North America’s energy revolution is remaking all aspects of the global economy and international relations in what has turned out to be the most profound shift in the second decade of the 21st century.

Policymakers and climate scientists prefer to talk about the transformational potential of clean technologies like wind, solar and electric vehicles.

But in reality the biggest shifts in economic relations and the balance of power at present stem from changes in the production of decidedly old-fashioned and polluting fossil fuels such as oil and gas.

Hydraulic fracturing, coupled with tougher fuel-economy standards and increased use of biofuels, has reversed the growing dependence of the United States on energy imports in less than 10 years.

If fracking has not yet made the United States “energy independent”, it has certainly created a crucial source of competitive advantage and given policymakers much more room to manoeuvre.

Trade Transformed

By the start of the century, the cost of importing energy was one of the largest burdens on the U.S. trade balance, and threatening to worsen in the medium term.

Crude oil and refined petroleum products such as gasoline accounted for most of the imported energy, but there was growing concern that the country would also become a big net importer of natural gas within a few years.

In 2008, the United States ran a net energy trade deficit with the rest of the world amounting to $411 billion, 2.8 percent of GDP.

Crude petroleum and refined products accounted for around one-third of the record trade deficits which the United States ran between 2004 and 2008.

But 2008 proved to be the high-water mark for the net cost of energy imports.

Since 2008, net energy imports have almost halved, to just $217 billion in the first 11 months of 2013.

There is no mystery about the cause of the U.S. energy revolution.

The quadrupling of oil prices between 2000 and 2008 was directly responsible for the biofuel-blending mandates and fuel efficiency standards contained in the 2005 Energy Policy Act and 2007 Energy Independence Security Act passed by the U.S. Congress.

It also indirectly supported the swift rollout of fracking technology, first in natural gas and from 2008 onwards in oil, as well.

But the consequences of the energy revolution are only now being felt fully.

Rippling Outward

For years, policymakers and commentators have played down the revolution’s impact, or even denied there is a revolution at all, because it clashes with climate policies and threatens to re-arrange international relations in ways that are uncomfortable to many of those concerned.

Sceptics first suggested the upsurge in energy production would prove temporary, then that it would be limited to gas, and now that it will be contained by restrictions on U.S. oil exports or environmental campaigns to keep fossil fuels underground unburned.

Doubters say it cannot be repeated in other countries because of their very different geological conditions as well as political and commercial environments.

But the revolution’s impact has spread far beyond the United States.

The United States is set to become a significant exporter of natural gas. It is already the world’s fastest-growing exporter of gas liquids such as propane.

Coal exports have risen as the country’s own power stations turn to cheaper gas. And U.S. refiners are becoming increasingly important exporters of diesel.

Energy trade is already finding ways around the patchwork of antiquated restrictions on exports of oil, gas and condensates.

Comparative Advantage

At the same time, the United States depends less and less on imported energy, especially from outside North America.

In 2013, the country is expected to have imported the fewest barrels of crude oil since 1994.

Even that probably understates the speed of the transformation and its impact on the trade deficit. In real terms, the trade deficit in petroleum and related items in November 2013 was the narrowest for well over two decades.

The economic impact has been profound. Abundant supplies of cheap domestic energy are now a crucial source of competitive advantage compared with rival economies in Europe and Asia.

A decade ago, U.S. policymakers and commentators were worrying about the loss of manufacturing to China based on cheap labour.

Now cheap energy is encouraging talk of bringing some of that manufacturing back. By contrast, expensive energy and inefficient fuel consumption are a seen as a growing threat to China’s competitiveness.

European manufacturers, too, worry they will be significantly disadvantaged by more expensive energy bills.

Loosening Ties

The energy revolution’s impact on international relations has been even greater, and nowhere is it more visible than in the Middle East.

For years, the foreign policy establishments in both the United States and in capitals around the Gulf have insisted shale production will not loosen the close ties between Washington and its regional allies, especially Saudi Arabia.

But the scale of the shift has become too obvious to deny.

Speaking to a security conference in Tel Aviv on Tuesday, Israel’s outspoken Defence Minister Moshe Yaalon complained that the United States is “detaching” itself from the Middle East, according to reports carried in the Jerusalem Post.

Saudi Arabia’s leaders clearly fear their own alliance with Washington is being downgraded as the Obama Administration pursues detente with Iran.

Tensions between Washington and Riyadh erupted into the open last year when Saudi Arabia declined to take up its seat on the UN Security Council and undertook a series of other carefully calculated diplomatic moves to signal its displeasure with the White House.

Such an open breach between the two close allies would have been unthinkable in 2005 or 1995 let alone 1985 or even 1975, when the United States felt its dependence on Saudi oil exports keenly.

Even more remarkably, U.S. foreign policymakers have largely ignored the protests coming from Tel Aviv and Riyadh, and forged ahead regardless.

