Rachel Bronson
Dr. Bronson is senior fellow, Global Energy, at The Chicago Council on Global Affairs. You can follow her on Twitter @RachelBronson1.
Recent events in Ukraine have brought America's growing energy independence and its resulting geopolitical influence into sharp relief. Almost immediately after Moscow invaded Crimea, leaders on both sides of the Atlantic began urging Washington to strengthen its allies and weaken Russia's dominance by deepening its energy ties to Europe. In a letter sent to House Speaker John Boehner and Senate Majority Leader Harry Reid, the ambassadors from Poland, Hungry, the Czech Republic and Slovakia called on the United States to strengthen its "gas-to-gas competition" to enhance European energy security.1 President Obama echoed their call: "Energy is obviously a central focus of [American and European] efforts" vis-à-vis Russia.2 The United States has an opportunity to use its newfound energy assets to shape the political chessboard in ways unforeseen just a few years ago.
How it will do so remains unclear. Early talk of exporting America's surplus liquid natural gas (LNG) to Europe quickly ran up against rudimentary roadblocks such as the lack of U.S. LNG export facilities for immediate distribution, a paucity of receiving terminals in target states and market pressures luring U.S. exports to Asia, not Europe. Events have made it clear that growing energy independence gives the United States new options, although a strategy for helping guide these options is woefully underdeveloped.
Before the conflict in Eastern Europe focused the world's attention on Russia's dominant energy position in Europe, the geopolitical consequences of growing American supply seemed to fall on traditional U.S. partners in the Middle East. Questions began to be raised about what impact it might have on political relations with its Gulf partners. Deteriorating U.S.-Saudi relations were casually referred to as a positive by-product of America's new stature. Growing independence could thus have the salutary effect of reducing American commitment to, and interest in, the Middle East more broadly and the Persian Gulf in particular. In Foreign Policy magazine, Ed Morse and Amy Jaffe asserted that "the United States has a historic opportunity to lead a counterrevolution against the energy world created by OPEC."3
But to assume that Persian Gulf partners will be less important to the United States as a result of its growing domestic supplies would be ill-advised. Missing in the excitement about increasing U.S. supply is a similarly serious analysis of growing global demand, which will have at least as powerful an impact on the global energy market and will shape the environment in which U.S. policy choices are defined. When both supply and demand are considered, the Middle East emerges as central to America's ability to achieve its national interests. Washington will need its traditional partners to ensure "the safe supply of energy at reasonable prices" or, in current military parlance, "the safe flow of commerce." Talk of a loosening of ties between the United States and its energy-producing Middle Eastern partners as a result of growing U.S. energy independence is just that, loose, and possibly reckless. All sources of energy will be needed to slake new demand, keep prices from escalating further and promote global economic growth.
Changing Supply and Demand
There is no doubt that a revolution is happening in energy markets. Changing consumption patterns and developments in energy extraction are profoundly altering America's global position. Newly tapped shale gas and associated tight oil, along with gains in efficiency, have helped the United States emerge as the world's largest producer of energy and lessened the country's dependence on foreign sources of oil. By 2016, the United States will likely import only 25 percent of its petroleum needs, down from 60 percent in 2005, although the figure will rise again to slightly over 30 percent by 2040. The net import share of total U.S. energy consumption (including oil, natural gas and coal) is predicted to drop from 30 percent in 2012 to a mere 4 percent in 2040. This is a result of increased domestic production and gains in efficiency. Americans use less oil now than they did in 1973. Electricity use grew just 6 percent between 2000 and 2012, and Americans used less total energy in 2012 than in 1999 despite an economy that is 25 percent larger in real terms.4 As a result of increased energy efficiency and growing domestic production, the United States is likely to approach energy independence before the end of the decade.
