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Sunday
Jan202013

German Spy Agency: Geopolitical Consequences Of US Oil Boom

Much digital ink has been spilled about the oil and gas boom in the US, the result of ever improving fracking technologies, and whether or not it will lead to energy independence, or even turn the US into an oil exporter. Now a “confidential” report by the German version of the CIA, the Bundesnachrichtendienst (BND), seeped to the surface. It sketched out the boom’s geopolitical consequences. Biggest loser? China.

BND reports have conveniently seeped out before. For instance, a “secret” report on how the pending bailout of Cyprus would use German taxpayer money to bail out rich Russians who have deposited their “black money” in the Cypriot banks that are now collapsing caused an uproar—and threatened to derail the bailout [for that debacle read, The Bailout Of Russian “Black Money” In Cyprus].

The oil and gas boom is transforming the US, once the world’s largest oil importer. Natural gas production in the US already exceeds demand, and the glut last year forced prices down into the realm of maximum pain. So the US could become a major exporter of natural gas—pending approval by the government and construction of LNG export terminals.

Oil independence is tougher. The US is still a large oil importer. Yet, if the current boom dreams come true, the International Energy Agency (IEA) might be right in its estimate that the US could become the largest oil producer in the world by 2020, surpassing Saudi Arabia and Russia. Even if that estimate is off the mark, the US will certainly be much less dependent on oil imported from countries other than its reliable neighbors, Mexico and Canada.

One of the reasons—or perhaps the only reason, despite pretexts galore—the US has been so deeply involved in the Middle East, including long and expensive wars, and why the highly unpalatable regime of Saudi Arabia has been an anointed ally for decades, is oil. The US is hooked on it and must get enough of it at a manageable cost to keep the wheels of the economy greased.

But if the US is able to do without oil from the region, it would give the government a lot more “freedom to act” in the realms of foreign policy and security, predicted the BND report. And the constant threat by Iran to close the Strait of Hormuz, through which much of the oil from the Arabian Peninsula transits? It would be shrugged off in Washington.

US independence from Arabian oil would impact the relationship and balance of power between the US and China, according to the BND report. Struggling to meets its skyrocketing demand for oil, China will buy about half of the oil produced on the Arabian peninsula, and it will, like the US before it, become dependent on it—but unlike the US, it won’t have the military power, at least not initially, to protect its energy sources and transportation routes.

The vast sums of money the US spent on military adventures worldwide, even the mere presence of its fleet, secured these transportation routes. To the great benefit of China. But once the US is no longer dependent on Arabian oil, the government might be unwilling to plow money into the military capability needed to secure the continued flow of oil from the region.

“The vulnerability of the Chinese energy supply routes” would grow, the BND report predicted, which would give the US more leeway in dealing with China. Thus, in the worldwide geopolitical scramble caused by the US oil boom, China would be the biggest loser.

Russia would also be a loser, according to the report. The main supplier of fossil fuels for central Europe would face more competition from countries, such as Nigeria, that used to deliver a significant portion of their production to the US. They would have to find other customers, including in Europe, Russia’s energy backyard. The ensuing downward pressure on prices could hit Russia where it is vulnerable: production costs in its frigid and remote northern areas are higher than in other parts of the world.

And OPEC members would be losers. Their market power would dwindle further, and the cartel’s feared ability to push up prices might drift toward irrelevance—as not only the US but numerous other countries, particularly in Africa, are beginning to experience their own oil booms [Kenyan Oil, Getting Hotter: Interview with Taipan’s Maxwell Birley].

Winners of the US oil boom? Oil importing countries, particularly those dependent on Russia, according to the BND. Among them Germany, which would “significantly increase the security of its energy supply.”

In the US, the oil and gas boom would improve the competitiveness of the still listless economy as energy costs would decline, relative to other industrialized countries. For example, the cost of electricity in the US is already 40% lower than in Germany. Energy-intensive industries will find the US a more attractive location. The BND even sees the possibility that the US might be able to get a grip on its gargantuan trade deficit as oil imports shrink, cutting it in half by 2020—which, it imagines, would prop up the dollar as a reserve currency for a while longer.

In its January report, OPEC said the US may post the highest oil-production increase among non-member states this year—while production in some member states is declining. And now, OPEC is fretting about Washington. Read.... Why OPEC Is Worried About The US Congress.

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Reader Comments (8)

The US can first say goodbye to the ME when it becomes clear that small scale oil production works and the costs are not killing it.
From there a whole new gane starts the ME needs new buyers mainly.
Russia is already going for a 2 market solution at the moment they will probably have an Asian alternative when the US can go out the ME (if they ever do).

