Energy Security in the USA - Case Study Example

Energy security and the USA Introduction Among the many challenges that the USA (United s of America) faces, energy security would surely rank as one of the most pressing and urgent challenge that the nation is currently grappling with. The economic rise of China has meant that it has greater leeway among the oil producing nations of the world in securing energy supplies for itself. In a race between the USA and China for ever dwindling sources of energy supply, both the countries are busy re-working and fine tuning their strategies for energy independence. In a world where the “Peak Oil” has become part of everyday language and the Hubbert’s peak has been said to have been crossed, it is inevitable that the great powers engage in the 21st Century’s version of the great game. Akin to the earlier battles among the European and British colonialists for resource rich countries as feed stock and markets for the Industrial revolution, the modern day version of the “Great game” is between the US and China for control over the world’s supplies of oil and energy. This has taken on many dimensions that span across the continents of Asia and Africa and has led to both the countries using their political and military might to scour the regions for supplies and ensure that the energy security of their respective economies is guaranteed. This paper looks at the energy security strategies of the US and China and shows how they fare against each other. The implications for the rest of the world are also discussed. Further, the need to diversify into alternative sources of energy like bio-fuels and nuclear energy is also discussed. The paper starts off by examining the current scenario with respect to the primary source of energy – oil- and the advent of the hydrocarbon economy. The Hydrocarbon man – advent and decline Ever since the advent of the “Hydrocarbon man” as a metaphor for the word economy that runs primarily on oil as the source of energy, the great powers of the world have been in a constant battle for access and privileged use of this resource. As Toffler (1980) says, the first wave of the change in human society was the shift to agriculture and the second wave was that of the industrial revolution and the use of coal as the source of energy. Between the 18th and the 20th century, oil quickly replaced coal as literally the “lubricant” by which the industrial and transport infrastructure runs. Ever since the first oil wells were dug in the US in the 19th century and the subsequent foray by western oil majors into the Middle East, the world has seen a swing from the overwhelming use of oil and the present scenario where a barrel of oil costs in the range of $125- $150 a barrel. The current situation is such that we are witnessing the decline of the hydrocarbon economy and a gradual shift to other sources like bio-fuels and methanol Paul Roberts (2006). In the subsequent sections, we shall see the other alternatives like solar, wind and nuclear energy not to leave out the promise of the hydrogen cells or the fuel cells. Thus, we are at a point where the US and the rising super power China have to evolve or transition towards a gradual shift towards other sources while retaining the infrastructure of oil as the energy source. This necessitates a battle for the remaining “oil in the ground” and investment in research into the alternatives. Thus the quest for “Energy Security” is the new philosophy guiding the nations of the world and in particular the US. The quest for Energy security – USA America is willing to wage war to ensure its energy independence and energy security. As Paul Roberts (2004) points out, American foreign policy in the Middle East and other central Asian and African republics is dictated by the concerns of securing and maintaining a steady oil supply to the American populace, who have been used – in some people’s minds, pampered- to cheap gas. Though several attempts were made to wean away the average American from an addiction to oil, it has not been possible for the policy makers to achieve any substantial progress in this respect. The average American continues to drive his or her SUV’s and other gas guzzling automobiles and drive long distances and take vacations to distant places. Thus, the great American dream has been fuelled as much by hope as by oil. This remains one of the big challenges for the American government. The recent events in the Middle East indicate that the US government has energy security on top of its mind and securing resources in a world that is increasingly short of oil seems to be the first priority of the American elite. America’s huge appetite for Oil has meant that it is in the forefront of global efforts to secure oil resources in politically sensitive and risky regions of the world. Historically, American strategy for energy independence and security have hinged on three pillars, namely: - Diversifying the sources of oil - Managing an inventory of the strategic petroleum reserve - Increasing the efficiency of the usage of oil (Set America Free, 2008) The goal of American strategic planners for energy security has been challenged by the rapidly depleting stocks of oil and the strategic petroleum reserve. Thus, to meet the growing demand for oil and to feed the nation’s hunger for cheap gas, the government and the policy elite have come up with a set of strategies that are described can as a combination of management of the current reserves as well as envisaging and planning for a future devoid of oil. Conferences The American policy making elite is focussed on China as an emerging threat to the energy security of the US. This has resulted in serious debate and discussions among the american think tanks, some of whom have held meetings to discuss the policy implications and other considerations. Some of the conferences that were held recently to discuss the prospects of renewable energy in the US: - “The Washington