The Monday Club event on May 21st focused on the changing global energy marketplace. The speaker was Eric Lee, Commodities Strategist from Citigroup, based here in New York. About 35 people attended the event from firms such as Citigroup, HSBC, UBS, GE and Institutional Investor to mention a few.
So what does an energy superpower even mean? Traditionally, we likely think about OPEC, in particular Saudi Arabia, and potentially also Russia, in terms of dominant energy producers impacting the global markets and playing significant geopolitical strategic roles as a result of their energy resources and power. In the rapidly transforming global energy market with more advanced technology, alternative energy sources, more global export capabilities and political structural changes, the U.S. is playing an increasingly active global energy role.
As a matter of fact, the U.S. is already the 3rd largest oil and gas producer and is increasing its global exports steadily. According to Eric Lee, the current global oil production is about 100 million barrels a day with U.S. production of 10.7 million barrels and increasing. There seems to be an ongoing expansionary U.S. strategy, both in terms of production and export. This trend started already during the Obama administration and continues and appears to accelerate during Trump.
The U.S. is also by far the largest energy trading hub, with production, refining, biofuels, refining and import and export of all of these. This U.S energy trading hub also has implications for petrodollar versus pertroyuan given that China looms large as a major importer, refiner and producer. Saudi Arabia and Russia are mainly exporters and are despite macroeconomic diversification efforts still largely dependent on their energy exports. As the U.S. is gaining market share and is becoming more relevance, the U.S. is increasingly becoming less dependent on imports from the Middle East and elsewhere.
The result is that the U.S. has more room to use energy strategically in geopolitical political actions, for example by imposing sanctions on Iran, Venezuela and Russia, and to take an overall tougher stance against energy producing countries. Lee mentioned that the U.S. policy makers in particular have an increasingly strong interest in the European market and to openly compete with the Russians there. As the Russian’s dominance already is challenged, this U.S. policy appears to be in line with an overall political and economical confrontational approach towards Russia. The same trend can be seen in Iran, where the U.S. primary target is to stop Iran’s nuclear ambitions, but where economic factors such as oil also play an important role in the U.S. increasingly assertive stance.
Overall, the U.S. is advancing due to technology investments, lower production costs and increased efficiencies and is in parallel developing a strong renewable sector, predominately within the auto sector. China is also advancing rapidly with renewable energy alternatives and is trying to take a leading global role. According to Lee, energy is increasingly becoming a key component in the geopolitical global power equation and the U.S. administration has clearly an aggressive strategic plan to grow in importance by gaining market share across.
The U.S. might not necessarily be the new global energy superpower, but is striving towards energy independence combined with growing export, making the U.S. gradually more important in the complex global energy puzzle. This will over time significantly impact the global energy power structure and likely create conflict. As long as the prices are on the current high levels, most countries continue to generate enormous revenue streams, but at some point the price level will level off, the market share competition intensify and with the U.S. steadily gaining in importance, the U.S. will most likely use all available means to keeping growing the energy sector both financially and strategically.