Strong U.S. energy market helping declaw Russian bear

PEACE through strength was a watchword of the Reagan era. Today it could be peace through gas. American energy, in the form of liquefied natural gas (LNG), is helping declaw the Russian bear. Vladimir Putin has been known to bully others by threatening to withhold energy supplies. The North American shale boom has diluted that threat.

Trying to predict trends in the energy sector is like nailing down bowl game opponents in early October. You can speculate, but you’ll probably be wrong. Still, it’s of some comfort to us fossil fuel adherents to know American natural gas can find its way into the world market.

The obvious rationale for gas exports was made manifest when the United States supplanted Russia as the world’s largest producer. Resistance to erecting seaside LNG terminals delayed the inevitable, but the future is here. Nearly two years ago, American LNG began moving across the oceans.

Poland, a target of Putin’s bullying, has said it won’t renew its contract with Russia’s state-owned energy company for supplies beyond 2020. This opens the door for greater dependence on North American supply. The more this happens, the less Russia can cajole its neighbors to do the Kremlin’s bidding. Peace through gas.

Peace through strength was popularized by Ronald Reagan, but he was hardly its author. Roman Emperor Hadrian took that approach in the first century. Peace through gas isn’t new, either. The phrase has been used since 2000 regarding pipelines running through countries that are antagonistic toward each other: India and Pakistan, for instance. Even bitter enemies need energy and recognize the need to cooperate. When one side holds all the cards, as Putin has, there is more coercion than cooperation.

Enter the abundant supply of oil and gas in North America. The boom sent prices plummeting and threw OPEC into a tailspin. OPEC members were loath to cut production but have done so. But the more production cuts raise prices, the more incentivized American producers are to take risks.

That’s an all-too-simplistic analysis of what’s going on. If one could know in early October where one’s alma mater would go bowling, travel arrangements would be a snap. Despite the LNG outflow from America to Eastern Europe, we can’t know the long-term future of the U.S. energy sector.

Last week, Bloomberg’s Grant Smith wrote that the conflict between OPEC and American producers “is reaching a day of reckoning.”

The shale boom brought a “seismic shift” by reducing American dependence on foreign oil. Today, Poland and other countries are reducing their dependence on Russian supplies but not on foreign supplies. They’re merely shifting their sourcing.

U.S. crude exports have risen from near zero three years ago, Smith wrote, to exceeding the combined shipments of OPEC’s smallest members. The country that was once OPEC’s biggest customer is becoming its biggest competitor.

But by some measures, the North American boom is losing some momentum. OPEC and Russia are pacing the floor, but the latter has an ability to wait it out. Call it peace through patience.

America’s energy potential has been inaccurately minimized many times through the decades. We’re willing to make an early bowl prediction and speculate that the boom is a long way from running out of gas.