Politics & Policy

A Marshall Plan for Energy

Keeping the fires burning (Dreamstime)
We have the resources. We just need to summon the political will.

Now is the time to think about the next Euro-Russian conflict. Europe is steaming toward a new Cold War with Russia and dragging America along in its geopolitical bow wake. The U.S. is also embroiled in Russia’s proxy activities in the Middle East, where we have seen an Arab Spring dwindle into darkness as conflicts expand.

When American leaders talk about the “world community” responding to crises, they mean the United States plus Europe. The E.U. and U.S. together account for half of the global economy, but Europe’s dependence on Russian oil and natural gas is the bear in the room.

It’s time for a true Marshall Plan for energy. There have been a variety of aspirational energy ideas co-opting the iconic words “Marshall Plan,” but none rooted in the goal-oriented realpolitik that America used to make such a difference for Europe a half-century ago.

When George C. Marshall announced his European Recovery Program in Harvard Yard in the summer of 1947, he said: “It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.” The world desperately needs realism again — this time energy realism — for both economic health and political stability.

Every realistic scenario sees the world consuming more, not less, oil and gas in the future. As for alternative energy, even if the hyperbolic goal of supplying all new global demand were met, the world would still consume 40 billion barrels of oil and natural gas annually. In a business-as-usual future, Russia and the Middle East would continue as the dominant suppliers of oil and gas to global markets. But America now has a chance to break that oligopoly.

There has been a lot of talk about using American energy resources as a diplomatic tool — the proverbial “carrot” rather than a “stick” (sanctions). Rhetoric aside, seven key energy numbers underscore just how close we are to a geopolitical game-changer for Europe — and for the U.S. — and what that might mean for the American economy.

1/3: Start with the problem: Over one-third of Europe’s oil and natural gas comes from Russia and other countries of the former Soviet Union. Imports from Russia have grown 10 percent in the past decade, while imports from elsewhere of LNG (the liquefied form of natural gas) have fallen 50 percent.

2: Shipping 2 million barrels of American oil to Europe per day would cut the E.U.’s dependence on Russian petroleum in half. Similarly, sending just over 2 trillion cubic feet of America’s natural gas to Europe annually would halve the E.U.’s reliance on Russia’s gas pipelines, many of which cross Ukraine. The prospect of a near-term 50 percent cut in the E.U.’s dependence on Russia would truly “reset” Euro-Russian relations.

3: U.S. oil production has risen by 3 million barrels per day in just four years. There is no technical reason that this increase cannot be replicated. The growth has happened entirely on private and state lands, using smart drilling tools that continue to improve at a rate normally associated with information technology. Notably, this record-breaking increase (America is now the world’s fastest-growing oil producer) happened without any special incentives.

4: Similarly, U.S. natural-gas production has jumped by 4 trillion cubic feet per year over the past four years, also entirely on private and state lands. In order to free Europe, America need only allow entrepreneurs to perform a fraction of that feat again. The technology to do so — not only to extract yet more from the vast onshore shale fields, but also to tap the rich offshore domains — is available and improving rapidly.

#page#​30: Both Europe and America have about 30 LNG terminals under consideration — more than enough for the free-Europe goal. But Europe has only six LNG import terminals currently under construction, and America so far is building just two export terminals. Build-out would happen fast on both sides of the Atlantic if Congress voided the antiquated (and anti-free-trade) law that constrains American gas exports. And on the petroleum front, it would take less than 30 days for crude exports to start flowing if Congress voided another outmoded four-decades-old law, which bars American oil producers from selling their product overseas.

50–80: More than 50 percent of America’s land and 80 percent of its offshore waters are controlled by the federal government. Political and regulatory heel-dragging has led to a decline in hydrocarbon production on federal lands over the past six years, while output has boomed on private and state lands. Encouraging increased production on a tiny fraction of federal lands would unlock more than enough additional output to free Europe.

300: At least $300 billion would flow into America’s economy over just four years if the E.U. replaced half of its purchases from the former Soviet Union with U.S. fuel. Contrast this with the original Marshall Plan, which greatly helped Europe, but at a cost to the U.S. of $150 billion over four years (in today’s dollars).

In reality, complete E.U. independence from Russia is neither needed nor desirable. But America’s industrial and technological capabilities are so clear that merely announcing the resolve to halve Europe’s Russian energy purchases would rock the geopolitical boat. Such a game-changer would take just two simple steps. And, frankly, taking only the first step and leaving all else as is would still open the floodgates.

First, Congress could — and should — eliminate the Department of Energy’s inappropriate role as gatekeeper for natural-gas exports and rescind the Department of Commerce’s authority to prohibit petroleum exports. Our European allies are keenly aware of these legacy constraints. In early July, the Washington Post published an E.U. document leaked from the trade negotiations with the U.S. that bluntly called for an end to America’s ban on oil exports.

The requirement that American producers seek permission to sell a commodity overseas is unique to the energy business and a legacy of old-think from decades ago, when policymakers and pundits failed to appreciate the role of energy innovation and America’s “can do” entrepreneurs.

Second, the U.S. should — whether by executive order or congressional legislation — remove the regulatory and political impediments that hamper the private sector in financing, building, and operating capital-intensive infrastructures to access and transport hydrocarbons in both the heartland’s shales and untapped offshore fields.

Modern technology, from iPhones to Boeing 787s, from big-data analytics to 3D printers, has not made the world less vulnerable to energy dependencies or energy blackmail. But technologies, in particular American technologies and companies, have unleashed astonishing quantities of hydrocarbon resources, which make possible a modern Marshall energy plan. The short- and long-term benefits would rival the original Marshall Plan’s storied achievements during the first Cold War.

Mark P. Mills, a Manhattan Institute senior fellow and a director of the Marshall Institute, is the author of the Manhattan Institute paper “Prime the Pump: The Case for Repealing America’s Oil Export Ban.” 

EDITOR’S NOTE: This article has been amended since its initial posting.

Mark P. Mills is a senior fellow at the Manhattan Institute and the author of the recent report The New Energy Economy: An Exercise in Magical Thinking.

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