By William Tucker
Contributor, In Homeland Security
A recent report by the U.S. Energy Information Administration shows that domestic energy production has reached a point where the U.S. is producing more oil than Saudi Arabia. Production is nearly on par with Russia, the world’s leading crude oil producer.
US Predicted to Be Energy Independent by 2020
Several production forecasts show that the U.S. should be energy independent by 2020. In other words, U.S. energy production has exceeded most estimates. U.S. shale fields have continued to produce crude oil at a regular rate while improved technologies have made shale extraction more efficient and cost-effective.
Shale does get its fair share of press, but natural gas production in the U.S. is even more impressive. This cleaner burning fuel is less expensive, power plants that use natural gas require less maintenance, and the U.S. has increased its exports of natural gas.
All of these factors have had a positive impact on U.S. energy production and usage. Furthermore, new power plants that run on natural gas seem to pop up as frequently as new cell phone models.
Only Slight Increase Expected in US Energy Use
In addition, U.S. energy usage is expected to increase only marginally. With healthy population growth, experts expect that energy usage will actually increase, but several factors have played a role in taming American energy demands.
For example, energy sources have diversified in residential areas. Homeowners are using solar panels and buying electric, hybrid or natural gas vehicles. Improvements in energy-efficient household appliances have also had an impact on decreasing energy consumption.
Solar and Wind Power Will Further Reduce Costs
As battery technology improves, alternative sources of energy such as solar and wind power will only improve and further reduce costs to end users. Most Americans may not immediately benefit from these improvements in energy production; in fact, gasoline prices have noticeably increased this year.
But the rest of the world will feel the shift in Washington’s interests in the near term due to changes in energy capture. This energy revolution has already had profound geopolitical implications.
Adversaries and Allies Are on Notice: American Trade System Is No Longer Guaranteed
Since President Trump’s election a little over 500 days ago, tariffs and fears of trade wars have dominated the headlines. Adversaries and allies alike have been on notice that the American trade system is no longer guaranteed for these reasons:
- Most, if not all, commodities are traded in dollars.
- The U.S. maintains the largest consumer base in the world.
- The U.S. military has been the force permitting global trade to exist with minimal threats to disruption for more than 70 years.
As the U.S. produces more energy than it can consume, it will export the excess energy. For an economy that is largely self-sufficient, energy exports are a bonus.
Russia and Saudi Arabia are the first- and third-largest producers of energy. However, their economies are entirely dependent on energy sales.
They will now find themselves competing with a U.S. that views its energy exports as a bonus. As a result, the U.S. will have less interest in applying military force to ensure the functioning of a global energy system it no longer benefits from.
Trump has not caused this change; any president would face this reality. What we would see with a different president would largely be a difference in style of pursuing these changing interests.
Other Countries Will Need to Adapt to the New US Reality
Modern life is fully dependent on energy. Now that the largest economy in the world is producing an excess of energy, the rest of the global economy must adapt to the change.
To add perspective, the largest economies in East Asia get nearly 75% of their oil from the Persian Gulf. If that source of oil were disrupted by a regional conflict, the U.S. military has the capability of keeping the Gulf open with only a minimal domestic disruption.
In the next five to 10 years, however, the power dynamics could change if the U.S. were to completely withdraw from East Asia. With the U.S. no longer dependent on oil from the Middle East, there would be no guarantee that Washington would spend American blood and capital to open the Gulf and ensure that China remains well supplied with crude.
Such a scenario would force the largest economies in East Asia – China, Japan and South Korea – to find an alternative fuel source. The alternative would be for them to engage in some sort of military intervention of their own.
Currently, the U.S. is the only nation with an expeditionary military force that can operate independently. Without U.S. support, East Asian nations would have to expand their military capabilities to preserve their interests.
Worse still, this new militarism would be regionally competitive since those nations affected would only want to secure their individual interests. This is speculative, but the U.S. military does ensure that commerce flows globally and that includes the trade of hydrocarbons.
Nations that are not exactly friendly to the U.S. – Russia, Iran, Venezuela – all rely to some extent on the U.S. to ensure their energy sales continue unimpeded. If Washington were to disengage from acting as the shepherd of global security, the fallout would be profound.
The U.S. has not yet shrugged off its self-imposed responsibility of maintaining the security of global commerce. But now that American energy independence is nearly a fait accompli, that responsibility is very much in question.
For now, the U.S. still imports goods from the world over, meaning that the U.S. will remain in the global system for now. However, Americans are no stranger to building entire industries seemingly overnight if necessary. Overseas suppliers can easily be replaced with suppliers in another country or even with U.S. suppliers.
Many manufacturers have gone overseas for cheaper labor, but even those labor costs have crept up and impinge on the bottom line. Also, political instability abroad has further created uncertainty among U.S. companies overseas.
Some manufacturers are voluntarily returning to the U.S. because the cost savings abroad are simply no longer worth it. Also, they may want to be closer to their actual end users.
The bottom line is that the American-style energy revolution will change international commerce. So how will everyone else adapt to the new uncertainty this U.S. energy revolution has ushered in?