Energy Security of the United States Basic concepts and historical development Outline of Lectures •Basic overview of the energy consumption of the United States –Energy mix –Global position of the U.S. –Oil imports and domestic production –Importance of the transport sector •National Energy Strategies and Policies –Concept of energy independence –Domestic energy policies from Nixon to Obama •Energy security and foreign policy –Foreign policies that ensure a supply of energy –Iran and Venezuela – affect on U.S. global interests •Domestic Supply Interruptions –Hurricane Katrina –Outer Continental Shelf •Ensuring energy security – measures the U.S. should adopt – The Basics •U.S. is the largest state economy in the world •Largest participant in the global energy system –Largest consumer –Included among the largest producers of coal and natural gas –Largest importer –3rd largest producer of oil Why is everything in America so LARGE? •U.S. culture is truly an energy based culture •It is one of the most energy intensive ways of life in the world •Compared to other IEA countries, it has abundant energy resources •Imports resources at a relatively low cost and with low levels of taxation • Energy Mix us_energy_consumption_by_energy_source-large.jpg Global Consumption •Top consumer of oil in the world • 2008, in thousands of barrels per day • • United States 19,498 China 7,831 Japan 4,785 India 2,962 Russia 2,916 Germany 2,569 Brazil 2,485 Saudi Arabia 2,376 Canada 2,261 South Korea 2,175 Source: http://www.eia.doe.gov/country/index.cfm Global Production •U.S. consumes the most but doesn’t produce the most (2008, in thousands of barrels) • • Saudi Arabia 10,782 Russia 9,790 United States 8,514 Iran 4,174 China 3,973 Canada 3,350 Mexico 3,186 United Arab Emirates 3,046 Kuwait 2,741 Venezuela 2,643 Source: http://www.eia.doe.gov/country/index.cfm Global Proven Oil Reserves Saudi Arabia 262.3 Canada 179.2 Iran 136.3 Iraq 115.0 Kuwait 101.5 United Arab Emirates 97.8 Venezuela 80.0 Russia 60.0 United States 21.0 China 16.0 2008, in billions of barrels Global Oil Importers United States 12,224 Japan 4,903 China 3,670 Germany 2,325 South Korea 2,210 India 1,964 France 1,897 Spain 1,583 Italy 1,519 Taiwan 950 Source: http://www.eia.doe.gov/country/index.cfm 2008, in thousand barrels per day U.S. Oil Suppliers •2009, in thousand barrels per day Canada 1,936 Mexico 1,119 Saudi Arabia 1,013 Venezuela 998 Nigeria 720 Angola 475 Iraq 456 Kuwait 326 Algeria 276 Columbia 259 Source: http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import .html sources_of_petroleum_net-large.gif Domestic Production of Oil •In 2009, 50% of U.S. crude oil production came from 5 states: • Texas 21% Alaska 12% California 11% North Dakota 4% Louisiana 3.5% Source: http://www.eia.gov/energyexplained/index.cfm?page=oil_where Basics about domestic production •Domestic oil production peaked in the 1970s •It increased by 7% in 2009 due to a 35% increase in production in federal waters in the Gulf of Mexico •Around 1/3 of U.S. Oil was produced in offshore wells in the Gulf of Mexico •Over 40% of total U.S. petroleum refining capacity and 30% of U.S. natural gas processing capacity is located along the Gulf Coast • Source: http://www.eia.doe.gov/special/gulf_of_mexico/index.cfm#gom_factsheet Global Oil Market •Oil can be transported easily •Natural gas or electricity are constrained by pipelines or transmission grids •Effect on U.S. energy security –Where the U.S. acquires its oil has become irrelevant •Disruptions in supplies or increase in demand will be distributed across the global market •Attempts by suppliers to target certain importers with supply reductions cannot succeed because oil will be sold to those who will pay for it Transport Sector •The U.S. economy is powered by gasoline, diesel and other fuels •Around 70% of the oil consumed in the U.S. is used for transportation •Americans own more than 242 million motor vehicles •Although the U.S. population consists of 5% of the world’s population, it uses more than 33% of all petroleum consumed for road transportation • Relevant factors •Goods and people travel larger distances •Population is highly mobile •Without strong incentives, it is difficult for people to change their behaviour •E.g. – during Jan-May 2008, gasoline prices rose by 25.5% but consumption fell by only 3% –Incomes remained stagnate • • Other reasons •System as a whole is less efficient than most other industrialized countries –Less developed public transportation system –Higher annual mileage per capita –Vehicles with low mileage performance •U.S. SUVs will average 24.1 mpg by 2011 •EU similar vehicles will average 47 mpg by 2012 –Low energy prices caused by low taxes on energy –In 2009, the average retail gas prices in the U.S. was $2.61 per gallon •France – $6.36 •Italy – $6.47 •United Kingdom – 5.87 – • Summary •The U.S. is a society based on consumption •It is self-sufficient in electricity which is mostly powered by coal, natural gas and nuclear power •Energy security for Americans means a stable, cheap supply of oil •Oil fuels its transportation sector and drives its economy •A threat or disruption in the supply of oil equals a threat to the stability and growth of its economy National Energy Strategies and Policies •The “modern” energy policy strategy of the U.S. can said to have started in 1973 •Since then, the U.S. has pursued a number of different energy policies •Debate has concerned the balance between increasing supply and encouraging conservation Energy Independence •Concept which has played a major role in the energy security debate •Both Republicans and Democrats have pursued this policy •Definition of energy independence varies –Eliminating all use of imported oil –Stopping increases in the share of imported oil •Eliminating