RIYADH, Saudi Arabia/ Troy Media/ – The ‘invisible hand’ is under threat in the very country known by many – if not all – as a bastion of free market economy.
For years, even decades, the U.S. has been discouraging the very idea of resource nationalism, insisting instead that free market forces control global energy dynamics. It has always been opposed to using resource assets as a foreign policy tool, for this was the only way it believed to ensure stability in markets.
Now, with crude output in the country growing rapidly and the U.S. emerging as the world’s top producer there seems growing emphasis in Washington on controlling its newly found resource – and using it as a foreign policy tool.
U.S. Rep. Fred Upton, chairman of the House Energy and Commerce Committee, asserted at the recently EIA’s 2014 Energy Conference that artificial market barriers are preventing the United States from using energy as a tool for international diplomacy,.
“It’s a new era of energy abundance, and we need to usher in a new era for energy policy (to match),” he said, emphasizing that those in the world with energy have the power to influence global affairs. The United States (finally) has an opportunity, Upton said, to use energy as a diplomatic tool and ensure U.S. allies gain access to U.S. oil and gas reserves rather than being “held hostage” to global instability. “We can take care of our domestic needs and have enough energy left to let our allies buy it from us, rather than being held hostage to unstable regions of the world.”He urged the U.S. government to embrace its newfound energy wealth – including unleashing “energy diplomacy” on world stage.
A January report from the Center for a New American Security also underlined the connection between oil exports and diplomacy, although it described it as “coercive political influence” in foreign affairs.
Independent, apolitical forces, however, still seem to be contesting the Upton’s position. Continuing the crude export ban doesn’t make sense because the U.S. has spent decades fighting resource nationalism in other countries and promoting free trade, Jason Bordoff, of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs pointed out.
But a “day of reckoning” is approaching, according to John Auers, executive vice-president of Turner, Mason & Co. Consulting Engineers. This day will come, he said, when U.S. crude production exceeds refining capacity to a point that prices become so heavily discounted to comparable overseas grades that producers decide not to increase production further.
IHS Vice-Chairman Daniel Yergin agreed. “The rationales for a crude oil export ban are gone, but the ban is still in place,” he is quoted as saying. “We see a risk of a $15 to 25/bbl domestic light crude discount being locked in during the next couple of years, potentially limiting additional investment.”The U.S. has preached to other countries for decades, he said, about the need for free flow of resources. How can it now say to Japan that it can’t import any U.S. LNG but must not buy Iran’s oil?
However, Maria van der Hoeven, executive director of the International Energy Agency (IEA) cautioned that the optimism about U.S. energy security, rooted in abundant supply of fossil fuels alone, is misplaced. “Energy security really requires diversity,” she underlined. The message was clear. “Coal, nuclear and wind are all essential for keeping the lights on.” The traditional definition of energy security, entrenched in “security of supply of fossil fuels is woefully outdated,” she argued. “Although things look bright (at the moment), this is no time for complacency.”
According to van der Hoeven, U.S. light tight oil production will reach a plateau over the next decade, which means the U.S. will be forced to rely on the Middle East again. And the focus will particularly be on turmoil-stricken Iraq, which the IEA projected would provide up to 60 per cent of the Organization of the Petroleum Exporting Countries’ capacity growth over the next five years.
Energy markets are undergoing a major overhaul – at least in short to medium term. The U.S energy outlook is in transition. As the world’s largest crude consumer, the U.S. needs to take a lead in ensuring that free market principles continue to rule the markets.
Unfortunately, the will may no longer be there – at least at this moment – on Capitol Hill if not in White House.