International Renewable Energy Conference brings together government, civil society, and private sector leaders to address benefits and costs of the global deployment of renewable energy technology.” - Chinas Search for Energy Security and Implications for the United States The current obsession of the policy elite can be summed up as the fear of the Chinese dragon as well as the insecurity about current and future oil productions. The oil shocks of 1973 and 1979 are still etched in memory and long lines at gasoline stations evoke bitter recall and a desire to be independent of the embrace of the OPEC cartel. However, as we shall see, it is not an easy road ahead for the US to make the switch or even get guaranteed supplies notwithstanding its military and political might. The quest for Energy security – China China’s thirst for energy has led to its oil companies scouring the world for energy resources. The rapid rise of China to become the world’s second largest consumer of petroleum products has had ramifications on the world energy scene. China’s leaders worry that we are now entering an era of tighter energy supplies and this has led to China going on a multi-billion dollar shopping spree across the globe (The Mckinsey Quarterly 2008). The state owned oil companies have spent more than $15 billion over the last five years in acquiring more than 100 oil fields and companies in foreign countries. In the quest for Energy independence, China has gone as far as to support the regimes in countries like Iran and Sudan to get access to their petroleum reserves. This has led to concerns among other oil-consuming nations about the appetite and hunger of the Chinese for oil and energy. Ultimately, however, Chinas investments in foreign oil reserves likely wont fill the energy gap. Even if the countrys oil companies succeed in maintaining domestic production at todays levels – which in itself is difficult - they would have to acquire an additional seven billion tons of foreign oil to meet projected demand from now until 2025. That is the equivalent of 3 percent of the worlds known petroleum reserves (The Mckinsey Quarterly, 2008) Even if it is possible to buy all the reserves China is likely to need, the investment probably may not be a smart one. On an average, the China’s state-owned oil companies pay at least 10 percent more for foreign reserves than major international oil companies do (The McKinsey Quarterly, 2008). This premium indicates that China will pay significantly more for the reserves it purchases than it would if it just bought the supply it needs on international markets. In addition, the foreign reserves of the national oil companies are generally in risky locations where wars or socio-political upheavals could interrupt the flow of petroleum. That puts a dent in Chinas energy security. The way out for China would be to liberalize its energy sector and allow foreign competition into the oil production and refining industries. Further, China needs to integrate itself into the global petroleum supply gird or market and join the other consumers of oil in the supply side of the energy reserves. This is a more efficient and less costly strategy and would involve reform of the state-controlled petroleum sector, opening the sector to foreign investment, and integrate the country into the global system that supplies Japan, the United States, and other big energy consumers. (The McKinsey Quarterly, 2008). China’s race to own more and more oil producing assets in the African and Central Asian republics is in direct competition with the interests of other Asian economies like India which are also experiencing a growth in their economies and consequently on the look out for energy supplies. This competition to secure the energy resources has taken on many dimensions including the form of political and economic support to the Oil rich but politically unstable nations. How this would play out would determine the geo-politics in these regions over the next few years. A sub-text of China’s quest for energy has to include India as well and these two Asian neighbours are squaring off against each other in securing the support of many African and Central Asian republics. Future of America’s energy strategy As the US prepares for the 21st century, according to Paul Kennedy (2003), the vision of the planners should be directed towards a “transition” from one form of energy source to another. While there are varying estimates of when the world oil production would “peak” or the point at which the production outstrips the reserves and no new discoveries can be made, the strategic elite of the US are focussed on the short term as well as the longer term goals of energy security. While the short term measures would include ensuring a steady supply of oil from the domestic production units and the supplies from the Middle East, the longer term strategy would revolve around “weaning” America away from oil. This in effect sums up the future of energy in the US. The future of American energy strategy would hinge on Securing the current as well as projected oil supplies Finding alternatives to oil such as bio-fuels and some likely alternatives to natural gas and coal. Investing in fuel efficient cars and logistics of transportation Moving away from the hydrocarbon economy Securing the present sources of oil The present sources of energy need to be secured on a long term basis and as mentioned in the previous sections; this includes the willingness of America for strategic interventions in other countries as well. The worrying point for the US is the emergence of Hugo Chavez in Venezuela, a major exporter of oil to the US and his threats to cut off the supplies of oil. Another factor is the continuing instability in the Middle East that is causing the world crude price to go up substantially. Thus, the foreign policy imperatives before the US are to try and gather maximum leeway with regards to the supply of oil. There has been much talk of