This post is part of a series from Asia Unbound. The post is authored by Rajeswari Pillai Rajagopalan, distinguished fellow and head of the nuclear and space policy initiative at India’s Observer Research Foundation. She is the author, most recently, of “Toward a Quad-Plus Arrangement?” Despite the COVID-19 pandemic, U.S.-India relations have shown signs of continued cooperation. Officials of the two countries are in frequent contact, including President Donald J. Trump and Prime Minister Narendra Modi, and Secretary of State Mike Pompeo and his counterpart, External Affairs Minister S. Jaishankar. Concerns about China’s growing aggressiveness may be driving New Delhi and Washington closer together. But there are signs of turbulence ahead, and the outcome of the U.S. presidential election and the uncertain path of the pandemic itself make any prognosis tentative at best. The United States has taken the lead in extending assistance to other countries, including India. According to a Department of State Fact Sheet issued on April 16, the State Department and the U.S. Agency for International Development (USAID) together have earmarked about $500 million dollars in emergency health, humanitarian, and economic assistance. This is in addition to State Department funding to multilateral and non-governmental organizations (NGOs) actively providing assistance during the pandemic.  Washington and New Delhi have great potential for further collaboration. This crisis drives home the importance of ensuring that multilateral agencies remain effective and unbeholden to any one power. India and the United States can work together with their allies to promote neutrality, transparency and accountability in such agencies. Both countries have a stake in ensuring that they do not cede influence to China in the provision of pandemic relief, especially to smaller countries in the region. The pursuit of influence continues unabated despite the pandemic. China’s missteps such as allowing the pandemic to spread, focusing more on shifting blame than investigating the origins of the virus, using pandemic aid for publicity, and engaging in assertive military behavior toward its smaller neighbors have helped but they only provide an opportunity, not a guarantee, for regional leadership. The United States has stepped up diplomatic consultations for cooperation with a geographically diverse group of countries, which has now been dubbed the Quad-plus because it includes South Korea, Vietnam and New Zealand in addition to the original Quad (United States, India, Australia and Japan). The crisis could help generate subsequent strategic cooperation—the original Quad grew out of multilateral cooperation after the 2004 Indian Ocean tsunami. China’s behavior is also making this cooperation easier. Despite the crisis, China appears to be stepping up its military presence in the region. Since early February, the People’s Liberation Army (PLA) has been probing Taiwan’s air and maritime borders. The PLA Eastern Theatre Command has been particularly active, deploying fighter jets and bombers around Taiwan. According to reports, Chinese fighter planes momentarily traversed into Taiwanese airspace. China has claimed that it was only conducting military exercises though the United States has said that this was completely inappropriate. PLA air exercises have continued into April. In addition, China’s new aircraft carrier, the Liaoning, and five other warships sailed close to Taiwan’s waters in mid-April.  Meanwhile, in Southeast Asia, the PLA has been particularly aggressive toward Indonesia and Vietnam. Chinese fishing vessels accompanied by coast guard ships have been intruding in Indonesian waters off the Natuna Islands. Last week, China also established two districts on disputed territories in the South China Sea. China this week also targeted a Philippine Navy vessel that was conducting territorial defense operations and sovereignty patrol. And in a more serious incident in early April, Chinese ships hit and sank a Vietnamese fishing vessel near the Paracel Islands, leading Vietnam to issue a formal diplomatic protest. The U.S. State Department also put out a strongly worded statement, expressing serious concern at “the latest in a long string of PRC actions to assert unlawful maritime claims and disadvantage its Southeast Asian neighbors in the South China Sea.”   If COVID-19 cooperation and China’s behavior are helping to keep the momentum in U.S.-India relations, there are also some uncertainties. New Delhi is unlikely to be happy at the latest changes in U.S. immigration rules which could pose a challenge to the Indian expatriate community in the United States. New pressure on India’s budget means that India is unlikely to have enough money to buy foreign military equipment, including from the United States. Trump has been a keen promoter of U.S. arms sales and could retaliate if deals with India fall through. But the most serious uncertainty concerns the U.S. elections in fall 2020. On one side, there appears to be a growing political consensus in the United States that China is a problem, leading to efforts by both U.S. presidential candidates to frame the other as “soft on China." This is music to India’s ears. But New Delhi has concerns about both candidates. The Democrats are perceived to have been traditionally soft on China. But Trump’s unsteady hands at the tiller is also a problem for New Delhi. His early praise for Chinese President Xi Jinping’s handling of the crisis, in particular, is seen in India as an example of his undependability. New Delhi should be most concerned about the growing chorus from both sides of aisle in the United States to draw down its global commitments. As China flexes its muscle, India is looking for more U.S. involvement, not less. This could take several forms. At the declaratory level, Washington could emphasize that ensuring a non-hegemonic Asia is a core American interest. But the US also needs to act consistently to promote this value including by supporting countries that are threatened by coercive trade practices and by leading regional response against using force to resolve territorial disputes. Finally, the United States should also take the lead to coordinate the various minilaterals in the region in order to promote the values enshrined in the idea of the free and open Indo-Pacific.

