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Despite Growing Energy Independence, U.S. Cannot Escape Global Risks

A Massachusetts Water Resources Authority wind turbine turns in front of a 1951 megawatt fossil fuel power plant in Charlestown, Massachusetts (REUTERS/Brian Snyder).

The global energy landscape is changing, and largely in favor of the United States. Domestic production is growing; the U.S. is poised to become a net exporter of natural gas as early as 2018, as well as the top oil producer in the world (ahead of both Saudi Arabia and Russia) by 2020.

Meanwhile, energy flows are increasingly shifting eastward. In the fourth quarter of 2013, China became the world’s largest oil importer, obtaining a dubious title previously held by the U.S. But India’s import dependence is also growing, and Japan and Korea’s remain high. And as demand in the East grows, Middle Eastern oil is shifting away from the United States and towards Asia. As a consequence, Asian countries are experiencing an increased number of energy-related risks.

In a paper with David Steven and Emily O’Brien we refer to this as a “risk pivot.” Risks, not just resources, are flowing to Asia.

Oil imports to China.
China has now overtaken the United States in terms of volumes of oil imports – much of which is imported by sea, and almost all of which is transited through the Malacca Straits. This is part of a trend that sees more Middle Eastern oil being shipped eastward.

But the new U.S. energy surplus and the accumulation of risks in Asia does not mean that the U.S. can escape global risks associated with energy. In particular, there are three global risks that the U.S. cannot escape: price, politics and pollution.

Three Inescapable Risks

1. Price – When the price of oil increases abroad, it will increase at home too

The first inescapable risk is price. There is a global price of oil—a rise in the price of oil for China, Russia, or any other country is also a rise in the price of oil for the United States. Greater domestic production certainly helps hedge supply risk, but the U.S. will still feel the pain when energy costs are high. It will need to stay involved to try to keep oil prices stable—and, ideally, low.

2. Politics – The energy sector is about more than just energy; it’s also about strategy

Then there are political risks. In light of the Ukraine crisis, there have been cries to use American energy capacity to ease Ukraine’s energy dependence on Russia. There have also been calls to use energy as a source of pressure on China, or to disengage from the Middle East. But the energy landscape is more complicated than that.

In the case of Ukraine, there is no on/off switch for imports—and we cannot forget that about a third of Europe’s gas and oil imports are transported through Russian pipelines. In Asia, regional energy risks remain global risks; China is still a critical economic partner to the U.S., and the U.S. has an interest in seeing India continue to grow. And in the Middle East, it is inconceivable that the U.S. will disengage from the region anytime soon for security purposes.

In the energy sector, it’s always political. Economies cannot function without energy, nor can they change their energy mix overnight—leaving countries heavily dependent on key trading relationships. Energy is also an essential ingredient of strategic power projection, and is treated by most governments not as a market good but as a strategic commodity. These global political considerations will not be removed from America’s energy interests even as the U.S. becomes more energy independent.

3. Pollution – The future of the energy market will have significant impacts on our climate

Finally, the U.S. must consider the risks that the energy landscape poses to the global climate. While the pollution that now clogs cities in China—and increasingly India and Korea—is felt first and foremost locally, its cause—the burning of vast quantities of carbon-based fuels—has global impacts on the climate. And Chinese pollution is already affecting air quality on the West Coast of the United States.

Continued Engagement

Looking at the shift in the energy landscape, the U.S. may be tempted to retreat from energy politics. But while growing U.S. energy production will allow the U.S. to diminish some risks, it cannot remove itself entirely from the global energy politics. Instead, it must remain engaged and lead the international energy system as a matter of economics, national security and environmental stability.

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