The Fuse

With ‘Energy Dominance’ in the Spotlight, Don’t Forget Demand-Side Initiatives

by Matt Piotrowski | June 27, 2017

It’s “Energy Week” in Washington, and President Donald Trump plans to give a big speech highlighting the U.S.’ potential in this area and the country’s need to tap its plentiful resources to obtain “dominance” in the global energy arena. At the Department of Energy (DOE) on Thursday, Trump, alongside the heads of the EPA, DOI and DOE, will tout the country’s ability to export petroleum, LNG, and coal. Bloomberg reported that the speech will focus “almost entirely on energy exports—describing how the foreign sale of U.S. natural gas, oil and coal helps strengthen the country’s influence globally, bolster international alliances, and help stabilize global markets.” The president will likely also, as he has in the past, use the opportunity to showcase the benefits of cutting red tape to open up more federal lands to oil and gas drilling while also making the case that his regulatory policies will create thousands of jobs.

While there is no doubt that the U.S. has become an energy superpower, the main priority of the country should be strengthening overall energy security. One metric is the level of fuel choice in the transportation sector, which gives options to consumers and businesses so that they are not dependent on only petroleum.

All presidents since Richard Nixon have called for “energy independence,” in efforts to reduce the country’s vulnerability to global supply shocks such as the Arab Oil Embargo of 1973 and price fluctuations that harm the economy and trade deficit. Trump, though, is taking this approach a step further by calling for the U.S. to become energy “dominant” through exports.

The U.S. has indeed made great strides toward becoming a big player as a results of the liberalization of crude exports and a sharp increase in exports of gasoline and diesel—but it still has a ways to go. Net imports of petroleum—crude and refined products—have fallen by roughly 7.6 million barrels per day since 2005, but they are still around 5 mbd. More crucially, the country imports a large amount of its crude supply, with about 8 mbd coming from foreign sources, about 46 percent of refinery demand. Of total crude imports, about 42 percent is from OPEC countries. Even with the boom in shale production, the U.S. is still vulnerable to reliance on unstable oil-producing countries and price volatility in the global market. In other words, shale has improved energy security, but the U.S. is far away from energy independence or dominance.

Autonomous and electric vehicles create a significant chance to slash oil consumption—if policies to boost their penetration are properly implemented.

Against this backdrop, demand-side solutions become even more paramount. Autonomous and electric vehicles create a significant chance to slash oil consumption—if policies to boost their penetration are properly implemented. Furthermore, hydrogen and CNG provide opportunities in the trucking sector, which is critical as freight tonnage is forecast to soar in coming decades. Lastly, another opening to curb oil demand for the longer term will come during next year’s Mid-term Evaluation of fuel economy standards for 2022-2025. In this assessment, regulators will not only have the opportunity to evaluate existing rules but also include autonomous vehicle technology not currently contained in the standards. Analysts see increasing fuel economy as a crucial method to limiting fuel consumption, particularly as vehicles mile traveled rises—key to helping manage the U.S.’ abundance of supply and improving energy security.