Insight: The irrelevance of energy dominance
Politicians love buzz words and phrases in attempting to simplify and codify energy policy. In the past, “energy independence” was the rage and had a relatively long run in the political nomenclature.
Every U.S. president, Republican or Democrat, dating back to Eisenhower, advocated policies that would make the U.S. “energy independent.”
During this time period, “energy independence” was intended to eliminate the large amount of imported crude oil that was growing over time with domestic production or other energy alternatives.
Over the last decade, policy terminology became more nuanced, allowing “energy independence” to morph into “energy security” once most politicians realized that the development of an energy island sounded somewhat mercantilist and was likely a political and economic impossibility.
Energy security had different meanings to different people, but generally allowed for at least a limited amount of global energy trade and interaction, so long as it was with countries we tended to “like” and on the terms and conditions that U.S. policy could dictate.
Over the last year or so, with the advent of a new administration, a different energy buzzword, “energy dominance,” has emerged to replace energy security. It is not really clear what “energy dominance” is supposed to mean and what constitutes “dominance” in today’s global energy marketplace.
If the meaning is supposed to connote a position in which the U.S. holds a “dominant” or influential position across most, if not all, energy commodities production and trade, then we have been in a position of energy dominance for some time by just about any measure.
Consider that today the U.S has become a major energy producer and exporter. U.S. crude oil production raced across the 10 million barrels per day (MMBbls/d) mark this past year, is anticipated to surpass Russian oil production of 11 MMBbls/d by the end of 2018, and will likely encroach on or surpass Saudi Arabian oil production of 12 MMBbls/d in the near future.
The U.S. started exporting its crude oil riches in 2016 after a 40-year ban. Exports rocketed from 400,000 Bbls/d to over 1 MMBbls/d in 2016 and crossed the 2 MMBbls/d mark in October 2017—and could grow to 2.25 MMBbls/d in the next few years.
The U.S is also a dominant international player in world refined product markets. In 2011, the U.S. became a net exporter of refined products such as gasoline, diesel and jet fuel. U.S refined product exports are at record levels of around 4 MMBbls/d: four times the annual average level of refined product exports recorded for the entire prior decade.
U.S. natural gas production is the envy of the world at over 75 billion cubic feet per day (Bcf/d), with an ample amount to serve both extensive domestic uses as well as exports. In fact, the U.S. Energy Information Administration estimates that U.S. natural gas production hit a record high in 2017 and anticipates that by the end of 2019, there will be 9.6 Bcf/d of natural gas export capacity in the U.S., the third largest export capability in the world. This natural gas “dominance” started over a decade ago and needs little to no additional policy stimulus for success.
This dominance has also led to a renaissance in chemical manufacturing investment, which is nothing more than natural gas refining. Over the past decade, the American Chemistry Council estimates that U.S. chemical industries have invested a “dominating” $10 billion per year in new chemical manufacturing capacity development.
What do all these statistics mean? It’s hard to conclude that the U.S. is anything but an energy dominant country, which makes the entire idea of pursuing a policy of “energy dominance” all the more puerile: It’s kind of like the old Soviet Five-Year Plans pursuing “new levels of excellence.” If something is excellent, how much more excellent can it get? If a country is already energy dominant, how much more dominant does it need to be?
What makes the idea of energy dominance even more pointless is the presumption that government policy will improve on an energy outcome that itself is not the result of government policy, but private sector entrepreneurship and effort.
It is hard to argue that the prior administration did anything to support domestic nonrenewable energy production.
Yet despite eight years of almost open hostility, the U.S. energy industry has expanded its production capacity to unprecedented levels, has developed the storage and transportation infrastructure needed to move that product to consuming and refining areas, and has expanded domestic refining and chemical manufacturing capacity to leverage this energy dominance, on its own, with little to no government assistance or stimulus.
This is the primary reason why the current administration needs to leave the rhetoric of energy buzzwords to the dustbins of the past, abandon the notion of doubling down on government energy activism and picking “winners and losers,” and focus on getting out of the way of energy entrepreneurship and capital formation—the true sources of energy dominance, not government agency actions and activities.
David Dismukes is a professor and the executive director of the Center for Energy Studies at LSU. He holds a joint academic appointment in the department of environmental sciences, where he regularly teaches a course on energy and the environment.
This article was originally published in the second quarter 2018 edition of 10/12 Industry Report. Read more from this issue at 1012industryreport.com.