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Energy Independence, Energy Security and National Security are Linked

By: , Posted on: May 3, 2017

In the second Presidential debate, the topic of US energy independence came up. While the US is certainly not energy independent, it is decidedly more energy secure than it was a mere eight years ago. The eight years points to a 2008 attempt by Russia, Iran and Qatar to form an “OPEC” of natural gas (dubbed OGEC by some), to control (and raise) prices. Shale gas extinguished that flame. Furthermore, US national security is significantly enhanced due to energy related developments.

Energy falls into two large buckets. One is electricity. The fuel for that in the US is almost all home grown, or could be: coal, natural gas, hydro, nuclear, solar and wind. But even here, trade may be a better cost option than domestic production. The other bucket is transport fuel, which is dominated by oil. Oil is a fungible commodity. US imports in 2015 were 9.4 MM barrels per day (MM bpd), while exports of oil derivatives were 4.7 MM bpd. The net imports were the lowest since 1970. As of early 2016, export of crude oil is permitted by law. This is important because US shale oil is light and sweet and is the highest value oil available. But US refineries largely prefer to buy heavy crude for two reasons. It is discounted by tens of percent, and they spent a great deal of capital on equipment to refine this oil. To idle that capital and buy US light crude at a higher price makes no sense. Consequently, it benefits the US to export the shale oil (sell high) and continue to import heavy oil (buy low), mostly from Canada (to the tune of 3.4 MM bpd in 2015). Canada has virtually no heavy oil refining capacity. Accordingly, it suits the two nations to cooperate. This is a clear example of where energy independence is not in the national interest. But energy security certainly is.

I choose to define energy security as the ability to access energy resources when needed, without politically or otherwise motivated foreign entities compromising that ability. A singular example of that was the Arab Oil Embargo in 1973, which led to dramatic shortages in the US, and eventually a steep rise in the price of oil. With that definition in mind, we are fully secure in natural gas. A decade ago there were plants permitted, and some constructed, to import vast quantities as Liquefied Natural Gas (LNG). Now exports of LNG have commenced, largely from those same plants.

The US is essentially secure with respect to oil supply. The biggest import source is Canada, with the mutually beneficial relationship described earlier. Of the rest, no country is in a position to dictate terms and the transactions fall under the rubric of normal trade. OPEC has been rendered largely ineffective in controlling price. Shale oil drove down the price of oil, not Saudi intransigence in not reducing production, as they have done in the past to prop up price. It was a factor, certainly, but not the reason. The US Strategic Petroleum Reserve (SPR), with about 700 MM barrels, is largely passé. A shale oil well can be in production within a few months of the intent to do so. Accordingly, shale oil reservoirs collectively are our strategic reserve. A small SPR still makes sense for emergency situations, but the bulk of that oil could be put in play if and when the President chooses.

Finally, the effect of all of the above on national security. When US shale gas abundance took out the US as an LNG import destination, LNG prices dropped in Europe. More lately, the plummet in oil price dropped LNG prices. This is an artifact of LNG price being pegged to the price of oil. The net result is that gas is abundant and cheaper worldwide (gas prices are regional, unlike oil). The contemplated OGEC gas cartel would have enriched the coffers of Russia and Iran. As to the latter, economic sanctions are ineffective against a prosperous nation. Russia’s ability to brandish the gas supply sabre (as they did in January, 2009, with a punitive supply shut down) as a weapon of political will, has evaporated. In general, with the treasury depleted by low oil and gas prices, Russian political influence is diminished. The same for Iran. The Strait of Hormuz is no longer a strategic waterway relative to US national interests. The US has no need to carry the brunt (if any) of the military load to police it. All of this was enabled by shale oil and gas. Now the challenge is to produce them sustainably.

About the book

A new volume in the Emerging Issues in Analytical Chemistry series, Sustainable Shale Oil and Gas Production: Analytical, Biochemical, and Geochemical Methods was written on the premise that analytical methods to inform these areas were wanting. While not attempting to be comprehensive, it describes important analytical methods, some still in development. These methods are underpinned primarily by chemistry, but geochemistry and even biochemistry play significant roles. The book has a solutions flavor; problems are posed together with approaches to ameliorate them.

Visit elsevier.com for more details or to purchase your own copy. Enter code STC317 for 30% off plus free shipping!

About the author

Vikram Rao is the executive director of RTEC, and assumed this position on September 1, 2008. Dr. Rao served as senior vice president and chief technology officer at Halliburton, responsible for their technology effort as well as intellectual asset management. Dr. Rao advises the non-profit RTI International and venture capitalist Energy Ventures AS, and firms BioLargo Inc., Global Energy Talent Ltd.,. Biota Technology Inc., Melior Innovations Inc. and Eastman Chemicals Company. He is a past Chairman of the North Carolina Mining and Energy Commission. Dr. Rao is the author of more than 30 publications and has been awarded 40 United States patents and foreign analogs in fields that include non-ferrous metal refining, alloy formulations, and oil and gas technology. Dr. Rao earned a doctorate degree and a master’s in engineering from Stanford University, and holds a bachelor’s degree in engineering from the Indian Institute of Technology, Madras in Chennai, India.

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