Although the United States is experiencing one of the greatest booms, others such as Mexico, Canada and Brazil are expected to bring online new and important supplies of energy. In North America, Canadian oil sands will continue to be brought to market in increasing volume. Mexico is reworking domestic legislation to benefit from technological advancements resident in multinational companies, reverse declining oil production, and exploit its gas potential.
Brazil will be another major contributor to new energy supplies, leading South America's efforts in energy production. In the coming years, it is poised to exploit vast reserves almost 20,000 feet below the ocean's surface. Across the globe, high energy prices and growing concern about the effects of greenhouse-gas emissions are driving technological changes and encouraging new discoveries that will redraw the energy landscape as we know it.
But growing supply is not happening in a vacuum; it is being met by a voracious and increasing demand for energy. The relationship between the two will remain tight for the foreseeable future. According to the U.S. Energy Information Administration's (EIA) International Energy Outlook 2013, more than 85 percent of the increase in global energy demand from 2010 to 2040 will occur in non-OECD (Organization for Economic Cooperation and Development) countries, primarily China and India. And overall demand is projected to rise considerably between now and then. As Asia-Pacific Center for Security Studies Professor Mohan Malik writes, "Asia has become ‘ground zero' for growth" as far as the consumption of energy is concerned.5
China's slowing economic growth is unlikely to dramatically affect this trend. According to the IMF, growth in China surged in the second half of 2013, although this will likely slow. Chinese growth is expected to "moderate" slightly around 7.5 percent in 2014-15; it will still rely on increased energy imports, notwithstanding China's huge investment in renewables. The EIA projects that China will surpass the United States as the largest net oil importer this year. China's oil-consumption growth accounted for one-third that of the whole in 2013, and EIA projects the same share in 2014.
In their book By All Means Necessary, Elizabeth Economy and Michael Levi show how China's quest for resources drove the global-commodities price spikes of the last decade. Although growth may be tempered, and rising demand will no longer come as a "shock" to markets, demand will continue to be joined by demand from other growing Asian markets. Prices will remain relatively high into the foreseeable future, although new supplies will help ease potential spikes.
Growing demand from India will put new pressures on energy markets as well. According to BP's Energy Outlook 2035, India's demand growth of 132 percent outpaces each of the BRIC countries as Russia (+20 percent), China (+71 percent) and Brazil (+71 percent) all expand more slowly. India's growth is expected to almost double the non-OECD aggregate of 69 percent. To support this demand, BP anticipates that India's oil imports will rise by 169 percent and account for over 60 percent of the net increase in imports, followed by increasing imports of gas (+573 percent) and coal (+85 percent).6
Similarly, the EIA anticipates non-OECD consumption in Asia to increase from 148 to 337.5 quadrillion Btu between 2009 and 2040, or an average of 2.5 percent a year over the same period. Although projections are just that, and much can change between now and 2035, as we have seen in recent years, these kinds of numbers are suggestive of a world in search of increasing energy supplies. According to the International Energy Agency, the Middle East remains the key actor in fueling this demand.
Increased U.S. supply comes at a time when the world is thirsty for new energy sources, and some traditional ones such as the North Sea are peaking. New sources will mean new opportunities for the United States to exert influence, but it does not mean that Middle Eastern energy supplies will become less important. In fact, they may become more so.
World Total Energy Consumption, 1990-2040 (Quadrillion Btu)
1990 | 2000 | 2010 | 2020 | 2030 | 2040 | |
Non-OECD | 154.4 | 171.5 | 281.7 | 375.3 | 460.0 | 535.1 |
OECD | 200.5 | 234.5 | 242.3 | 254.6 | 269.2 | 284.6 |
Source: EIA, www.eia.gov/forecasts/ieo/world.cfm.
A Pivot to Asia
Middle East producers recognized the importance of Asia's growing energy needs at least a decade ago. Their realization led to two important changes. First, it focused local leaders on the need to slow domestic demand. The more energy production is redirected to domestic markets, the less producers have available for export. It is for this reason that major conservation efforts are underway in the Gulf, along with a growing focus on renewables. In the United Arab Emirates, for example, leaders are developing an entire city run on solar power, renewables and waste. In general, however, efforts to slow domestic demand in the Gulf have not proven successful.
