American elites have talked about “energy independence” for forty years—since the United States became a net oil importer in the early 1970s, around the time of the first major oil crisis. While they have rarely been precise or analytically rigorous in using the term, it seems to mean, in its most ambitious formulation, that the United States would never again have to import hydrocarbon molecules, in liquid or gaseous form. In a more restrained (but still pretty ambitious) version, U.S. demand for oil and gas imports would drop to levels satisfiable with supplies from “friendly” neighbors, rather than countries geopolitically at odds with Washington.
But, in either form, the notion of energy independence is a myth, and a dangerous one. It is a myth because it ignores the realities of today’s international oil and gas markets; it is dangerous because it conditions ill-advised foreign policy choices.
Shifting Visions
For much of the past forty years, American elites have talked about energy independence largely in terms of replacing hydrocarbons with alternative energy sources and/or in terms of managing demand. This vision treats the world’s reliance on hydrocarbons for over eighty percent of its energy as pathological—as an “addiction” needing treatment. In fact, the world’s reliance on hydrocarbons is highly rational. Hydrocarbons are high density, efficient fuels; especially in their liquid form, they are cheaper to transport and store than other kinds of fuel. Moreover, hydrocarbons themselves are cheap: a barrel of oil (even priced over $100) is cheaper than equal volumes of any other liquid on the planet—milk, Diet Coke, shampoo, even water. This makes it very hard to displace crude oil and other hydrocarbons—and explains why demand-based visions of energy independence have had no strategically meaningful impact on the global energy balance.
In recent years, discourse on energy independence has shifted from a demand-based narrative to a supply-based one, positing that America can produce enough oil and gas to obviate the need to import hydrocarbons. Key to this has been the “shale revolution,” wrought by applying hydraulic fracturing, or “fracking,” in U.S. oil and gas production. Supply-driven visions of energy independence hold that shale will not just enhance America’s energy security, but will revive its global primacy by increasing oil and gas supplies and lowering energy prices, in turn sparking a U.S. economic renaissance while undermining uncooperative hydrocarbon powers by taking market share from them and cutting their export revenues.
Shale Game
To be sure, the shale revolution has had a significant impact on U.S. energy production. As recently as 2007, shale accounted for just five percent of U.S. natural gas production; by 2012, it accounted for thirty-five percent of U.S. gas production, and that figure looks set to rise further. Many hold that shale will make America self-sufficient and then some in gas for years to come.
Conventional oil production in the United States—production from conventional reservoirs without fracking—peaked in 1970 at 9.7 million barrels per day (bpd) and then declined, reaching a low of 5 million bpd in2008. But with shale coming on line, the United States rose to 7.5 million bpd of crude oil in 2013, making it the world’s third-largest producer (after Saudi Arabia and Russia); add in natural gas liquids and condensates, and U.S. liquid fuel production topped 11 million bpd. That is reducing U.S. demand for imported oil—in 2005, imports amounted to 60 percent of U.S. liquid fuel demand; by 2011, this figure had dropped to 45 percent; preliminary data for 2013 suggest it may now be down to 35 percent.
What Revolution?
This is all good news, as far as it goes. Over the last decade or so, energy imports have accounted for roughly half of America’s massive trade deficit. To the extent America has to import less oil and gas, it is clearly positive for the U.S. balance of payments. There are also measures of GDP and job growth associated with shale production. Still, there are strong reasons for skepticism as to the shale revolution’s scope and sustainability—and whether supply-based energy independence will be as strategically empowering for Washington as some say.
Certainly, the idea that the United States will ever export enough shale gas in the form of liquefied natural gas (LNG) at sufficiently low prices to undercut the enormous built-in advantages that an established major gas producer like Russia enjoys in gas export markets in Eurasia seems highly fanciful. The U.S. government has so far approved five applications for LNG export projects, with another nineteen pending. But it is far from clear how much U.S. gas will actually be available for export in coming years.
Companies have gotten very good at producing U.S. shale gas—and, in the process, have driven North American gas prices so low as to weaken the case for more investment in new production. (Big energy companies that followed smaller independents into U.S. shale gas are now losing money on their plays.) And for those who think the United States could be exporting gas to Europe and the former Soviet Union within months, if Washington would just issue more licenses, developing a LNG train takes, literally, years.
It is also dauntingly expensive. By the time the first of the LNG trains to which the U.S. government has given export licenses comes on line next year, it will have cost at least $10 billion; costs for future trains will be at least that high. High upfront costs mean that investors only finance projects for which there are customers committed to buy the off take, for twenty or twenty-five years—which is why most of the LNG trains for which export licenses have been sought will never be built. (Some producers apply to boost low North American gas prices by fostering perceptions of overseas demand.)
