Assessing the Trump doctrine of “energy dominance”

Assessing the Trump doctrine of “energy dominance”

During the 2016 presidential campaign, the then candidate Donald Trump announced that his presidency would mark the start of an era of American “energy dominance” as a strategic, economic, and foreign policy goal.

In concrete terms, since Mr. Trump came into office, the energy dominance doctrine is underlined by three distinct factors: the president’s strong willingness to break with the Obama administration’s energy policy; the rejection of any environmental regulation that might undermine US economic growth; and the dogma suggesting that climate change is nothing more than a conspiracy against the United States.

In this context, Mr. Trump has taken a number of measures aimed at supporting the fossil-fuel industry. Most notably, he announced in early June 2017 that the US would pull out of the 2015 Paris Agreement on Climate Change. Uncertainty regarding the future of the US energy mix has also been heightened by Mr. Trump’s attacks against renewables. As a consequence of this dramatic shift in its energy policy, America is now seen as a source of potential energy insecurity and geopolitical uncertainty.

Defining the energy dominance doctrine 

In December 2017, the Trump administration unveiled its National Security Strategy, a 55-page document that defines the energy dominance doctrine as “America’s central position in the global energy system as a leading producer, consumer, and innovator.” Its objectives include a strong US leadership “to countering an anti-growth energy agenda,” which would be “detrimental to US economic and energy security interests,” as well as ensuring that “allies and partners become more resilient against those that use energy to coerce.” Although the document primarily introduces the doctrine as a strategy driven by an economic rationale, energy dominance must be seen as a political concept rather than an economic one. It is the direct enforcement of the “America First” motto in the field of energy. The Trump administration strives to render to America all of her splendor by returning to energy pillars of the last century, namely coal, iron and steel. Beyond its ideological framework, the energy dominance doctrine’s rhetoric is attractive to the president’s political base and won Mr. Trump’s some of the Rust Belt swing states that changed the course of the 2016 election. Although mining states such as Kentucky and West Virginia were largely favorable to his cause, Mr. Trump’s embrace of the coal industry played a decisive role in his victories in Ohio and Pennsylvania, where coal mines are still an important source of employment.

Mr. Trump laid out his vision for energy dominance in a speech given in June 2017 at the US Department of Energy: with the energy dominance doctrine, America will “no longer be vulnerable to foreign regimes that use energy as an economic weapon; American families will have access to cheaper energy, allowing them to keep more of their hard-earned dollars; and workers will have access to more job and opportunities.” In sum, energy dominance is based on three pillars: achieving energy independence to liberate the United States from the twists of energy geopolitics, a vision recalling president Nixon’s 1973 Project Independence speech, which set a national goal to “meet America’s energy needs from America own energy resources.” The other two pillars, ensuring cheap energy prices for American households and using energy as a source of job creation, are in line with the idea that the US should use its resources and technologies to drive employment and economic growth. Again, this is a familiar theme of US energy policy, as state and federal policymakers have always sought to keep energy costs low to stimulate the economy. Where energy dominance sets itself apart from past policies is that it emerged in an age of energy abundance in the US. The “Shale Revolution,” which refers to the combination of hydraulic fracturing and horizontal drilling, has enabled the US to significantly increase its oil and natural gas production, particularly from tight oil formations and shale gas resources onshore.

In its 2017 World Energy Outlook, the International Energy Agency (IEA) reported that between 2008 and 2015, US crude oil production grew by 88 percent and natural gas production by 34 percent, pushing America oil and gas output to a level 50 percent higher than any other country has ever managed. In 2016, the US ranked tenth for oil reserves (behind Libya and ahead of Nigeria), according to the 2017 BP Statistical Review of World Energy. It ranked fifth for natural gas (behind Turkmenistan and ahead of Saudi Arabia). The number of oil and gas rigs in operation, both on land and offshore, stood at 1,003 in the first week of April 2018, up from 839 a year earlier, according to a weekly count by Baker Hughes, an oil services company. Already a net exporter of gas, the IEA forecasts that the US will become a net exporter of oil in the late 2020s. With the energy dominance doctrine, the Trump administration aims at maximizing the benefits generated by this abundance in supply, both economic and geopolitical.

Energy dominance at the national level: a doctrine under the seal of climate denial

Mr. Trump has surrounded himself with a circle of adherents of the climate denial tenet, a school of thought rejecting climate change science, who share the president’s willingness to promote the extraction of “beautiful, clean coal,” as well as Mr. Trump’s deep mistrust of renewable energies such as wind and solar. In an interview in June 2017, Rick Perry, the current Secretary of Energy, said that he does not believe carbon dioxide emissions from human activity are the main driver of climate change. Scott Pruitt, the Environmental Protection Agency (EPA) Administrator, suggested that climate change could benefit humans. In the Trump administration, climate change is a non-subject, while economic growth and energy independence prevail.