all oil imports is nonsense –Not an economically viable option for the U.S. – Production vs. Consumption –Demand changes in the patterns of consumption and production of fuels •Import dependency is a fact of life for many countries •E.g. Continental Europe, Japan, South Korea Nixon (1969-74) •Launched “Project Independence” –Goal was to achieve self-sufficiency by 1980 –Declared that U.S. science, technology and industry can free the U.S. from dependence on foreign oil –Not a realistic goal •Policy of strong government intervention in the price of oil –Contributed to the increase in prices during the OPEC embargo –Government established price ceilings •Resulted in some oil being withdrawn from the market, furthering aggravating the increase in prices –Rationed gasoline •Netherlands didn’t ration gas but let the prices rise, and did not face long lines at the filling stations • Ford (1974-77) and Carter (1977-81) •Established the International Energy Agency •Created the U.S. Department of Energy •Passed a series of laws aimed at decreasing the energy intensity of the U.S. economy and reducing the share of imported oil –1974 Energy Reorganization Act –1975 Energy Policy and Conservation Act •Strategic Petroleum Reserves •Corporate Average Fuel Economy –1978 National Energy Act •Energy Tax Act •Gas Guzzlers Tax •High energy prices and government initiated conservation incentives resulted in a 15% decline in U.S. Consumption from 1979-1985 Reagan (1981-89) •Brought a change in the approach towards energy •Carter’s administration – growth of government intervention in the energy market – new controls, regulations, agencies were established •Adhere to free market principles and began to deregulate the energy sector • •Supported an energy policy of “strategic reserves and strategic forces” –Supported the Strategic Petroleum Reserves –Supported a strong military presence in the Middle East •Encouraged greater domestic oil production •1987 releases “Energy Security Report” –Describes the rising oil dependency –“higher import dependence could increase the risk of major supply disruptions that are damaging our economic well-being and energy security” –Affects national security, military preparedness and foreign policy –Recommends increasing supply by opening up the Arctic National Wildlife Refuge and the Outer Continental Shelf to oil development – – George H.W. Bush (1989-93) •1992 Energy Policy Act –Should implement the policies outlined in his National Energy Strategy –Various measures to weaken American dependence on imported petroleum, provide incentives for clean and renewable energy, promote energy conservation –Failed to include 2 measures which would have limited oil imports •Increased Alaskan exploration •Stricter vehicle efficiency standards Clinton (1993-2001) •With Clinton, there was hope that something might change... •1992 Vice-President Al Gore published his book “Earth in the Balance” –“it ought to be possible to established a coordinated global program to accomplish the strategic goal of completely eliminating the internal combustion engine over, say, a 25-year period” •However, Clinton’s administration is noted for putting energy issues on the backburner – it was not a priority issue •1995 National Energy Policy Plan –Energy consumption, economic growth, environment Bush Jr. (2001-09) •2005 Energy Policy Act –1st comprehensive energy policy act since 1992 –Provisions: •Energy efficiency – through grants, rebates for efficient building construction, household appliances, provides standards and reduction targets for buildings •Renewables - electricity production from renewable resources, authorizes wind and other alternative energy producers, increased the amount of ethanol that must be mixed with gas •Oil and Gas – incentives for drilling in the Outer Continental Shelf and the production of oil and gas from marginal wells •Vehicles – tax credits for hybrid cars –Criticisms: •Fails to adequately address U.S. dependence on oil imports, set a renewable electricity standard, reduce global warming • • Bush Jr. does even more... •2007 State of the Union Address – introduces the goal of “20 in 10” –Aims to reduce gasoline usage by 20% in the next 10 years (by 2017) •2007 Energy Independence and Security Act –Responds to Bush’s vision –Provisions: •1st increase in vehicle fuel economy standards (CAFE) in more than 30 years •Carmakers are required to raise gas mileage by 40% to 35 mpg by 2020 •Renewable Fuel Standard requires fuel producers to use at least 36 billion gallons of bio-fuels by 2022 •Improved standards for appliances and lighting Obama •2009 American Recovery and Reinvestment Act –Supports investments to lower energy dependence largely through renewable energy technologies –Supports a variety of alternative fuel and advanced vehicle technologies through grant programs, tax credits, research and development –Increases the gas mileage requirement to 35.5 mpg by 2016 Why is progress in energy policy so slow? •Traditional aversion to government intervention in the market •Lack of close cooperation between the administration and congress, federal government and states •All have different policy agendas •Difficulty in coordinating federal and state roles have caused delays in developing infrastructure such as LNG terminals, opening the OCS for exploration/production, developing unconventional resources of oil Summary •Debate on energy policy in the U.S. has concerned the federal government’s role in energy •Shifted from policies reliant on the federal government to more dependent on market forces •Policies have centered around increasing supply and encouraging conservation •Failed to adequately respond to crises in oil supply and maintain policies that might protect the country from periods of oil instability