The United States is the New Saudia Arabia

From Bloomberg News:

A new report by the International Energy Association says the U.S. will become the world’s largest oil producer by 2017, overtaking current leaders Saudi Arabia and Russia. U.S. energy policies initiated by the George W. Bush administration and implemented by President Barack Obama have moved the U.S. toward energy independence and away from Middle East energy sources. U.S. oil production has risen rapidly since 2008 and oil imports are at their lowest level in two decades.

The IEA also says the U.S. could become self-sufficient in energy by 2035 and a net exporter of natural gas by 2020. The Obama administration’s push to develop and grow domestic natural gas capabilities has led to a natural gas drilling boom. Production has jumped 15% in four years but the glut in natural gas supplies have also caused the price of natural gas to plummet. According to the White House, the U.S. holds a 100-year supply of natural gas and domestic production is at an all-time high. The Daily Ticker’s Aaron Task and Henry Blodget both agree that the explosion in domestic energy production could alter the geopolitical landscape and U.S. labor market.

This is gigantic news for two reasons. First, if the U.S. can reduce or eliminate its dependent on imports of foreign oil, and become an exporter of natural gas, our trade deficit would shrink dramatically. Petroleum imports drive our imbalance of trade, accounting for 50 to 60 percent of the ~$500 billion annual trade deficit.

Second, the resulting geopolitical shift will profoundly affect international politics. Much of our engagement in the Middle East is driven by oil. The same is true about our our problems with Venezuela. If we are no longer (as) reliant on these often hostile regimes for petroleum, we will be able to deescalate our relationships with these nations.

Of course, every silver cloud has a black lining. As noted in the Bloomberg story, cheap natural gas will reduce market-driven incentives for development of renewables, including solar and wind. Natural gas is an incredibly important bridge fuel to move the U.S. away from coal and toward cleaner energy sources. But that bridge will collapse pretty quickly if natural gas remains so cheap. The market will demand even greater levels of subsidy for solar and wind if they are to compete with cheap domestic natural gas.

Becoming an energy independent nation will have profound beneficial outcomes, many of which we likely don’t yet understand (what will happen politically within Middle Eastern nations when their only source of wealth loses its value?). The problem now becomes one of managing this new-found national wealth in a way that doesn’t impede our transition toward a clean energy future.

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