Naval War College considers impact of U.S. shale oil exports

By Patrick C. Miller | April 12, 2017

The potential impact of American shale oil exports on sea control and foreign policy were discussed this month at a U.S. Naval War College (NWC) symposium in Newport, Rhode Island.

Sarah Emerson, president of Energy Security Analysis Inc. (ESAI) located in Wakefield, Massachusetts, presented a paper entitled “U.S. Shale is Back and the Crude Migration to the East Resumes.” As the managing principal of ESAI’s petroleum and alternative fuels practice, she’s developed many of the company’s analytical tools for assessing the oil market and forecasting oil prices.

Emerson was a member of a four-person panel which discussed geo-economics and maritime security. Because the global economy depends on reliable maritime access, naval power is considered essential to keeping the international economic system open.

“The U.S. shale boom, the OPEC response, the unshackling of Iran, the investment in Iraq, and the ensuing period of low oil prices have revealed more clearly than ever the resource plenty that defines the oil markets,” Emerson wrote in her paper.

“At the same time, the ongoing effort to mitigate air pollution locally and climate change globally are continuing to pull renewable fuels into power generation and making transportation more energy efficient, albeit perhaps not for the moment in the U.S.,” she continued. “This means the expansion of global oil demand is slowing. Peak demand is an overstatement, but slowing demand growth is a certainty.”

The ample supply of oil and the weak demand growth has two major implications, according to Emerson.

“The first is that oil will stay relatively inexpensive absent a significant geopolitical event or events. Consuming countries will hang on to oil even if the pace of demand growth is slowing. Oil’s place in the energy mix is a more secure than it was at $100 per barrel,” she wrote.

“The second is that oil investment will cluster in the sweetest spots with investment dollars pooling in the regions were costs are lowest. In short, oil will be an affordable source of energy that still requires waterborne transport between key production and consuming regions,” Emerson added.

She noted that following a slowing of growth in the U.S. shale market, increased oil prices caused production to increase. She predicted a resumption or acceleration of crude’s migration to Asia, which means Latin America, Africa, Russia and the Middle East will look to Asia to absorb their excess crude supplies.

“Asia certainly will grow its crude appetite, but within a global market of ample supply chasing modest demand,” Emerson wrote. “In the meantime, greater volumes of waterborne petroleum products and liquefied natural gas will add to the transport of energy by sea.”

The symposium was attended by academics, security experts, historians and policymakers who also examined the impact of technology, contested seas and maritime partnerships on sea control.

“The U.S. Navy plays an important role in ensuring freedom of navigation and global trade,” said Derek Reveron, a NWC professor in the National Security Affairs Department who chaired the event. “Conference participants discussed the challenges on the high seas and capabilities required to achieve sea control.”