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The Energy Dominance Agenda: Myth Vs. Reality

The U.S. is in the process of regaining world leadership in energy, although this cannot be attributed to the current administration.

by Douglas Hengel
11 January 2019
14 min read
by Douglas Hengel
11 January 2019
14 min read

At the start of World War II, the United States was producing over 60 percent of the world’s oil.  Japan and Germany depended on oil imports from the U.S. for their militaries and economies, and America’s ability to supply its allies with oil and limit Japanese and Germans access to the fuel was critical to victory in the war.  That was energy dominance.

Jump ahead 30 years to the early 1970s.  The U.S. was still the world’s largest oil producer, but its output was declining and the U.S. was no longer an oil supplier to the world.  Its petroleum imports were rising. U.S. energy dominance was history, and the Arab Oil Embargo of 1973/74 was a massive shock to the U.S. psyche and economy. Energy dominance had become energy weakness.

All American presidents from that point forward pledged allegiance to “Energy Independence” and eliminating U.S. dependence on energy imports from unstable regions of the world like the Middle East.  Various programs were enacted over the years to reduce oil demand and increase production, including that of alternative fuels.  However, domestic oil production continued to decline and petroleum imports to rise through the middle of the first decade of the 2000s.  Meanwhile U.S. natural gas imports were also rising strongly and large liquefied natural gas (LNG) terminals were being constructed along the coasts to import LNG from Qatar and other gas exporters.  The U.S. energy security situation seemed dire and our growing import dependence fed a narrative of an America in decline.  In 2005, the U.S. imported more than 30 percent of its total energy needs, the highest amount ever.  Energy weakness had transformed into near impotence.

Technology breakthroughs in oil and gas production, especially hydraulic fracking and horizontal drilling, changed that trajectory.  Beginning just over ten years ago, production of natural gas from shale formations in Texas, Pennsylvania and elsewhere began to surge, followed a few years later by sharp increases in petroleum supply from tight oil deposits in North Dakota and Texas.  Combined with restrained demand from efficiency measures and tougher vehicle fuel use standards, U.S. energy imports declined and some dared hope that the holy grail of energy independence might be attained.

Enter Donald Trump

Therefore, when presidential candidate Donald Trump entered the scene in 2015, the domestic energy situation was much improved and with it the strategic position of the United States.  Policymakers in Washington were discussing how to leverage our newfound energy abundance to support U.S. foreign policy and national security goals.  Companies that built facilities to import LNG now wanted to switch them to export abundant, cheap natural gas.  The geopolitics of energy was shifting as countries that had been major energy exporters to the United States sought markets elsewhere.  Our energy mojo was returning.

The shift from energy vulnerability to abundance occurred primarily under President Obama.  While he may be better known for efforts to combat climate change, including the Clean Power Plan to reduce power sector emissions, stopping the Keystone XL pipeline intended to bring more Canadian tar-sands oil to the U.S., and toughening rules on methane emissions, Obama was also supportive of domestic oil and gas development.  He signed legislation to end the ban on U.S. crude oil exports that dated to the 1970s, and his administration simplified the approval process to export LNG.  More onshore and offshore areas were opened for drilling, including in the Arctic.  Following BP’s Deepwater Horizon disaster in the Gulf of Mexico stronger safety measures were adopted, but Obama did not seek to severely restrict offshore drilling activity.  Renewable energies were also strongly supported under an “all-of-the-above” energy strategy. Obama left a strong framework supportive of most domestic energy production, including the hydrocarbons sector.

Nevertheless, candidate Trump accused President Obama of blocking domestic production of oil and gas.  In May 2016, he promised to develop an “America First” energy plan and declare “energy dominance” a strategic economic and foreign policy goal of the country.  While not defining what he meant by energy dominance, Trump said his proposals to overturn regulations and withdraw from the Paris Climate Agreement were aimed at increasing U.S. fossil fuel production so the country could “become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.”  Ending the Obama Administration’s purported “war on coal” was a key element of this agenda.  In addition to furthering energy security, Trump spoke of creating trillions in new wealth and millions of new jobs through unleashing America’s energy potential.

A return to dominance?

Following his first reference to energy dominance, Trump did not use the term in a policy-oriented way again until June 2017 during his administration’s Energy Week.  At that time he spoke of more steps to boost U.S. fossil fuel production and exports, while adding the goal of reviving and expanding nuclear power.  Senior Administration officials wrote that energy dominance described “a self-reliant and secure nation, free from the geopolitical turmoil of other nations that seek to use energy as an economic weapon.”  It also meant enhanced U.S. leadership and influence and sharing our energy wealth through exports.

The President’s National Security Strategy of December 2017 lays out the most comprehensive overview of the energy dominance agenda. The document highlights “America’s central position in the global energy system as a leading producer, consumer and innovator” and declares the United States “will help our allies and partners become more resilient against those that use energy to coerce.” The global energy order was to pivot away from OPEC and Russia back to the United States where it belonged.

To this end, the Administration defined its priority actions to include reducing energy development barriers, promoting exports, protecting energy infrastructure, attaining universal energy access and furthering America’s technological edge. Climate is mentioned defensively—U.S. leadership on climate is required to counter “an anti-growth energy agenda that is detrimental to U.S. economic and energy security interests.”  The energy dominance agenda sounds very much like the old energy independence agenda plus exports.

