The Fuse

From NHTSA to NOPEC, Washington Faces Key Choices on Energy Security

by Alex Adams | @alexjhadams | June 26, 2018

In the wake of last week’s OPEC meeting in Vienna, and with new faces expected to be confirmed for key administration positions, this week is expected to serve as a reminder for the need to reduce U.S. dependence on oil.

On Wednesday, the Senate Committee on Commerce, Science and Transportation is expected to confirm Heidi King as the Administrator of the National Highway Traffic Safety Administration (NHTSA), making her tenure as acting administrator permanent. In this role, she will be a key figure in the ongoing fuel economy discussions given NHTSA’s authority as regulator of corporate average fuel economy (CAFE) standards, a vital policy to cut energy consumption in the U.S. transportation fleet by increasing the fuel efficiency of cars and light trucks.

Last year, the Trump administration reopened the debate on fuel economy by revisiting the standards set during the Obama administration. Discussions are underway to update these standards, and NHTSA is a key stakeholder in this debate. At the same time, NHTSA is also in the process of providing guidance for regulations on autonomous vehicles (AVs).

King’s confirmation hearing is scheduled after what was billed as one of the most unusual OPEC meetings in recent history. In the end, the cartel agreed upon a “nominal” supply increase of 1 million barrels per day (b/d), although oil ministers said the real increase may only be between 600,000 and 700,000 b/d as a number of countries are unable to produce more. After the deal was announced Friday, oil prices jumped as the boost in production was more modest than some had hoped for and some market participants are skeptical of OPEC pivoting to addressing consumer needs.

Regardless of the true size of the production increase, two points still remain. The first, short-term, point is that the market will still tighten through the third quarter amid peak summer demand. As Citigroup’s head of commodities research Ed Morse told Bloomberg last week before OPEC made its announcement, “the market is going to tighten, come what may.”

The second, longer-term, point is that this latest meeting in Vienna serves as another reminder that there is no free market for oil. Decisions that affect global supply and prices are still being made by OPEC, Russia, and other petrostates that share neither the foreign policy goals nor the free-market commitment of the United States, exposing the U.S. economy to energy price instability.

The No Oil Producing and Exporting Cartels Act (NOPEC) currently making its way through the House signals to OPEC and its allies that the United States has taken notice of their actions and how they undermine U.S. interests. The legislation’s aim is to consider ways to take action to hold OPEC accountable for its anti-competitive behavior. At the same time, Congress can unlock a suite of other options that could also provide more long-lasting energy security benefits. The first of these is the creation of an Energy Security Commission, either congressionally or through Executive Branch action, which would provide policymakers with concrete policy options to address the influence of these petrostates and help U.S. energy security efforts.

Additionally, increased domestic oil production has already provided the U.S. with an extra layer of energy security, by cutting American oil imports and increasing oil exports. Yet, for greater insulation against fluctuations in the global oil market, demand-side measures also need to be implemented even as shale production continues to rise. These include accelerating the adoption of alternative-fuel vehicles, which run on domestically-produced and diverse energy sources including electricity, natural gas, and hydrogen, and the penetration of AVs, which have the potential to cut oil demand through increased electrification.

Finally, the decision to revisit fuel economy standards has presented the U.S. with an opportunity to modernize these regulations to take into account new transportation technologies and emerging business models in order to potentially capture greater fuel savings.