This is a guest post by Hunter Kornfeind, intern for Energy and Climate Policy at the Council on Foreign Relations and current student at Temple University. A breakthrough agreement between major oil producers and the G-20 has ended the oil price war that began with a conflict between Saudi Arabia and Russia on how to respond to a sharp collapse in global oil demand following the wide spread of the coronavirus global pandemic. The deliberations, highly influenced by diplomatic intervention from the Donald J. Trump administration, brought to the fore questions about how the United States can contribute to a global oil deal to stabilize markets by curtailing U.S. oil production or exports. There is virtually no oil production under the direct control of the U.S. federal government.  The U.S. Naval Petroleum Reserve, which was established in 1912 to provide the U.S. Navy with an assured source of oil, was disbanded starting in the mid-1990s amid changing markets.  To support the broader global oil stabilization program, the Trump administration has said it will lease the 77 million barrels of storage space left in the U.S. strategic petroleum reserve as a means to reduce the rising surplus of U.S. oil production, in effect taking some U.S. oil production off the market and putting it into storage to supplement market-related cutbacks that have already been announced by private U.S. companies.   This backgrounder of frequently asked questions explains how much oil is produced in the United States, what percentage comes from fracking activities in the U.S. shale, and the outlook for U.S. oil production going forward in light of the latest global oil producer deal, and volatile oil prices. This brief also includes some discussion on how the U.S. Presidential election might influence U.S. oil drilling and production going forward.   How much oil does the U.S. produce?  The United States produced 12.2 million barrels a day (b/d) in 2019, an 11 percent increase from 2018, according to official statistics of the Energy Information Administration (EIA). Texas is by far the largest oil producing state at 5.1 million b/d, followed by North Dakota at 1.4 million b/d. Alaskan production was 466,000 b/d in 2019, down slightly from 2018. Production on federal offshore waters offshore Gulf of Mexico stood at 1.88 million b/d, up from 1.76 million b/d in 2018. Close to 65 percent of U.S. crude oil production in 2019 came from tight oil production, of which roughly 4 million b/d came from just three Permian Basin areas – Spraberry, Wolfcamp, and Bonespring – in Texas and New Mexico.  In January 2020, U.S. tight oil production reached an estimated 9.1 million b/d, including 4.77 million b/d from the Permian region and 1.47 million b/d from North Dakota.  Tight oil represented 72 percent of total U.S. production of 12.74 million b/d in January 2020. EIA is projecting February and March data will show U.S. shale production is flattening. Alaska production was 482,000 b/d in January 2020 and U.S. Gulf of Mexico federal offshore was 1.98 million b/d.  The stunning increase in U.S. oil production over recent years results from new, innovative methods of oil and gas recovery, which combines hydraulic fracturing or fracking and horizontal drilling to produce unconventional reserves found in tight oil formations such as shale. Shales hold millions of tiny pockets of resource that have been described by analogy to bubbles in champagne. Fracking involves pumping a water and chemical gel mixed fluid down a well at high pressure to create cracks in shale source rock. Tiny particles of sand in the mix is used to keep the cracks from closing, allowing the production of oil and gas as long as the well remains pressurized. This contrasts with conventional drilling that focuses on a large continuous reservoir of oil or gas from a trap, that is like an underground lake or pocket that can be produced by designing a production system that taps the field’s natural geologic pressure.   Due to the combined effects from the COVID-19 pandemic and low oil prices, analysts are estimating a drop in U.S. crude oil production later this year for the first time since 2016. The latest EIA report currently projects U.S. production to decline by about 473,000 b/d in 2020 and 729,000 b/d in 2021. However, other estimates paint a grimmer picture: consultancy IHS Markit estimates U.S. crude oil production will fall 2.9 million b/d by the end of 2020, cratering below 10 million b/d. Citi estimates that stripper wells that produce less than five barrels a day represent about 450,000 b/d of U.S. total production and will be highly susceptible to closure if U.S. oil prices remain below $30 a barrel.   