The shale boom could prove a double-edged sword for America

WHEN RYAN ZINKE, America’s secretary of the interior, turned up for his first day in office a year ago, the ex-Navy Seal arrived on a horse called Tonto, wearing a cowboy hat. Since then, the man leading the Trump administration’s charge to unlock vast tracts of federal land for oil and gas drilling has brandished American oil like a gunslinger. Using a slogan favoured by President Donald Trump, he talks of “energy dominance”. Explaining the concept to the Heritage Foundation, a conservative think-tank, last year, he said: “Our goal is an America that is the strongest energy superpower that the world has ever known…America’s strength relies on American energy. And I don’t want to see us ever held hostage to a foreign country to heat our homes or to power our nation.” He made it clear that by energy he meant chiefly oil, natural gas and coal.

As with many of the Trump administration’s favourite terms, the meaning of energy dominance is hazy and depends on the audience. At the World Economic Forum in Davos in January the president struck a more conciliatory note than Mr Zinke, promising to use American oil and gas to provide energy security to its allies. “No country should be held hostage to a single provider of energy,” he said. But the point of energy dominance is that Mr Trump wants America to produce and export more oil, gas and coal and will try to undo years of environmental safeguards and regulations to achieve it.

He has picked a good moment. Not only has America’s oil and gas production soared; the shale revolution has greatly reduced the country’s dependence on imported crude oil and petroleum products, from 57% a decade ago to about 20%. The effect on the trade balance, the focus of Mr Trump’s “America First” policy, was already dramatic even before he took office. The energy-trade deficit has come down from $416bn at its peak in 2008, when it accounted for half the total trade deficit, to $53bn in the first ten months of 2017, less than a tenth of the total.

The decline in import dependence has already had geopolitical effects. In her book, “Windfall”, Meghan O’Sullivan shows that between 2011 and 2014 American oil replaced supplies disrupted by political developments in Sudan, Syria, Iran and Libya, “nearly one barrel for one barrel”. That helped keep oil markets stable. Plentiful oil at home has also made it easier for America to impose sanctions on oil producers it views as dangerous. It helped persuade other countries to pressure Iran to sign a deal putting its nuclear ambitions on hold in 2015, because they did not fear a resulting spike in global oil prices. As Amos Hochstein, the State Department’s energy envoy at the time, muses, “It was lucky timing that America became an energy superpower.”

Foot on the gas

Natural gas may have strengthened America’s hand abroad even more than oil. In 2017 the country became a net gas exporter for the first time in 60 years. This has helped establish a global market in natural gas, giving the world easier access to a fuel that produces only a quarter as much carbon dioxide as coal and half as much as oil.

For now, America’s biggest gas export market is via pipelines to Mexico, creating what is fast becoming an integrated North American energy powerhouse (as long as Mr Trump does not kill off the North American Free-Trade Agreement). But globally the change is being driven by exports of liquefied natural gas (LNG). The dome-like LNG tankers heading out from Louisiana and Texas are creating a market that can flexibly and cheaply deliver gas where it is needed. LNG exports took off only in 2016. By 2022 America is expected to vie with Australia and Qatar as one of the world’s biggest LNG exporters.

More LNG helps the transition towards cleaner energy, potentially slowing (though not stopping) the pace of global warming. A global LNG market also eases one of the thorniest problems in energy geopolitics: Russia’s use of gas pipelines to bully neighbours such as Ukraine. American LNG is still more expensive than Russian gas, so not much of it is sold to Europe. But its mere presence helps reassure the Europeans about their energy security. Partly in response, Gazprom, a Russian gas giant, has turned eastward, offering piped gas and LNG to China, where demand is also rising.

Mr Trump is pursuing China, too, offering LNG as a way to narrow the bilateral trade imbalance. Daniel Yergin, vice-chairman of IHS Markit, a consultancy, points to this as an example of how trade in energy might actually soothe global tensions. He says that China now sees America as part of the solution to its energy needs, rather than a competitor for scarce resources. Mr Trump has also discussed LNG exports with leaders from India and South Korea, Mr Yergin notes. “He has become the world’s number one LNG salesman.”

Unintended consequences

This windfall is likely to continue. America’s oil and gas output is still rising. According to the International Energy Agency, by 2025 the shale revolution will have unlocked more oil and gas in America more quickly than in any other country, including Saudi Arabia in its heyday from 1966 to 1981.

Ryan Zinke, America’s secretary of the interior, has brandished American oil like a gunslinger

The Trump administration wants to build on this success by making life easier for fossil-fuel producers. In his first year Mr Zinke has sought to smash what he calls a “fortress of red tape”, open up offshore reserves to drilling (except in Florida, where it risked jeopardising the political ambitions of Rick Scott, the Republican governor), and ease restrictions on coal mining and natural-gas production imposed under President Barack Obama.

Whether all this deregulation will make much difference to domestic energy production is questionable. Jason Bordoff of Columbia University writes that markets play a much bigger role. Cheap natural gas, for example, hurts coal far more than the clean-power regulations that the Trump administration is now promising to remove. And Congress, state governments and the courts can block policies to stimulate fossil-fuel production and roll back environmental regulation, whatever the wishes of the federal government.

The geopolitical effects of the shale boom have been complex and have been compounded by other policy shifts such as sanctions and protectionist trade policies. Some experts feel that the idea of “energy dominance” sounds imperialistic. The mere idea of “weaponising” oil undermines years of American efforts to persuade countries like Russia not to use energy for political ends.

Some of America’s trade policies may also be counterproductive. The country’s withdrawal from the Trans-Pacific Partnership, a trade agreement which includes some of America’s biggest potential LNG customers, such as Japan, was self-defeating, because it makes it harder for America’s allies to import its LNG.

Stephen Cheney and Andrew Holland of the American Security Project, a think-tank, argue that America’s greatest contribution to global energy security since the oil shocks of the 1970s has been to keep global energy markets fluid. Some analysts worry that this fluidity would be jeopardised if the Trump administration were to use oil and gas as a bargaining chip in bilateral relations, as China has done.

Although the shale revolution has been good for global consumers, it has not been a clearcut benefit to American influence abroad. The collapse of oil prices in 2014 nudged OPEC, Russia and other producers into an “OPEC-plus” alliance, raising Russia’s profile in the Middle East at a time when an inward-looking America was less engaged. Moreover, the use of sanctions against Iran, Russia and Venezuela has created a perception among some countries, including China, that America is playing a “dirty economic game”. This has brought its opponents closer together, says Sarah Ladislaw of the Centre for Strategic and International Studies in Washington. China has offered financial support to all three of those countries. Rosneft, Russia’s biggest oil company, is tapping Venezuelan oil in exchange for cash.

Matthew Bey of Stratfor, a risk consultancy, talks of a “mosaic of forces” threatening American energy diplomacy as China overtakes America as the world’s biggest energy consumer. He notes the alarm caused in Washington, DC, by the recent news that China might take a preferential stake in the planned initial public offering of Saudi Aramco, the world’s biggest oil company. “It’s not just Russia against the West,” he says. “It’s Russia, China, Iran and others looking at pragmatic opportunities to chip away at Western hegemony.”

Above all, Mr Trump’s tub-thumping for coal, oil and gas appears to run counter to a worldwide push to lessen dependence on fossil fuels, improve energy efficiency and combat global warming. So although, for now, Americans may feel relief at the shale boom, it could prove a double-edged sword. If their country continues to promote fossil fuels at the expense of cleaner energy sources, its dominance is unlikely to last.