Oil has been a central concern of U.S. foreign policy for nearly 50 years, but the role it plays might be in for a big change.
The Russian expansionism of Vladimir Putin is putting Europe in an awkward position. The nations can either fight back and risk losing access to Russian oil and natural gas or allow Russia to dominate Europe’s energy supply market and/or acquire more European territory to ensure that Russia’s oil and gas continue to flow west in ample amounts.
At a recent U.S.-European Union Summit in Brussels, President Obama urged EU member states and other European nations to diversify their energy sourcing to reduce their dependence on Russian petroleum. Obama also offered vague assurances that the United States would provide tangible help with the reorientation of Europe’s energy market. In so doing, he implied – but did not state outright – that the U.S. will increase its LNG and refined oil products exporting capacity and perhaps even lift the 39-year-old ban against exporting U.S. crude.
But any U.S. efforts to bolster European access to crude, refined fuels and LNG would constitute an unprecedented change in the role that oil plays in U.S. foreign policy.
Access to Oil Significant Concern in U.S. Foreign Policy
Historically, maintaining U.S. access to huge supplies of foreign oil has been a major feature of the nation’s foreign policy. There have been other arguably as important – or even more important – reasons for the United States’ deep involvement in Middle East affairs throughout the past half century, but oil considerations always have been among the most prominent. Similarly, maintaining U.S. access to oil from Mexico, Venezuela, Brazil and the small handful of African oil-producing nations has figured significantly into U.S. foreign policy.
Now, however, the U.S. could be in the unusual position of using oil as an offensive, rather than a defensive, weapon of foreign policy. Maybe.
Oil-Dependent Countries Seek Help, Supplies from U.S.
Lithuanian energy minister Jaroslav Neverovic said to the U.S. Senate’s Energy and National Resources Committee in late March that more natural gas from America would help immensely in removing the Russian energy yoke from around the Baltic States’ necks.
“I’m here to plead with you to do everything within your power to help us… by expediting the release of some of your abundant natural gas resources into the world market, especially to those nations beholden to a monopolistic supplier,” Nevrovic said.
Hungary’s foreign affairs minister, Anita Orban, made a similar plea the same day before the House Energy and Commerce subcommittee.
Alternative Drilling Methods Contribute to American Oil Boom
Unconventional drilling methods – most notably fracking and horizontal drilling– largely have eliminated old concerns about the U.S. rapidly running out of domestic crude, a belief that was used for years both to justify the ban on exporting U.S. crude and as a major factor in foreign policy. The Energy Information Service reported recently that, thanks to the tapping of abundant oil supplies previously trapped in “tight” rock formations, the United States now produces 10 percent of the world’s crude, or about 7.84 million barrels a day, as of the fourth quarter of 2013. The U.S.’ production rate last year was the highest it has been in 25 years.
Beyond that, North America is frequently called the “Saudi Arabia of natural gas” because it is sitting on 2.2 trillion cubic feet of natural gas, according to official federal estimates. Private researchers estimate actual U.S. reserves are as much as five times that amount. No one doubts that the U.S. can supply significant amounts of LNG to Europe to replace Russian gas for many, many years.
There are, however, a couple of significant problems.
Factors Hampering U.S. LNG Exports
jThe firThe first is that there’s limited LNG transportation capacity on both sides of the Atlantic. The U.S. has very limited LNG port capacity, and while several new facilities are being developed, government has been dragging its feet on providing environmental, safety and other approvals. The Energy Department has approved six programs to export LNG to countries that do not have free trade agreements with the U.S.
A dozen more proposals, however, are bogged down in the approval process. Various proposals in Congress would speed up the approvals process, though nothing yet has happened. There also continues to be concern among some in Congress about long-term weakening of U.S. energy security by allowing too much gas to be exported in response to immediate crises.
Europe is in a slightly better position in terms of LNG-capable port facilities, but currently there are no LNG port facilities that can efficiently serve the Baltic States, which are the most reliant on Russian gas, Germany and the rest of central Europe. In addition to the billions of dollars required to build LNG port facilities on both sides of the pond, billions more would be required to build new pipelines to move North American gas to U.S. ports, and then from European ports to the continent’s interior, where it is most needed. On top of that, there now are only a handful of ocean-going vessels equipped to transport LNG. Thus, any meaningful increase in U.S.-to-Europe LNG shipping would be held captive, at least for several years, to ship-building schedules.
Taken together, all of that is why many experts say that increasing U.S. and North American LNG exports to Europe can reduce Russia’s stranglehold on Europe’s energy market, but it won’t happen quickly. Nor are increased supplies of U.S. LNG likely to knock Russia out of its position as the top supplier of gas to central and Eastern Europe.
Lifting U.S. Crude Oil Ban Could Reduce Russia’s Stranglehold on Europe
That’s why there is now a rising call for the ban on U.S. crude oil exports be lifted, at least partially and/or temporarily. Doing so would cut into Russia’s energy market leadership in central and Eastern Europe much faster and, in theory, greatly reduce Russian energy companies’ profits from that trade. In turn, that could push Russia’s already anemic economy toward a meltdown.
For the first time, the U.S. government has the opportunity to alter the role oil and gas play in its foreign policy. Instead of defensively calculating what effect various policy decisions might have on U.S. access to foreign hydrocarbons, policy makers could begin thinking about how to use U.S. oil and gas as economic weapons to advance foreign policy goals.
But some experts caution that even with the nation’s newly recognized wealth of energy resources, there’s a limit to how much good can be done by using them to go on a new foreign policy offensive.
Some Still Worried About Impact of U.S. Exports
At the Council on Foreign Relations, Michael Levi said that the United States can begin to use its own oil and gas resources to inflict economic pain on Russia by cutting into its share of the European energy market. But, he adds, “U.S. exports will not displace Russia from its dominant position in the European market.” Levi also is among those who continue to raise concerns about the domestic and global environmental impact of increased U.S. drilling for oil and gas.
Other experts caution against using oil and gas too aggressively as instruments of foreign policy because doing so might trigger an increase in domestic energy prices.
One group of independent refiners don’t want to see the ban on exporting U.S. crude lifted because they fear the upward pressure on price would end up squeezing them between high crude prices and refining costs on one side and, on the other side, declining domestic demand for gasoline and other refined products as consumer demand falls off in response to a big jump in pump prices.
Some economists also warn that the U.S. economy remains so fragile that a big jump in pump prices might dramatically change consumer spending patterns and trigger another recession.
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