pumping oil from the Alberta Sands and the Alaska Wildlife reserve (James Martin, 2008). However, this has met with vociferous protests from wildlife activists and conservationists. President Bush has vowed that this is an option that he would like to explore and it has to be seen how much of this would come to action. Alternative sources of Energy With the price of natural gas as it is today, solar and wind power as a power generation alternative would be uneconomical without subsidies larger than todays production tax credits. And with the inherent uncertainty of these sources of energy and power, it would take some time before they can be developed and nurtured as long term sources of power. Nuclear power is a viable economic alternative, but it is fraught with political dangers as the public perception of the nuclear plant’s safety and the image of the 1979 incident at Three Mile Island still in public memory makes this one of the untested but a promising alternative. Notwithstanding the “cleanness” of this source of power as claimed by experts, governments are still hesitating to put their foot forward for this source of power. Hydroelectric power, on the other hand, isnt constrained by politics. But, the attractiveness of this source of power has meant that the western states have built dams across every conceivable source of hydro electric power. Its hard to imagine that the worlds biggest economy, the US, would watch as rising energy prices make its corporations uncompetitive, tight supplies cause blackouts, or a new generation of coal plants pollute its skies. Yet the United States faces sensitive trade-offs—particularly between jobs and the environment—that create a risk of political uncertainty. These solutions require careful re-evaluation, by both regulators and the power industry representatives alike. The problem till now has been the low price of gas in the US that has delayed the introduction of some of these measures. However, it might be the time to act now considering the high price of crude in the international market. Investing in fuel efficient cars and savings through energy efficiencies According to The Vehicle Fuel Economy Mandate a national mandatory fuel economy standard of 35 miles per gallon is to be achieved by 2020, that has a potentail to save billions of gallons of fuel and increase efficiency by 40 percent - White House Website on Energy (2008). The Fuel efficiency act also has the following provisions: “The Lighting Efficiency Mandate will phase out the use of incandescent light bulbs by 2014, and improve lighting efficiency by more than 70 percent by 2020. The Appliance Efficiency Mandate sets over 45 new standards for appliances. The Federal Government Operations Mandate will reduce the energy consumption of Federal Government facilities 30 percent by 2015. Additionally, all new Federal buildings will be carbon-neutral by 2030 “ In addition to this the initiative to bring in more fuel efficient cars would include: Making it contingent on every vehicle manufacturer who caters to the US market to introduce flexfibel fuel vehicles – vehicles that run on gasoline or bio-fuels Providing incentives in the form of tax cuts to people who buy fuel-efficient hybrid vehicles. Investing in vehicles powered by fuel cells Renewable energy and Fuel diversification The strategy of investing in renewable energy is to ensure that the sources of enegy should be diversified so as to make sure that the dependance on oil is reduced substantially. Renewable energies make up some of the better promising new sources for energy because they are clean and because their supply can be regenerated. The Renewable Fuels Mandate has specified an increase in the use of renewable fuels by 500 percent – a target of supplying 36 billion gallons of renewable fuel in the year 2022. According to the White House Website on Energy , “In December 2007 , President Bush signed into law new loan guarantee authorities to support alternative energy sources.  The new authority would allow additional loan guarantees of up to $38.5 billion, of which $18.5 billion in loan guarantees will support construction of new plants and enable nuclear plant owners to reduce their interest costs.”  There are several initiatives to reduce the gasoline in trucks and vehicles with that of bio-fuels and ethanol. The ethanol production has quadrupled from 1.6 billion gallons in 2000 to an estimated 6.4 billion gallons in 2007 making the US the leading producer of ethanol and accounting for nearly half of the world’s production. As much as there are concerns about diverting the agricultural resources to bio-fuel production, it has become imperative to invest in such alternative sources for a “post-hydrocarbon” economy. The other promising area of alternative fuels is “Fuel cells” or hydrogen powered cells. These use hydrogen or water as the source of fuel and are “clean” technologies as compared to that of oil and coal. USA vs. China – the race for energy security As the globe becomes fragmented into the new and emerging power blocks between those led by the US on the one hand and the other one a coalition of interests led by China with Russia stepping in, it becomes apparent that the fight is for the energy resources in the world. As we have seen in previous sections, the strategies of both China and the US are towards attaining energy independence and the paths followed by them have been diverse yet intersecting at some points. The main divergence is in the fact that the US is well equipped and poised to make the “transition” to alternative sources of energy better than China. If we look at the development graphs of both countries, it becomes apparent that China is still in the “growth and levelling” of phase of energy and it has not yet broken free of the “dirty” technologies that use Coal and others for their energy needs Paul Roberts (2004). The US on the other hand is making slow but steady steps towards other sources of energy though the