This piece originally appeared in the Wall Street Journal’s Experts Blog on November 16, 2015.
In the midst of the 1973 Arab oil embargo, President Richard Nixon launched “Project Independence” to make the U.S. energy self-sufficient by 1980. Every president since has also promised to make the U.S. energy independent. Around the world, too, a desire for energy security motivates calls to reduce imports from sources perceived as unreliable or unstable, and to become more disconnected from the global market.
Fortunately, these isolation efforts have failed. Over the last 40 years, the global energy system has become vastly more interconnected and interdependent, which has increased, not decreased, our energy security.
The appeal of disconnecting from the larger energy system is understandable. After all, if I produce my own electricity, my lights wouldn’t go out if a tree limb falls on a power line down the street. If Europe stopped importing natural gas from Russia, then Russia wouldn’t be able to use the threat of turning off the taps as a geopolitical weapon. If we ban the export of U.S. oil and keep it at home, it is easy to see why some would misunderstand that as reducing OPEC’s ability to disrupt our oil supplies.
There are two problems, however, with this isolationist approach to energy independence that misunderstands today’s realities. First, it doesn’t reflect the highly integrated global energy market in which we now live. Saudi Arabia, for example, from which the U.S. still imports 1.2 million barrels a day, couldn’t cut off oil supply to the U.S. even if it wanted to. Unlike in the 1970s, where a disruption in contracted shipments could result in a physical shortage for the buyer, today’s oil market is the largest and most liquid commodity market on earth. That means that if Saudi Arabia stopped sending oil to the U.S., companies would just buy it from other suppliers.
Second, and more important, we are more secure, not less, when energy markets are interdependent. When Hurricanes Rita and Katrina disrupted much of the Gulf Coast’s vast production and refining capacity, fuel shortages were averted by the ability to import supplies quickly from the global market. When U.S. refiners lost access to large volumes of imports from Venezuela in 2002 and 2003 during a worker strike there, they replaced the disrupted supplies and avoided shortages with imports from other countries. In both cases, free trade in a highly integrated global energy market made us more secure.
Such substitutability of fuels barely exists for oil in the transportation sector, however, creating added energy security vulnerabilities for oil use.
During the Fukushima nuclear disaster, Japan was more energy secure because it could import other sources of fuel, like oil and gas, from the global market to meet electricity generation demand. In that case, energy security was also improved by the ability to use multiple fuels to generate electricity. Such substitutability of fuels barely exists for oil in the transportation sector, however, creating added energy security vulnerabilities for oil use.
In Europe today, it is both unrealistic and unwise to try to get off Russian gas. Russia is Europe’s largest gas supplier and is a source of low-cost gas. Moreover, Russia needs the European market, too, creating a mutual dependence that wouldn’t exist if Europe forced Russia to turn east for its gas market instead.
Europe’s vulnerability lies not in dependence on Russia, but in not being moreinterconnected and thus having more alternatives. Many countries, like those in the Baltics, lack pipeline access to other sources. Even though Europe has large quantities of liquefied natural gas (LNG) import capacity in the northwest and the south, pipeline capacity is insufficient to transit all that gas to eastern and central Europe.
That is why the critical path forward for Europe to address concerns about Russia’s use of gas as a weapon is to complete regulatory and infrastructure reforms that make the European market more integrated, promoting competition and building pipeline reversal capability and interconnectors to allow gas to move more freely around the continent. The coming wave of LNG will contribute greatly to this diversity of supply because LNG can be delivered to a much larger set of potential destinations than pipeline gas delivered between fixed points. LNG exports from the U.S., in particular, will promote competition because the contract terms allow for destination flexibility.
Consider the case of the Lithuania, for example, which recently built a floating facility off its coast to import natural gas. Even before a molecule of gas flowed through the terminal, the very fact it existed allowed Lithuania to negotiate at least a 20% discount off its gas bill with Gazprom.
To be sure, there are benefits to reducing import dependence. U.S. oil imports, for example, have fallen from 60% to 25% of U.S. consumption since 2008 as a result of both surging production and falling usage. That boosts U.S. economic activity, reduces our trade imbalance, and lowers our macroeconomic vulnerability to price shocks.
Import dependence shout not be confused with energy independence.
But import dependence shout not be confused with energy independence. Even with reduced imports, the U.S. is better off because we are integrated into a global energy market. Our energy security will come not from the chimera of “energy independence,” but from more optionality, interconnectedness, competition, and interdependence.
Jason Bordoff, a former energy adviser to President Obama, is a professor of professional practice in international and public affairs and founding director of the Center on Global Energy Policy at Columbia University.