4 consequences of the US surpass Saudi Arabia as the world’s largest oil producer

4 consequences of the US surpass Saudi Arabia as the world’s largest oil producer

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The United States is close to becoming the world’s largest oil producer, a position traditionally held by Saudi Arabia in dispute with Russia.

According to the latest forecasts of the International Energy Agency, the US production will reach this year the record figure of 10 million barrels of crude oil per day.

Thus, it is estimated that the US power will overtake Saudi Arabia this year from the leadership position it holds with 13.5% of world production.

His push, encouraged by support for exports from the Donald Trump government.

Beyond the oil market, the US advance will also have geopolitical and economic repercussions in different areas of the planet.

We present you with four consequences derived if  the United States becomes the largest oil producer in the world:

1. The end of the price war of Saudi Arabia and OPEC

For the great petromonarquía of the Persian Gulf, to be surpassed by its ally but also competitor EE.UU. it implies the verification of the collateral damage of its traditional price control policy.

Major player in the Organization of Petroleum Exporting Countries (OPEC), Riyadh ‘s traditionally used to control prices in the market by increasing or decreasing the supply at your convenience .

But in recent years, the emergence of techniques such as the hydraulic fracturing of the rock ( fracking ) and the exponential increase of the American production reduced effectiveness to this strategy.

Donald Trump, (d), in his visit to RiyadhCopyright of the GETTY IMAGES image
Image caption Saudi Arabia tried to put an end to the American fracking sector.

Antonio de la Cruz, president of the Inter-American Trends analysis center in Washington, said in conversation with BBC Mundo that “the decision that the United States increased production in the regions of fracking , actually took it to OPEC when it opted to maintain prices instead of producing more. “

The Saudi kingdom tried in 2014 to drown the promoters of fracking in the USA. flooding the crude market.

He wanted to saturate it and that prices would plummet until the companies settled in the United States. it was not profitable for them to continue to exploit the shale oil and gas fields (the one obtained through fracking ).

An oil exploration in Midland, Texas.Copyright of the GETTY IMAGES image
Image captionThe Trump Administration has favored oil exports.

But the fracking sector resisted. It managed to reduce its costs and save its profit margins.

Although the Brent barrel fell to US $ 30, two years later, Saudi Arabia yielded and persuaded its partners in OPEC to, little by little, return to propitiate a rise in oil prices .

Now the tables have been reversed and it is the huge US production that pulls prices down and stabilizes the market.

Participants to the opening session of the 15th edition of the International Energy Forum, held in Algiers on September 27, 2016.Copyright of the GETTY IMAGES image
Image caption OPEC decided to maintain prices instead of producing more.

In this context, the new ruling elite in the Persian country has adopted a new strategy that includes unprecedented initiatives such as the partial privatization of Saudi Aramco , the state energy company.

It is part of the changes promoted by Prince Mohamed Bin Salman, a strong man of the government determined to reform the country’s economy.

However, although the United States outperforms Saudi Arabia in production volume, there are analysts who stress that the battle is not measured only by the number of barrels per day.

Samantha Gross, an energy security expert at the Brookings Institution in Washington, says that even if it produces less than its competitor, Saudi Arabia will retain its position in the global energy market.

“Saudi oil is produced by a single entity, Saudi Aramco, owned and managed by the state, so it is not governed solely by criteria of economic benefit.The US energy industry will never act in a coordinated manner following the State’s guidelines,” Gross.

5 MAIN OIL PRODUCING COUNTRIES

In millions of barrels per day

  • 11.75 Saudi Arabia
  • 10.59 U.S
  • 10.3 Russia
  • 4.19 China
  • 4.13 Iran

Differences like this lead the expert to conclude that the Saudi predominance, although questioned, is still valid.

2. Possible threats to the environment

There have been environmental groups that have warned that the fracking facility policy followed by the Donald Trump government poses a threat to the environment.

The end of export restrictions and the authorization to build farms in protected areas such as the Alaska National Wildlife Refuge have set off alarms from environmentalists.

They also fear that the new landscape will prolong the life of fossil fuels such as oil and discourage investment in cleaner energies.

Lisa Viscidi, an energy and environment expert at Washington’s The Dialogue analysis center, argues that “it can have some impact if production increases, but this depends more on global prices than on other factors.”

Manifestation against the USA in LebanonCopyright of the AFP image
Image captionTrump’s announcement about the embassy in Jerusalem sparked protests in Islamic countries.

The analyst assures in conversation with BBC Mundo that “this is a global market and a single country does not make a difference”.

The US experience in 2014 it indicates that in contexts of high supply and low prices demand increases, but this does not necessarily have to imply an increase in polluting emissions.

“Everything depends on the policies that countries and companies follow, on whether they are efficient,” says Viscidi.

3. More independence for the USA in the Middle East

Now that it has its guaranteed oil supply, the United States can free itself from its traditional dependence on supplying Middle East export foci.

Scenarios such as the Oil Crisis of 1973 or the Gulf War of 1990, in which turbulence in this region caused oil prices to skyrocket, are unthinkable today.

“Although the US continues to import seven million barrels a day, it no longer has to fear an oil embargo ,” explains De la Cruz.

“It becomes less vulnerable to blackmail like those of OPEC.”

Tanks abandoned during the Gulf War in 1991 in front of the Basra oil refinery, 550 kilometers south of Baghdad, on October 21, 2002.Copyright of the GETTY IMAGES image
Image caption The Gulf War caused the price of oil to skyrocket.

Thus, “gain independence to manage their own policy in the region” without fear that this can critically affect their economy, as in the past.

“He is no longer dependent on the Arab countries.”

For the analyst, this is one of the keys that explains that Donald Trump dares to unprecedented steps such as announcing the transfer of the US embassy to Jerusalem, which led to protests from around the Islamic world.

4. More strength for European countries against Russia

The step forward of the American giant also affects Europe, one of the areas traditionally more dependent on the energy produced by Russia.

In the past, Moscow has used the power supply as a pressure tool .

On several occasions it interrupted the supply of gas to Ukraine and other Eastern European countries a few weeks from the beginning of winter.

De la Cruz explains that Europe “will now be in a better negotiating position with Russian suppliers such as the gas company Gazprom , since it will be able to wield the advantage of another potential supplier”.

Merkel and Putin.Copyright of the AFP image
Image caption Now Europe will be able to offer an alternative in the negotiation with Russia.

In any case, Russia still has a decisive advantage in this area. You can get your resources through gas pipelines and pipelines, while US barrels can only arrive by sea at a higher cost.

It is a competitive disadvantage that still weighs and that will make “Russia retain its influence”.

Although De la Cruz does not rule out that in a few years this situation will also be reversed.

“The natural gas may be the fuel of the future and replace oil. Develop that’s one of the strongest projects that could bet the Trump Administration over the next five years.”

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Rava is an online news portal providing recent news, editorials, opinions and advice on day to day happenings in Pakistan.

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