My entrance into the energy business almost 15 years ago started with analyzing U.S. energy security, on the common assumption that our oil and gas production had both peaked - a few years before the shale revolution changed everything (see Figure).
The cornerstone of U.S. energy security, the pillar of it all, is producing more of the resources that we have at our disposal. This isn't about being anti-trade, but about being pro-self-reliance. Increased self-sufficiency, not "energy independence," is our perpetual goal.
A glance around the world makes it very clear that we must continually support the critical triad of 1) new energy production, 2) new energy infrastructure, and 3) new energy exports. This is hardly an exhaustive list of reasons why but I hit what I could.
OPEC and Russia control nearly 80% of the world's proven oil reserves and 70% of the gas. In contrast, while our production is soaring, we still only control 7% of the world's oil and gas reserves - and developing more our immense oil and gas resource would change that. The ability to enhance energy security is the core of U.S. coal: we have nearly a 380-year supply and hold nearly a quarter of all proven reserves.
Scary given that oil is our most vital source of energy, OPEC and Russia are now looking to construct a 20-year alliance for oil production control cooperation. Already accounting for over 55% of global supply, these "not free" nations cannot be handed any more of the global oil market - and anti-U.S. oil development policies do just that.
Natural gas is the emerging source of energy that will increasingly be used to lower greenhouse gas emissions and combat climate change. Seeking OPEC-like cartel control on global gas supplies, the growing institutionalization of the Gas Exporting Countries Forum will mostly give Russia, already responsible for nearly a quarter of the world's gas exports, the ability to coordinate with other producers to restrict supplies. This is a major problem: historically regional, gas via LNG is increasingly becoming more of a global commodity like oil sold on an international market, where "events over there, can impact prices over here."
A natural fit between the largest consumer and the second largest producer, China and Russia are solidifying more energy links. The two giants have long disagreed on price, but more cooperation is a certainty in the years and decades ahead. In fact, now two-thirds complete, the 3.7 Bcf/d Power of Siberia pipeline will start shipping Russian gas to China in December of 2019. Russia is also seeking to make a major splash in the critically important LNG export business, and even seeks pipelines to the island of Japan as well as South Korea. The Russia-North Korea-South Korea (RNS) gas pipeline could be a game-changer.
Remember that pipelines are effectively permanent and therefore establish effectively permanent energy partnerships, for better or worse. This has continually been demonstrated in Europe, where despite 20 years of trying to lower reliance on piped Russian oil and gas, Europe is actually becoming more reliant on Putin. Anti-fossil fuel development laws in Europe have left its energy security in the lurch: the EU imports 90% of its crude and 70% of its gas, with an import bill of over €1 billion per day.
Additionally, Russia is now considering a $50 billion investment in Iranian oil and gas, an alliance between the two countries that we've put sanctions on poses a formidable problem. Russia also has a growing partnership with Saudi Arabia and wants to even help build India and Iran energy links.
Moving to China, the Party's long strategy has been to gain friends to feed its growing appetite for energy. So much so now, that "China overtakes eurozone as world’s biggest bank system." The majority of China's biggest state-owned banks are now lending more money abroad than at home, a strong sign that President Xi Jinping's global dreams are hurdling the country's financial levers even faster than previously thought.
India might be the largest incremental energy demand market in the world and: "Iran Ready To Share Its Oil, Gas Resources With India." And with Venezuela's collapse, the potential for new Iran sanctions, and pending U.S. action on Syria, a geopolitical risk premium has been added to the market that has been buffered by surging U.S. shale production.
Know that "big oil" and "big gas" aren't the ExxonMobil, Chevron, BP, etc. that the media keeps telling you about, but is really the behemoth companies in OPEC, Russia, and China that are favored and controlled by the state with endless political and financial support. These are extensions of the state and state policy, and we cannot hand them the energy future.
And of course we want to support our energy producers. In 2016, three of the top five domestic “investment heroes” recognized by the Progressive Policy Institute (i.e., highest capital expenditures spent in the U.S.) were in the oil and gas business, with ExxonMobil adding $11 billion, Energy Transfer adding $9.4 billion, and Chevron adding $8.6 billion.
Ownership of the oil and gas industry shares is broadly middle class: Why the oil companies make bad villains. And despite false claims of exorbitance, the industry has average profit margins in the 8-11% range. Now is the time to Support Your Local Oil and Natural Gas Company most.
The search for more U.S. energy is really without end: U.S. and global energy security depend on it.
