Berlin, February 26, 2013
The U.S. Energy Revolution: Retreat from the Middle East?
The U.S. is on track to become energy independent. According to the U.S. Energy Information Administration (EIA), the import share of total U.S. energy consumption will decline from 18 percent in 2011 to below 10 percent by 2040. This optimistic projection is rooted in new gas and oil extraction methods. Hydraulic fracturing, or fracking, has enabled the economical development of resources that were previously too costly to access. For that reason, the U.S. has surpassed Russia as the biggest producer of gas worldwide. Due to increasing supply, gas prices have fallen sharply. Whereas the “Henry Hub” price per million British Thermal Units (BTUs) almost reached 13 US Dollars in mid-2008, by the beginning of February 2013 the price was just slightly over 3 US Dollars.
Domestic oil production is also on an upward trend. According to the EIA, the U.S. produced 5.6 million barrels of crude oil per day in 2011 making it the third largest worldwide producer of oil. By 2019, production could increase to 7.5 million barrels per day.
Envy and Concern in Europe
Europe has observed the developments in the U.S. with envy as well as concern. Decreasing energy prices improve the competitiveness of American manufacturing. Companies that had previously invested in Asia are now returning to the U.S., while energy-intensive industries get an enormous boost from the lower prices. European companies are already concerned that they will not be able to keep up. Politicians on this side of the Atlantic also see the possible geopolitical changes caused by the energy revolution as cause for concern. A classified German Federal Intelligence Agency report projected that the geopolitical map will be redrawn. It came as no surprise that energy and geopolitics were on the agenda at the recent Munich Security Conference. German politicians in Munich predicted that the U.S. will lose interest in the Middle East, which could create a power vacuum in the region.
These fears are exaggerated, however. For one thing, to keep its status as the world’s only super power, the U.S. must maintain its military presence in the Persian Gulf. The implications of the close partnership with Israel as well as the precarious balance of power and concern for stability are that U.S. interests are tied to the region, with or without a crisis. In addition, there are at least three strong energy-political reasons for the U.S. to not retreat from the region.
Energy Policy Motives for Continuous U.S. Engagement
The shale gas boom and decline in prices that has occurred in the past few years will not continue linearly, nor can the same scenario be expected to occur in the oil market. With regard to oil, the path to import independence is longer, if it can be reached at all. In 2011, U.S. domestic oil production accounted for a 55 percent share of consumption, while 45 percent was imported. The production chain of oil is simply another matter than on gas. Oil refineries are specialized in the specific oil grades of their imports, which means that the adjustment process for the U.S. to become independent from oil imports will be long and expensive.
Contrary to widely held beliefs, the majority of current U.S. oil imports do not come from Middle Eastern countries. 52 percent of imports come from the Western Hemisphere, while only 22 percent come from the Persian Gulf. The top three U.S. suppliers of oil are Canada with 29 percent followed by Saudi Arabia with 14 percent and Venezuela with 11 percent. The U.S. is no less interested in the region even with already declining imports.
Unlike the gas market, which has been organized regionally, the oil market is global. Should the U.S. succeed in completely replacing its imports from the Middle East, it will still be vulnerable to fluctuations in oil prices. Incidentally, U.S. oil production is projected to decrease again by the middle of the next decade. With Saudi Arabia, Iraq and Iran, the world’s top three crude oil producers will be in the Persian Gulf region in the future. Saudi production capacity is already the most important tool to offset price and mass quantity fluctuations. Both Europe as well as Asia will continue to be dependent on the oil producing countries in the Middle East.
According to Eurostat, in 2011 18 percent of EU oil was imported from the Middle East. For their part, the U.S. has no interest in an economic or political crises happening in their partner countries because of interruptions in the delivery of oil or price fluctuations. Moreover, American engagement is not altruistic: because of the country’s close economic integration with the European and Asian market, the U.S. would immediately feel the affects brought on by an economic weakness of its important trade and investment partners.
The geopolitical implications of the U.S. energy revolution should not be over exaggerated, as the U.S. has a fundamental interest in secure and stable oil markets and transport routes. Accordingly, it is highly unlikely that the U.S. will lose interest in the Middle East.