Patterns of energy production and consumption are changing, both because of and despite political actions; this week we look at some of the potential longer-term, structural changes to the energy market. Energy, and particularly oil, is the one commodity that we consume almost continuously. Energy also has great geopolitical implications; for many countries, securing access to energy sources or markets for energy exports is a dominant foreign policy consideration. In the last U.S. election, the use of coal and the building of the Keystone XL Pipeline were front and center policy issues, and represented real differences between the candidates with respect to energy policies. This commentary will update some of the recent trends in consumption in the oil market, including potential policy implications of President Trump’s election.
ENERGY – NOT A SEA, BUT CONNECTED LAKES Despite an increasing population, overall U.S. energy consumption has remained relatively constant over the past few years [Figure 1]. Overall, U.S. energy consumption peaked in 2007; however, the type of energy we consume has changed and is likely to continue to do so. Therefore, when we think about energy and energy policy, we must really think about what form it is in, where it comes from (domestically produced or imported), and of growing importance, where we might be exporting it to. It is not a coincidence that a string of important political figures, including former Vice President Dick Cheney and current Secretary of State Rex Tillerson, were CEOs of oil and gas companies.
Energy may continue to be a major source of international conflict. Wars, both proxy and direct, have been fought over the ability to secure its supply. Securing access to energy has been a major driver of many nations’ foreign policies, including the U.S., France, and Germany. More recently, China has been securing access to oil in Africa. Though the issue regarding Chinese activity in the South China Sea is complicated and beyond the scope of this commentary, access to the Sea’s estimated 11 billion barrels of oil and 190 trillion cubic feet of natural gas is at least a partial consideration in China’s actions. Ensuring the ability to export energy and strategic use of these exports has been a major policy concern for the U.S.S.R./ Russia and many Middle Eastern countries.
During the campaign, Trump and his advisors generally preferred to focus on energy security by encouraging additional domestic sources of energy production. Candidate Trump promised to expand drilling offshore and in national parks, reversing the Obama administration’s policies. However, he has yet to enact such policies. More importantly, given the current supply/demand situation globally, including a relatively narrow range for the past 10 weeks (and only then because of OPEC production cuts), it is not clear how many projects would be economically viable with oil near current prices