resistance to move to them is huge and Washington has yet to build a consensus among business and policy makers on the best way to approach the goal of energy security. But, all said and done, the US by virtue of recognising the importance of climate change as a catalyst for moving to alternative sources is well ahead of China. But, China is in the “here and now” stage and has managed to secure for itself the support of oil-rich nations in central Asia and Africa. This, more than anything else, guarantees China a sort of energy security for the next few years. In this respect, American policy towards the Middle East has been a bit “jagged” and there have been some mis-steps on its part. The question of who among the US and China would get to the point of energy independence would depend on the short term and long term prospects of both the countries and their development paths. As discussed above, the fact that the US is much more of a “mature” market would indicate that it would succeed in the longer term. However, China is not being outdone and it is making substantial progress in this regard as well. As such, the primary difference between the two is the “head start” that the US enjoys because of its pre-eminence in the world. What is certain, however is that this race for primacy would play out in the coming years and would overshadow the domestic and foreign policies of both countries. A Post- Hydrocarbon economy While it is easy to hope for a “miracle” technology to usher in a post-hydrocarbon economy, as Paul Roberts (2004) says, that a transition to that would not be easy and hassle free. This is because of several factors; primary among them that relate to the way in such a transition can be carried out. The infrastructure that has been built up around the hydrocarbon base is so pervasive and prevalent that a transition has to take into account what has been called the problem of “last mile connectivity” in telecom parlance. The earlier transitions from coal to oil were wrenching ones that involved a whole way of life being turned upside down due to the process of an “energy shift”. Likewise, though there is much promise in the new technologies like fuel cells and ethanol, a sensible strategy would be to examine ways in which an alternative energy source can fit into the existing structure. The best bet would be for the oil majors or the “big oil” as they are called to explore and invest in the alternative fuels and work in conjunction with the auto majors on how best a fit can be achieved. The promise as well as challenge of a post-hydrocarbon economy lies in this. Climate Change and alternative fuels The essay so far has focussed on what the US can do about its energy security and energy future. What has been left out of the discussion about energy security is the urgent need of the hour to combat climate change and move away from an oil-based energy source. Of all the arguments against oil, climate change is the most compelling and one issue that would make the government sit up and take notice and move to action. As James Martin (2008) points out, we are heading into a catastrophe of climate change induced disasters in the environment and the challenges before our generation is to ensure a world less polluted and free of depletion of the nature. And as Al Gore’s award winning documentary about climate change shows, “The Inconvenient Truth” is waiting to burst upon us and force us to re-think our energy future. Thus, it is now recognised by almost everyone in the business that this would definitely be the most pressing reason for us to move away from oil. How this happens and how we can ensure that would remain a topic for serious discussion in the days to come. Conclusion This paper has looked at the various strategies of the US in securing its energy future and how it has taken steps to strengthen its energy security. This conclusion is for the paper in general and we summarise the main points that have been discussed and some of the conclusions that have been listed throughout the paper. The first and foremost point is that a move away from oil is inevitable though we cannot say when and what shape it would take. The contention of the paper is that the US has to strengthen its short term supplies while ensuring a transition in the longer term. For this to happen, it must ensure that the present production in the domestic fields as well as its imports from international suppliers meet the demands of its economy. The geo-political strategies that it has to adopt have been dealt with. These relate to the ability of the US to seek sources of energy by consent or by force. Apart from these, the US also has to countenance the threat from China over competition for scarce resources. China has already taken several steps and it is a matter of time before the current “lag” that is to its disadvantage is overcome and it becomes a force to reckon with. As one of the emerging superpowers in the 21st century, the Chinese threat is as real as it can be. The future of the US energy strategy has also been dealt with and the role of alternative fuels and the ways in which such alternatives are being explored with the help of the government have been discussed. Finally, the imperatives of climate change and an “orderly” transition to a post-hydrocarbon economy have been discussed. Sources 1. Roberts, Paul. (2004). The End of Oil. Bloomsbury, London. 2. Toffler, Alvin (1980). The Third Wave. Penguin. London 3. Cottrell, Fred. (2000). Energy and Society. McGraw Hill. London 4. Martin, James (2008).The Meaning of the 21st Century. Penguin books. London 5. Emmott, Bill (2003). 20:21 Vision. Allen Lane. London 6. Caesar, William, Riese, Jens and Seitz, Thomas (2007). Betting on Bio-fuels. The Mckinsey Quarterly. London. 7. Bozon, Ivo, Narayanswamy, Subbu and Woetzel, Jonathan R (2006). Meeting Chinas energy needs through liberalization. The Mckinsey Quarterly. London 8. 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