Trump’s promise to “stay totally independent” of OPEC is populist hype [My IBD interview]

eia_apr15_us_oil_prod-importsContrary to his campaign hype (see article below), Trump-as-president will not do anything to interfere with the free flow of oil or gas to or from the USA.  As I pointed out in the Investors Business Daily interview (Gillian Rich’s story is below), people central to Trump’s administration – such as Rex Tillerson, his designated secretary of state and former CEO of Exxon, and Harold Hamm, Trump’s fracking billionaire friend he wanted for secretary of energy – are global-market-oriented businessmen who would never agree to disconnect the USA from global energy markets.

The free flow of petroleum through the unified global market traded in US dollars – what I call the “Global Barrel” – is central to the business model of every private as well as every national oil company.  Today there is essentially one, global oil price. If you break up the global market by limiting imports or exports, you get national markets with national prices.  Then what?

If the US price went higher than the global price due to keeping out cheap foreign oil, Trump’s popular approval would dive. And, if the U.S. price went lower due to a domestic production glut of fracked oil, then his support among business would tank.

Moreover, the unified global market serves as the key element in the world’s collective energy-security system by guaranteeing equal access and prices to all suppliers and consumers.  

If one country’s production goes offline (due to a revolution, war, natural disaster, etc.), everyone’s price goes up, not just those countries it has bilateral relationships with like occurred in the old pre-global, neo-colonial-market era.  Every producer would get a market signal to boost production. There is no impetus for any developed country to resort to old-fashioned gun-boat diplomacy to acquire new oil fields in producing states.

What oil-related conflicts that still do occur nowadays are between producing states or due to foreign intervention (usually by the USA) to prevent one producer from dominating another producer, especially in the oil-rich Persian Gulf Region where so much oil is concentrated and where this could seriously disrupt the global market. These are still bloody conflicts, but  this is not a matter of developed states fighting for access to oil fields in producing states, or worse, fighting one another for such access. They are conflicts to protect the global market – to insure it remains a real market. There is simply no longer any good reason for the old-style neo-colonial conflicts.

The USA has long been the key guarantor of this system that still provides 94% of all transport fuel worldwide. Trump’s hype about US “independence” from OPEC and giving the impression he will somehow regulate or undermine imports or exports is aimed at inciting jingoist, nationalist sentiments among impressionable voters. It is not honest. He knows better. (And, if he didn’t know better, I am sure Tillerson and Hamm have by now taken the time to enlighten him on such matters.)

Even if the US fracking revolution boosts domestic production enough to make the USA a net exporter,  as well it may, the country will remain interconnected with the global oil market, the US domestic price will still reflect the global price, and the US will remain interested in the enhanced market and geopolitical security such a system provides not only the US, but every producer and consumer.

Trump’s facile promises to voters during the campaign that he would undermine OPEC and other “enemy” states by having the USA not buy their oil are empty and contrary to both US  oil-producers’ and oil-consumers’ interests.

Below are the last sections of the IBD piece where I’m quoted a few times on these matters (and here’s the whole article: A Year After The Ban, U.S. Oil Exports Nibble At Asian Market Share.23 December 2016).

Exports Create Energy Interdependence

President-elect Trump has called for the U.S. to be energy independent and “stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests.”

Analysts say that goal, echoed by many politicians prior to Trump, is unrealistic. U.S. oil production is at 8.8 million barrels per day, but America still imports roughly 10 million barrels per day. Hatfield said the U.S. will remain a net importer of oil for at least the next five years.

With the appointment of Exxon’s Tillerson as secretary of state and Hamm having served the president-elect as an advisor, Trump isn’t likely to do anything drastic with his energy policy that would affect exports and be bad for U.S. businesses trying to get the best price for their crude, O’Donnell said.

Exporting oil “is a better connection to the global market,” O’Donnell said, and better for U.S. producers.

And maybe OPEC countries need U.S. energy supplies more than they realize.

“Yes, we still import some oil from OPEC countries,” Krane said in an earlier interview. “But they also import our oil and gas. Who would’ve thought OPEC countries would be paying us for their energy supplies? A few years ago that would have sounded crazy.”

Krane said five spot cargoes of liquefied natural gas were exported out of Cheniere Energy ‘s (LNG) terminal in Louisiana to countries in the Middle East this year, two of those – Kuwait and the United Arab Emirates – were OPEC member countries.

LNG exports will account for 9% of total U.S. natural gas production in 2017, according to a Bloomberg report. U.S. LNG export capacity from the lower-48 states is expected to double next year, to 3.2 billion cubic feet per day.

Most LNG exports in 2017 will likely be headed south to Argentina, Brazil, Chile, Colombia and Mexico.

American LNG exports have “no strings attached,” with no rules regarding their final destination, according to O’Donnell, which makes U.S. shipments popular in Japan.

The European Union is also looking for contacts without destination clauses, which has “gotten (Russia’s) Gazprom rather ticked off,” O’Donnell said.

(A couple syntax corrections, plus a flourish or two added 4Jan17)

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One response to “Trump’s promise to “stay totally independent” of OPEC is populist hype [My IBD interview]

  1. Pingback: Media Roundup for January 2017 | The Instinctive Path

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