Even if several trains come on line, their production will be a fraction of Russia’s gas exports to Europe. And, while European gas prices are higher than North American prices, it is virtually certain that most U.S. LNG will go to Asia, where prices are even higher than in Europe.
There are similarly serious questions about America’s shale oil boom. The International Energy Agency projects that U.S shale oil production will peak by 2020, plateau for a few years, then decline. U.S. conventional oil production continues declining, as does Gulf of Mexico production. This means that the cannibalisation of shale to replace lost production in other arenas will accelerate; after a decade or so, shale oil won’t keep overall U.S. oil production from peaking—and declining—again. Thus, the IEA expects that the world will continue looking to the Middle East for incremental oil production over the long term.
Dangerous Delusions
Pursuing energy independence, in defiance of reality in today’s oil and gas markets, is not just quixotic—it is counterproductive for America’s standing and influence. It is counterproductive most immediately because it reinforces official Washington’s longstanding conviction that the United States doesn’t have to engage in real diplomacy with strategic rivals—that is, diplomacy which recognises and accommodates their legitimate national interests (e.g., Russia’s interest in not having the West turn other post-Soviet states into anti-Russian platforms, or Iran’s interest in developing safeguarded but indigenously managed nuclear fuel cycle capabilities).
More broadly, American political and policy elites should understand that the opposite of energy independence is not energy dependence—it is energy interdependence. Since World War II, the stabilisation of energy interdependence has been a critical element in America’s standing as a great power.
For decades, America’s interest in stabilising energy interdependence has been embodied in its commitment to defend the free flow of Persian Gulf hydrocarbons to international markets. But the U.S. interest in Persian Gulf oil, from its origins in World War II, has never been primarily about America’s own energy needs.
The United States came out of World War II self-sufficient and then some in oil production—it was, by the definitions laid out above, energy independent. It would not become a net oil importer until the early 1970s, more than a quarter century after the war’s end. And even after becoming a net importer, America has never met that high a percentage of its own oil demand with Middle Eastern imports. America’s interest in the Persian Gulf has never been about Persian Gulf oil to satisfy its own energy demand—it is about the ability to control who gets access to Persian Gulf oil.
Coming out of World War II, America wanted to guarantee Persian Gulf oil flows to Western Europe and Japan, because it judged (well before the Cold War) that providing secure and cheap energy supplies to these states would be essential to their postwar recovery—and their recovery was deemed essential to America’s own long-term economic prospects. In wider perspective, U.S.-provided energy security would lock Europe and Japan into long-term economic and security partnerships with the United States. For nearly seventy years—even after the OPEC revolution of the 1970s ended the West’s ability to control energy prices—this has remained the real foundation of America’s interest in maintaining determinative influence over the production and marketing of Persian Gulf hydrocarbons: to bolster its strategic standing in other important parts of the world.
The perceived need to dominate Persian Gulf hydrocarbon flows has also prompted Washington to try assiduously to suppress the emergence of independent power centers in the region (e.g., the CIA’s 1953 coup that brought down a democratically elected nationalist government in Iran). Since the Cold War’s end, the United States has unwisely doubled down on this approach, seeking a level of hegemonic supremacy in the Persian Gulf it was constrained from seeking during the Cold War. Hegemonic aspiration has led U.S. administrations to pursue policies that have actually decreased the security of Persian Gulf hydrocarbon flows to international markets—e.g., keeping substantial military forces on the ground in the region after the first Persian Gulf War, maintaining international sanctions on Iraq that killed over a million Iraqis (half of them children), invading Iraq in 2003 and occupying it for years, and threatening to impose extraterritorial (hence illegal) sanctions on third-country entities transacting with Iran.
As such policies have worked against global energy security, they have also damaged America’s international position. But the negative impact of these policies doesn’t mean that achieving a (mythical) condition of energy independence would make the United States stronger. It would actually reduce the tools available to U.S. policymakers to promote America’s standing and influence around the world.
The flip side of the claim that the shale revolution will enable America to undermine uncooperative hydrocarbon powers is the assertion that supply-based energy independence will let the United States wash its hands of the Middle East and its challenges. This is misguided; even if the most optimistic projections of shale gas and shale oil production in the United States are realised, U.S. shale producers will still be operating in a global market, especially for oil. Therefore, the United States is still going to have to care what happens in the Persian Gulf—because what happens there has a big effect on energy prices.
More fundamentally, those who say that the shale revolution will enable the United States to become less interested in the Middle East are basically saying that the United States should remove itself from the great power business. In reality, the United States needs to abandon post-Cold War delusions of hegemony, and get serious about being a great power—by engaging in strategically grounded, balance of power diplomacy with other important global and regional states, and by working with others in a genuinely cooperative way to secure the global public good of energy security.
Reprinted with authors’ permission from Going to Tehran.
