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Sunday's
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'Energy Independence'
By
Daniel Yergin
With
geopolitical turmoil, volatile prices, and continuing reminders
of the international political power of oil, the concept of "energy
independence" is compelling and deeply appealing. But what
does "energy independence" mean for the United States,
a $13 trillion economy that uses the equivalent of 50 million
barrels of oil every day? In a Wall Street Journal Opinion Page
essay, CERA Chairman Daniel Yergin argues that if independence
is presented as self-sufficiency, it will likely fall flat. Dr.
Yergin says that the concept of energy security—resilience,
robustness, reduced vulnerability—combined with diversification
of supplies, energy conservation, and technological innovation,
illuminates a more constructive path. And since isolation from
global energy markets is not realistic, it is also essential to
recognize that international trade and understanding foster national
and global energy security.
A
cry is being heard across the nation, and loudly so in Washington.
It is the call for "energy independence," and it will
be at the center of the national energy debate over the next several
months, providing the rationale for new policies and expansion
of existing ones. Indeed, one might even anticipate a "declaration
of energy independence" this July 4.
But
what does "energy independence" mean for a $13 trillion
economy that uses the equivalent of 50 million barrels of oil
every day? Is it realistic and achievable? Or is it rhetorical
overreach that will lead, as in the past, to disappointment and
cynicism, the kind that drives the cycles of inconsistency in
energy policy and leaves the United States no less vulnerable?
The latter is more likely—at least without a realistic appraisal
of the US position and the country's possibilities. But "energy
independence" can provide a constructive framework for policy
if it is properly thought through and the realities are recognized.
With
geopolitical turmoil, volatile prices, and continuing reminders
of the international political power of oil, the concept of energy
independence is compelling and deeply appealing. In fact, it has
been appealing for quite some time. The idea was introduced by
former President Richard Nixon in November 1973, three weeks after
the Arab oil embargo, when he introduced "Project Independence"
and pledged that the United States would, within seven years,
"meet our own energy needs without depending on any foreign
energy source." It was a bold assertion but one that puzzled
his own advisers. "I cut the reference to 'independence'
three times from the drafts, but it kept being put back,"
recalled Richard Fairbanks, a drafter of the speech. "Finally,
I called over, and was told that it came from the Old Man himself."
Nixon knew that energy independence was something that Americans
would crave after the 1973 oil shock: He deliberately modeled
his Project Independence on John F. Kennedy's Apollo goal of getting
a man on the moon within a decade.
Back
then, the goal may have seemed only somewhat unlikely. After all,
when Nixon began his political career after World War II, the
country already had a long history of energy independence—and
then some. For it had actually been the world's No. 1 oil exporter;
indeed, out of seven billion barrels of oil used by the Allies
in World War II, six billion were produced in the United States.
By the late 1940s, the United States had become a net importer
of oil, although the real surge in imports did not begin until
the 1970s.
It
proved much easier to get a man on the moon than to make a nation
energy independent. In the three and a half decades since Nixon,
the United States has gone from importing a third of its oil to
importing 60 percent, and that share is set to continue rising.
The country is on a similar path for natural gas (which is about
25 percent of our total energy usage). North American supply has
flattened out. Yet large amounts of new natural gas–fired
electric power generation have been added over the past decade,
which means that demand will increase. Natural gas is also used
in the making of ethanol, adding to the demand growth. This means
growing imports of liquefied natural gas—LNG—rising
from 3 percent of our current demand to more than 25 percent by
2020.
All
of which suggests that thought needs to be given both to what
energy independence means and what can be achieved. For, right
now, the United States is moving at some speed in the opposite
direction, toward greater integration into the global energy markets.
How
dependent is the United States? If we look at total energy—including
coal, nuclear, and a small, but growing, share from renewables—the
country is over 70 percent self-sufficient. Oil—refined
into liquid fuels for transportation—is where most of the
current dependence comes from. The risks do not owe to direct
imports from the Middle East, contrary to the widespread belief.
