US Energy Security-Short Lived?

The US is experiencing a domestic oil production boom which improves the country’s energy security, but for how long?
Published: Tue 18 Dec 2012

The US economy remains vulnerable to the global oil price shocks due to unrest or production cuts in the Middle East. This is according to a high-profile group of chief executives, writes The Economic Times. They say that the country should not be fooled by the false sense of security caused by the sudden boom in domestic energy production. The council advises that the country should rely less on oil and more on electricity and natural gas.

The nonpartisan Energy Security Leadership Council (ESLC) cautions: “…the situation has not fundamentally changed…it would be dangerous to allow a false sense of security to result in complacency and inaction. Domestic oil production has been so successful that the US is set to become the world’s top oil producer and natural gas exporter by 2020. This is according to the International Energy Agency (IEA) which forecasts that by 2035, the nation will attain energy self-sufficiency.  The Energy Information Administration (EIA) predicts in itsAEO 2013 Early Release Overview that improved fuel efficiency and growing domestic oil consumption will see foreign oil imports fall by one quarter between now and 2020.

But, the ESLC warns that this energy independence is “meaningless” as oil prices are determined globally. With regular oil price increases, the US could struggle to increase economic growth. It is virtually impossible for any country to be completely energy independent. The country would have to produce all its own oil and it would have to be independent of the global economy. The global oil price is reliant on the supply/demand relation, and the price is pretty much the same for all countries. With oil, all countries are affected when the total supply is down relative to demand, causing the price to rise. When there is a boost in supply, the global price decreases. Therefore, with respect to oil price, energy independence does not exist. Even if the U.S. were producing as much oil as it was consuming, a halt in production by Iran or Saudi Arabia would still drive up the oil price in the US, explains NPR. However, it does make the country less vulnerable to oil production cuts in other countries and this is why countries are trying to reduce their dependence on foreign oil producers. Roger Altman, former US deputy Treasury secretary, says he prefers to call this “energy security” instead. 

The US has actually been working towards its energy security for the past 40 years. Clearly, this has not been an easy goal. However, energy security may now be attainable thanks to new techniques and technology for extracting oil and gas from hard to reach deposits. Already, oil imports are plummeting. 

U.S. energy demand is constantly on the increase and it is therefore likely to be years before the US can enjoy complete domestic energy independence. Therefore, ESLC council members suggest that the government focuses on an increase in its total energy production. This includes revising the five-year offshore drilling plan and overhauling the bureaucracy for permits for major energy projects such as drilling, renewable energy, transmission lines and pipelines, explains The Economic Times. Currently, projects can be held up for years in an interagency process before the government makes a decision. The council also suggests that increased investment in research is needed to cut the cost of electric and natural gas vehicles. They say that incentives should be put in place to build refueling infrastructure, encouraging consumers to purchase these vehicles. Rick Rule, founder and chairman of Sprott Global Resource Investments Ltd, is in agreement and says that the US should substitute natural gas for petroleum as a motor fuel. He adds that this may result in “fewer military adventures in the Middle East.”

He adds that the US is host to “spectacular” natural resources and is the “epicenter for extractive and exploration technology.”

Engerati Analysis

Although complete energy independence on the economic side for the US is unlikely, the US is definitely moving towards energy security. In the last 10 years, the country has become less reliant on oil supplies from foreign sources. However, the world oil price has left US consumers paying a higher price. For this reason, while domestic oil and gas production levels are on the increase, it is essential that the country focuses more of its attention on diversifying its sources for electrical power generation. The introduction of renewable energy sources such as wind and solar will increase the life expectancy of the country’s oil supplies which will run out eventually.

Sources                                

Business Insider-Rick Rule: A Global Perspective on US Energy Independence

Economic Times-US oil boom: False sense of ‘Energy Security’

EIA-AEO2013 Early Release Overview

NPR-Energy Independence For US? Try Energy Security

Think Progress-US Energy Outlook: The Good, The Bad, And The Ugly

Wall Street Journal-Groups Press to Focus US Energy Strategy