ISS Guest Column
July/August 2009

By
Dr. Dennis Pirages
UNLV Dean’s Professor of Government in the Department of Political Science

Building Energy Security

       It has been almost four decades since a serious discussion of non-military threats to human security was launched at the 1972 Stockholm Conference on the Human Environment.  And in the two decades following the end of the Cold War there have been many occasions on which to reflect on the changing nature of security threats in an increasingly interdependent and complex world.  The two energy crises of the “oil decade,” terrorist attacks on the World Trade Center and the Pentagon, an ongoing and deadly HIV/AIDS pandemic, and, more recently, a third energy crisis accompanied by rapidly rising commodity prices on a global scale have all played a role in reshaping ways of thinking about security.
       Along with terrorism, climate change, infectious diseases and a number of other non-conventional security challenges, maintaining access to an adequate and affordable future energy supply has become an important strategic concern for the United States and an increasing number of other oil-importing countries. Vast quantities of oil have been pumped from the ground in the U.S. since Colonel Edwin Drake drilled his first commercial oil well in Titusville, Pennsylvania, in 1859. We have built an energy-intensive economy and powerful military force while working our way through more than 170 billion barrels of domestically produced petroleum. Once-generous U.S. reserves have been steadily dropping over time as oil consumption has increased. As a result, our energy-intensive growth requires a steady stream of petroleum imports to sustain it. If we were forced to meet our petroleum needs exclusively from domestic reserves, they would last for less than a decade.
The U.S. now faces the difficult problems of making a transition from being a country with easily accessible, generous reserves to being a country where accessing much needed reserves will come at a considerable cost. Our future security, broadly defined, depends upon how well we are able to handle this transformation from being a country that once was more than self-sufficient in petroleum to one that has become highly dependent on imported oil.  
       The domestic energy security situation is becoming even more precarious because of changes now taking place in the international petroleum market.  Oil production worldwide is nearing a peak while petroleum demand from newly industrializing countries such as China and India is rapidly increasing.  This depletion of petroleum reserves was predicted years ago by well-known geologist M. King Hubbert who used his extensive geological data initially to project the year of peak oil production for the United States and later for the world as a whole.  In 1956, Hubbert estimated that domestic oil production would peak between 1965 and 1970.  U.S. production actually hit its peak in 1971 and has been dropping steadily since then.  In 1979 Hubbert undertook the much more challenging task of forecasting a production peak for the world.  He estimated that world petroleum production would peak in the early years of the 21st century.  While his projection might have been slightly premature, there are increasing indications that “peak oil” production worldwide will soon be reached.
       The surge in energy prices that preceded the current global recession reinforced the predictions that peak oil production soon will be reached.  Given the substantial growth of the world economy in the early years of the new century and the associated increase in petroleum consumption, there is now relatively little spare production capacity in a tightening world oil market.  Even though the current worldwide recession has temporarily taken some of the pressure off oil supplies, prices have already rebounded considerably and there are good reasons to believe that the factors that recently tightened the oil market will continue to put stress on world oil supplies in the future.  China, for example, increased its petroleum consumption by four percent in 2007.  Even a modest economic recovery there will spur China to accelerate its worldwide search for new sources of oil.  Although India now lags somewhat behind China in per capita demand for petroleum, an economic upturn is already beginning to spur more energy consumption there.  In 2007 Indian oil consumption rose by almost seven percent.  Additionally, the fact that speculators have come to think of buying petroleum futures as a good hedge against inflation also points to a continued tightening of the world petroleum market.
       The security concerns raised for the United States by the tightening world oil market are exacerbated by the fact that nature did not distribute oil and natural gas reserves worldwide in an egalitarian manner.  Most of the readily available oil is found in only a handful of countries, primarily in the Middle East.  Nearly one-half of the world’s proven petroleum reserves are located in just four Middle Eastern countries.  Saudi Arabia accounts for 21 percent of the total, while Iran, Iraq, and Kuwait together account for another 28 percent. By contrast, the United States possesses only two percent of the world’s proven reserves, yet consumes one-quarter of the world’s petroleum production. This situation has persisted over the last few decades and is unlikely to change much in the near future.  In 1987, 62 percent of the world’s proven petroleum reserves were found in the Middle East. As of 2007, 61 percent of the world reserves were found there. Perhaps even more significant is that the reserve-to-production ratio for the world as a whole has hovered around 42 years recently, indicating that world petroleum reserves now could sustain, at least in theory, current production for close to four decades.  But the reserve-to-production ratio now stands at a robust 77 years for the Middle East while it is only 14 years for North America.
        The U.S. now imports 62 percent of its oil from abroad. Unfortunately, we are importing much of this oil from risky sources. In 2008 slightly more than one-third of U.S. oil exports came from relatively safe sources in Canada and Saudi Arabia, but fully one-quarter originated in Venezuela, Nigeria and Angola, countries not currently noted for their political stability or close ties to the United States. Many oil exporting countries – such as Russia and Venezuela – are also using their oil resources as a political weapon.
       Given these pressures on world oil supplies, is it possible to enhance energy security by using other fossil fuels as a substitute for oil?  Unfortunately the fossil fuels in greatest supply are the most difficult to transport and use, and their increased use would add significantly to global environmental problems. While the U.S. has a relatively abundant supply of coal, using more coal would create substantial pollution and accelerate global warming. At the other end of the fossil fuel spectrum, natural gas could be a clean burning substitute for petroleum.  But a world market for natural gas has been slow to develop, partially because of transportation difficulties.  And petroleum and natural gas reserves are found to be “associated” nearly 50 percent of the time.  This means that the countries now sitting on top of large petroleum reserves usually also are countries that have large natural gas reserves.  Thus, the 40 percent of measured world energy consumption that now comes from using petroleum is unlikely to change much over the next decade, particularly since it is so critical to the world’s growing transportation fleet.
       The global economy has now suffered through three oil crisis cycles, each one having a deeper economic impact than the one before.  Each of these crises initially resulted in significantly higher oil prices, leading to recessions in the United States and other oil-importing countries.  But after a brief burst of economic growth based on higher oil prices, in the latter stages of each crisis cycle exporting countries have experienced their own economic crises as recessions in importing countries have slackened demand for oil.  Thus, the $150 per barrel oil of early 2008 has given way to oil that is now less than half of that price.  It is clear that both oil exporters and importers have a common long-term interest in stabilizing oil prices.
       Over three decades ago, energy expert Amory Lovins strongly suggested that the United States needed a long-term energy strategy that would emphasize “soft path” or renewable energy sources, such as wind or solar, as well as energy conservation.  Unfortunately, much time has been wasted since then as policy-makers have tried to avoid making potentially controversial energy security choices.  But now many of these “soft path” ideas, including a requirement that fifteen percent of the nation’s electricity come from renewables such as wind and solar power by 2020, are included in the mammoth “American Clean Energy and Security Act” which is now slowly working its way through the U.S. Congress.  While it is unclear how many of these “soft path” initiatives will survive in the legislation that eventually emerges from Congress, at least a serious discussion of energy policies that can help our Nation achieve greater energy security is finally under way.