Asia Rising: The Increasing Relevance of East Asia in Foreign Policy

In late May, Putin and Xi Jinping signed a massive 400 billion dollar natural gas deal in Shanghai. For the next thirty years, new pipelines will pump trillions of cubic feet of natural gas from Russia’s Gazprom, the world’s largest natural gas extractor, to the China National Petroleum Company (CNPC). While the agreement certainly comes at a critical time for Putin strategically as he counters US and EU sanctions, it is representative of a larger global trend: an economic, political and defensive shift toward the East.

Putin has been pushing for an energy deal with China for nearly ten years, and rightfully so. China, and Asia more broadly, has a vast market for oil and natural gas with its megacities and booming economy. The deal between Gazprom and CNPC gives Russia a foot in the door of this profitable energy market. Providing up to 20% of China’s natural gas needs, the deal finally solidifies the Sino-Russian alliance that Putin has been advertising. What’s more, the two countries will be paying with their own currencies, the ruble and yuan, completely bypassing the American dollar, which is traditionally used in energy transactions. Although the dollar has long been the international reserve currency of choice, Russia’s VTB and the Bank of China’s decision to trade in domestic currencies stresses the exclusivity of the Eurasian trade deal; the US is not welcome. Although this alone does not significantly destabilize the petrodollar, it certainly undermines American relevance in the deal and indicates Putin’s increasing focus on relations with Asia.

Putin’s meeting with Xi Jinping also comes on the heels of Obama’s four-country Asia tour in April. After a canceled trip to Asia during the October government shutdown, Obama’s tour demonstrates the president’s desire to make good on his foreign policy goal to “pivot to Asia.” In his visit to Japan, South Korea, Malaysia and the Philippines, Obama focused on strengthening economic and military relationships. The trip resulted in increased numbers of American military personnel and equipment stationed in the region; yet, thus far, Obama’s plans for future economic partnerships have not been realized.

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President Obama is the first American president to visit Malaysia since Lyndon B. Johnson in 1966. 2014. (Flickr Creative Commons/The White House)

Neither the Malaysian nor Japanese leadership approved Obama’s Trans-Pacific Partnership (TPP) to increase connectivity between the Asian and American economies. Despite domestic backlash from Democratic Senators and Congressmen, Obama has continually pushed for more economic cooperation across the Pacific. Obama, like Putin, hopes to benefit from the expanding Asian markets; the TPP would eliminate tariffs between the US and several Latin American and Asian states. According to Don Emmerson, a political scientist at Stanford, “Americans cannot afford to deny themselves…the opportunities for trade and investment” present in Asia, but Asian leaders, however, seem less enthusiastic. In Japan, Abe refused to join the partnership due to the protected five sacred areas of Japanese agriculture. In Malaysia, political “sensitivities” and economic concerns also halted progress. The TPP has major implications for American and Asian economies (Japan is America’s biggest trading partner in Asia aside from China). Thus, although no agreement was reached during the tour, the American, Japanese and Malaysian leaders promised to continue negotiations. These promises give President Obama a glimmer of hope that soon the Asian governments will be more receptive to the partnership. It should be Obama’s mission, then, to adjust the TPP to be more beneficial for all states involved, especially those with heavily protected domestic industries.

TPP negotiations were also designed to reestablish American’s military presence in East Asia. The US military will continue to maintain operational control of the Demilitarized Zone between North and South Korea. This agreement gives the US command of South Korean troops in the event of war with North Korea. In Japan, Obama reassured Prime Minister Shinzo Abe that the Senkaku Islands (or the Diaoyu Islands, as they are known in China) would fall under American protection in the case of a threat. These uninhabited islands have long been disputed by Japan and China, who both claim ownership of them. Obama’s declaration of support for Japan’s sovereignty in the maritime dispute is a signal of disapproval to China, whose military actions in the East and South China Seas concern many Asian states. As expected, China was not pleased by Obama’s remarks.

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The Senkaku/Diaoyu Islands, located in between Japan and China. 2012. (Wikimedia Commons/Voice of America)

Obama’s actions in the Philippines were also bad news for China. The United States and the Philippines, which has experienced their own territorial disputes with China, responded with a 10-year defense treaty, the first since the 1990s. The treaty again serves as a counterweight to China. Yet, none of Obama’s military agreements should come as a surprise considering the staggering growth of China’s military budget. In 2014, China plans to spend $132 billion on defense, a 12.2% increase from 2013 – although most critics agree that the real number is significantly higher.

