Business/economics

With US Growth Toward Global Energy Dominance, Infrastructure, Technology Advances Remain Critical

The United States is producing a growing share of the world’s oil and gas, with a potential impact that remains uncertain. But continuing infrastructure development and technology advances will be critical in the long term.

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The powerful new position of the United States in global oil and gas production, combined with the Trump Administration’s focus on a nationalistic approach to energy issues, has created a different atmosphere in the world oil and gas markets.

Speaking on “US Energy Dominance—What it Means to the US and the World” at the recent Norwegian Energy Day conference in Houston, which was sponsored by Norwegian Energy Partners and the Norwegian Consulate General, Charles D. McConnell, executive director of the Energy and Environment Initiative at Rice University, gave perspective to these changes in the global market.

While noting the growing importance of US production, he rejected ideas of US energy self-sufficiency, stressed the continuing long-term requirement for oil and natural gas in the global economy, and emphasized the critical roles of infrastructure development and ongoing technology advances in meeting the need for environmentally responsible economic growth.

Before assuming his position at Rice in 2013, McConnell served for 2 years as Assistant Secretary of Energy at the US Department of Energy (DOE) where among his areas of responsibility were the DOE coal, oil and gas, and advanced technologies research and development programs, and the operations and management of the US Strategic Petroleum Reserve and the National Energy Technologies Laboratories.

No US Energy Strategy?

In his talk, McConnell disputed the oft-held view that the US had no energy strategy or policy in recent decades. “I would argue we absolutely had an energy policy in this country. It was unspoken. And I can actually spell it for you: E-P-A [Environmental Protection Agency],” he said. Regardless of one’s viewpoint on the EPA’s impact, the agency “was the fundamental driver of what was going on. … That’s a whole lot different than it is today,” McConnell said.

In examining “America’s energy first policy” promoted by the Trump Administration, he took issue with the theme of “pursuing American energy independence,” which has sometimes been used to support administration policies and prior pro-fossil-fuel initiatives. “There’s no such thing as independence as it relates to energy,” McConnell said. “It’s a very interdependent, global world that we’re in. Seeking independence is the wrong vehicle.”

While US oil production has grown to more than 10 million B/D, a level not seen since 1970, US refineries process about 18 million B/D of crude oil. “That number right there will tell you right away we’re not energy independent,” McConnell said.

Gas Exports Grow

Another sign of growing US energy dominance is the expansion of gas production driven by the shale revolution and the emergence of gas exports, which now amount to 21 Bcf/D. An additional 10 Bcf/D of liquefaction capacity for gas exports is under construction, “a situation we were nowhere near five years ago or ten years ago,” he said.

The growth of US production has diversified global energy sources and contributed to energy security. However, McConnell said that whether these factors have increased geopolitical stability “is a tricky question.”

The Carter Doctrine, proclaimed by President Jimmy Carter in 1980, pledged the US to defend its national interests in the Persian Gulf by force if necessary. Those interests have been understood to encompass the region’s oil and gas production and supply assets, and the doctrine has retained the support of every subsequent administration.

Shift in Global Supply

McConnell placed the annual cost to the US government of sustaining the Carter Doctrine at between $50 billion to $100 billion. The expansion of world oil supply from outside of the Middle East has reduced that region’s share of global supply from 50% in 1973 to 43% today. That factor and the specific growth in the US share of global production in theory could weaken the country’s commitment to protecting Persian Gulf oil and gas assets.

The consequences of any policy shift in this direction would be unpredictable, and the importance of Saudi Arabia must be considered, as it is the world’s lone country capable of making up for large oil supply shortfalls elsewhere, McConnell said.

Today, transportation consumes 60% of world refined fuel output, and 95% of world transport systems are oil-based, he said, and cited the US Energy Information Agency projection that 88% of transport consumption in 2040 will be hydrocarbon liquid fuels—notwithstanding the market growth of electric vehicles. Only by 2050 will transport demand flatten for hydrocarbon liquid fuels in the US and decline slightly in Europe, McConnell said.

Oil Growth to 2040

Global oil demand will continue to grow over at least the next 2 decades. The current demand of almost 100 million B/D is projected to grow to 130 million B/D by 2040, driven by expansion in China and India that by themselves will generate 45% of world economic growth. Even as automotive fuel demand begins to slow, economic expansion in China and India will help to increase fuel demand for aviation and heavy trucking, particularly with growing infrastructure development, McConnell said.

In the US, continued strong infrastructure investment will be essential to sustain the energy system and support any growth toward global energy dominance, he said, adding that environmental quality should be a key part of new infrastructure planning and need not hamper energy system growth.

In the 1970s, collaboration between the electric power industry, national laboratories, and the EPA to combat acid rain led to 90% reductions in nitrogen oxide, sulfur dioxide, mercury, and suspended particulate emissions through the implementation of new technologies—still in use—that simultaneously enabled coal-fired power capacity to double, McConnell said.

A Sustainable Future

“We’re not here to destroy the environment,” he said. “We’re here to create a sustainable future going forward, which includes availability and cost as well as environmental responsibility.

“The biggest challenge I believe that this administration has going forward, and it’s real simple, are we going to invest in technology?” McConnell continued. “Are we going to talk about things and create a divide, and then ask people to stand on one side of the fairway or the other and choose? I think what you choose is a pathway that has this country rapidly investing in technological change—transforming technological change—creating technological change that can be exported globally. Because it will need to be.”