Very interesting IMO
Digging for oil in America’s shale rocks is often blamed for triggering earthquakes. But the tremors created by the drilling effort are set to ripple far beyond U.S. frontiers.
Eventually, the U.S. may not need Saudi oil and could even compete with the Gulf producer, the IEA hints in its annual World Energy Outlook. And the top energy watchdog adds that China, not the U.S., will have a strategic interest in protecting Gulf waters in the future.
In February 1945 U.S. President Franklin Delano Roosevelt met Saudi King Abdul Aziz Ibn Saud aboard the USS Murphy in the middle of the Suez Canal. Following the meeting, both countries sealed a pact that has effectively ensured U.S. military protection of the Kingdom in return for secure access to Saudi oil.
Ever since, the narrative the West and the Middle East has been perceived as being driven by oil interests. But that relationship could be changing.
In its report, the IEA says that “by around 2020, the United States is projected to become the largest global oil producer” and overtake Saudi Arabia for a time. “The result is a continued fall in U.S. oil imports [currently at 20% of its needs] to the extent that North America becomes a net oil exporter around 2030.”
The agency’s conclusions are partly backed by the Organization of the Petroleum Exporting Countries, which last week acknowledged for the first time that shale oil would dramatically cut the share of its Middle East members in the U.S. market.
Not only that, U.S. oil is now competing with Middle-Eastern production in the latter’s key Asian markets.
South Korea’s E1 Corp. has agreed to purchase 180,000 million tons a year of LPG produced from U.S. shale gas in 2014, a spokesman for the company said Monday. That’s because U.S. shale is 10% lower that supply from Saudi Arabia and other Gulf producers the South Korean company normally uses.
And this year, the U.S. become a net exporter of fuel for the first time since 1949, notably by boosting sales to Middle-Eastern oil buyers in Asia and Europe, according to the U.S. Energy Information Administration.
Such a shift in U.S. energy supply has led some to call into question the Roosevelt pact.
“It’s insane that we have the Fifth Fleet of the U.S. Navy [in Bahrain] tied up there to protect oil that ends up in China and Europe,” T. Boone Pickens, chief executive of energy-focused hedge fund BP Capital Management, was quoted as saying last week in U.S. magazine Parade.
That’s not to say the Middle East won’t matter to the U.S. in the future.
Any disruption in the Middle East will still indirectly impact the prices U.S. motorists’ pay at the pump. In addition, the Gulf is still the only region in the world with flexibility and can still influence markets.
But the impact of Middle East oil on U.S. consumers will be more muted and there may be no more annual pilgrimage of U.S. energy officials to Riyadh. The military presence to protect oil routes and the protection also enjoyed by the Saudi royals may be less of a focus.
Meanwhile, the Middle East is increasingly looking to the East and vice versa.
As the IEA puts it, U.S. energy self-sufficiency “accelerates the switch in direction of international oil trade towards Asia, putting a focus on the security of the strategic routes that bring Middle East oil to Asian markets.”
Min-Jeong Lee in Seoul contributed to this article.