the El Sharara oil field and continued efforts to curtail supplies by OPEC and Russia,” according to The Daily Caller.

When you don’t have to depend on OPEC for oil to keep your economy going, you have much more power to negotiate oil prices.

Some Good News For Commuters

USA Today posted an article yesterday about gasoline prices. I just got back from California where the price of a gallon of gas was about $4. It’s really good to be back in North Carolina!

The article reports:

Gas prices are expected to plunge sharply in the final days leading up to the midterm elections, potentially nearing $2 a gallon at some stations in low-tax states.

The sudden respite at the pump comes from sharply lower oil prices and declining wholesale gasoline prices.

Oil Price Information Service analyst Tom Kloza said it could amount to a “colossal collapse” in prices for consumers: from a $2.78 national average on Friday to as low as $2.50 by Tuesday.

“There’s the possibility you could see some prices flirt with $2 a gallon in the next 10 days or so in some of the low-tax areas,” Kloza said. “For now it’s going to be a great break.”

The break comes after gas approached four-year highs in October, topping a national average of $2.90 a gallon at one point.

Prices have already fallen by 6 cents per gallon over the last week, according to AAA. But they remain 27 cents higher than a year ago.

The increase in gasoline prices was one of the factors in the housing bubble collapse in 2008. In four years, the price of a gallon of gasoline had gone from an average of $1.85 a gallon to an average of $3.25 a gallon. If you commute thirty miles to work, that could mean as much as $3.00 a day added to the cost of your commute plus the cost of any recreational driving. To some people working with a tight budget, the increase was the difference between being able to pay the mortgage and not being able to pay the mortgage.

The article continues:

U.S. oil prices have fallen about $13 per barrel from their October high, trading at around $63 on Friday morning.

One key reason: Rising oil production throughout the world is causing stockpiles to build up.

The Organization of the Petroleum Exporting Countries’ output has reached a two-year high, with leading OPEC member Saudi Arabia’s output “near its all-time high,” Jefferies analyst Jason Gammel said in a research note. American oil output has also spiked.

“This surge has driven the market into oversupply,” pushing prices lower, Gammel said.

A decrease in gasoline prices is good news for all consumers.

The Threat Posed By America’s Looming Energy Independence

One America News posted a story today about a comment made by Mohammad Barkindo, OPEC secretary-general.

The article reports:

OPEC and other oil producers may need to take “some extraordinary measures” next year to rebalance the oil market, the OPEC secretary-general said on Sunday.

“There is a growing consensus that … a rebalancing process is under way. We are gradually but steadily achieving our common and noble objectives,” Mohammad Barkindo told reporters at the India Energy Forum organized by CERAWeek in New Delhi.

“To sustain this into next year, some extraordinary measures may have to be taken in order to restore this stability on a sustainable basis going forward,” he said, without elaborating.

Saudi Arabia and Russia helped secure a deal between the Organization of the Petroleum Exporting Countries and 10 rival producers to cut output by about 1.8 million barrels per day (bpd) until the end of March 2018 in an effort to reduce a glut.

Barkindo said consultations were under way for the extension of the OPEC-led pact beyond March 2018 and that more oil producing nations may join the supply pact, possibly at the next meeting of OPEC in Vienna on Nov. 30.

He also said that Nigeria and Libya, who are exempted from the pact, “are making progress towards full recovery” of production, after which they could join the OPEC-led agreement.

Translated loosely, there is a glut of oil on the world market, and the price has dropped. America is less dependent on foreign energy and has even been an exporter of crude oil since 2014 (see article here). The noose around America’s neck that OPEC exploited in the 1970’s no longer exists. OPEC will attempt to put that noose back, but I think it is too late.

Generally speaking, the countries that have been hurt by the drop in oil prices are not countries that celebrate freedom for their citizens–Russia and Venezuela to name a few. American energy independence is a good thing–both for America and for the world.