US energy policies creak in a changing world
Accepted wisdoms crumble due to energy independence, a capricious administration, Middle Eastern adventurism and the rise of China
You cannot over-estimate the impact of the shale revolution on US policy. So said veteran energy expert Edward Chow at the Flame conference in Amsterdam in May. Nor is he the only energy strategist to see the US approach to the global energy market and its interaction with the wider geopolitical environment changing or needing to change.
An import-dependent US was very much allied with its partners in Europe and Asia, says Chow, now a senior associate for the Center for Strategic and International Studies (CSIS). But, with the US becoming a major refined products and gas exporter, and well on its way to being a net exporter of crude, the "close energy security alliance and alignment has disappeared".
"The US and its allies are going in the opposite direction," says Chow. "Why should the US risk blood and treasure to protect other people's oil?" He cites as examples the Obama administration 'leading from behind' on Libya and the US' relative, at least until recently, passivity on Venezuela-"difficult to imagine 10 years ago".
As the US becomes more reluctant to use force, Chow sees economic sanctions, particularly energy sanctions, becoming more popular. And, while the US' leading position in the global financial architecture puts it in a strong position to enforce these sanctions, it also increases the risk of overkill. "When you think you only have a hammer, everything looks like a nail, when in fact you might be better served with a screwdriver or a wrench," says Chow. "It is a natural US inclination, if something is worth doing, it is worth over-doing."
The US also risks accusations of hypocrisy. "Ever since the 1970s, the US has preached to others not to use energy security as a political tool. Now we are trying to leverage energy policy as a tool ourselves," he warns.
US opposes Nordstream II
For Chow, who considers trans-Atlantic unity "very important", Europe must work out how to respond to a new energy-dominant US. One obvious source of friction has been US opposition to the Nordstream II gas pipeline from Russia to Germany, and US ambitions to supply LNG as an alternative. "The US has, unsurprisingly, never liked Russia-to-Europe gas pipelines, dating back to Soviet times," says Chow. But he points out that it has yet to block one. Moreover, with US LNG exports in the hands of private firms, the US administration cannot compel them to deliver to Europe-"if the price is 10¢ higher somewhere else, the LNG will go there," says Chow.
But he does not rule out the prospect of the US sanctioning the European partners in Nordstream II. It is worth noting that the most recent sanctions against Russia in 2017 were not driven by the Trump regime, but by an unlikely alliance in Congress of liberal Democrats and hawkish Republicans. US domestic politics, rather than foreign policy, could call the tune in Russian relations, says Chow.
The inconsistency of the Trump regime adds further risks. There are some who "naively think US LNG could replace all Russian gas", says Chow, while those who know better "might be quiet for political reasons".
"The problem is not that there is not knowledge [within the administration], but how it gets delivered to the top policy-making level," he says. "Process is a problem; the usual steps do not take place. A lot depends on how Trump feels at any particular point."
Thus, Nordstream II opposition is driven by a Russo-phobic viewpoint and the US department of energy follows that lead. But, when energy secretary Rick Perry meets Russian leaders to discuss possible oil output rises, that is considered "on a different track", says Chow.
And there is a danger that US policy inadvertently pushes unnatural allies closer than they otherwise would be, in particular Russia and China. The tariff war between the US and China has "halted closer US-China energy cooperation, including on LNG", says Chow.
"The Chinese will be reluctant to sign agreements with US LNG project promoters because the US will be seen as an unreliable supplier," he continues. "China will look elsewhere… Sino-Russian energy cooperation is likely to grow."
Pierre Noel, senior fellow for economic and energy security at the think tank the International Institute for Strategic Studies (IISS), is also concerned about US-China relations, specifically their strategic competition and economic confrontation and the structural implications for oil and energy supply security.
“The US use of energy sanctions is becoming more popular” Chow, CSIS
Speaking at the S&P Global Platts Gepec conference in London in May, Noel said that the global oil security system rests on three pillars-the International Energy Agency reserve stock obligations and their coordination; the Middle East policeman role played by the US since the 1970s; and overwhelming US naval superiority.
But the second and third pillars are at risk of crumbling, warns Noel. The Middle Eastern policeman role- where "no one can mess with the regimes, the infrastructures and the sea lanes that provide the oil"-is now over, whether by design or not, he says.
Two factors have changed the picture. The first is in the invasion of Iraq which, according to Noel, "destroyed the US as a consistent policeman" in the region. The other echoes Chow's point about US energy independence changing its priorities. Trump's Middle Eastern policy has, in Noel's view, shifted away from behaving predictably and even-handedly, in part to ensure energy security, to conflict with Iran in coalition with Israel, Saudi Arabia and the UAE.
Chinese naval expansion
And China is now challenging the third pillar, that of US naval hegemony, both globally but in Asia-Pacific in particular. This is "not irritational", says Noel. Rather it is driven by the "very quick and very smooth" transition China has made to become the world's largest oil importer over the past 20 years. Received geopolitical analytical opinion was that China would bypass the market, which it would not trust, and build bilateral, security-based relationships in oil procurement. But China quickly learned that the most reliable way to ensure supply security was to integrate entirely into the global markets, says Noel.
However, China is thus reliant on a system where the US provides two key security aspects. And while it may have concluded it could do little about the US' Middle East position, China could, says Noel, do something about US naval superiority.
"When the US government realised how serious China was about stepping up navally in Asia-Pacific, the approach was that we will tackle this together, make it a common good, not allow China to benefit individually," he says. "The US commander-in-chief of the Asia Pacific fleet said in meetings that, one day, we will patrol these waters together."
But China did not want to be co-opted into a US-dominated system, mainly, in Noel's view, because a navally dominant US retains "the ability to directly blockade China, a second-island blockade, and it would be relatively cheap and resource-light to implement". "Nor is the US going to commit never to do it," Noel says. "It makes sense for China to control Asia-Pacific waters, it cannot live with US control."
“China is challenging US naval hegemony in Asia-Pacific” Noel, IISS
China has built up its blue-water capabilities and created artificial militarised islands and, in Noel's view, the US navy now has only a "pretence of control" in Asia-Pacific. To genuinely meet its security commitments in the region would have an extremely high price, namely nuclear aggression, he says. "It has a choice, either organise a handover or war with China. There is no short-term third option."
US dialogue—recognising, as Noel sees it, that China has created new facts on the ground—has changed from cooperation to maintaining the status quo and pushing back against China. The talk is about blockading China as part of a war scenario, which encourages a Chinese response and makes potential conflict more likely.
But Noel actually expects US compromise. China is almost the other side of the word, at least from the US east coast, and Asia-Pacific is at the very bottom of US military priorities. There is also an asymmetry of cost. For China, the money that it needs to put on the table to control island chains is so much lower than the "astronomical costs" for the US, for simple logistical reasons, says Noel. The US "must modify its strategy to be compatible with China's coming of age".