Energy independence is, apparently, no longer good enough for the U.S. Introducing President Donald Trump before the signing of an executive order aimed at rolling back some of President Barack Obama's environmental measures, Energy Secretary Rick Perry declared:
I don't want America just to be energy independent. I want America to be energy dominant.
It isn't entirely clear what being "energy dominant" means. Some countries have held powerful positions in global energy markets at various times, including the U.S. Even so, America's competitive advantage is only partly about access to energy supplies; how it has used them to build a diversified economy matters far more. Just take a look at the economy of another energy behemoth, Russia.
Energy independence has a more established place in U.S. political discourse. Indeed, on the campaign trail last year, Harold Hamm, CEO of oil producer Continental Resources Inc., declared President Trump would become the first president to achieve American energy independence. Based on this chart from the Department of Energy, I'd wager that accolade was won centuries ago by one George Washington, under whom the republic's fledgling economy ran on homegrown trees ("chop, baby, chop" as people might have hollered back then).
That said, when it comes to fossil fuels, the U.S. has already become much less dependent on foreign sources over the past decade or so. This, by the way, has nothing to do with coal, the fuel that featured so prominently in Tuesday's announcement. I won't bore you with the reasons the administration's new policies will alleviate pressure on thermal coal but won't spark a mining renaissance (I bored you already here and here). Suffice it to say the U.S. has been a net exporter of thermal coal for many years:
What has hurt coal more than anything else has been the shale revolution unlocking vast quantities of cheap natural gas (as well as a glut of gas-fired power plants built in the Enron-fueled frenzy at the end of the 1990s). You can see how gas has displaced coal in this chart of U.S. fossil-fuel consumption:
The other thing to notice there is just how flat U.S. fossil-fuel consumption has been; it has never regained the peak reached in 2007. The financial crisis and recession explain some of that, obviously; but GDP in 2016 was still almost $1.8 trillion higher than in that year, in real terms, so it also reflects other factors such as greater energy efficiency.
When it comes to reducing reliance on energy imports, though, the most dramatic changes have been due to the shale boom. Even if the U.S. was already effectively independent for thermal coal in 2000, it imported 12 million barrels of oil equivalent a day of oil and natural gas that year. By 2016, that had dropped to 5.2 million a day.
As of last year, America's net imports of thermal coal, natural gas and oil equated to just 13 percent of its consumption, down from a peak of 35 percent just a decade earlier.
Of course, 13 percent isn't full independence (let alone dominance). Yet it's worth considering how much of America's energy trade is with its immediate neighbors, Canada and Mexico. As close trading partners -- for now, anyway -- their energy supplies can be considered quasi-domestic. Indeed, Mexico has flipped to being a net importer of all three fossil fuels from the U.S. Factor out these two countries, and U.S. dependence on net imports of fossil fuels from outside of North America has dwindled to almost nothing.
This analysis is simplistic and ignores some logistical considerations. For example, a lot of crude oil is imported and then exported as refined products. And gasoline markets on the East and West Coasts can ship some of their fuel in from abroad more cheaply than from the Gulf of Mexico, and that isn't likely to change anytime soon (I'm doubting a populist president will attack the Jones Act).
From a security perspective, though, the U.S. is already pretty much there in terms of cutting its dependence on foreign fossil fuels. That historical shift is a big reason why the prices of oil and natural gas have fallen not merely in America but around the world: The shale boom created a domestic glut, and global trade in energy exported the resulting deflation. That is before even getting into the effect of falling costs for alternative technologies such as wind and solar power (which are geographically agnostic).
The one thing the global fossil-fuel industry can take away from an administration bent on U.S. "energy dominance" is that it won't do much to help prices recover.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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