Ultimately, it is the energy revolution that has emboldened U.S. policymakers to pursue a very different course in the Middle East.

The idea of the United States exporting fossil fuels to the Persian Gulf would have laughable five years ago. But in what has to be the supreme irony, the United Arab Emirates is now openly talking about importing cheap shale gas from the United States to meet its surging electricity demand.

Energy Insecurity

Middle East oil producers are not the only countries that have been disconcerted by the shale revolution. It is also altering the relationship between China and the United States.

In effect, the two superpowers have swapped places. In 1973, the United States perceived its growing reliance on imported crude from the Middle East was a key strategic weakness, while China’s rapidly developing Daqing super-giant oil field promised greater energy independence.

Now U.S. reliance on the Middle East is loosening, while China is increasingly aware of the risks of relying on importing oil from unstable parts of the Middle East and Africa via long supply routes through the straits of Hormuz and Malacca and the South China Sea.

Once again, shale, and the energy revolution more broadly, lies at the heart of the fundamental shift in the balance of power.

China’s own policymakers attach the highest strategic priorities to developing their own domestic energy production (including from shale), cutting energy consumption through improvements in energy efficiency, and protecting foreign supplies by projecting diplomatic and military power into key supply regions and along supply routes.

Just like the discovery of oil in Pennsylvania in the 1850s and the Middle East between the 1920s and 1950s, the North American energy revolution is remaking the world order.

RIGZONE

14 Comments on "America’s Energy Revolution Transforms International Relations"

Plantagenet on Tue, 28th Jan 2014 10:32 pm 



Drill baby drill is working out pretty good so far. Who ever dreamed that 30 years after US oil production peaked in 1970, we’d be talking about the US becoming the world’s largest oil producer.

Northwest Resident on Tue, 28th Jan 2014 10:38 pm 



“Abundant supplies of cheap domestic energy…”.

Abundant, perhaps, as long as the “cheap” price of oil stays around $90 – $100 or so per barrel, or higher. If that “cheap” price ticks down a few notches toward the “cheap” that we all know as cheap, then production will cease due to the “no profit” motive, as has been pointed out by many experts on this site.

This article is just RIGZONE trying to calm and reassure — perhaps even pump up — the investors who have their money in oil extraction stocks, or who are contemplating where to put their investment $$$. A well-written pile of B.S, all things considered.

DC on Tue, 28th Jan 2014 10:44 pm 



Pure nonsense. But hey this IS RigPorn after all….

GregT on Tue, 28th Jan 2014 11:27 pm 



As stated above, absolute and utter BS.

J-Gav on Tue, 28th Jan 2014 11:53 pm 



“Rippling Outward?” I mean, Jesus H! They really do take people for total idiots.

J-Gav on Tue, 28th Jan 2014 11:59 pm 



What I meant to say is – It’s not a Mr Universe contest (or are we yet going to see in our local movie theaters Robert de Niro and Sylvester Stallone slug it out in an upcoming mud-wrestling extravanganza?)

Nony on Wed, 29th Jan 2014 12:21 am 



USA! USA! Miracle on ice! Down with the Russians. We will help the brave Afghans resist the invaders! Oh, wait.

Makati1 on Wed, 29th Jan 2014 1:37 am 



RIGPORN…

jjhman on Wed, 29th Jan 2014 3:39 am 



“….US becoming the world’s largest oil producer.”

This gets really tiresome. We have been within a gnat’s eyebrow of the largest producers for decades. Becoming “the largest” is no big change. The sorry truth is that even with the recent upgrading of shale oil to “reserves” from “resources” we are still every year pumping by far the largest fraction of our remaining crude oil compared to the other large producers. Russia and KSA will still be pumping huge annual quantities when the US sinks back to the lower echelons.

Kenz300 on Wed, 29th Jan 2014 2:22 pm 



Quote — “The quadrupling of oil prices between 2000 and 2008 was directly responsible for the biofuel-blending mandates and fuel efficiency standards contained in the 2005 Energy Policy Act and 2007 Energy Independence Security Act passed by the U.S. Congress.”
——————————

The price of oil, coal and nuclear keeps rising and causing environmental damage.

High prices will motivate people to choose alternatives and increase competition.

robertinget on Wed, 29th Jan 2014 4:30 pm 



In related events, the Russian ruble is currently seeing new lows against a basket of currencies. Will Putin intervene in a nascent Ukrainian Civil War? Big question today.

How many civil wars are ongoing today in the Mideast, Africa and of all places, Europe?