The second change has been a reorientation in trade from West to East. As Bruce Riedel writes in al-Monitor, Saudi Arabia began reorienting its economic and political priorities to South and East Asia long before the American pivot to Asia. Saudi trade and investment has increasingly been directed toward Asia rather than Europe or America.8 This pattern is similar in all exporting Persian Gulf states. The percentage of Persian Gulf crude-oil exports to Asia exceeds more than half of each country's exports. Saudi Arabia sends almost 60 percent of its oil to the Far East, Kuwait more than 60 percent and Iran nearly 70 percent. These numbers have been steadily rising throughout the decade.
While questions in the United States about the pivot to Asia are anticipatory — Is the president serious about rebalancing to Asia? How fast should Washington rebalance? What will it mean for the United States moving forward? — a pivot in energy markets is already well underway. The global energy trade is changing from an Atlantic- to a Pacific Basin-oriented trade, and the pivot leg in this new global energy trade is the Persian Gulf. Middle Eastern producers have already shifted their trade eastward. By 2035, the U.S. share of global demand will fall from 18 percent to 13 percent, as China's rises from 22 percent to 27 percent.9
The United States will need to rethink its military, political and economic posture based on these new realities, but this will not make U.S.-Middle East relationships less important.
Oil and Natural Gas Liquids exports from the Middle East7
Mbd | Percent of | Percent of Total | |
Asia | 15 | 50 | 75 |
Europe | 2 | 15 | 12 |
United States | 2 | 12 | 11 |
Rest of World | 1 | 1 | 2 |
Source: BP Statistical Review of World Energy 2013.
U.S. Interest in Fueling Demand
The U.S. commitment to global economic growth is highlighted in President Obama's introduction to his administration's National Security Strategy 2010, as is the administration's confusion about how foreign sources of energy will play into it. In his introduction, the president writes,
Our strategy starts by recognizing that our strength and influence begins with the steps we take at home. We must grow our economy and reduce our deficit. We must educate our children to compete in an age where knowledge is capital, and the marketplace is global. We must develop the clean energy that can power new industry, unbind us from foreign oil and preserve our planet. We must pursue science and research that enables discovery, and unlocks wonders as unforeseen to us today as the surface of the moon and the microchip were a century ago. Simply put, we must see American innovation as a foundation of American power.10
The strategy itself starts with the conviction that "at the center of our efforts is a commitment to renew our economy, which serves as the wellspring of American power."
Trade with Asia is key to economic growth and deficit reduction, and certainly exporting newly abundant U.S. energy sources will be a step toward achieving the president's strategic objectives. But growth will not come solely from domestic sources. American economic growth is inextricably tied to Asian growth, which in turn relies heavily on Middle Eastern supply. Others, like the United States, Canada and Russia, are exploring new opportunities to supply Asian markets, but for the foreseeable future the Gulf producing countries are key. Referring to Persian Gulf supplies, one senior military planner correctly stated, "It's not that we need it, it's everyone else that needs it."
Some have argued that by this logic, the increasing need for Middle Eastern energy sources to power Asian growth means that China should bear more of the cost of Persian Gulf security. Why, for example, should the U.S. taxpayer contribute to providing a public good that benefits China and India directly? It's a good question but misses the connection between Asian and American economic growth. Besides, would the American consumer feel more or less secure in a world where China controls the sea lanes of commerce? In addition, China is far from able to provide credible security commitments to the region, as they and our partners are fully aware. The United States remains the only actor with an overriding interest in the region's stability, the ability to credibly commit to its security and a vested interest in doing so.
