By Paolo von Schirach
May 2, 2013
WASHINGTON – Imagine this brand new scenario for world energy. America will start producing at home a lot more of the oil it needs. Besides, it will import even less because many of its heavy vehicles will be converted to cheap and abundant Compressed or Liquefied Natural Gas (CNG/LNG) now produced in America, this way further diminishing the need to import crude. As consumption will still be larger than domestic production, the US will continue to be a net oil importer. However, increased imports from Canada and soon Brazil will guarantee “Hemispheric Oil Independence”. This means that for the first time in recent history the Western Hemisphere, through a combination of US production, plus larger imports from friendly neighbors, will have all the energy it needs to fuel the world’s largest economy.
US will no longer rely on OPEC oil
A fantasy? Not really. Many reputable projections indicate that America is well on its way to reach this goal. In just a few years America will stop importing oil from the Persian Gulf, Africa and hopefully Venezuela. This is a game changer, with obvious geopolitical repercussions. You can bet that a “semi-energy independent America” will downgrade its interests in Middle East issues. You can bet that Arab Israeli matters, including a final solution to the eternal Palestinian mess, will no longer be regarded as important. By the same token, the US navy presence in the Persian Gulf will be diminished and eventually eliminated.
Japan to take a more active role in securing oil flows
The world sees these new developments. Indeed, Japanese Prime Minister Shinzo Abe, during a recent visit to Saudi Arabia, discussed issues related to Persian Gulf oil flow security with his Saudi hosts. The hint is that Japan in the future may take a more active role in protecting, possibly with navy deployments, the unhindered flow of the Gulf oil its economy is totally dependent on. Having seen the proverbial writing on the wall, Japan is already planning for a not so distant future in which the US 5th Fleet, now anchored in Bahrain, will no longer be policing the sea lanes for America’s own benefit but also for the benefit of all other major oil importers, first and foremost Japan.
So, here is the brand new scenario. Once America will no longer depend on OPEC oil, the free flow of Middle Eastern oil will become the responsibility of the heavy users: Japan, China and India. Therefore, expect major diplomatic, political and security rearrangements between the Gulf Region and Asia.
The end of OPEC?
On a different level, if the Western Hemisphere becomes indeed a major oil producer satisfying America’s entire energy needs, expect the OPEC cartel to suffer greatly. OPEC’s ability to control world oil prices is predicated on an environment of increasing demand and tight supplies in which only OPEC has significant spare capacity. But if this changes dramatically, if Canada and Brazil have enough oil to supply America and then quite a bit in excess to sell to others, then OPEC’s ability to impose its own prices will, mercifully, end. OPEC will keep selling oil, but not at the prices it sets (by manipulating supply) based on its own convenience.
The Saudis apparently are already adjusting to this new situation. They have announced that they will stop investing in added capacity. Which is to say that they have determined that in the next few years there will be no significant additional world demand to justify added production. The Saudis certainly do not want to flood the market with excessive crude oil supplies, this way causing prices to collapse.
Russia will suffer: end of the oil rent
By the same token, in a world with plenty of spare oil, expect Russia to suffer as well. As of now, its major source of economic strength comes from oil and gas exports. A lot more oil and gas in North America changes the global market outlook. As America no longer needs foreign gas, European importers can find alternatives to Russian gas. And plentiful oil will mean lower prices. Good for all importing ntions but bad news for Russia and other large exporters that have used the rent provided by inflated oil prices as the major driver of their economic development. They better start looking for other ways to sustain their fragile economies.