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Oil and Money

The Energy Industry Plots a Complex Path in the Midst of Disruption

President Vladimir Putin of Russia, right, and King Salman of Saudi Arabia at their meeting this month in Moscow. The closer ties between the countries marked one of the most significant geopolitical developments of 2017.Credit...Pool photo by Yuri Kadobnov

Jason Bordoff , a former special assistant to President Obama, is director of the Center on Global Energy Policy at Columbia University. He recently answered email questions from Stanley Reed, a New York Times reporter, on the state of the global energy industry. This is an edited version of their conversation.

The last three years have been difficult for the oil and gas industry, as it struggled to cope with lower prices. Are the skies clearing at last?

Many factors have turned to push up oil prices. OPEC’s policy of supply management is finally having the intended effect, drawing down global inventories. Saudi Arabia recently doubled down on its pledge to curb supplies by announcing it was slashing exports further. Meanwhile, the unprecedented level of cooperation between Russia and Saudi Arabia looks set to continue in 2018, reaffirmed during King Salman’s recent visit to Moscow.

Geopolitical tensions have also threatened oil supplies. Turkey’s threat to retaliate against the recent Kurdish independence vote is one example. President Trump’s likely decertification of the Iran nuclear deal raises the risk that Iranian exports will again be curtailed. And Venezuelan oil output is falling. At the same time, demand growth is surging, rising 2.3 million barrels per day year-on-year in the second quarter.

A key uncertainty is whether oil demand growth remains strong, or slows in the face of slower G.D.P. growth and the gradual penetration of electric vehicles and stronger policies to address pollution and climate change.

The partnership between Saudi Arabia, the largest oil exporter, and Russia, one of the three largest oil producers, has been of great interest to the oil markets and may have helped lift prices. How long do you think this partnership between two countries, whose relations were much less friendly in the past, can last? Has the Saudi-Russia relationship supplanted OPEC?

The closer ties between Saudi Arabia and Russia, rooted in unprecedented oil market cooperation, marked one of the most significant geopolitical developments of 2017. Since Crown Prince Muhammad bin Salman’s visit two years ago, there have been a raft of energy, infrastructure and military deals between the two top oil producers. Saudi has signaled that Russian cooperation is key to its continued strong efforts to prop up prices.

Russian participation in the supply agreement seemed uncertain as Russian output was poised to rise, but recent signals by Vladimir Putin suggest he may stick with the agreement through 2018. Coming Russian elections combined with the adverse impact on the economy of the oil price collapse give Putin greater incentive to keep the supply agreement from unraveling. In 2018, a game of chicken may play out, with Russia looking to gradually boost supply, but not if it believes Saudi will abandon course as a result.

Oil exports from the United States continue to rise while exports of natural gas are starting to increase. What impact are these developments likely to have on markets? Do they have geopolitical implications? For instance, will U.S. natural gas exports weaken Russia’s position as a gas supplier to Europe?

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Jason BordoffCredit...Eileen Barosso

American exports of L.N.G. exports are set to rise sharply by the end of the decade. These exports can make America an energy superpower. Unlike coal or oil, which can be moved easily between ports, exporting natural gas has been a far trickier proposition, usually requiring pipelines between buyers and sellers. Moreover, L.N.G. comes with unique energy security risks for gas-consuming countries, since suppliers can (and have) cut off gas flows. But U.S. gas is linked to a hub price and has no destination restrictions. That means more competition, liquidity and supply diversity, and that will make global gas markets more flexible, efficient and secure. Europe, in particular, will be more able to implement its Energy Union package to reduce its vulnerability to Russian gas dependence through market integration, interconnectivity and diversification.

Production of oil and gas from shale rock, or “fracking,” has brought some benefits to the United States, including cheaper and more abundant energy supplies and reduced reliance on polluting coal in power generation. Are these benefits likely to be sufficient to permit the industry to grow over the long term despite criticism from environmentalists?

The shale boom has been one of the strongest buttresses supporting the recovery of the U.S. economy following the Great Recession, helping to lower energy prices for businesses and consumers and shrink the U.S. energy trade deficit. And cheap natural gas has been the primary reason for the recent decline in U.S. coal consumption, with concomitant environmental benefits. Nonetheless, a 2016 Gallup poll found public opposition to fracking on the rise. Shale development can have disruptive impacts on communities and raises risks that must be mitigated through industry best practices and strong regulatory oversight. Industry and regulators need to work together to address legitimate concerns, like the climate change impacts of methane leakage and the seismic risks from wastewater disposal.

Britain and France recently announced dates for stopping the sale of diesel and gasoline-power cars. Car companies like Renault-Nissan and Volkswagen are increasing their investments in electric vehicles. Do developments like these mean that the sunset of the oil and gas business is coming into view?

We are going to be relying on oil and gas for decades to come, but technology and policy pushes have raised the possibility that peak oil demand may occur far sooner than many believed possible. In addition to pollution concerns, China is pushing aggressively on E.V.s, seeing an opportunity to dominate an emerging industrial sector of the future.

Still, it takes time to convert the vehicle fleet, and there remain open questions about the pace of innovation and whether the long-term targets to eliminate the internal combustion engine will be backed by real policies.

Moreover, passenger cars represent only one-quarter of world oil demand, so electrifying personal transport alone would not mean the end of the oil age. Oil demand is set to continue rising in heavy-duty freight, aviation and petrochemicals.

President Trump has said he wants to boost the energy industry in the United States by reducing regulation and opening more land to oil and gas drilling. He is also taking a hard line against Iran, whose oil production is rising. To what degree are his policies likely to have their intended impact? And do they have global implications?

The Trump administration has laid out an ambitious deregulatory agenda to unleash American “energy dominance,” but those steps are unlikely to significantly change the outlook for U.S. oil, gas and coal production and exports. Markets will matter far more than policy.

How damaging will the Trump administration’s leaving the Paris accord and other actions likely be to the global effort to tackle climate change?

Trump’s withdrawal from the Paris climate agreement damages U.S. international credibility and diplomatic relations, cedes U.S. leadership in developing the clean energy technologies of tomorrow and weakens a framework to ratchet up ambition across countries to address the growing threat of climate change. At the same time, as the agreement consisted of voluntary national contributions, the Trump administration would have been free to curb U.S. climate policies even if the country had not withdrawn.

A version of this article appears in print on   in The New York Times International Edition. Order Reprints | Today’s Paper | Subscribe

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