Starting from there: China most likely wil increase buying from Russia.
So imho the BND has missed some things.

It is as simple as that most likley the least strong international power will end up with large parts of the ME oil certainly the expensive (exploration etc wise) and risky (mainly poliitcal) ones. It is more likley that the EU will remain dependent on the ME oil in the same way as it is now. And possibly without the US protecting it. And possibly even more. The EU cannot take over the role of the US, no oil sheik want sto be protected by guys whose most modern weapons are 2013 edition (or whatever it is at that time) Gucci bags.

Another issue is overall production and consumption. The first will go up through things like the US developments. The latter by mainly EMs growth. Plus we will likely see a move to gas. The nett result will determine a lot, but is as far as I can see it uncertain combine with the occasional ME war and it is pretty unpredictable. And likely volatile.

The risk for Europe is in a not unlikley scenario: US oil a success, US out of ME, new demand minus new explor. positive and more trouble in the ME.
Could also be as we see basically with the oil price that things are simply not stable and that regularly the shipment of oil to Europe (or whoever got the short end of the stick) is partly disrupted.

The report had better focussed on the risks and how to avoid them.
January 20, 2013 | Unregistered CommenterRik
This article is a joke. Go check out the polar icecap melting releasing huge amounts of methane which exponentially increases CO2 output.
The system of capitalism which turns everything into a commodity and then exploits all commodities is reaching its apex which is exhaustion and collapse of the earth's environment as sustainable to breathing creatures.
Infinite growth and increasing profit on a finite planet is a recipe for disaster and impossible.
Aristotle had it right. Our universe is a living organism with every part being connected. In the same way we care for all parts of our body, we had a responsibility to care, tend and protect every aspect of the universe.
Too bad the sociopathic sect has won out. We will all be wiped out as a result of that.
January 21, 2013 | Unregistered Commenterlinda amick
Perhaps the BND should have read Chris Martensons latest piece on why these claims of energy independance, is more a political statement than fact. It will boost confidence in Americas ability to regain it's faltering status as the strongest nation on earth. However the facts paint a different picture. These claims of natural gas inventories that are trapped in rock may be true, but the costs of extracting it is so expensive, it's not even close to being an option.The fracking that is happening at the moment is getting the " easy " gas. and this claim of 100 years of natural gas reserves, is calculated at todays current rate. If natural gas was used in vehicles etc, the reserves would only be a few years.
January 21, 2013 | Unregistered Commentersnowman
@snowman
It is simply as far as I can see at least not clear how much and against what costs the extraction can take place.
Also caused by future technological development. Fracking is clearly 'developing' technologically but how fast that will go is a ??.
And with gas there is another problem how to transport it in a cost efficient way. A new pipeline for every fracking field probably will kill the project financially.
We still need a lot of questions answered in many fields before it will be large scale economically working.
====
The problem from a methodological pov with the underlying report is that it is made as a chessplayer that sets out the game only taking his own moves into consideration and not those of the opposition. In that respect as said earlier very poor analysis.
January 21, 2013 | Unregistered CommenterRik
I wouldn't be so fast on writing off the US when it comes to cutting the costs of extraction of petroleum from tight shale and other sources.
Americans are still innovators and problem solvers, and with history as proof of this aspect of American creative prowess.
I see fracking using chemicals [which do cause numerous problems] becoming a past practice as newer best practice formation fracking methods are being developed and tested.
January 22, 2013 | Unregistered CommenterMichael
Linda - my take is that we (mankind) will run out of clean air to breathe before we run out of hydrocarbons to burn. With hydrocarbons, it's just a matter of price.
January 22, 2013 | Registered CommenterWolf Richter
Lie an Inaccurate Speculation Fantasy, the USA gov is seek petroleum monopoly on middle east because ... USA not have enough to afford internal needs so why do you think is us army in Irak, Iran, Afghanistan,Libia and Mali ...? restore democracy ? please the us government is all about money and power, why us gov does not care democracy on in us soil ? Pearl Harbor / 11/11 internal jobs to get peoples approval to go in war. same machine war that is owned by congress members and hi politicians. so what about why are talking ?
And now Barrack Hussein Obama (what were his real name) billing security issues against us.
So be clear i'm a critical because the main stuff is in own gov "money"Always it's all about!
And a say so because i'm a important underground operative officer for a last 30 year and beyond.
"undercover"
January 24, 2013 | Unregistered Commenterjulio
BND - Bundes Nachplapper Dienst. This agency does nothing but making the parrot for the propaganda of the US owners of BRD, a country so sovereign like a prisoner.
January 24, 2013 | Unregistered CommenterOberst von Richtdoofen

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