These figures make China impossible to ignore. Combine the country’s military expansion with its rapidly growing GNP and it becomes one of the greatest forces in the world today. China’s enormity and consequent impact on its neighbors, from Japan to the Philippines to Russia, have forced other world powers to readjust. Putin and Obama have played their hands, each trying to get ahead in the Asia-Pacific. Putin’s natural gas deal has created a buffer for conflicts in Europe and Obama’s efforts to increase economic cooperation and American military presence in Asia also indicate increased interest in Asia. It remains to be seen how other world leaders will react to the growing relevance of East Asia in global issues.

In early May, European Union (EU) leaders met with Shinzo Abe to reaffirm their positive relationship. At the meeting, the leaders discussed further economic and political ties, although no specific agreements were signed. The leaders of the EU and the Association of Southeast Asian Nations (ASEAN) will also hold a summit in October. Will Europe, like Russia, turn to China, Asia’s largest power, or invest in ties with other East Asian nations alongside President Obama? Regardless, it is clear that the “turn to Asia” is a legitimate and global phenomenon.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff and editorial board.

Unlocking America’s Potential Energy

United States Shale gas plays, May 2011

Map of U.S. shale gas plays. May 2011, U.S. Energy Information Administration (Wikimedia Commons).

America is in the midst of one of the most significant energy revolutions in modern history. Due to the recent discoveries of vast reserves of shale oil and natural gas, the U.S. is in a position to become the world’s largest energy producer by 2015, surpassing both Saudi Arabia and Russia – combined. This momentum, however, can only continue if U.S. firms are allowed proper flexibility to explore, extract, and export shale oil and natural gas from U.S. territories. Government regulations covering drilling practices, such as fracking, must be re-examined and equitably altered such that energy companies may pursue their energy interests while satisfying environmental concerns. The energy revolution has critical implications for U.S. domestic and foreign policy with the potential to transform America’s economic prowess and energy self-sufficiency for years to come.

Current estimates for America’s resource endowment and extraction rates are very promising. Natural gas production is experiencing a momentous boom due to recent breakthroughs in unlocking natural gas trapped in shale. With these advances, shale gas production is forecast to increase from 42% of total U.S. gas production in 2007 to 64% in 2020. This level of growth is unprecedented, with the U.S. Government estimating there will be a 44% increase in total shale natural gas production from 2011 to 2040. With regards to oil production, the International Energy Agency predicts that U.S. oil production will rise to 11.6 million barrels per day in 2020, up from 9.2 million just a few years ago. This increase in oil production is orthogonal to trends in Saudi Arabia and Russia, which will see their production levels decline from 11.7 million to 10.6 million barrels and from 10.7 million to 10.4 million barrels, respectively. Leonardo Maugeri at Harvard has estimated that shale oil production alone could reach 5 million barrels per day by 2017. These statistics stand as a dramatic reversal from discussions in the energy community even 5 years ago when talk focused on declining fossil fuel reserves and the need to explore alternative forms of energy. Fossil fuels now dominate the energy game, and rightfully so.

Natural Gas Production from US Shales 2000-2013

Graph of natural gas production for U.S. shale plays. September 16, 2013 (Wikimedia Commons).

While sound environmental concerns do exist regarding shale oil and natural gas extraction, such as pollution of groundwater and the effect of mining towns on surrounding communities, they are often overblown. For example, in Pennsylvania only 3% of all wells were cited for flawed construction from 2008-2013. Fracking has been a successful extraction method since 1940, and new technologies – waterless fracking is a good example – have only made the process safer and more efficient. The most legitimate environmental concern associated with fracking has to do with the well casings that surround the fracking apparatus. Since fracking pumps water and sand into the ground at a high pressure, improperly made well casings and other sealants can crack causing leaks which pollute the surrounding environment. This problem could be solved by using stronger and properly fitted well casings. Simple environmental regulations at the state level requiring proper well construction, specifically emphasizing casings, could ameliorate many of the environmental concerns associated with fracking. There is also a surprising lack of publicly available data regarding the effects of fracking operations on the surrounding environment. Increasing the availability of this data by setting mandatory reporting requirements would fully inform nearby communities and government authorities. Fracking to extract shale oil and natural gas can be done safely; such has been the trend thus far. If a more relevant, simple, and fair regulatory regime were to be established by state governments, and perhaps the federal government, to address issues such as well casing construction and reporting requirements, fracking’s safety and efficacy would only be further reinforced. Regardless, fracking – as it stands today – is a no-brainer.

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Fracking Site in Warren Center, Pennsylvania. August 23, 2013 (Wikimedia Commons).

