by John Gault:

Every American President from Richard Nixon to Barack Obama has promoted the idea of energy independence. All three major candidates in the last presidential campaign – Obama, McCain and Clinton – said they would give high priority to reducing America’s dependence on imported oil as a matter of national security.

On the other side of the Atlantic, the term “energy independence” is rarely if ever heard. Instead, interdependence is seen as the best way to enhance security. The EU Commissioner for External Relations and European Neighborhood Policy, Benita Ferrero-Waldner, speaking about the EU’s latest energy security plan, said:

“A greater focus on energy in the EU’s international relations is crucial to the energy security of the EU. The development of strong and reliable energy partnerships with suppliers, transit countries and other major energy consumers is key, and therefore the new generation energy interdependence provisions proposed today [are] an important step forward.”

America is less dependent than Europe on imported energy. The United States imports less than one-third of its energy needs and about 60% of its oil requirements. The EU, in contrast, imports 55% of its energy and 84% of its oil. Under such circumstances, one might expect the Europeans to be the ones more concerned about reducing import dependence.

The United States, despite the rhetoric, will remain highly dependent on imported energy for many years to come. Policies to cut carbon dioxide emissions, such as those contained in the Waxman-Markey bill, will provide incentives to reduce reliance on hydrocarbons in general, but such incentives will not selectively target imported hydrocarbons. Moreover, any policy aimed at imports would need to be in compliance with multilateral trade rules.

If the Obama Administration spoke only about reducing American dependence on oil per se, such statements could be interpreted as an adjunct to its high-priority efforts to reduce carbon emissions (though one would have to wonder why oil is emphasized while coal is not mentioned). However, official statements frequently target independence from imported oil, quite a different goal with significantly different implications.

According to the White House website, the Obama Administration is committed to “eliminate our current imports from the Middle East and Venezuela within 10 years.” Ironically, Saudi Arabia (the largest Middle East supplier of petroleum to the USA) and Venezuela have made extraordinary investments in energy interdependence with the United States.

Motiva Enterprises, a joint venture between a subsidiary of Saudi Aramco and Shell, owns and operates three large oil refineries and 41 petroleum product storage terminals in the United States. Motiva’s products are distributed under the Shell brand in southern and eastern states, from Texas to Maine. CITGO, wholly owned by a subsidiary of the Venezuelan state oil company Petroleos de Venezuela, owns and operates three refineries in Texas, Louisiana and Illinois, and distributes its products in many states east of the Rocky Mountains.

From the exporting countries’ perspective, such investments contribute to securing a share of the US market. From the perspective of the United States, such investments considerably enhance supply security. Exporting countries are reluctant to interrupt supplies essential to the functioning of their own downstream facilities and thereby impair the return on their investment.

Venezuelan President Chavez failed to halt shipments of petroleum to the US even when he alleged that the US government interfered in Venezuela’s elections and, in February 2005, that the US plotted his assassination and planned “new aggression” against his country. Current efforts by President Chavez to diversify markets for Venezuela’s oil, especially to China and Japan, only testify to the strength of Venezuela’s interdependence with the United States.

Other energy exporters continue to make long-term commitments to the US market. Qatar Petroleum will be a principal owner of the Golden Pass liquefied natural gas (LNG) receiving and storage terminal near Port Arthur, TX, while the Norwegian company StatoilHydro and the Algerian company Sonatrach have contracted to utilize a major expansion of the Cove Point, MD, LNG receiving terminal.

China, concerned to guarantee supplies of imported energy for its growing economy, has welcomed investment by Saudi Aramco in the Fujian Integrated Refining and Ethylene Joint Venture Project (FREP), and is seeking to attract Rosneft into a joint-venture refinery in Tianjin. Exporters’ downstream investments in China constitute an even stronger assurance of uninterrupted supplies than do Chinese investments in distant upstream ventures, or long-term loans to oil exporters such as Brazil, Venezuela and Kazakhstan.

European countries have accepted downstream investments and direct marketing by the national companies of energy-exporters. Kuwait Petroleum Corporation, for example, refines oil in the Netherlands and in Italy, and distributes petroleum products through more than 4,000 filling stations. The Libyan national oil company, through its subsidiary Oilinvest, owns refineries in Italy, Germany and Switzerland, and distributes petroleum products under the Tamoil brand in those countries as well as the Netherlands and Spain.

Yet the United States continues to emphasize energy independence and warns Europe to be wary of exporters’ investments. During her confirmation hearing in the US Senate, Secretary of State Hillary Clinton referred to Gazprom’s “recent purchase of the Serbian gas utility” and other Russian gas policies as “a significant security challenge that we ignore at our peril.” The Obama administration is even trying, in the words of Vice President Biden, to persuade NATO “to expand its writ to energy security”.

U.S. officials’ frequent use of the term “energy independence”, with an emphasis on reducing imported oil, sounds dangerously close to advocating protectionism, not the best policy at a time of global economic recession when others may be tempted to do the same. It sounds particularly confrontational to oil exporters, the very countries who are expected to expand and maintain production capacity to meet future needs.

The US should focus, instead, on assuring that users of hydrocarbons pay the full cost, including the costs of environmental externalities. If legislation achieves this within the US, and negotiations achieve this internationally (through an agreement in Copenhagen in December), consumers will make their own intelligent decisions about reducing their consumption levels. As for the hydrocarbons consumers will continue to demand even at much higher delivered prices, these should come from the least expensive sources, not preferentially domestic sources.

Finally, America should encourage energy exporters to own and operate facilities in energy-importing countries, including the United States. Interdependence is an excellent way to ensure uninterrupted supplies.

(This article was originally published in "Energy Compass" June 2009)