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The US is not insulated from the global energy risk

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Article Summary: The international energy sector is witnessing a major transition, with the US expected to play a dominant role. In the US, domestic production is steadily increasing (The US is projected to be a net exporter of natural gas by 2018, and the leading producer of oil by 2020). - Jess Potts

The international energy sector is witnessing a major transition, with the US expected to play a dominant role. In the US, domestic production is steadily increasing (The US is projected to be a net exporter of natural gas by 2018, and the leading producer of oil by 2020).

On the other hand, demand for energy is shifting towards the East (China became the largest importer of oil recently). Alongside China, India’s energy requirements are also increasing while the oil imports have been traditionally high in Japan and Korea. Therefore, a significant amount of oil from the Middle East is moving towards Asia, which has resulted in energy related risks impacting the Asian nations. This doesn’t mean, the US is insulated from the global energy risk. In fact, there are 3 specific risks affecting the US - price fluctuations, changing geopolitical scenario and environmental concerns.

Price Fluctuations

There is a correlation between the price of oil internationally, and the US domestic market. Any increase in prices overseas would mean an increase in prices within the US (an increase in prices in Russia, China or any other nation would lead to an increase in the US as well).

The excellent domestic production in the US would facilitate a hedge against supply risk, but not completely. Therefore, the US must coordinate with international stakeholders from the energy sector to keep the prices low.

Changing Geopolitical Scenario

The energy sector has another side to it - Geopolitical Strategy

The recent crisis in Ukraine has galvanized support in favor of America using its energy capability to reduce Ukraine’s dependence on Russian energy. But, the US cannot take any decision in haste, since nearly a third of Europe’s gas and oil imports rely on Russian pipelines for transportation. Again, there is a growing demand to use energy and put pressure on China, but China is a key economic associate of the US. Hence, the US cannot act rashly.

Environmental Concerns

The US – a key player dominating international opinion must seriously introspect on the demerits of growing energy demand on the environment, before it’s too late. Pollution is proving to be a major challenge to major cities across the globe, and the burning of huge amount of carbon based fuels has serious ramifications on the global climatic conditions. - Jess Potts

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