Low oil prices have led to cuts in capital expenditures across the U.S. industry. The largest U.S. oil majors ExxonMobil and Chevron have slashed their spending by an average 25 percent for 2020, focusing the largest portion of spending cuts on operations in the Permian Basin.  U.S.-based exploration and production companies EOG Resources, Pioneer Natural Resources, and Concho Resources are also reducing their full-year capital spending by about an average 34 percent, also succumbing to the lower crude oil price environment. According to IHS Markit, North American exploration and production companies, to date, trimmed 2020 capital expenditures by a combined $24.6 billion compared to 2019.   The United States has become a major exporter of oil. How much crude oil does the U.S. export? Will cuts in drilling affect the amount of oil to be exported by United States?   In 2019, the U.S. exported about 3.0 million b/d of crude oil, a 45 percent over the previous year. The top destination for U.S. crude oil was Canada, which imported 459,000 b/d, followed by South Korea (426,000 b/d) and the Netherlands (280,000 b/d). The rise of crude oil production over the past decade allowed the U.S. to become a net exporter of crude oil towards the end of 2019, the first time in history the U.S. was exporting more than it was importing.  The United States maintained high exports of crude oil in January 2020, exporting a total of 3.2 million b/d.   However, expected reductions in U.S. crude oil production as a result of low oil prices and the coronavirus crisis could adversely affect exports. The EIA’s forecasts in its most recent Short-Term Energy Outlook that the U.S. will again become a net importer of crude oil and petroleum products in the third quarter of 2020, remaining a net importer throughout the majority of 2021. But, the longevity of this not only depends on trends in U.S. crude oil production, but also U.S. oil demand trends. Government stay at home orders have lowered many Americans’ rates of daily driving, leading to a collapse of demand for gasoline. EIA is reporting U.S. gasoline demand plummeted over 30 percent to a twenty-six year low. Jet fuel use has declined by over 50 percent from usual levels.   Refiners across the United States are reducing refinery runs as refined products begin to buildup in storage tanks around the United States. Shutdowns of refineries in other international locations has allowed U.S. exports of some refined products such as diesel fuel to continue. Depending on configurations of processing units, it can be difficult for refineries to operate at below 60 percent of capacity without shutting down at least partially. To minimize the excess of jet fuel production, U.S. refiners are trying to reduce the percentage of jet fuel that gets produced during the refining process as well as trying to blend some jet fuel back into other product streams, repurposing some tankage to hold more jet fuel or hiring ships to store jet fuel. At some point, it might be necessary to waive the Jones Act which requires the use of U.S. flag ships for journeys in U.S. waters.   Is it possible for an oil price war or low oil prices to “destroy” the U.S. shale industry?  The U.S. Federal Reserve Bank of Dallas reported its most recent Energy Survey that exploration and production firms need an average West Texas Intermediate (WTI) price of $30 a barrel to cover operating expenses for existing wells and $49 a barrel to profitably drill a new well. Whiting Petroleum filed for bankruptcy protection on April 1, becoming the first notable exploration and production company to crumble under lower crude oil prices. Permian producer Callon Petroleum and Chesapeake Energy recently hired restructuring advisors and Moody’s downgraded Occidental Petroleum’s credit rating to junk. The industry already faced numerous headwinds, plagued by leveraged balance sheets and lackluster shareholder returns over the past decade. While the current economic crisis may be the final “nail in the coffin” for some individual firms, the shale resource itself will remain intact for more efficient operators to produce down the road.   When oil prices fell in 2015, several shale exploration and production companies stayed afloat by working out a new debt repayment schedule with bankers. Well productivity gains through technology improvements, hedging, and an eventual recovery in prices by 2017 helped keep many shale players afloat and supported new injections of capital. This time around, some of the largest banks are preparing to take over operations of the oil and gas assets and manage them directly instead of dumping the assets through a bankruptcy process at pennies on the dollar. The hope is that the banks could create vehicles to manage the assets until more favorable conditions would emerge at a later date either through rising oil prices or via a federally-assisted, credit workaround.    