Gulf Link to U.S. Interests
In his well-argued piece in Turkish Policy Quarterly, Gal Luft asks, "Will energy-rich America depart from the Middle East and Eurasia?" There are many reasons the United States will remain engaged in the Middle East including counterterrorism, counterradicalism, nuclear nonproliferation and ensuring the security of allies, among other concerns.11 The United States has important interests in the region that cannot be viewed through a simplistic energy lens. As Luft writes, "It is time to give the myth that U.S. presence in the Middle East is tied to its dependence on imports of the region's oil a decent burial."12
Even if one chooses that simplistic lens, the facts still bind the United States to the energy-producing states. America will remain militarily and politically engaged in the Middle East; this is key to the realization of a primary U.S. national strategic goal: economic growth and development. Increasing U.S. supply will be added into a global energy market hungry for all available sources of energy. U.S. supplies will find ready markets, but it will not substitute for the globe's cheapest and largest sources of energy. U.S. policymakers have an opportunity to recraft America's energy strategy in light of its newly strengthened global position. The shift from an Atlantic to a Pacific Basin energy market will provide new opportunities and offer new leverage to shape political outcomes, but it will also require nuance. Crafters of a new approach should be very cautious when promoting policy that assumes U.S. energy independence frees the United States from Middle Eastern supplies. Global energy markets are pivoting to Asia, and the Persian Gulf is the point of that pivot.
1http://www.speaker.gov/press-release/response-russian-aggression-key-ce….
2http://www.presstv.ir/detail/2014/03/26/356130/more-sanctions-coming-us….
3http://www.foreignpolicy.com/articles/2013/10/16/the_end_of_opec_americ…. It is also regularly reported that the Saudis are concerned about rising U.S. energy supplies and what it means for the relationship, although this is not corroborated in my interviews, http://www.ft.com/intl/cms/s/2/8a965110-b4c0-11e3-af92-00144feabdc0.htm….
4http://thingprogress.org/climate/2013/10/17/2801231/world-energy-effici…. NRDC issued a report in October 2013 that shows total energy used per dollar of goods produced is down, and the cost of energy services (from lighting to refrigeration) is down. See also EIA's prediction of a sharp decline in light-duty vehicle energy use and a decline in consumption, http://www.eia.gov/forecasts/aeo/er/executive_summary.cfm. This has also resulted in lower carbon emissions. In its 2014 annual report, the EPA reported a 10 percent drop in U.S. greenhouse-gas emissions since 2005. The agency attributed the decline to "decreases in energy consumption among all sectors in the economy, the switch to natural gas from coal in electricity generation, increased fuel efficiency in transportation and limited demand for passenger transportation." See, http://thehill.com/blogs/e2-wire/e2-wire/203600-epa-greenhouse-gas-emis….
5 Robert Kaplan, "The Geopolitics of Energy," Stratfor, April 2, 2014. See also, "Securing America's Future Energy," Oil Security 2025: U.S. National Security Policy in an Era of Domestic Oil Abundance, January 15, 2014, http://www.secureenergy.org/sites/default/files/Oil_Security_2025_0.pdf.
6http://www.bp.com/en/global/corporate/about-bp/energy-economics/energy-….
7 John Mitchell, Asia's Oil Supply: Risks and Pragmatic Remedies (Chatham House, May 2014), 9.
8http://www.al-monitor.com/pulse/originals/2014/03/saudi-pivot-asia-prin….
9 BP Outlook.
10http://www.whitehouse.gov/sites/default/files/rss_viewer/national_secur….
11 Some have argued that a "reason" for the United States to remain physically present in the region is to deprive potential enemies of energy supply. The United States would not be able to cut off energy to a particular adversary without affecting global price and significantly hurting allies and noncombatants as well.
12http://www.turkishpolicy.com/article/963/will-shale-energy-remake-u.s.-…. See also, "Securing America's Future Energy," Oil Security 2025: U.S. National Security Policy in an Era of Domestic Oil Abundance, January 15, 2014, http://www.secureenergy.org/sites/default/files/Oil_Security_2025_0.pdf.
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