Make Room For The New Energy Superpower

gas pump

Saudi Arabia had two targets when it took aim at OPEC’s quota system three years ago: It wanted to undermine its regional rival Iran and it wanted to kneecap the then-booming U.S. oil industry and its hydraulic fracturing, or fracking, technology.

Things did not go as planned.

Iran was already struggling, at the time, under Western sanctions. But it got a boost the following year with a nuclear deal that lifted many of those constraints. Saudi Arabia’s attempt to undercut Iran was, in comparison, relatively incidental.

Meanwhile, the formerly high-cost U.S. fracking industry continued to make itself leaner and meaner as oil prices dropped from more than $100 per barrel to less than $50 per barrel, and even below $30 per barrel at its lowest point. Then, prodded by Republicans in Congress in 2015, President Obama approved a measure lifting the long-time prohibition on most exports of American crude; those strictures have relaxed even further under the Trump administration. While the export ban remained in place, 99 percent of U.S. oil exports (essentially limited to swaps) went to Canada. Today, America exports oil to buyers in Asia, Europe and Latin America.

The result? America is now the world’s leading energy producer in both oil – where we surpassed Saudi Arabia in 2014 – and natural gas – where we passed Russia back in 2009. America is also an emerging energy export power, now sending the equivalent of more than 1 million barrels of oil per day overseas, along with an increasing amount of liquefied natural gas (LNG).

American exports are set to continue to pick up steam. Energy Secretary Rick Perry approved a handful of LNG projects in April, praising their potential for job creation and promising more potential approvals in the future. And the Commerce Department signaled in May that it would allow American companies to negotiate deals to ship LNG to China. This decision may prove especially significant as China moves away from coal and toward other energy sources, including natural gas.

The U.S. is not a net energy exporter – yet. But we could become one as soon as 2026, according to a report from the Energy Information Administration. It is a startling reversal compared to the oil crises of the 1970s and the political emphasis on energy independence that followed.

This new reality has a variety of benefits for the United States. It improves our trade balance. It creates high-paying domestic jobs. It creates a relationship with the Saudis based on something other than the sale of military hardware. And, not least, it sustains downward pressure on energy prices, which reduces the resources available to hostile powers looking to create problems elsewhere in the world, such as Russia and Iran.

All of this was accomplished with no federal mandates, such as the ill-considered ethanol fuel requirement, about which I have written previously. Instead, the impetus was simple freedom of industry to operate in a reasonable regulatory environment on predominately private land, where most of the new oil and gas is being produced. While the Obama administration had earlier tried to check the industry by limiting its access to public land across the West, the new fracking technology has made access to federal minerals less important. The energy industry has thrived under this set of circumstances, and we’re seeing the results.

So in the end, the Saudis’ gambit didn’t get them very far. Instead, they will need to scoot over to make room for a new energy superpower at the table.

About Larry M. Elkin 549 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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