Economy / Energy / Foreign Policy / Iran

The Changing North American Energy Landscape

The US’s booming energy resources are changing the landscape, and not just from the Midwest to the Intermountain West. A recent report by the International Energy Agency (IEA) says that North American oil production may affect the global market as dramatically as the recent increase in Chinese demand. IEA Executive Director Maria van der Hoeven says that “North America has set off a supply shock that is sending ripples throughout the world” which may help to ease the market and compensate for declines elsewhere. The Medium-Term Oil Market Report (MTOMR) predicts that North American supply will make up nearly two-thirds of total non-OPEC supply from 2012-2018. This is pointing politicians and economists alike to previously unforeseen horizons.

On Wednesday, Senator Inhofe from Oklahoma introduced legislation calling for a displacement and boycott of Iranian oil. Though similar sanctions to force Iran to cease its nuclear development programs have previously failed, a report from Roubini-SAFE says that there is enough of a surplus to consider an all-out ban. Past failures have in part come from loopholes that allow Iran to collect gold for its oil, as well as the high energy prices borne by nations such as India and China. The Obama administration worries that such drastic cuts could hurt developing economies and create animosity for US policy.

This supply shock is also being felt in Europe as gas-fired power plants are finding it hard to compete with cheap American coal. As US power generators rely more on natural gas and reduce their demand for coal, cheap coal is exported to Europe and displaces European natural gas. Though American environmentalists herald the national change as a great move toward cleaner fuels, provided the fracking process is regulated correctly, Europeans are left to make their own decisions between cheap fuel and long-term energy goals. Ironically, renewables such as wind and solar energy are also cutting into the market for gas-powered plants and putting more pressure on Europe to transition back to coal.

We have here a tale of two markets. With the success of fracking and energy development previously thought economically unwieldy, the United States finds itself in a sweet spot of political and financial power. Natural gas has already helped America move away from the “dirty energy” of coal; environmentalists may fret about fracking, but the advantage of natural gas over more complex hydrocarbons is clear. Were the US to ramp up its oil shale and tight oil extraction, it may be able to achieve major goals like ending Iran’s nuclear programs and promoting clean energy worldwide. However America’s natural gas has remained primarily in America and it seems likely to stay that way.

The oil market is murky as it is, especially with recent investigations into possible price manipulations in Europe. Liquefied natural gas (LNG) is even more unsure territory. Though energy magnate T. Boone Pickens has recently come out in favor of LNG exportation, less than two years prior he said that we would

“go down as the dumbest generation” if we were to trade clean, cheap gas for dirty, expensive oil. His new support dismisses worries about fracking as a new phenomenon and calls approval of Keystone “easy” given the vast reserves available.

Regardless of how such development moves forward, it is essential that the US stands on the right ground before progressing toward these major actions. Expending the political will to get more energy sensitive nations to comply with the sanctions could damage future US policy relations if efforts fail again and Iran can wriggle through another of their “golden loopholes.” With natural gas exportations, the concerns about hydraulic fracturing should be neither overstated nor dismissed.

We should know clearly what we’re dealing with, both below and beyond our feet, without being afraid to take the next step.