President Donald Trump is taking his ‘America First’ energy plan from the campaign trail to the White House website, vowing to achieve energy independence from OPEC and any nations hostile to U.S. interests.
Trump is not the first U.S. President to have promised energy independence. At the height of the 1973 Arab oil embargo, Richard Nixon suggested a project to ensure that by the end of the 1970s, “Americans will not have to rely on any source of energy beyond our own”.
More than 40 years later, America continues to rely on foreign oil imports, and is a large importer and even larger consumer of crude oil. This makes the U.S. crude oil flows an integral part of the global oil market.
The U.S also continues to import oil from OPEC producers, and even if volumes have been consistently below 4 million bpd since September 2012, imports in October 2016 were not a negligible figure - 3.11 million bpd, according to the latest available data by the EIA. To put this into perspective, total U.S. crude oil imports in October were 7.607 million bpd.
If President Trump were to follow through with his vow to free America of OPEC imports, some 3 million bpd must come from non-OPEC producers: an unlikely development in the near term.
Just after he was elected President in November, Trump threatened to block Saudi oil imports. Back then, Khalid al-Falih - the oil minister of OPEC’s biggest producer and the cartel’s biggest supplier to the U.S. – warned the U.S. not to stop Saudi imports, as free trade was “very healthy for oil”. Related: How The Saudi Rift With Egypt Is Spiraling Out Of Control
Now, just two days after President Trump was sworn in, al-Falih reiterated his view that America is “closely integrated in the global energy market”.
“The positions that the U.S. and Saudi Arabia take in global energy are very important for global economic stability,” the Saudi oil minister said on Sunday, as quoted by Bloomberg. Venezuela’s oil minister Nelson Martinez chimed in with remarks that there was a lot of interdependence in energy trade, and added that his country’s exports to the U.S. would stay stable.
Saudi Arabia and Venezuela – OPEC’s largest crude oil exporters to the U.S. – do not seem particularly concerned with President Trump’s promises to cut OPEC imports.
Out of OPEC’s 3.11 million bpd in oil exports to the U.S. in October, Saudi Arabia exported 1.023 million bpd of that, while Venezuela exported 724,000 bpd. Bloomberg calculations show that last year, Saudi exports averaged 1.077 million bpd with Venezuela averaging 733,000 bpd, which accounted for nearly 60 percent of America’s OPEC imports of around 3 million bpd.
If OPEC were to be cut off as U.S. crude oil supplier, it’s not only the volume that, in theory, has to be imported from elsewhere; it’s also the heavier crude oils that Venezuela and Saudi Arabia, for example, export to the U.S. Many refineries need heavier crudes to blend with the light tight oils.
In terms of volume, U.S. shale cannot swiftly ramp up production by 3 million bpd: the EIA expects oil production this year to average 9 million bpd, or 110,000 bpd more than last year. Related: Why Cheap Natural Gas Is History
The likely candidates for more non-OPEC imports to the U.S. could be the biggest current non-cartel suppliers and closest neighbors: Canada and Mexico. However, they cannot provide additional 3 million bpd to the U.S. In addition, President Trump’s America First and national defense policies are unnerving the neighbors both to the north and to the south.
Tim McMillan, the president of the Canadian Association of Petroleum Producers (CAPP), said in an interview with Calgary Herald that President Trump’s inaugural address was “a bit of a wake-up call that we need to strengthen our relationships on energy with other countries”.
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Mexico is trying to offset years of natural decline in oil production and is auctioning off promising deepwater assets for development, which will take years. In the short term, this will not be Mexico’s primary concern in its U.S. relations, though. It will be President Trump’s commitment to renegotiate NAFTA and his plans to build a wall along the U.S. southern border.
While achieving energy independence from OPEC, if possible, will not be an easy task for the new administration, it’s likely there is at least a bit of undisclosed fear on behalf of Venezuela and Saudi Arabia in the wake of Trump’s first days in office which have fulfilled many campaign promises that, at the time, many skeptics thought were empty.
By Tsvetana Paraskova for Oilprice.com
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