At the policy level, this climate scepticism is reflected in several initiatives aimed at supporting the fossil-fuel industry, which lies at the heart of the energy dominance doctrine. In March 2017, Secretary of the Interior Ryan Zinke overturned a moratorium on new leases for coal mines on public land. Last August, the Department of Energy announced that it would allow US$50 million for the construction and operationalization of two large-scale pilot plants for transformational coal technologies, in an attempt to improve the performance and emission reduction of coal-fired generation stations. In January 2018, Mr. Zinke unveiled what is seen as the most aggressive offshore drilling plan in US history, which would facilitate oil and gas development on both private and federal lands, including more than 90 percent of the country’s outer continental shelf. The only area that would remain out of bounds would be the North Aleutian area in Alaska.

Last October, the EPA announced that it would repeal the proposed 2015 Clean Power Plan (CPP), under which power generation plants in each state would be required to cut overall carbon emissions by 2030 to 32% below 2005 levels. The repeal will face vigorous legal challenges, but it is clear that the administration will use all the means at its disposal to avoid implementing the CPP, as highlighted in Mr. Trump’s proposed budget for 2019 fiscal year, which ends funding for the CPP. Last but not least, in early June 2017, Mr. Trump’s withdrew the US from the Paris Agreement on Climate Change, a deal described by the president as “the latest example of Washington entering into an agreement that disadvantages the United States to the exclusive benefit of other countries.”

The 2017 Tax Cuts and Jobs Act, which reduces the corporate tax rate from 35 percent to 21 percent, also stands as major victory for the oil and gas industry. According to British bank Barclays’ equities department, the 14 percent point cut in the corporate tax rate will add US$1 billion to the profits of the oil and gas exploration and production firms, equivalent to US$1 a barrel increase in oil prices. Barclays also calculated that the tax cut could add 5 percent to the earnings per share of Exxon Mobil and Chevron.

So far, the administration has only suffered one set back. In January 2018, the Federal Energy Regulatory Commission (FERC) rejected a proposal made by Secretary Perry to grant coal and nuclear power plants a price premium on the grounds that they provide better reliability in case of extreme cold waves.

Deterring Russia, selling more to China

At the international level, the energy dominance doctrine ultimately aims at providing the US with the ability of influencing global prices, while ensuring that its allies meet their energy needs as well as potentially gaining leverage on rival producers, such as the Organization of the Petroleum Exporting Countries (OPEP) and Russia. Speaking at an oil conference in Texas in March 2017, Senate Majority Whip John Cornyn said energy dominance would “not only maintain strong relationships with (US) friends and allies”, it will also be “a carrot to try develop economic relationships” with countries that may not be US allies otherwise.

This vision is already effective, as highlighted by a five-year deal signed with Poland’s state-owned company to import liquefied natural gas (LNG) from the US. In July 2017, Mr. Trump met with Polish president Andrzej Duda, and offered US fuel as an alternative to Russia’s gas supplies, so that Warsaw would “never be held hostage to a single supplier,” reflecting concerns about Moscow’s ability to shut off natural gas supplies. Six months after the summit, Polish Oil and Gas Company Group (PGNiG) announced that it would not renew a gas supply deal with Russia’s state-owned Gazprom when it expires in 2022 to the benefit of US LNG. That kind of scenario could repeat itself with other European countries, as US LNG exports are linked to a hub price and lack destination restrictions, which will in the long term make the global gas market more flexible. Since the end of the Cold War, successive US administrations sought to convince European allies that their reliance on energy imports from Russia paved the way to political and security vulnerabilities.

Boosted by a supplies surge, the Trump administration is walking the walk. But Washington’s encroachment onto significant export markets for Moscow will inevitably lead to an exacerbation of tensions between the two countries. The Trump administration is already working with financial institutions such as the World Bank and the International Monetary Fund to facilitate access to capital for LNG import facilities in energy-hungry nations across Europe and Asia. Former Soviet bloc nation Lithuania received its first cargo of US LNG in August 2017, an event described as “unfair competition” by Kremlin spokesman Dmitry Peskov.  

Mr. Trump is also trying to promote LNG exports to China as a way to reduce US trade deficits. In November, China’s state oil company signed a preliminary agreement to invest in a US$43 billion LNG export facility in Alaska, which would compete with Russia’s Yamal LNG export terminal in the Arctic. China is also the second-largest buyer of US crude oil behind Canada. According to data from Thomson Reuters Eikon, US crude shipments to China went from nothing before 2016 to a record 400,000 barrels per day in January 2018, worth almost US$1 billion. Although US energy sales remain low compared to the US$9.7 billion of oil shipments from OPEC to China in January 2018, America is entering a market historically dominated by Saudi Arabia and Russia, which could also spark tensions.

Mr. Trump’s exhortations urging European and Asian countries to buy US oil and natural gas as a way to rebalance the trade deficit. His stated desire to push Russian exports out of Europe will likely damage US energy diplomacy, as it clearly indicates the administration’s desire to use energy manna to achieve strategic and political purposes. If the US is to wield energy as a weapon, it will be perceived as an unreliable supplier, and risk moving at cross-purposes with the system of free and open energy markets that it has promoted for decades.

About Author

Leo Kabouche

Leo is a Toronto-based analyst who has worked for several consulting firms in Canada & Europe. His areas of expertise include the intersection of energy and geopolitics in oil and gas markets, in climate policy as well as in national security. His research also delves into the relationship between political risk and extraterritorial regulations tackling corruption and money-laundering practices on the international stage. He holds a MSc in International Affairs from the University of Montreal.