Trump’s energy plan has him cozying up to Saudi Arabia

“President Trump has policies which are good for the oil industries,” Saudi oil minister Khalid Al-Falih told the BBC this month. “He has steered away from excessively anti-fossil fuel, unrealistic fossil fuel policies,” he said, referring to the strict policies of the Obama administration.

Energy experts in Washington say the Saudis were not fans of former President Barack Obama’s energy policies, which included ending sanctions on Iran’s oil exports that has made the country a stronger power in the region. Iran is Saudi Arabia’s chief nemesis in the Persian Gulf.

“It’s more geopolitically strategic with the Saudis than it is for the oil, per se,” said Guy Caruso, the former head of the Energy Information Administration under former President George W. Bush, who also served as an economist for the Central Intelligence Agency. He is now the senior adviser for energy and national security at the nonpartisan Center for Strategic and International Studies think tank in Washington.

“They are very unhappy if we do anything to get closer to Iran,” but it “looks like, if anything, Trump is determined to actually move further away from Iran,” Caruso said.

Trump’s policies are expected to boost cooperation with Saudi Arabia by making the country a key ally on energy and combating terrorism.

The U.S.-Saudi joint energy strategy was outlined in Trump’s “America First Energy Plan,” which the White House posted on Inauguration Day.

The plan calls for supporting increased domestic energy development, while simultaneously working “with our Gulf allies to develop a positive energy relationship as part of our anti-terrorism strategy.” Those Gulf allies include Saudi Arabia, the United Arab Emirates and Kuwait as the largest crude oil producers, Caruso said.

The plan to boost energy collaboration with the Gulf’s largest oil producers also calls for achieving “energy independence” from OPEC, which Saudi Arabia effectively leads. But that part of the plan is likely more show than real policy, Caruso said. “It’s almost a throwaway.”

“I think the OPEC thing is mostly political rhetoric because we’re very minimally dependent on OPEC oil imports as the result of our success with the tight oil [from fracking], and the fact that we’re picking up more and more oil from the Canadian oil sands,” Caruso said. The U.S. imports about 1 million barrels of oil per day from the Saudis and a bit from Venezuela, which is also an OPEC member. The country uses about 19 million barrels a day.

Imports from Saudi Arabia have been declining significantly over the last year, while Canadian oil imports are rising to more than 3.5 times the amount the U.S. gets from Saudi Arabia. Crude oil from Mexico also has been rising significantly, according to the Energy Information Administration.

Trump and Canadian Prime Minister Justin Trudeau signed a joint statement last week pledging to continue cooperation on energy security. “We have built the world’s largest energy trading relationship. We share the goals of energy security, a robust and secure energy grid and a strong and resilient energy infrastructure that contributes to energy efficiency in both countries,” they said. That includes building the Keystone XL oil pipeline, which Trump is pushing to get built.

Caruso said backing away from OPEC is an easy victory for Trump in today’s oil market. But it also shows the new administration’s support for increased domestic energy production.

“Our imports from Nigeria, Algeria and Libya are way down because the quality of the light-sweet oil is now being replaced by the Bakken and other light-tight oil domestically,” Caruso said, referring to the fracking boom in the shale oil fields of North Dakota and other states.

The oil that comes from fracking is similar in quality to the light oil that comes from Nigeria, which is easier to refine into gasoline and other products and is typically sold at a premium compared to other grades of oil, such as the heavier grades of crude that come from Saudi Arabia and Venezuela.

The more important piece of Trump’s plan is improving the strategic relationship between the U.S. and the Saudis, Caruso said. “We’ve always had pretty good relations with the Saudis,” he said, even amid the strain the relationship experienced after the Sept. 11, 2001, terrorist attacks when it was found out that most of the hijackers that crashed planes into the World Trade Center and the Pentagon were from Saudi Arabia.

The relationship continued to face hurdles under Obama because of the Iranian nuclear agreement that the Saudis opposed, Caruso said.

