21 April 2018 - 15:14
  • News ID: 282263
US Oil Policy; Certain Objectives

TEHRAN (Shana) -- Amid efforts by both OPEC and non-OPEC oil producers to adopt certain initiatives like the production cuts and output freeze to shore up oil prices, the Trump administration is sparing no effort to sway global markets by supplying more oil.

Such policy is pursued by the US President Donald Trump against the backdrop of Washington's desire for oil price hike in a bid to justify its shale oil recovery.

Oil price fall could by no means justify the commerciality of shale oil production in the United States. The question to be answered is why the US is proceeding with an approach in conflict with its objective of justifying the production of shale oil.

According to the US Energy Information Administration forecasts, by the end of 2019 US oil production will reach 11 mb/d. Such oil production level, which is expected to be achieved due to the Trump administration's insistence on shale oil production, will give rise to numerous consequences, the most important of which are as follows:

1.     Production of 11 mb/d of oil would help the US overtake world's largest oil producer Russia.

2.     The projected increase in US oil production will cut its imports by 20% over a decade and will reduce its dependence on external oil.

3.     The forecasted production hike will help the US switch from a net importer since 1953 to a net exporter of energy after 2022.

4.     An 11 mb/d oil output will help the US disengage itself from the 1970s-style oil crises and enjoy more freedom of action in its foreign policy.

5.     If materialized, such production hike will strengthen the US role in global markets.

Certain Objectives

The Trump administration is pursuing the following objectives under the pretext of its energy policy:

1.     Enhanced oil production in the US will give rise to influential political and economic consequences inside the country. That can help Trump make good on his election campaign pledges and pave the way for his reelection in the next presidential race because more oil production will create job opportunities particularly in rural areas. The US is currently exporting 1.7 mb/d of crude oil plus 3.8 bcf/d of natural gas. When oil production rises, the US will see its exports grow. That will in turn result in the development of energy transmission lines and related facilities, thereby creating job opportunities and causing economic prosperity in remote rural areas of the country. In addition to the aforesaid points, oil production hike will reduce energy price in the United States. Gasoil and gasoline prices, which experienced ever high peaks, would fall by 37%. Furthermore, oil production hike could replace coal with shale gas in the power stations and allay the environmental concerns of opponents of Trump by capping GHG emissions. Therefore, what the US is pursuing in oil and gas sector will create jobs, increase welfare and boost US role in world markets, which could be all assessed on the ground of materialization of Trump's election promises.

2.     One of the covert objectives of the Trump administration in the oil supply increase decision and concomitant oil price drop may be Washington's attempt to acquire Saudi oil giant Aramco, which the Arab kingdom is listing on stock market in a bid to plug its huge budget deficit. Given the fact that the Saudi stock market is too small to accommodate a big company the size of Aramco, its stocks are likely to be introduced to the New York Stock Exchange. Aramco is valued at over $2,500 billion, five percent of which is still bigger than the total value of Britain's BP and France's Total – both energy giants in Europe. In its calculation of Aramco's stocks value, the Saudi government takes into account the value of national oil and gas reserves, which means Riyadh's plan to sell ownership of Saudi oil and gas reserves to foreign parties. Under such circumstances, oil price decline could chip away at the value of Aramco stocks to prepare the ground for Trump to buy shares at low prices through his companies. Such deal would be concluded while Saudi Crown Prince Mohammad bin Salman will have to grant major concessions to the Americans in order to be able to succeed his father and push ahead with his so-called reforms. The heir to the throne in Saudi Arabia has practically lost the support of princes and Wahhabi scholars there and he could not push ahead with his ambitions plans without the support of foreign governments. What strengthen such speculation are recent remarks by Saudi Arabia's Energy Minister Khalid al-Falih who, when asked whether Saudi Arabia was worried about Trump's pledge of energy independence, replied: "We have no problem with the growth of American indigenous oil supply. I have mentioned repeatedly, as long as they grow in line with global energy demand, we welcome them." The minister added: "President Trump has policies which are good for the oil industries and I think we have to acknowledge them." These remarks by the Saudi oil official come while his country has not hidden its objective to counter shale oil production at least over the past two years. Therefore, a deal is likely to be under way between the Trump administration and the Saudi government, based on which Riyadh would drop its opposition to the US shale oil production to pave the way for lower oil price in  the world markets.

Perspective

Although a decline in oil prices may adversely affect the US revenues from shale oil extraction, higher production of unconventional oil would be highly advantageous for the Trump administration. On one hand, Trump will be able to deliver on his election campaign pledges while on the other, he will be able to exercise control over world markets. The US government is no longer willing to remain a mere consumer in the world, as has been its case over the past decades. The US intends to step into production and export in a bid to spare the country threats of energy crises unfolding all across the globe. That would also play into the US's hands as a tool for containing partners and rivals. For instance, by winning a toehold in the oil export market, the US would influence the energy policies of European countries, Russia, China and Saudi Arabia.

 

 

 

Courtesy of Iran Petroleum

by By Shuaib Bahman


News ID 282263

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