RIYADH: Debate on ‘resource nationalism’ is taking centrestage in Washington. With US crude output growing rapidly and the country emerging as the world’s top producer, there seems growing emphasis in Washington on controlling the newly found resource — and use it as a foreign policy tool. At the EIA’s 2014 Energy Conference last week, challenges haunting the policymakers and the energy markets were discussed and argued in detail.
Artificial market barriers are preventing the US from using energy as a tool for international diplomacy, US Rep. Fred Upton, chairman of the House Energy and Commerce Committee, said.
“It’s a new era of energy abundance, and we need to usher in a new era for energy policy (to match).”
He emphasised that those in the world with energy have the power to influence global affairs. We have (finally) an opportunity, to use energy as a diplomatic tool and ensure US allies gain access to US oil and gas reserves rather than being “held hostage” to global instability, he said.
He hence urged the US government to drop many of the policies adopted in the 70s and instead embrace its newfound energy wealth — including unleashing “energy diplomacy” on the world stage.
Some in Washington, now want the newly found assets as a foreign policy tool — what a turnaround in stance indeed.
Others too expressed similar sentiments, though more with a market perspective. Continuing the crude export ban doesn’t make sense because the US has spent decades fighting resource nationalism in other countries and promoting free trade, Jason Bordoff, of the Centre on Global Energy Policy at Columbia University’s School of International and Public Affairs pointed out.
The US could find its light crude oil production growth stymied if it doesn’t allow more of it to be exported, others warned. A “day of reckoning” is approaching, underlined John R. Auers, executive vice-president of Turner, Mason & Co. Consulting Engineers. This day would come, he said, when US crude production exceeds refining capacity to a point that prices become so heavily discounted to comparable overseas grades that producers decide not to increase production further.
IHS Vice-Chairman Daniel Yergin agreed. “The rationales for a crude oil export ban are gone, but the ban is still in place,” media quoted him as saying.
“We see a risk of a $15-25/bbl domestic light crude discount being locked in during the next couple of years, potentially limiting additional investment.”
The US has preached to other countries for decades about the need for free flow of resources. How can we say to Japan that it can’t import any of our LNG but must not buy Iran’s oil?”
However, Maria van der Hoeven, executive director of the International Energy Agency (IEA) cautioned that the optimism about US energy security, rooted in abundant supply of fossil fuels alone, is misplaced. Her message was clear. “Coal, nuclear and wind are all essential for keeping the lights on.” And “although things look bright (at the moment), this is no time for complacency.”
And she had a firm reason. US light tight oil production will reach a plateau over the next decade, which means the US will be forced to rely on the Middle East, she argued. And the focus will particularly be on turmoil-stricken Iraq.
Good friend, Antoine Halff, the head of the International Energy Agency’s Oil Industry and Markets Division, pointed at the shifting trade from crude to products globally. The IEA’s midterm Oil Market Report forecasts “a very dramatic refining transformation in the next five years” with “very significant growth in Asia, particularly east of Suez, and relatively minor growth in Latin America,” he said at the conference.
Energy markets are changing. US energy outlook is undergoing a major overhaul. The world’s largest crude consumer, needs to take lead, not only in conserving climate but also in ensuring that it follows what it has been sermonising for decades — market forces should rule the energy markets.