For the largest public traded U.S. exploration and production companies, only a small number have large non-revolving debt payments coming due this year. Production declines in the U.S. shale patch are more likely to come from pipeline and storage limitations, rather than outright bankruptcies, in the coming months. Spending cuts and capital constraints could, however, severely limit shale growth into 2021 and beyond if oil prices remain below $30 a barrel. However, chances are if oil prices recover at some point, shale development could accelerate again and growth could be restored, even if the actual companies who controlled the resource changed through industry consolidation or asset sales. The level of future investment will be highly sensitive to perceptions of future market developments.   Among the options considered by the White House during the price war was whether production should be shut down for a time on federal lands in the Gulf of Mexico in light of the COVID-19 pandemic.  However, such an option was not viable because it could potentially have resulted in some permanent loss of producibility of curtailed offshore production. By contrast, shale operators have more flexibility since well completion can be throttled back without fewer, if any, large scale, negative ramifications for future production from the resource. The Texas Railroad Commission, which last regulated state oil production levels in the 1960s and early 1970s, held a hearing this week on whether the state should institute mandated pro-rata reductions in production to prevent the waste of oil resources. Wide differences of opinion were presented at the hearing, reducing the chances of such a policy change, which faces legal, administrative, and political barriers to implementation.    Current Trump administration policy affirms that U.S. oil and gas investment and production is based on market forces and that a market-oriented approach in the United States is likely to produce reductions in oil production in 2020. President Trump’s intervention in the diplomatic process surrounding the G-20 oil stabilization effort was intended to preserve stability of international credit markets, to protect against geopolitical destabilization, in fragile oil producing regions like West Africa and Latin America, and to stave off major logistical problems that could stem from mounting global oil and refined product inventories. The coordinated approach within the G-20 on oil is seen as a continuing process that will require monitoring and refinement over time.   What percentage of U.S. oil demand is met by foreign imports? How much foreign oil does the U.S. import and where does it come from?   U.S. imports of foreign crude oil have been steadily dropping since January 2017 and stood at 6.4 million b/d as of January 2020, or about 30 percent of total U.S. oil demand. Imports from Saudi Arabia have taken a major hit, falling from 1.3 million b/d in January 2017 to 355,000 b/d in November 2019. They recovered slightly in December 2019 to 401,000 b/d. At the same time, crude oil imports from Canada have increased from 3.5 million b/d in January 2017 to 3.9 million b/d in January 2020. Crude oil imports from Mexico to the United States have declined from 730,000 b/d in January 2017 to 614,000 b/d in December 2019 but recovered to 854,000 b/ d in January 2020. U.S. refiners also import other petroleum blending stock materials other than crude oil to supplement the refining process to get the right quality standard of refined products to meet demand. These imports including unfinished oils like residuum, which are imported from a variety of countries including Russia.   Several democratic presidential candidates had proposed a ban on hydraulic fracturing on federal lands during the primaries. Democratic Party presumptive presidential nominee former Vice President Joe Biden has said he supports an end to new permitting for oil and gas drilling on federal lands. How much oil is produced by fracking on federal land? What would be the outcome of a fracking ban on federal land?  