Judging the energy dominance agenda

So how has the Trump Administration done in realizing its energy goals?  Leaving aside whether “dominance” has been achieved (whatever that may be, it will not look like the pre-World War II period), the President has followed through on his pledges.  More federal lands and offshore areas are being opened up to energy production, many environmental regulations are being eliminated, Obama’s Clean Power Plan is being replaced, the U.S. is exiting the Paris Climate Agreement and some energy infrastructure projects stopped under the Obama Administration have been green-lighted.

Oil and gas production continues to soar.  The United States, which passed Russia to become the largest producer of natural gas in 2009, is now a net natural gas exporter and by 2020 will be the third largest exporter of LNG in the world and perhaps the largest by the mid-2020s.  America is again the top global oil producer and likely to meet well over half of increased global demand both this year and next, putting great pressure on OPEC and Russia to reduce their output to balance the market.  Many forecasters expect the United States to be self-sufficient in oil by the early 2020s.  This will not make the United States immune to volatility in oil prices, but perhaps the United States is on the verge of becoming the dominant energy power again.

How much of this primacy, however, can be attributed to the Trump Administration?  It is hard to argue that any of the steps taken in the two years of his presidency—including tax relief under the 2017 Tax Cuts and Jobs Act—have had much of an impact on U.S. energy production so far, although they might in the future.  Many of the regulatory relief measures announced by the Administration have been halted by court challenges, and others must go through a lengthy legal process before they become effective.  Efforts to roll back vehicle fuel efficiency standards could damage the energy dominance agenda by leading to greater fuel consumption at home and therefore less to export.

The Trump Administration’s efforts to assist the coal and nuclear industries have so far fallen short.  Proposals by Energy Secretary Perry to favor coal and nuclear power to ensure electricity security were rejected by regulators.  Nuclear reactors and coal-fired power plants continue to close, victims of plentiful, low-cost natural gas and increasingly cheap solar and wind power.  U.S. coal consumption is at its lowest level since 1979 and falling.

The persistent growth of U.S. oil and gas output is mainly driven by favorable economic and market conditions. One can argue that the economic policies pursued by the Trump Administration have spurred economic growth and therefore also the energy industry, but they have not improved the situation much over the trends under the Obama Administration.  At the same time the Trump Administration’s trade agenda could present a speed bump, or worse, for the U.S. and global economy with a knock on negative impact on the U.S. energy resurgence.  For example, Trump’s tariffs on steel and aluminum imports and import quotas are detrimental to the energy dominance agenda.  These tariffs significantly raise costs for pipelines, LNG terminals and other energy infrastructure.  Some critical steel components are not made in the U.S. so import quotas could cause significant delays to projects as well.

The threat of the trade agenda

U.S. energy exports and supremacy also are threatened by tariffs or other restrictions from trading partners.  With China soon to replace Japan as the largest LNG importer, long-term contracts with Chinese natural gas importers and Chinese direct investments could be critical to U.S. LNG projects reaching final investment decisions.  China can use this as leverage in trade discussions with the U.S.  Threats emanating from Washington to China and other trading partners could spur more purchases of U.S. energy, but they could also raise the perceived risk of relying on imports from the U.S.  So over the longer term a positive impact on the U.S. energy outlook from regulatory and tax relief could be offset by political and market uncertainty from trade tensions.

On the diplomatic front, President Trump has gone full-in on asserting U.S. dominance, while demonstrating clearly why U.S. energy preeminence has not been reached.  His tweets addressed to Saudi Arabia and OPEC to increase production appear to have had the desired effect earlier this year. At the same time, though, the fact that he did this underlines that the U.S. is not anywhere near energy dominance, that only the Saudis and a few others in OPEC control spare production capacity that can quickly make a difference in market balances and drive prices.  Thus these countries have the real power in oil markets.  The dominance asserted by President Trump with his orders to OPEC is more of a geopolitical one based on U.S. military and other strengths and aligned interests (e.g., combatting Iranian influence) than producing the desired effect on oil production and prices thanks to U.S. energy supremacy.  If we were preeminent, we would not need the Saudis or OPEC.  President Trump also does not control the U.S. oil and gas industry unlike Russian President Putin, who can direct Russian companies, and the Saudi King, who has the final word over the activities of the country’s national oil company Aramco.

One risk to President Trump’s energy dominance program is the wholesale rollback of environmental and safety regulations, even rules that many energy companies support. Steps the Trump Administration is proposing or undertaking to relax rules should be analyzed carefully lest they negatively impact the industry’s social license to operate and thereby actually undermine energy production.   A clear defect in this agenda is that it focuses solely on increasing domestic energy production, even if it is not clear he can do much to make that happen beyond what market forces and technological progress are already doing.  Jettisoning U.S. leadership on climate and clean energy threatens to undermine America’s future energy strength.  China dominates the solar photovoltaic and wind turbine industries and has the clear goal of controlling the battery and electric vehicle markets.  Meanwhile the Trump Administration talks about ending subsidies for electric vehicles and renewables.  Does the United States want to depend on China for the critical energy technologies of the future like we now depend on OPEC?  If we really seek to be dominant, we need to lead in clean energy as well.

In sum, the United States has risen in a little over ten years from an energy insecure superpower to the top of the energy standings. Dominance may be beyond our grasp, but energy is again a strategic asset for America. Staying at this level of superiority, however, requires a broader perspective and focus than simply increasing the production of fossil fuels.

The author: Douglas Hengel

He is a former U.S. diplomat who worked on global energy issues. He lectures at Johns Hopkins School of Advanced International Studies and is a Senior Fellow at The German Marshall Fund. During his diplomatic career, he was Deputy Chief of Mission at the U.S. Embassy in Rome from 2010 – 2013.