The Fuse

Shale Boom Extends Reach to U.S. Diplomacy

by R. Kress | November 09, 2015

Over the past decade, increased domestic oil production in the U.S. has led to a shift in the nation’s diplomatic position overseas. In an investigation into the topic on Platts Oilgram News, Herman Wang unpacks the ways in which rising oil yields in the U.S. have impacted policy—even without a lifting of the ban on crude oil exports as of yet. With the U.S. nearly doubling its field production of oil since 2008 according to the Energy Information Administration (EIA), Wang posits that the international community is taking heed of the U.S.’ new position of energy strength and security.

“It allows the U.S. to go out in the global diplomatic sphere and handle these global issues knowing we’re not as reliant on foreign oil as we once were.”

“Other countries are seeing the bounty that the U.S. has… they’re seeing that we have this abundance of oil and gas and seeing how they can be a potential customer of the U.S.,” Wang, senior oil news editor for Platts, tells The Fuse. “It allows the U.S. to go out in the global diplomatic sphere and handle these global issues knowing we’re not as reliant on foreign oil as we once were. The less reliant you are on another country’s resources, the less beholden your conversations with that country.”

Wang notes a recent declaration from U.S. Secretary of State John Kerry, in which he called the U.S. shale boom a “game changer” for global diplomacy. In recent months, European Union officials have called on the U.S. to lift the crude export ban, citing their sentiment that as the world’s largest energy importer, working with a nation as politically stable as the U.S. would improve energy security across the continent. It’s an issue that Wang believes is also being discussed quietly behind the scenes in the Obama Administration, despite the President’s vow to veto any House legislation that would lift the ban. He references a recent read-out of Vice President Joe Biden’s daily schedule including a discussion of “energy security” with European Commission President Jean-Claude Juncker: Wang believes this is a thinly-veiled way of describing a discussion about U.S. crude exports.

“My guess is that’s somewhat code for crude exports because I know that the Europeans are keen on this issue,” Wang explains. “They want a crude export provision in the trade negotiations going on with the U.S., the TTIP [Transatlantic Trade and Investment Partnership]. These exports could have a major trade impact and a major impact on diplomacy when we talk about relations with our allies right now. But also, it sends a signalto the global market, and I think it would make the petro-states take notice.”

Just last month, a Japanese government source told Platts that his group is analyzing U.S. crude in anticipation of a possible lifting of restrictions. Japan’s Cosmo Oil also recently said it was analyzing samples of U.S. crudes to see if it would be a strong match for its refineries.

Middle East energy expert at the University of Oxford, Justin Dargin, sees the possibility of U.S. oil and LNG exports as a particular threat to Russia.

“[U.S. oil exports would have] severe consequences for the Russian government’s geopolitical ambitions,” Dargin told the Fuse via email. “This last aspect is what Kerry had in mind when he mentioned that the U.S. shale boom was a ‘game changer’. Definitely Russia is one of the key focuses in promoting U.S. hydrocarbon exports abroad, in the sense of lessening EU reliance on Russia as an energy supplier.”

However, the United States is still years away from exporting meaningful volumes of LNG, and those volumes are more likely to travel to Asia, where spot prices for natural gas imports are significantly higher. The U.S. also continues to import roughly one-third of its oil supply, meaning that even if the export ban were lifted, a flood of U.S. crude onto the global market remains a distant possibility.

That said, both Dargin and Wang see growth in U.S. energy supply as giving the country more freedom to operate in diplomatic circles.

“It is not necessarily that exporting oil will change U.S. foreign policy. However, it does allow the U.S. a significant amount of leeway in crafting independent policies,” Dargin argued.

Wang also notes that with a new wealth of domestic oil, U.S. officials are no longer having to go “hat in hand to the Saudis” to push for them to pump more oil in a tight market.

Wang also notes that with a new wealth of domestic oil, U.S. officials are no longer having to go “hat in hand to the Saudis” to push for them to pump more oil in a tight market. He believes this shifting diplomatic dynamic impacted the recent negotiation on the Iran deal. “From what I understand, [the Saudis] are not thrilled with the Iran deal. But the U.S. is in a position of not having oil issues hanging over its head,” Wang explained. “The U.S. no longer needs the Saudis to make moves in the oil market. Because the U.S. was producing all this oil, it had a lot more leverage.”

But a full lifting of the crude oil export ban is unlikely during the current White House term. “Politically, I don’t see a lot of incentive for Obama to allow the ban to be lifted. It would benefit oil producers which aren’t exactly his power base,” Wang says. “It’s hard to make a case [to lift the ban] to the public when we’re still importing seven million barrels per day. If there’s a change in policy, Congress is going to have to do it and force Obama’s hand.”

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