Why is fracking already a no-brainer? Because the shale boom, which has been enabled by fracking methods, is having tremendous economic benefits for the U.S. Natural gas prices in the U.S. are some of the lowest in the world – half the price of gas in Europe and less than one-third the price of gas in Asian countries. Surging shale oil extraction has overloaded Gulf refineries and revived East Coast refineries. This increased supply is so shocking that domestic oil prices have lately fallen out of sync with global oil prices, and experts predict a U.S. oil “glut” if U.S. firms are not allowed to export crude oil. This abundance has critical implications for manufacturing in the U.S. Indeed, The Economist claims that the energy revolution is resulting in a “Factory North America.” This “Factory” is resulting in more domestic jobs across all industries, especially in the growing energy industry. Energy jobs in nearly every state have doubled since 2005. Some equate the fracking boom as being similar to a gold rush, with energy jobs offering high salaries for basic work in rural areas. David Petraeus seems to be on track when he claims we are about to enter the “North American Decades” powered by our new-found energy endowments.

While the macroeconomic benefits of America’s increased energy output are clearly tremendous, expectations for the average American consumer should be tempered. Though the price of natural gas has fallen in recent years due to our ability to tap into previously inaccessible shale reserves, the cocktail of booming transportation, a recovering economy, and rising exports have raised prices in the past year. In addition, the need for further fracking R&D is likely to drive costs up in the coming years. Shale oil is experiencing a similar phenomenon. Although the price of gasoline has fallen beyond global pricing levels in the U.S. for the short-term due to surging supply, the price of oil is determined on a global energy market and is projected to increase for the long-term as global demand continues to increase. The increased supply of natural gas and oil certainly has lowered costs for the American consumer for the time being, and will continue to do so when contrasted to an America without new-found energy reserves. However, Americans should not be expecting $2.00 per gallon gasoline prices anytime soon.

So what does this energy revolution mean for U.S. foreign policy? Many good things. America’s increased self-sufficiency will change the U.S.’ relationship with many other countries. Because of surging domestic supply, the U.S. will be less dependent on other nations for energy; in turn, this freedom will afford the U.S. greater flexibility in pursuing foreign policy interests because it will not be as constrained to secure energy resources abroad. Strategic relationships with nations such as Saudi Arabia and the United Arab Emirates are likely to change because there will be less of a need for their oil imports. Perhaps the U.S. will now be more forceful in advocating for democratic reforms within these non-democratic states now that it has greater autonomy on the energy front. In addition, the decreasing need to secure energy resources abroad may prevent the U.S. from becoming involved in regional disputes and conflicts to secure those interests.

America’s surplus of energy could also be an excuse for a more active role in foreign policy. America could gain more influence over other nations if U.S. firms are allowed to export energy resources. As we have seen in Europe, Russia’s domination of energy resources in Eastern Europe has enabled it to turn build new allegiances at the EU’s loss and expense. Consider the notable cases of Armenia and the Ukraine becoming part of Russian-led Eurasian Union. Please note that this author is not advocating for the U.S. to pursue an overbearing approach to energy exports like Russia, but rather a stable level of influence to help the U.S. realize its foreign policy objectives. If, for example, the U.S. could export to Central Asian states, it could gain more influence in the region and build a relationship that could allow these states to become closer to the West rather then being forced into a Eurasian Customs Union led by Russia. In a state like Japan, where natural gas sells for $17 compared to $3 in the U.S., greater exports from the U.S. could enhance a trade relationship with a major partner. Unfortunately, the U.S. is not reaping the benefits of energy exports because antiquated laws are in place that prohibit U.S. firms from exporting crude oil. In addition, the EPA has been very slow to grant export license requests for liquefied natural gas. These regulations are contrary to free market principles and concepts of free trade that America has advocated for since its inception. The U.S. government needs to allow U.S. firms to export and pursue their global energy interests more freely. The potential results of this policy change would provide more flexibility in U.S. foreign policy and would afford the U.S. even greater influence on the international stage.

Natural Gas Price Comparison

Comparison of natural gas prices in the United States, Japan, and the United Kingdom. September 30, 2011, U.S. Energy Information Administration (Wikimedia Commons).

This energy revolution will change America’s game, and for the better. Domestically, the U.S. will be more self-sufficient and experience the growth of an industry while boosting employment numbers (and therefore jobs) and observing lower energy prices. Internationally, America’s influence will extend to the importers of our energy, and there will be less dependency on other states for energy. These benefits, however, cannot be fully experienced under the current structure. State governments, and perhaps the federal government, need to formulate a simple and fair regulatory regime that will allow U.S. energy firms flexibility in fracking to unlock shale oil and natural gas while addressing legitimate environmental concerns such as well casing construction. The U.S. must also break its own barriers to exporting energy, such as the obsolete laws that currently prohibit U.S. firms from exporting crude oil from U.S. territory and the slow process of obtaining export licenses for natural gas. Only if these policy measures are implemented can America’s full energy potential be unlocked.