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President-elect Donald Trump has a “vision” for an “America first energy plan”.
This includes developing new oil fields in the US, creating “at
least half a million new jobs” in energy, and promoting natural
gas over coal in order to tackle emissions.
Also on the list are making “America energy independent” and the
aim for it to be “totally independent of any need to import
energy from the OPEC cartel or any nations hostile to our
interest”. Removing US demand from the global energy market would
have a huge knock-on effect across the world. But it’s not
actually clear whether Trump will be able to achieve his goal –
or if he’d even want to.
The US is already increasingly able to produce its own energy. In
2013 it surpassed Saudi Arabia and Russia to become the world’s
largest producer of petroleum products, and only around a quarter
of its oil is now imported – the lowest figure since 1970. This compares favourably
to the UK (42% imported), and the EU (nearly 88%).
Trump’s fears, though, are nothing new: consecutive US
administrations have worried about the country’s dependence on
imported oil. During the 1970s, falling domestic output and the
Arab oil embargo led to government-funded research that fostered
the development of fracking. Along with other recent
technologies, fracking partly explains why production is at its
highest level in decades.
The US now imports crude oil and petroleum products from 88
different countries, but Trump was explicit in wanting to stop
importing oil from Opec – the 14 member cartel set up in 1960.
The group is able to exercise control on global oil prices and
supplies as it produces around 57% of oil exports and collectively it
holds 81% of proven oil reserves.
An
oil well pump jack is seen at an oil field supply yard near
Denver
Thomson
Reuters
Around 31% of US imports come from Opec, mostly Saudi
Arabia and Venezuela. Canada (40% alone) and Mexico (8%) are the
other biggest sources of US imports, but neither are members of
Opec. Additionally, Opec supply only accounts for 15% of US daily
consumption. Over the past decade, imports from Opec have fallen
each year, and in 2015 they were at their lowest since 1987.
So the “Opec dependency”, as perceived by Trump and others, turns
out to be relatively minor. But this is where energy and foreign
policy cross paths.
America’s complicated relationship with Saudi Arabia has its
roots in geopolitics and nearly a century of foreign policy. The
US began investing in the region’s oil during the 1920s in response to falling
domestic output, and ever since its foreign policy has been
partly determined by its dependence on oil imports from other
countries. Saudi Arabia has been a key ally of the US in the Middle East, and it is
unclear how far Trump will go in realigning the nature of
American engagement with the country.
With such low relative imports from Opec it could be assumed that
ending imports from them would be simple; however the type of oil
they supply is equally important. Most US-produced oil is known
as “sweet” crude, because of its low sulphur content and density.
But countries such as Saudi Arabia and Venezuela produce “sour” crude. Sweet crude is less energy intensive
but cheaper and easier to refine. However, much of the oil
refinery capacity in the US – notably on the Gulf coast – is
designed to process sour and heavy oil because of the historic
import dependency.
But the US could further increase imports of Canadian crude oil.
In 2015 President Obama vetoed a congressional bill approving the
construction of the 1,179 mile Keystone XL pipeline that would have added
more capacity for Canadian oilfields to supply US oil refineries.
Qatar
Oil Minister Mohammed bin Saleh Al-Sada, Saudi Oil Minister Ali
al-Naimi, United Arab Emirates Energy Minister Suhail bin Mohamed
al-Mazroui and Kuwaiti Oil Minister Ali Saleh al-Omair (R) attend
the opening session of the 10th Arab Energy Conference in Abu
Dhabi, on December 21, 2014.
Getty
Images/MARWAN NAAMANI
Trump previously signalled his desire to revisit Obama’s decision
on Keystone XL and build the pipeline, which could lead to higher
imports from Canada.
Higher US production – or Canadian imports – may reduce Opec oil
imports, but the organisation still retains a role in setting
crude prices because of its strong market position.
Macroeconomics and the strength of the dollar play pivotal roles
in oil prices, but Opec decisions and targets on how much oil its
members pump also are vital.
The growth in US oil production this decade has hit Opec members
hard. Oil prices have fallen to $50 a barrel from over $100 only
two years ago, cutting into their national budgets. Yet this drop
has badly hit some US oil producers, too; a price war between
Opec and the US developed, and the cartel upped production to force prices down and
pressure some US companies into halting production. US output
between April 2015 and August 2016 fell by around 10%.
Opec will meet on November 30 to decide whether members should
cut oil production to support prices which have struggled to
recover because of perceived oversupply. The expectation of this
cut was enough to lift prices. If the US continues to pump oil
at near record levels – and companies continue to lower their
operational costs – it could cut Opec imports and challenge its
dominant price setting role. But a quarter of US demand is still
imported, and until domestic demand is reduced, Trump’s vision of
energy independence vision, from Opec and others, will remain
unattainable.
Joseph Dutton, Research Fellow, Energy Policy
Group, University of Exeter
This article was originally published on The Conversation.
Read the original article.
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