Energy Dominance — Not So Much
President Trump likes to brag a lot about “energy dominance.” Attributing growing US oil and gas production to his own “terrific” policies, he promises that this will help solve what he believes is America’s biggest problem — our $570 billion trade deficit.
Unfortunately, while US oil production has been increasing, the US oil trade deficit has been increasing even faster — because it is not Trump’s policies, but higher global oil prices, that have turbocharged shale oil production.
From 2016–2018 US oil production did increase by 12.5%. Accordingly, the volume of imports of oil fell by 23%. But this increase in US oil production was driven by a huge 68% increase in the price of oil — at $38/barrel, the 2016 price, US shale was unprofitable. Now, at $64, the rig count in shale fields is way up, and some shale producers think they might start turning profits.
But higher oil prices mean that even if the US imports fewer barrels of oil, it is exporting far more dollars. In the last two years the US trade deficit in oil has increased by 29%. At today’s prices we will spend $20 billion more importing oil in 2018 than we did in 2016 — that’s more than our trade deficit with Canada. That kind of energy dominance, taken to its logical conclusion, could bankrupt us!
Oil itself remains a big part of our trade deficit. The total US oil imports bill in 2018 — headed towards $86 billion — will be larger than trade deficits with Japan ($69 billion), Germany ($65 billion) or Mexico ($71 billion.)
So Trump is betting on a high-oil price energy strategy, even though such an outcome will cost businesses and consumers billions more, exacerbates US energy insecurity, and raises the very trade deficit that Trump otherwise bemoans so loudly.
Trump’s pro-drilling policies might, in theory, increase US production a smidgeon, and have a minuscule impact on global prices. But the reality is that the US is no longer a cheap oil producer, and cannot compete with the Persian Gulf in a genuinely low-cost global oil market — which is what is needed to curb the US oil imports bill. Price, not volume, is the key factor in our oil trade deficit.
But there is one thing the US can do to bring down global oil prices, and curb our imports bill — stop wasting oil and reduce our consumption. Here Trump is headed in a crazy direction. He has just proposed to roll back future fuel economy standards which will save 2.5 million barrels a day. That’s a lot of oil. At today’s prices, undoing the Obama fuel economy standards would increase the US oil imports bill by $65 billion — as much as our deficit with Germany. Worst, because oil prices are very sensitive to demand, increasing US demand by 2.5 mbd could increase global prices by $25/barrel. That could be another $36 billion hit on our trade deficit. So Trump’s assault on a more fuel efficient US vehicle fleet could end up increasing our 2025 trade deficit by $100 billion a year.
And, while oil interests who have donated heavily to Trump would welcome the higher prices and bigger market that gutting fuel saving standards would create, American businesses and drivers will be saddled with enormously higher fuel bills even for the privilege of driving around on American petroleum — $0.60 gallon more.
When Trump talks about energy supremacy for the US, it turns out what he really means is restoring the market supremacy of the oil industry — and making America’s trade deficit much worse.
If this drives you crazy, you can do something. EPA Administrator Scott Pruitt — the author of the assault on fuel economy, as well as the US withdrawal from the Paris Climate Agreement, the abandonment of clean water protections, and permissive rules allowing nerve gasses to be sprayed on farming as pesticides — is hanging to his job by his fingernails because –- well he is ethically challenged even by Administration standards.
If you’d like to give him the boot, just click this link: https://www.bootpruitt.com/