The Democratic Party’s presumptive 2020 presidential nominee,  former Vice President Joe Biden promised in a June 2019 climate change plan “… to stop issuing permits for new oil and gas drilling on federal lands and waters.” However, Biden stopped short of supporting a full ban on fracking in the United States, telling a September 2019 town hall that he did not believe a nationwide ban on fracking could get passed in the U.S. Congress. Democratic legislators Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez have each sponsored legislation titled the “Ban Fracking Act” earlier this year and the position is popular with progressive voters. Opponents of fracking highlight problems that some communities have suffered as a result of nearby fracking activities, including contamination of groundwater, air pollution and negative health consequences, and increase in the number of earthquakes in drilling areas. Climate concerns about methane leakage from well sites, pipelines, and processing facilities, as well as from burning fossil fuels in general also play a big role in calls for a fracking ban. The Trump administration is against a ban and has promoted drilling on federal lands, emphasized fracking’s important role in promoting U.S. energy security and enhancing American’s international power and influence.     The Office of Natural Resources Revenue (ONRR), an agency within the Department of Interior (DOI), reported crude oil production from federal lands reached about 2.9 million b/d in 2019 (including Native America and Mixed Exploratory lands). About 64 percent of total federal production in 2019 came from offshore locations, with only about 36 percent derived from onshore fields including those where fracking techniques are prevalent.   Since 2010, crude oil production on federal land has grown at a slower rate relative to production on state and private lands. Production from non-federal land made up about three-quarters of total U.S production in 2019, up about 12 percent since 2010.  According to the ONRR and EIA, New Mexico federal crude oil production reached about 444,500 b/d in 2019, up from just 8,300 b/d in 2010. Almost all of New Mexico’s crude oil production from federal lands originated from two Permian Basin counties – Lea County and Eddy County. Crude oil production in Wyoming on federal lands hit 125,900 b/d last year, up about 37,400 b/d above 2010 levels with more than half coming from Converse County and Campbell County, part of the mineral rich Powder River Basin. Roughly 131,000 b/d of North Dakota’s crude oil production is from federal lands.   While legal experts have questioned whether a federal ban on fracking will pass the courts, analysts also disagree on how much production would be shuttered as a result of a ban on fracking on federal lands. Wood Mackenzie Consultants forecast total U.S. crude oil production could fall by about 750,000 b/d in 2021, if a ban was put into place. This estimate assumes no new wells would be brought into production but that existing wells would continue to produce.   One key factor in determining how much of an impact a fracking ban could have would be how much drilling activity would be shifted to private lands. For example, Consultancy Rystad Energy suggests a fracking ban would likely have no immediate impact on U.S. total crude oil production as capital would shift to private lands as the companies now drilling on federal leases redirect their efforts to other locations to replace lost volumes. Other analysts say that this view is too optimistic and might ultimately depend on market conditions. Current constraints in the availability of capital for shale companies, combined with operational constraints in acquiring new land, permits, lease obligations, and equipment, may potentially provide headwinds for a barrel for barrel shift away from production on federal lands by any particular firm.   What would the national security implications be of a ban on fracking on federal lands?   Prior to the shale revolution, the United States was a major oil importer with imports representing about 60 percent of U.S. oil use or about 12.6 million b/d at its peak in 2005. Since then, dependence on imported oil from the Middle East and elsewhere has declined precipitously. A fracking ban on federal lands alone would not likely return the United States into a major oil importer because the volumes curtailed would be significantly smaller than current U.S. exports of crude oil. Ultimately, the level of future U.S. oil production and exports will likely be a function of oil prices and changes to U.S. oil use. Sustained low oil prices would hinder future investment levels in fracking. However, future trends in U.S. oil use will also influence how much oil would be available for export versus internal use.  

Each Friday, I look at what the presidential challengers are saying about foreign policy. This week: Joe Biden becomes the Democratic Party’s presumptive 2020 presidential nominee.