Knock on aluminum, North America is at peace.

rockman on Wed, 29th Jan 2014 4:35 pm 



Wow! This is one of the most amazing collections of propaganda I’ve seen in a while. Let’s hit it point by point:

“…coupled with tougher fuel-economy standards…” The increase in fuel economy by the cars on the road today has been 1 mpg OVER THE LAST 5+ YEARS. Just MHO but I think fuel prices increasing 2X to 3X may have had a greater effect on the consumption of motor fuels than increasing efficient a fraction of a % per year…

“But 2008 proved to be the high-water mark for the net cost of energy imports.” Difficult to pull this one apart since they don’t define “net cost of energy”. But given that all oil hit $148/bbl that year the cost of oil, including domestic production, hit a high water mark. So where are we today with imported oil COSTS compared to where we were before the revolution began in ‘08? In 2000 we imported $315 million of oil daily. Today we import $700+ million in oil daily…less bbls…more $’s. Viva la revolution! LOL.

“…but there was growing concern that the country would also become a big net importer of natural gas within a few years.” Concerns by what idiot? The US has been an importer of NG for a very long time. And how has that changed since the beginning of the “revolution”? In 2008 we imported 3.1 Tcf more than we consumed…15% of our consumption. In 2012 imported 1.5 Tcf more than we consumed…7% of our consumption. But the decrease in NG imports began before the big shale revolution began: in 2005 we imported 22% of our NG consumption. And how did the shale gas revolution fair after the price collapse in late ’08: there was a 75% loss of rigs drilling for shale gas. As NG prices have risen some of those trends are getting renewed attention but we’re a long way from 2008. BTW while trying to hype the impact of the shale gas revolution they conveniently forgot to mention the Independence Deep Water Hub in the GOM coming on line in the middle of La Revolution. This system began delivering almost 0.4 Tcf per year in 2007.

“In 2008, the United States ran a net energy trade deficit with the rest of the world amounting to $411 billion”. Again, no idea how they calculated this number. So again: In 2000 we imported $315 million of oil daily. Today we import $700+ million in oil daily.

“Since 2008, net energy imports have almost halved, to just $217 billion in the first 11 months of 2013.” While the price and volume of imported NG has decreased we still send almost $400 million in $’s to foreign countries for our oil imports. Maybe they’re using the fact that US coal exports have boomed in recent years pushing us the 4th largest coal exporter on the planet. While that’s great for the coal companies it doesn’t lower the cost of motor fuel and home heating. One of the great propaganda ploys is to mix apples and oranges and present a “net number”. In this case mixing those high oil imports costs with other energy costs to hide that we are spending more than 2X for oil imports since the revolution began.

“But the consequences of the energy revolution are only now being felt fully.” Can’t argue with that: since before the revolution Americans are paying 3X more for the oil they consume today. And the impact on NG prices: we are paying 2X as much today for domestic NG as we were just a couple of years ago. Viva la revolution!!!

“The United States is set to become a significant exporter of natural gas.” Time will tell. Maybe it’s just me but since we are still a net NG importer today I might wait until we stop importing NG before I start bragging about being “a significant exporter of NG”.

“In 2013, the country is expected to have imported the fewest barrels of crude oil since 1994. “ And if the propaganda isn’t sufficient just lie your ass off and hope no one fact checks; according to the EIA: in 1994 the US imported 2.58 billion bbls of oil. As of Oct 1013 the US was importing oil at a rate of 2.73 billion bbls/year. Close to 1994 but not quite there yet. And that doesn’t include the 770 million bbls of product we imported in 2013. BTW in 1994 we paid $52 billion for our oil imports. In 2013 we paid about $250 billion for our oil imports…about 5X as much. I’m not sure how much more of this “revolution” the American consumer can afford. LOL.

“Middle East oil producers are not the only countries that have been disconcerted by the shale revolution”. In 2003 OPEC sold $380 billion worth of oil. In 2013 they sold $1.2 TRILLION worth of oil. Yep…they must be shaking in their turbans. LOL.

robertinget on Wed, 29th Jan 2014 4:56 pm 



Oh yeah, here’s a one day story, quickly
buried beneath the fold.

Because of Fukushima, Japan has a monster
trade deficit as a result of importing
oil and gas to replacing power of forty some nukes currently offline, such in the trauma. Attention has mostly gone to the four Fukushima reactors and enormous expense incurred for the next four or five decades. Japan’s immediate difficulty is directly up this board’s ally. EROI: Can Japan make Toyota’s
and sell them for profit paying $100
oil and $10 gas?

Is Japan, out of absolute necessity,
turning quickly enough to renewables?

Japan certainly will be a case study for years to come.

Ex-colonial magnet United Kingdom, has already become the world’s leading
on and offshore wind power. Watch this.

PV Solar is already cheaper per watt produced than diesel.

Interesting times these.

GregT on Wed, 29th Jan 2014 8:34 pm 



“Japan certainly will be a case study for years to come.”

I think it’s more likely that Japan is a sign of things to come.