A Potential New Golden Age of Oil

A few months ago, calling for a debate on the impact of American energy independence would have been purely aspirational - and almost laughable. But recent projections show an impending boom in U.S. oil and gas reserves - a surplus that could free the country from its dependence on oil-rich nations like Saudi Arabia. It's time to consider how this "golden age of fossil fuels" could reshape the geopolitical landscape and the global economy.

This week, Delve Into ’12 invited government officials, energy analysts, and business leaders to discuss the new projections and debate how such a shift could change our economy, global politics, and elections at home at an event titled  "Running Out, or Runneth Over?: Scrutinizing a Potential New Golden Age of Oil, and What it Could Mean for the Next President."

Steve LeVine, New America Schwartz Fellow and author of the Oil and the Glory blog on ForeignPolicy.com, has been writing about the potential impact of this new fuel narrative, and convened the group of analysts to hash out the potential consequences of abundant oil and gas supplies.

The idea of "oil abundance" has many of them predicting major shifts in geopolitics and a resurgent U.S. economy.

Robin West, Chairman and CEO of PFC Energy, said, "The whole narrative of the 'U.S. in the world' is going to change as well. This is on the scale of the Berlin Wall coming down."

“What’s unfolding is truly a technological revolution,” said Edward Morse, Managing Director and Global Head of Commodities Research at Citigroup.

But Adam Sieminski, an administrator at the Department of Energy’s Energy Information Administration, suggested caution on jumping to conclusions about how an end to oil imports would affect prices and alter the role the U.S. plays in the world. “We’d still be dependent on global pricing,” he said, adding that the Middle East would still be a hotspot and problems there would continue to affect our allies and trading partners.

That sentiment was echoed by Edward Chow, senior fellow in the Energy and National Security Program at the Center for Strategic & International Studies, who challenged “the idea that we will really be less concerned about Middle East oil.”

“Middle East oil and gas is still important to the rest of the world, and our economies are linked to the rest of the world,” he said.

What is true, however, is that the geopolitical power structure will be altered as OPEC's influence wanes and new alliances are forged. The panelists were united in their belief that the United States generally comes out as the big winner in all of the oil abundance scenarios. Which countries, then, would lose? The consensus: Russia and smaller countries that tend to be dependent on commodities.

Michael Levi, director of the Program on Energy Security and Climate Change at the Council on Foreign Relations, suggested that despite the shift in supply, oil politics will continue to govern international affairs somewhat given traditional thinking about oil’s influence.

“If you look at history, oil influences international politics because people think oil influences international politics,” he said. “If you think it matters that Saudi Arabia is a big supplier of oil, you will do things based on that.”

(Levi took a comprehensive look at how a booming oil and gas industry will impact the U.S. in a recent Foreign Policy article, "Think Again: The American Energy Boom.")

Opposition to some of the oil and gas industry's methods and plans for growth on environmental grounds, however, could put the brakes on parts of the booming oil and gas industry. LeVine laid out this possibility in a Foreign Policy last month, going to far as to say, "The projected turnaround of oil's sagging fortunes may indeed herald economic salvation for the U.S. and global economies. But the environmental consequences could also trip up its full realization.”

For the most part, the panelists played down the potential disruption from environmental interests, but some expressed frustration on the public's lack of understanding of the industry.

"We haven't had a decent public debate on these issues," Morse said.

"The environmental debate has conflated several issues," said Levi, who noted that environmental concerns could impact the industry both in the U.S. and around the world in different ways. "In Europe, natural gas is seen as negative, so when we say we're heading that way, it could cause some friction," he said. But Levi was clear that the industry's growth can be compatible with environmentally friendly policies. "Good carbon policy is consistent with growth," he said.

John Hofmeister, founder and CEO of Citizens for Affordable Energy and former president of Shell Oil Company USA, believes there is a way to cast the story of oil and gas in a way that will appeal to the public. And it's a narrative that political candidates should harness to soothe the electorate. "People are tired of the uncertainties of low growth, slow growth, no growth," he said. "The opportunity is there. Either party could grab it and run with it."

"The reality is this country can be poised for such incredible growth if we unleash it and let it happen," Hofmeister said.

Following the event Steve LeVine sat down with Michael Levi and John Hofmeister to discuss their relative outlooks on the future of fossil fuels.