The Ripon Forum

Volume 48, No. 3

September 2014

Leading from the Front on Energy

By on September 19, 2014

by AMY MYERS JAFFE

Jaffe-Amy_023Recent events such as the rise of the Islamic State of Iraq and Syria (ISIS) and the crisis in Ukraine demonstrate that it is in our national interest to assume global leadership. The idea that “energy independence” would somehow free us from global responsibilities and promote the benefits of isolationism now ring hollow as the security risks become clear of removing ourselves from global problems.

The United States can do more to use its advantageous energy position to enhance its global leadership role. Our current policy of limiting natural gas exports and banning crude oil exports must be considered in the context of the U.S. global leadership role and not in just the confines of U.S. domestic political priorities. In the global context, hoarding energy inside our borders sends the message to other countries that they too should be hoarding their energy. Such attitudes were precisely what worsened the economic damage to the global economy during the 1979 oil crisis.

Our current policy of limiting natural gas exports and banning crude oil exports must be considered in the context of the U.S. global leadership role and not in just the confines of U.S. domestic political priorities.

The United States needs to lead from the front when it comes to energy geopolitics. Open trade and investment in energy is important to U.S. vital interests. Artificial restrictions on energy flows can be a source of international conflict as we can already see from events in the Middle East and eastern Europe. Moreover, the United States has a direct interest in preventing energy supply from being used as a strategic weapon. For these reasons, the United States should continue to actively support open markets and free trade in energy, and to do so, it cannot restrict its own energy exports.

By leading the charge on new energy technologies and energy exports, the United States has the ability to fashion a global energy world that is more secure, freer of geopolitical strings and lower in carbon emissions. We should not shirk that responsibility to save a few pennies on the energy bill of some subset from the U.S. manufacturing sector, which will be increasingly competitive given its geographical proximity to new U.S. energy resources and its access to innovative technologies like 3-D printing and the internet of things.

The argument that our energy supplies must first go to helping our own economy similarly ring hollow. As American shale production expands from natural gas to oil, the geopolitical benefits will mushroom both by improving U.S. financial strength and by eliminating U.S. vulnerability to economic blackmail.  Importantly, energy exports improve our balance of trade. The health of the U.S. economy and fate of the U.S. dollar come under pressure when rising oil prices raised our massive oil import bill, worsening the U.S. trade deficit. Citibank estimates that rising domestic shale oil and gas production, by reducing oil imports and keeping “petro-dollars” inside the U.S. economy, will reduce the U.S. current account deficit by 1.2 to 2.4 percent of gross domestic product (GDP) from 3 percent of GDP seen in 2011. Energy exports would enhance this trend by adding gains to the balance of trade.

As American shale production expands from natural gas to oil, the geopolitical benefits will mushroom both by improving U.S. financial strength and by eliminating U.S. vulnerability to economic blackmail.

The question about whether the United States should export its energy has already been answered. We are a major energy exporter. The United States is already a major exporter of over 3 million barrels a day in the form of refined oil products such as diesel fuel and gasoline. We also export natural gas to Mexico and gas and condensate to Canada under special bilateral agreements. The United States is also a major coal exporter to Europe.

So why, it should be asked, are we splitting a hair over liquefied natural gas and condensates? We are blocking condensate exports to free trade partners like Mexico or South Korea even though there is surplus in the U.S. market that might become a storage containment problem. And why would the United States not favor full and open trade in energy commodities including liquefied natural gas and oil with our allies from the North Atlantic Treaty Organization when we are wastefully flaring natural gas in the United States.

The United States is part of an emergency oil supply system under its obligations to the International Energy Agency system. In the case of war or a major disruption, the United States is bound to share energy to prevent an international economic crisis. So why would we hoard our new energy abundance under normal day to day circumstances?

Our current policies, created in a time of market panic, no longer make sense. It is time to reevaluate U.S. oil and gas export policy in light of our changing energy situation and global leadership role.

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Amy Myers Jaffe is the Executive Director of Energy and Sustainability at the University of California Davis and is co-author of Oil, Dollars, Debt and Crises: The Global Curse of Black Gold.

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