Some 81 percent of oil imports do not come from that region. Thus,
only 19 percent of imports—and 12 percent of total petroleum
consumption—originate in the Middle East
Our
largest source of oil imports is Canada. It's also the source
of most of our current natural gas imports, via pipelines. One
can hardly say that either Canada or energy imports from Canada
constitute a major threat to national security. The energy trade
is part of a normal trading relationship with the country with
which we're conjoined economically and which just happens to be
our biggest trading partner. Our second largest source is Mexico,
with which we are also in a dense relationship. Mexico depends
upon oil for about a third of total government revenues.
The
picture becomes more complex when one turns to our third largest
source of oil imports, Venezuela. The once much-discussed "hemispheric
energy solidarity" loses much of its resonance when balanced
against the "21st century socialism" of Venezuela's
Hugo Chávez. After all, President Chávez is currently
nationalizing the private sector, has on occasion threatened to
embargo oil shipments to the United States, and is putting much
effort into fashioning an anti-US alliance, the latest manifestation
being the visit of Iranian President Mahmoud Ahmadinejad to Caracas.
These are not the actions one normally associates with a good
friend or a reliable trading partner.
Yet
the source of imports is significant only up to a point. Energy
security is a global issue. Although oil around the world varies
greatly in terms of physical qualities and transportation costs,
there is only one world oil market. So disruptions and loss of
supply in one place radiate throughout the global market—and
global politics—affecting consumers everywhere. Even if
the United States did not import a drop of oil, it would still
be vulnerable to turmoil involving oil outside its borders.
What
are the prospects for "energy independence" in the way
that Richard Nixon defined it 34 years ago—that is, 1930s-style
"autarky" and total self-sufficiency? Based on where
we are today, very small, at least for a couple of decades. In
terms of vehicles, as pointed out in our new study on Gasoline
and the American People, only about 8 percent of the auto fleet
turns over every year. So the lead times are long for more efficient
vehicles to enter the fleet. Ethanol, derived from corn, is on
track to grow to about 10 percent of our total gasoline pool in
a few years. This is certainly not inconsequential; it represents
diversification and is equivalent to creating a new Indonesia-level
oil-producing country in America's Midwest. But signs are already
evident of an upper bound on corn-based ethanol, as the fuel-versus-food
trade-off pushes up corn prices, setting off vocal protests from
livestock growers and dairy farmers and, in due course, from those
who buy breakfast cereals and soft drinks made with high fructose
corn syrup.
What
about technological advances that provide new answers? There is
a "great bubbling" all along the innovation frontier
of energy, ranging from conventional energy and efficiency to,
especially, renewables, alternatives and "clean tech."
Activity this wide-ranging has never been witnessed before. The
impact could well be considerable, or even transformative. One
would be very hard-pressed today, however, to say when and what
form this impact will take.
In
the end, if energy independence is presented as self-sufficiency,
it will likely fall flat. And, as prices run through their cycles,
disappointment will undermine the longer-term commitments that
are required for a sound energy future. Today, quite simply, cutting
ourselves off from global energy markets is not realistic.
But
if the goal of energy independence is understood differently,
to mean energy security—resilience, robustness, reduced
vulnerability—then it is much more useful.
This
kind of definition recognizes that trade, in itself, is not bad.
At the same time, it emphasizes the central goal of diversification—encouraging
investment and higher levels of research and development in both
alternative and conventional energy sources. It means a new push
for energy conservation, higher energy efficiency, lower energy
intensity—a theme that German Chancellor Angela Merkel will
make the centerpiece of her agenda as chairman of the G8 countries
later this year. It certainly requires a consistent commitment
to pushing the innovation frontier in ways that, eventually, lead
to economically competitive alternatives and new technologies.
And
it requires an understanding that this kind of energy independence—as
measured in energy security—actually requires interdependence
with other nations, both consumers and producers of energy. Indeed,
how we manage our relations with other countries and other regions
is a very essential ingredient for our own energy well-being.
Daniel Yergin
is the chairman of Cambridge Energy Research Associates. Petroleumworld
not necessarily share these views.
Editor's Note: This article was published by Insights@CERA, Issue
48, March 2007 (The article originally apeared in the January
23, 2007 edition of the Wall Street Journal). Petroleumworld reprint
this article in the interest of our readers.
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News 04/01/07
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