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With billions of workers locked down by a global pandemic, President Trump has announced a historic agreement between Saudi Arabia, Russia, and other oil countries to cut global oil production.
This is a game-changing announcement, that reflects America's new role as the world's leading energy superpower.
It could reshape geopolitics for a generation and bring America massive economic and environmental benefits.
No oil company and no oil-producing country wants to cut production by itself. But if enough countries all cut oil production at the same time, oil prices will rise so that their industries make more money even though they're selling less oil.
The more oil-producing countries that cooperate, the bigger profits they can receive by acting together. For years, Saudi Arabia, and the rest of the Organization of Petroleum Exporting Countries, known as OPEC, restrained production to keep prices high.
America is now emerging from the biggest oil and gas boom that the world has ever seen. It now produces 19 percent of the world's oil, far more than any other country. Its increasing share of oil has made OPEC less and less dominant.
The U.S. is now a net energy exporter: every year it ships more and more oil and gas to countries around the world.
As a result, it increasingly shares OPEC's interests in higher energy prices for its producers. So it makes sense for America to work with Saudi Arabia and other energy exporters like Russia and Canada.
Of course, the United States is also the world's biggest oil consumer, so it does not want oil prices to be too high. But the unusual circumstances of a global pandemic mean that, for the moment, production cuts will also benefit consumers.
Yes, production cuts will slightly raise the current rock-bottom energy prices for consumers. But prices are so low that some oil and gas is being wasted—thousands of oil wells in Texas and North Dakota are just burning off, or "flaring" gas. These flares can be seen from space and waste more gas than some states use.
Consumers will be better off if this precious fuel is conserved for the future.
Global production limits will also have massive environmental benefits. At a stroke, they will do more than any other policy has ever done to lower global greenhouse gas emissions by slowing production and consumption of fossil fuels. And they will also increase the benefits of America’s clean-burning natural gas.
The American oil boom was so rapid that gas pipelines could not keep up, which is why so much gas is being flared. This gas is being wasted, emitting carbon dioxide, with no environmental benefit.
If we can slow production a bit and build new infrastructure to bring this gas to the markets that need it, it can be used to replace dirtier sources of power and heat.
Coal is still the world’s leading source of power and billions around the world still depend on coal or oil for home heating. Given time, America’s clean-burning natural gas can replace these sources, allowing the world to breathe freer.
America’s oil alliance demonstrates its newfound power to shape global energy markets. It is the perfect moment to show how this power can be used, with care, to protect the economy and the environment.
James W. Coleman is a professor at Southern Methodist University’s Dedman School of Law, focused on energy and environmental law. Follow him on Twitter @EnergyLawProf. He has a new research paper on oil state cooperation on production cuts.