The Myth of “The United Petrostates of America”

Firstly my apologises for the delay in writing another article. It has been a busy few days, but now back to the title!

On Monday the well-known US publication, Foreign Policy, published an article on how the US would be transformed by the advent of Shale gas and become The United Petrostates of America (for the link click here). Of course this assertion is absolutely laughable.

Firstly the advent of US Shale will not lead to massive exports of Oil and Gas from the US because other domestic US energy sources (Coal, traditional oil + gas wells) are declining and also because other developing nations like China, India and Brazil have a plethora of other less politically sensitive sources of Petroleum products they can access.

Secondly, the US Petroleum industry primarily exists to service the production of US goods for US consumers and whether that is for transport needs (in a vast territory with poor public transport) or heavy industry like Chemical manufacturing, Ship building, Car building, etc. In short the US does not export what it needs at home and so does not get the boost in its trade figures with other states.

The Last error however is the assertion that the export of Shale oil & gas will boost the strength of the dollar. Now assuming the author of Foreign Policy by some miracle is correct, this is not the reason why the US dollar is strong against other currencies, it is because the Dollar is the world’s currency reserve. The value of the US dollar is high because in times of insecurity people put their money in Dollars because of the long held belief that the US will not default on its debts. Excluding those who write about the decline of the US from a position of desire not knowledge, and the mythical “Credit-ratings agencies” (if they even still deserve that name) people trust the US to pay and are almost blind to any other considerations, see the decline in US 10yr bond yields when the US had its Triple A rating cut for the first time.

In addition the US debt (now in excess of USD$14 Trillion) is, contrary to popular belief, largely held by Americans. The citizens of the US and global investors now the US will pay its debts because over $9 Trillion of that debt is owed to fellow Americans. Thus the incentive to default on citizens and institutions of the state itself is, in essence, non-existent.

All of these things combine to a very simple point that seems to be missed in the US discussions of Shale gas, what is the US net increase in Energy supplies? If we look at the historic growth in US natural gas over a 20 year period, we see that consumption of gas in the US rose from 19.17 TcF in 1990 (from all Sources) to 24.09 TcF in 2010. To put it more simply, between 1990 and 2010 US gas demand grew by 25%, yet over the same period the US production of natural gas only grew at 21% (17.81 TcF to 21.58 TcF). To add to this even further, the growth in US gas supply between 2012 and 2032 is predicted to increase at an even slower level of 15% over the whole period.

Thus the key point is that US Shale Gas is not a “Bonus” to US energy supplies, rather it is the critical lifeline preventing them from a huge collapse. According to the EIA the US is expected to increase its supply of gas (as mentioned above) from 23.65 TcF of gas (from all sources) in 2012, to 27.27TcF from all sources by 2032 but if the growth in gas demand increases by the same factor as it did between 1990 and 2010 then there will be a net deficit.

Last thoughts to add here: if the US population grows by 15% between 2015 and 2035 (prediction from US Census) and Obama and Republicans want to see the US boost domestic manufacturing to boost their exports (despite the growth in gas demand occurring during a decline in US industry), will the US still have to import gas even with Shale?


Why haven’t we monetized Transparency yet?

In a world short on trust, perhaps making things more open is the best way forward.

It perhaps seems like a question with an obvious answer; “why hasn’t everybody invested in transparency?”. Why don’t companies report how much their employees are paid? Why don’t government departments, schools, hospitals, police stations and all state institutions make their financial accounts public?

Of course there are many current reasons given why to these questions such as personal privacy rights of individuals to not disclose their salary and the belief voiced by people in positions of responsibility that they are undermined by a system which allows the public to see every decision they make without the context behind those decisions. But conceptually, to not need Transparency requires Trust. And if we are all honest, trust is more than just a little lacking these days.

Whether its MP’s expenses, Leveson inquiry, the Catholic church’s now almost annual child molestation stories, the Libor scandal, the latest tax avoidance scandal by Google, Amazon and Starbucks……there aren’t too many people left that still inspire trust to the British public. And this is why “Transparency Branding” is so interesting.

Trust is now at a price-premium and the consumer demand has never been higher for services both private and public that people can depend on. For the private sector all employees could gain from an open pay system which would force employees and staff to acknowledge and prove that their remuneration was justified and would be a powerful force against discrimination based on gender, ethnicity or age. A more open set of accounts would also put to bed any suggestions of tax avoidance and could help in certain cases, like that of supermarkets, to demonstrate that suppliers were being given a fair deal.

For government the results could be a greater public trust in the political system. By making many details transparent from the public sector such as the financial details of schools and hospitals, it will be easier to have open debates and discussions because the facts are commonly established. By creating an equal knowledge playing field politicians would be able to ask the public and get responses in a far more effective manner because the facts are commonly established. This would also help to take away the necessity for people to trust politicians when they make decisions and instead allow the facts to speak for themselves in certain cases.

The emphasis thus moves from a asking what people would like in an ideal world to what people can have from the current system and thus increased perception of the realities the public sector faces is healthy for democracy. If the public can see for themselves where money is short and where it is being spent this may facilitate a more reasoned and cooperative framework for discussions with dissatisfied pressure groups and public figures.

To put this concept in practise I want to elucidate a quick image and leave it open for you to decide if my conclusions are correct or not:

Imagine 2010 and the coalition enter government office and before spending adjustments or tax cuts are made, the true financial situation of each government department was made public. Just imagine that and how powerful that would have been. Not only would it have levelled the Labour party’s credibility as a fiscally prudent party but it would also have forced any opponents of austerity to argue based on facts in the public knowledge which they could be held accountable against. Take it even further, when councils first made cuts and local services were reduced and members of the public began to complain then with an open set of accounts the government and civil service could very reasonably ask the disaffected groups to suggest alternatives and then return the argument to one of raw facts, thus undermining the ability of opposition groups to play on pure emotions.

By becoming more transparent government and businesses become stronger not weaker. It is easy to mobilise public sentiment against large organisations by stirring up people’s emotions with little evidence, actual facts or reasoned argument because they can play on the narrative that secrets are being kept from the public. The more transparent government and companies get, the harder it will be to make those arguments and with that will become a greater public trust in these institutions once more. After all, if you don’t believe the government or a company but everything is transparent then you can always check the facts yourself.