By Robert A. Pollard
The energy boom in the United States has ignited high expectations in this country, from an industrial renaissance to energy self-sufficiency. Yet it has brought fewer benefits to China and Europe, and if anything, exposed their energy deficiencies.
In theory, the surge in unconventional oil and gas production in North America should benefit everyone. Along with falling U.S. energy imports, it brings new and reliable supplies of natural gas and petroleum onto world markets. Moreover, experts believe the use of new production techniques in other countries could boost “technically recoverable” global reserves of crude oil by one-tenth and natural gas by one-third. Europe and China, however, have reacted to the American shale boom with caution.
Already the world’s largest net importer of crude oil, China’s voracious demand for energy will continue to outstrip supply for the foreseeable future. Coal is abundant and cheap, but also linked to the frightful pollution in China’s main cities. Over time, China may exploit its large shale resources, but that would be costly and require foreign capital and technology. Nuclear and renewable energy can only fill part of the gap. As a result, China will need to import vast amounts of gas and oil.
Beijing and Moscow in May signed a $400 billion deal to supply Russian gas to China from Siberia. China has also eagerly locked up contracts with producers from the Middle East, Central Asia, Africa, and South America, which have begun shifting their exports to booming markets in Asia.
On the other hand, Beijing may view the U.S. energy revolution and industrial recovery as more of a threat than a benefit. First, it challenges the Chinese thesis of irreversible U.S. decline. Likewise, Beijing’s strategists may fear dependence on U.S. energy supplies.
The Chinese security community is reportedly nervous at the prospect of a U.S. military retreat from the Middle East should the United States grow less dependent on the region’s energy resources. Chinese analysts also believe their country does not yet possess the military reach or credibility to fill the potential vacuum in the Middle East.
Meanwhile, the energy revolution offers some strategic advantages to Europe. Already, lower global energy prices have given it leverage to demand renegotiation of its long-term gas contracts with Russia.
Yet Europe’s energy situation may be more precarious than China’s. Part of this has to do with geology, and part with politics. Europe is not resource-rich, and much of its existing fossil-fuel production (e.g., North Sea oil) is petering out. Environmental concerns about fracking have slowed exploration of promising shale gas formations.
Furthermore, Europe’s climate policy is colliding with its energy security and economic goals. To combat global warming, Europeans have massively subsidized solar, wind, and other “sustainable” technologies while slapping heavy penalties on fossil fuel and nuclear energy.
Renewables, however, are generally more expensive than conventional energy. European heavy industry complains it cannot compete with North American firms that pay one-half or less the European price for gas and electricity, and that investment along with jobs in those sectors is migrating to the United States as a result. Reacting to loud complaints about the alleged “deindustrialization” of Europe, the EU has signaled it will try to strike a better balance between climate and competitiveness, for instance, on emissions targets.
Security concerns also have Europeans worried about their energy posture. Europe depends on Russia for about a third of its oil and gas imports and a quarter of its coal imports, and while coal and oil can be alternatively sourced to some extent, gas supplies are not as easily replaced. The crisis in Ukraine underscores Europe’s vulnerability, as half of Russian gas exports to Europe transit Ukraine.
The EU has pushed for an energy chapter in the Transatlantic Trade and Investment Partnership (TTIP) talks for two main reasons. First, they want to establish an international gold standard for energy and raw materials in future trade agreements with emerging countries like China and India. Perhaps more importantly, they want an ironclad guarantee of access to U.S. energy supplies. Although President Barack Obama has said the TTIP could indeed improve Europe’s energy security (free trade partners can import U.S. gas with few restrictions), he added that Europe must do more to develop domestic energy resources such as shale. In any case, it will take several years before the United States can ramp up its liquefied natural gas exports, most of which will probably go to Asia. Nor is it clear when if ever the U.S. is going to lift its current ban on crude oil exports, another EU goal.
However the TTIP plays out, the transatlantic partners share common interests on energy: transparent and secure markets, efficient and clean technologies, and climate change mitigation, all goals raised at the U.S.-EU Energy Council in April. The United States and EU could collaborate in promoting these objectives with regard to China, one of the world’s largest consumers of energy and emitters of greenhouse gases. This may already be happening. At the U.S.-China Strategic and Economic Dialogue in July, Washington and Beijing renewed commitments for joint projects on unconventional oil and gas, nuclear safety, and renewable energy. Recent EU-China summits similarly pledged to reduce greenhouse gas emissions.
Such cooperation makes sense because energy policy is not a zero-sum game, and the U.S. energy boom is not happening in isolation from international markets. Even if U.S. production were to continue growing for many years, U.S. consumers will not necessarily see lower energy bills because prices, especially those of oil, are determined in the global marketplace. Thus, increasing energy production and efficiency in other countries benefits everyone.
The strategic implications of the U.S. energy revolution, too, are not crystal-clear. America will not necessarily be stronger if its closest allies in Europe and Asia remain vulnerable to energy shocks or geopolitical blackmail. Whether the U.S. energy boom proves to be a geostrategic game-changer will depend on many policy variables – specifically, U.S. domestic energy policy — but international partnerships that expand and diversify supplies, improve efficiency, and limit climate change would be a sound investment.
Dr. Robert A. Pollard is a State Department Visiting Fellow with the Europe Program at CSIS in Washington, D.C. He is writing in his personal capacity, and the views expressed in this article are entirely his own.