Wood Mackenzie: Global geopolitics reshaped by North American energy independence

Wood Mackenzie

Wood Mackenzie says North America will become energy independent by 2020 and subsequently, become a net energy exporter. However, North America will remain a key participant in world markets regardless of its position on the import-export spectrum.

“The decline, and eventual reversal of North American net trade will have complex impacts on global energy flows, some of which are already becoming apparent” according to Paul McConnell, Senior Analyst for Wood Mackenzie’s Global Trends Service. “Qatari LNG has been competing with Russian piped gas in Europe, North American coal is finding its way east across the Atlantic and North American imports of light sweet crudes have plummeted.”

Wood Mackenzie highlights that over the next few years, North America’s energy independence will reshape, but not redefine, global geopolitics. 

“The Middle East is the most sensitive to changes in oil flows. Under pressure to maintain oil revenues, and with Asia importing ever-greater volumes, the relationship between China and the key players of OPEC will become increasingly bilateral,” notes McConnell. “As a result, the strategic interests of China and the US in the Gulf will become more aligned. Tight oil will not divorce US foreign policy from the Middle East”.

The dramatic change in Russia’s gas export position, forced by North American shale gas, has led to a re-evaluation of the strategic need to open Pacific basin markets to gas exports. Russia is already pivoting towards China, in a development which reverses the historic trend of limited engagement between the two countries. The key component of this strategic shift has been pipeline exports to China, with projects proposed in both western and eastern Russia. Although progress has been slow, momentum has built in 2013. 

North America’s energy independence will also introduce a new dynamic to coal, oil and gas prices according to Wood Mackenzie. Coal and gas exports will establish a price cap on their respective markets during periods of high demand. Weak oil demand growth will see US tight oil provide a price floor under crude markets.

North American gas exports will act in a similar fashion, and the potential for yet more LNG from North America will cap gas prices throughout the world. The geopolitical impacts of an energy independent North America cannot be fully understood without considering the rise of Chinese energy demand. Imports into China will grow as those into North America fall and eventually reverse. “While North American exports will provide boundaries for coal, oil and gas prices, it will be the trajectory of China’s import demand that determines when these barriers are tested. China will assume greater responsibility in the Middle East, but it will be in partnership with the United States, rather than instead of it” explains McConnell.

In conclusion, Wood Mackenzie emphasizes that energy independence does not imply a North America entirely detached from global markets. On the contrary, the region as a whole will be dependent on others to clear excess production, and the US will be an importer of oil for the foreseeable future. This alone will moderate the geopolitical impact of the changing North American trade position, ensuring there is no chance of an energy isolationist, rather an energy independent continent.

 

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