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.