Is US oil production becoming a potential foreign policy tool?

Some energy analysts may suggest the US is becoming an important source of energy supply for the world. But, the US's oil supply may not translate as a foreign policy tool, writes Daniel J. Graeber.

By , OilPrice.com

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    Russell Girsh motions to his driller to turn the equipment on an oil rig near Watford City, N.D. Some energy analysts may suggest the US is becoming an important source of energy supply for the world, but that doesn't translate as a foreign policy tool, writes Daniel J. Graeber.
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US oil production will beat output from the Middle East for the rest of the decade. And while that gives the United States some leverage on the international stage, at least one prominent global analyst thinks it's wrong to assume oil could be used as a foreign policy tool.

The US Energy Information Administration (EIA) said domestic oil production for the week ending June 13 averaged 8.47 million barrels per day, up 17,000 bpd from the previous week and 18 percent higher year-on-year.

The rise in production has fueled the debate over what to do about legislation enacted in the 1970s that restricts crude oil exports. Critics say the ban would lead to higher prices at home, specifically at the gasoline pump. A January report from the Center for a New American Security, however, said the economic connection that would come from oil exports could manifest itself as "coercive political influence" in foreign affairs.

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Paul McConnell, principal analyst for Wood Mackenzie’s global trends service, said US oil production gains are unprecedented, but not necessarily in a way that reshapes the global balance of power.

"Our forecasts show the United States will remain dependent on imported crude oil until beyond 2030," he said in an interview. "So while it's clear the US is emerging as a new and important source of global energy supply, I think it's incorrect to suggest that this supply could become a foreign policy tool."

The International Energy Agency (IEA) said it expects the United States to be the world's leading oil producer by next year, passing Russia and Saudi Arabia. The United States is also on its way to energy self-sufficiency, which would make it less vulnerable to oil shocks like the one that prompted the 1970s export ban. (Related Article: Iraq, oil markets, and the US economy)

But that dominance will be brief, and presumably so too would be any perceived geopolitical leverage. US oil production should peak in the next decade and fall from the No. 1 spot at the beginning of the 2030s.

McConnell, in a June 12 report, said the dynamics of the global energy market are indeed changing. China is taking the lead in terms of energy consumption at the same time the Middle East is fading as a lead supplier.

Markets, however, are becoming more interconnected and the relationship between the supplier and the consumer is becoming more and more dependent.

Wood Mackenzie's report points to the Russian gas relationship with Europe as a case in point.

Russia meets about a quarter of Europe's natural gas needs, but most of those reserves run through the Soviet-era pipeline network in Ukraine. That means the European energy sector is at risk because of the ongoing row between Kiev and the Kremlin. And while European Energy Commissioner Gunther Oettinger said he was wary of "political and commercial blackmail" in the energy sector, Russian Energy Minister Alexander Novak said at a June 19 conference in Moscow using energy for political gain "leads to increased instability and worsening of the investment climate in the energy sector."

Some voices in the US energy policy community have said the gas crisis in Eastern Europe, as well as the recent turmoil in Iraq, means that leverage could be gained through a more robust export policy. With Asian demand growing, however, that may appear misguided on the surface. For analysts like McConnell, however, it may be more of a case of bet hedging.

Global demand centers may very well be shifting to Asia, he said, but Europe is also a competitive marketplace.

Source: http://oilprice.com/Energy/Energy-General/Why-What-You-Know-About-The-Global-Energy-Game-Is-Wrong.html

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