Smart Power

One of the things not covered in my Cato Institute paper on US natural gas and crude oil exports was the potential geopolitical implications of the US fossil fuel boom. This omission was due mainly to size constraints and the fact that the paper was intended to focus on the economic and trade issues raised by the United States' restrictive export licensing systems for gas and oil.  That doesn't mean, however, that these systems - and the de facto bans on US gas/oil exports that they effectuate - don't raise important foreign policy concerns, as noted in this recent article from US News and World Report:

[I]f the U.S. is allowed to export to Europe... countries such as the Czech Republic, Hungary, and Greece gain access to alternate, more stable sources of natural gas, loosening Russia's vice grip on the European natural gas supply. Incidentally, the U.S. has already played a role shifting the relationship between energy suppliers and importers in Europe.... The shale gas revolution, which has dramatically increased domestic supplies of natural gas in the United States has all but eliminated the need for imports. That, in turn, has rerouted supplies originally headed for U.S. ports to Europe, helping to ease price pressures there.

U.S. exports of natural gas could also play a role in increasing the bite of sanctions levied on Iran over its nuclear program. Turkey currently depends on Iran for 20 percent of its natural gas imports. But as with Europe, if new sources of gas imports are made available, Turkey could reduce its reliance on Iran. That would, in turn, cut into the revenues reaped by the Iranian regime.

In Asia, exporting natural gas to energy hungry allies such as Japan and South Korea could help solidify diplomatic relations. In the wake of the Fukushima Daiichi nuclear disaster, Japan—already the top importer of natural gas—has shut down nearly all of its reactors, making the country much more dependent on fossil fuels such as oil, coal, and natural gas. With high natural gas prices in Asia, Japan is looking for anything cheaper. At rock bottom prices at home, U.S. suppliers can beat the international prices and make a good profit even with expensive liquefaction and shipment....

Many other people from a wide range of political and policy perspectives have echoed these conclusions: scrapping our archaic oil and gas export restrictions and thereby permitting such exports to Europe and Asia is a geopolitical no-brainer for the United States, especially in this new "sequestration" era of tight federal budgets and reduced US spending on more traditional forms of national defense.

And it's for this reason that the following stories from the last week have me scratching my head (if not banging it against my desk):

• UK's Telegraph: "With the worst snow conditions in the country since 1981, it’s worrying, to say the least, that gas supplies are running low.... Because of a misguided faith in green energy, we have left ourselves far too dependent on foreign gas supplies, largely provided by Russian and Middle Eastern producers. Only 45 per cent of our gas consumption comes from domestic sources. All it takes is a spell of bad weather, and the closure of a gas pipeline from Belgium, to leave us dangerously exposed, and to send gas prices soaring. Talk of rationing may be exaggerated, but our energy policy is failing to deal with Britain’s fundamental incapacity to produce our own power."

• Bloomberg: "China agreed to double oil supplies and supported construction of a natural gas pipeline from Russia under 'breakthrough' agreements during President Xi Jinping’s first state trip abroad. OAO Rosneft, the world’s biggest traded oil producer by output, will borrow $2 billion from China Development Bank Corp., backed by 25 years of oil supplies, under accords signed yesterday in the Kremlin. The Russian company also offered China National Petroleum Corp. access to Arctic resources, and OAO Gazprom said it plans to conclude a 30-year gas-supply contract to China by year-end."

To recap: as the Obama administration continues to stall pending natural gas export license applications and has (apparently) no intention of reforming our current, problematic systems for gas or oil, US allies in Europe and Asia are desperate for access to cheap, stable energy supplies, and China's insatiable appetite for oil and gas has just pushed them ever-closer to Moscow.

So much for that "smart power," eh?

UPDATE: Mark Perry has more on the UK's major energy mess. If only they had a friend who could help.