Carpe Diem, Mr. Candidate: Time for a Continental Energy Boom
By Andrés Cala
I wasn’t alive then, but back in the middle of last century the United States began asserting its world supremacy –undisputed to this day-, not through its unmatched firepower or its moral preeminence. It was its economic muscle that allowed it to do everything else, which includes winning the Cold War, and that was catalyzed by an oil boom at affordable prices that fueled a nation’s will.
Decades later and a few days before elections, it’s a good time to remind Barack Obama and Mitt Romney that without an economic backbone, regardless of ideology, America will struggle to retain its hegemonic world power status against rising powers like China and Russia, or to defend against security threats, whether it’s North Korea, Iran, or whatever else comes our way.
And this is a perfect, indeed unmatched, juncture to rejuvenate the global economy by leading the way in a new energy boom, this time across the Western Hemisphere. Securing long term access to energy at affordable prices is quite simply Obama’s or Romney’s most urgent task.
Furthermore, more energy in the Americas reduces the US exposure to Middle Eastern unrest and will push prices down, undermining the growing assertiveness of countries like Russia and Iran.
And best of all, everything is in place. All countries in the Western Hemisphere share the goal of revamping primarily gas and oil production this decade. But the White House and Congress need to stop manhandling energy issues with their short-sighted ideological feuds.
US investors, companies, and innovators are already leading by opening the doors of shale oil. But policymakers could be more helpful in a myriad of ways and they could also implement policies that spur faster oil and gas production gains in Canada and Latin America, albeit the latter has a lot more work to do in terms of attracting private investment.
Prioritizing closer to home
Lower energy prices would pave the way to a faster economic recovery and strengthen US security. As the benchmark, that can only mean more oil production.
The International Energy Agency is betting that Iraq can shift the thin margin in oil markets that for almost a decade has been the cause of higher energy prices.
Earlier this month the IEA said it expects Iraq to double its production by 2020 to 6 million bpd. There is no doubt that the country has the potential to do so, and more. But considering that Iraq Shiites and Sunnis are increasingly fighting a proxy war in Syria, that Iran clearly has a disturbing and powerful influence there, and that Kurdish independence aspirations remain intact, it’s a distinct possibility that the country’s promise could be impelled by instability, as it has for decades.
And sure Libya, Iran, and several other Middle Eastern countries could also be producing a lot more, but again, the threat of regional strife will likely continue to limit the upside oil production potential.
Certainly the US cannot bet its security on Middle Eastern stability. The world desperately needs to add production outside the Middle East, and all bellwethers in the energy business agree that it’s the American continent’s turn.
Luckily US ingenuity and foresight is leading the way with souring oil production from shale oil and gas resources over the past decades, with little support from the federal government by the way. How much of a game changer it’ll be though is far from certain.
Reuters recently polled 20 consultants, banks and analysts in the US who varied wildly in their forecasts of how much the shale oil would contribute to lowering world oil markets this decade. The average Brent oil price by 2020 was little changed from current prices, but interestingly the price forecasts ranged between $70 and $184 a barrel.
The new president must direct more support here to shoot closer to lower range. And he must also fast track the Keystone XL pipeline expansion to ease the oil glut in US refining hubs and to open an export route for a more likely oil boom from Canada’s oil sands.
There is Brazil of course which could faster and more securely bring oil from Brazil’s technically challenging oil-rich subsalt layers. Colombia and Peru, which are more open to foreign investment, would also benefit from an upgraded policy involvement from Washington in Latin America, one that could be catalyzed precisely by the region’s huge oil and gas potential.
Improved diplomatic relations and more realignment around Brazil’s regional power aspirations could ease security risk premiums in countries like Venezuela and Argentina, which are struggling to attract foreign investment.
Brazil has bigger vested interests in pushing the two populist countries more toward a market-friendly political center, and I for one am optimistic that Chavismo and Kirchnerismo have climaxes and are in the process of correcting their ideological extremes, precisely because they are betting their entire political future and legacy on developing their massive oil and gas reserves by attracting more Western expertise.
Whatever the case, Obama or Romney need to reconfigure the US economy to address mounting geopolitical challenges this decade. And what better way than to implement versions of the successful strategies that garnered the US its stature in the first place.
The US needs to lead the world in a renewed energy stimulus and its best choice is precisely in the Western Hemisphere. The next president must level with Americans and explain that defending its nationality security and even supporting the very green revolutions that Democrats want will inevitably require a lot more oil and gas to lower energy prices.
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