Energy trade subtexts

Feb. 27, 2017
Hope that the US will become a net export of energy within 10 years comes with subtexts important to American thinking about the Middle East. Temptation is strong to calibrate worry about that turbulent region to the US balance of energy trade. It must be resisted.

Hope that the US will become a net export of energy within 10 years comes with subtexts important to American thinking about the Middle East. Temptation is strong to calibrate worry about that turbulent region to the US balance of energy trade. It must be resisted.

Progress toward a positive balance in energy trade merits celebration. In the reference case of its latest Annual Energy Outlook, the US Energy Information Administration projects achievement of the milestone by 2026. Exports soon will exceed imports for natural gas, production of which is zooming, as they do now for coal and coke. The overall energy trade balance then turns positive as total oil imports fall but remain above exports, mostly of products.

Indications for oil

Continued reliance on imports is one of three important indications for oil in EIA's reference case. Another is a flattening of total crude oil production at 10-11 million b/d about 2025 "as tight-oil development moves into less-productive areas." Also crucial is the reference-case projection that petroleum and other liquids as a category will continue to lead annual US consumption in 2040, at 35 quadrillion btu (quads). Close to oil then will be natural gas, at 33 quads, followed by coal and nonhydro renewable at about 10 quads each, nuclear at 7-8 quads, and hydropower and liquid biofuels at less than 5 quads each.

So the US in 2040 still will consume large quantities of oil, might produce no more than 1 million b/d more crude oil than it does now, and still will be importing more oil than it exports. The country thus will retain strong interests in the Middle East and security of the region's oil. Indeed, those interests would be less strong if the US imported no oil at all because of the enduring importance of Middle Eastern oil to global welfare.

For 15 years, US Middle Eastern policy has been erratic. With its 2003 invasion of Iraq to topple Saddam Hussein and ill-conceived effort to rebuild the nation, the US intruded too much. Then the Obama administration overcompensated by retreating from traditional relationships while leaving troops in Iraq and Afghanistan and promoting a controversial nuclear deal with Iran.

Reengagement is necessary but won't be easy. Much has changed and continues to change in the Middle East. US withdrawal left a vacuum of influence that Russia and China want to fill. And responding partly to US diffidence, partly to Arab Spring uprisings, and partly to civil wars in Syria, Libya, and Yemen, the Middle East has become a tangle of shifting alliances.

Russia, of course, asserted itself in Syria and, by trying lately to improve relations with Turkey, shows it doesn't intend to confine its diplomacy to Iran and other Shia regimes. Chinese expansion in the region has been mostly military, such as its deployment of military ships to evacuate Chinese nationals from Libya and Yemen and decision to establish a naval base at Djibouti. China also is increasing trade with Middle Eastern nations. And China National Petroleum Co. recently bought an 8% stake in the Abu Dhabi Co. for Onshore Petroleum Operations Ltd. concession for $1.8 billion.

Geopolitical churn

Meanwhile, Iranian efforts to repair relations with Sunni Gulf states include a recent visit by high-level Kuwaiti officials to Tehran and moves toward rapprochement with arch-rival Saudi Arabia. Iranian and Saudi officials have resumed talks on the hajj, which Iran boycotted last year. And participation by both countries in last November's agreement by the Organization of Petroleum Exporting Countries to limit production signals a thaw—especially since the accord doesn't require the Islamic Republic to cut output.

The US needs to reenter this geopolitical churn, recognizing the continuing importance of the Middle East to itself and the world and respecting regimes with which it has ideological differences. It needs to restore shaken friendships. And it needs to understand it no longer represents the only major power able to influence events.