The Trump administration, on the other hand, is being filled with Cabinet officials who the Saudis are generally pleased with, including Defense Secretary Jim Mattis and Secretary of State Rex Tillerson, the former CEO of Exxon Mobil, Caruso said. Tillerson and Mattis have worked with the Saudis in different capacities. And both appointees understand the importance of the region to global energy markets.

Underscoring the importance of the strategic relationship, one of the first things that Trump CIA Director Mike Pompeo did was travel to Saudi Arabia last week to present a special award to Saudi Crown Prince Mohammed bin Naif for his leadership in counterterrorism. The prince has made protecting critical infrastructure such as oil wells, refineries and pipelines from terrorist attacks a top priority.

The biggest thing the Saudis have done recently to boost U.S. oil production is agree to an OPEC-wide production cut with the specific goal of raising crude oil prices.

Higher prices are seen as good news for the U.S. oil and gas industry because it would bring production — and jobs — back. The oil and natural gas industry laid off hundreds of thousands of oil-rig workers over the last two years because of a global oil supply glut, which dragged down prices so much that companies couldn’t afford to keep the wells operating.

Crude oil prices plunged from more than $100 per barrel to just below $30 per barrel in a very short period. Even though oil prices have begun to climb, they aren’t likely to reach the levels they were a few years ago.

“Saudi Arabia is doing what they need to do to keep Russia and Iran, the other two big players, on board,” said Tom Petrie, chairman of Houston-based consulting company Petrie Partners. “I think they are on the path of a relatively successful rebalancing” of the market, Petrie told Bloomberg last week.

But whether or not it will help U.S. production in the long term won’t be known until after Saudi Arabia’s oil company is privatized next year, which could change the scope of the OPEC cuts. It’s a “bigger problem” in 2018 than it is currently for U.S. producers, Petrie said.

Trump hasn’t discussed the OPEC cuts publicly. Some say Trump hasn’t given the issue much attention at all. “This is not something I am hearing about,” said one refining industry lobbyist.

It “might be giving the Trump folks more credit than they deserve” to think they have an evolving policy on the issue at this stage of the game, the lobbyist said. Policy experts say there will likely be more to say once all senior Cabinet members are in place.

Rep. Kevin Cramer, R-N.D., who advised Trump on energy policy, reintroduced legislation last month to establish the U.S. Commission on the Organization of the Petroleum Exporting Countries, which would “investigate and address any practices on the part of OPEC that prevent or reduce competition in the global oil market.”

The bill addresses a concern that OPEC and Saudi Arabia kept production high over the last two years to hurt U.S. shale oil producers by dragging down the global oil price. All members of the commission would be selected by the president and “must be U.S. citizens,” according to a summary.

Conservative energy experts said the Saudis tried to stop U.S. frackers, but what it did was make U.S. oil producers more efficient and able to survive under lower prices. Iranian officials have said the Saudi strategy was focused on hurting their Persian rival in the Gulf as the Obama administration sought to remove sanctions on Iran.

Tom Pyle, president of the free-market American Energy Alliance and Trump’s former Energy Department transition team leader, said he thinks the administration’s Saudi plan is meant to “get back to basics” on oil and energy markets.

“I think he sees the geopolitical importance of the politics of energy, and how it serves U.S. interests to have relationships with Saudi Arabia,” Pyle said. That’s something that the previous administration had ignored, he said.

Pyle wants to see Trump take all the steps necessary to pump up North American energy with Canada and Mexico and begin exporting more natural gas and crude oil.

“You’ve got a powerhouse in North America that can rival OPEC, that can rival Russia,” he said. “That, to me, is the next frontier.”

Pyle’s hope is that Trump’s time in office is marked by a seismic shift in global energy production, with the U.S. becoming a net energy exporter, beginning with natural gas and then oil. But first there needs to be a re-evaluation of the U.S. energy resource potential, including on federal lands, which were made off limits under the Obama administration.

“We need to know what our resource base is, especially on federal lands, which we haven’t done and aren’t even committed to do under the current structure,” Pyle said. “And we need to get these resources exported, because I think it benefits the whole world.”