The US energy landscape today compared with 10 years ago is virtually unrecognizable, as the script with regard to import-dependent demand has been flipped to a potential export story. The seemingly moribund US natural gas industry characterized by decreasing reserves and production is now the apple of the world’s eye, with governments and private companies from Latin America to the Far East attempting to replicate US unconventional resource development success.
But protectionist instincts remain strong in certain constituencies where some want to confine newfound US oil and gas abundance to the domestic market. Others contend exporting surplus US energy in the form of LNG and crude oil would result in benefits that far outweigh the risks.
The latter is argued in a new Foreign Affairs article co-authored by Citi’s Global Head of Commodities Research, Ed Morse, and the Executive Director for Energy and Sustainability at University of California, Davis, Amy Myers Jaffe.
For anyone interested in the closely-related fields of energy, economics and geopolitics the piece is well worth reading in its entirety, but here are a few notable quotes:
“Those who argue against exports tend to misrepresent the way markets operate.”
Saudi-Russian oil market relations remain soured from past disagreements, but if the world’s two largest oil producers buried the hatchet, they could strongly influence global supply and price. US exports could help balance that impact on the market:
“So far, long-standing antipathy between Russia and the Gulf Cooperation Council (GCC) and the close U.S.-Saudi security relationship have weighed against a major Arab-Russian coalition on energy. But changing circumstances could push them together… The prospect of coordination between Russia and the Arab world makes U.S. energy export policy all the more important.”
Speaking about the United States’ abundant, affordable natural gas storage position and recent corporate investment in LNG storage capacity:
“The United States could well become the global swing hub for natural gas.”
New markets for US companies open abroad as countries develop their indigenous unconventional resources based on the US success story:
“According to the U.S. Energy Information Administration, 20 percent of the $133.7 billion in investment in U.S. shale plays between 2008 and 2012 included joint ventures by foreign companies. Reciprocity abroad for U.S. oil firms would be equally beneficial.”
In conclusion, the US should learn from other major energy exporters’ mistakes:
“As protests across the Middle East have so dramatically shown, the current energy economy has not produced successful and politically sustainable societies in the oil-rich developing world. One hopes that the United States–led energy economy will do better.”
