Let me keep this simple. American energy independence is an enormous red herring, no matter how much the U.S. shale hawks and politicians want it to be true.
I can already I can hear the air over the other side of the Atlantic turning blue as I sit in my airplane seat at 33,000 feet on the way to the OPEC meeting in Vienna. But just bear with me for a moment.
What the U.S. shale industry has done in such a short period of time is stunning. Technologically, it is an extraordinary feat; the world of hydrocarbon energy production has been revolutionized. No-one talks about Peak Oil in any meaningful way anymore. No-one questions that shale has added billions of barrels and decades possibly to “in-the-ground U.S. reserves.” In fact if green technologies had done the same feat, then oil would already be history.
But there is the point. It has added this enormous supply and capacity to “in-the-ground U.S. reserves.” Not European, not Chinese, not Japanese and not Indian reserves. Yes, in the narrow measure of U.S. supply for U.S. customers, we are getting much closer to an equilibrium that even a decade ago would have been laughed out of Houston but the rest of the world hasn’t done this and is still very much reliant on Saudi, Iranian and Russian oil and gas.
Am I being pedantic? Am I missing the point? I don’t think so. No matter how hard the U.S. tries to insulate itself from the rest of the world, sometimes we all know this is a futile exercise. If the rest of the world suffers, or for that matter prospers, the U.S. is intricately linked.
The evidence is everywhere, from the enormous holdings of U.S. treasuries held by China and Japan to Ukraine. European and global factors will always matter to the U.S. and its economic and market performance.
The most startling piece of evidence for this view point comes from the Greece saga. Last week I was in Dresden and speaking to U.S. Treasury Secretary Jack Lew. Once again he, quite rightly, was warning of the potentially catastrophic global consequences from Greece not getting a debt deal. And yes he meant for the U.S. as well.
Now if a tiny country, a minuscule little economy, like Greece can still be dominating U.S. international media headlines after all this time, what do you think oil disruptions outside of the U.S. can do in the coming years? Think about it, how many times have you clicked on to CNBC over the last five years and read the headline “U.S. stocks sell off on the back of Greek fears”? I’d wager dozens, maybe hundreds.
If the U.S. didn’t borrow trillions of dollars from international investors, if the U.S. didn’t trade billions of dollars worth of goods with the rest of the world, importing vast quantities of them from countries who DO rely on Middle Eastern and Russian oil and gas then, yes, independence from global oil supply and demand would be entirely possible. Like it or not, you cannot just put up the shutters and say the rest of the world does not matter if we have our own oil.
So in the narrowest sense. Yes the U.S. may just about in the next five years get to a situation where it can supply – albeit with the help of Canada — the oil it consumes but it will never be independent of global oil dynamics. Not until the rest of the world can turn its back on the current energy suppliers.
Despite all the stunning technological achievements we have seen from Texas to Dakota — first making shale viable and then responding this year to Saudi’s challenge by aggressively lowering the price per barrel – West Texas Intermediate is still closely aligned to global benchmarks such as Brent and will be closely correlated for the foreseeable future.
Like it or not OPEC, Russia and the rest of the non-North American oil producers will always matter in aggregate to the U.S. regardless of the mighty shale revolution.