Thursday, August 09, 2007

Global Energy Security

A few weeks ago, when the National Petroleum Council's report on the US energy future was released, I promised to devote several postings to its chapters on supply, demand, geopolitics and technology. Geopolitics, covered in Chapter Four, it seems like a good place to start, because many of the issues with which it deals underpin the study's discussions of supply and demand. It is also extremely relevant to pending energy legislation, and perhaps even to election-year politics. As best I can tell, there's no way to download this chapter separately from the entire document, and I'd be remiss if I didn't point out that this is a very large file. The key message of the Geopolitics section is that a multilateral, market-based approach benefits the US much more than the pursuit of isolation and energy independence. That's hardly a surprising view for a body like the NPC, but the report grounds it in a realistic view of the current global situation.

Some of the key trends that the report's authors address include the challenges to globalization and expanding trade--of which they see energy as an integral component--and the growth of energy bilateralism and resource nationalism, both of which threaten the post-World War II international system that has benefited the US so much. They also look at some very interesting shifts that are taking place in long-established energy trading patterns, with the emergence of large developing countries as markets for the energy supplies of other developing countries.

The main focus of this chapter is energy security, and it applies a very global perspective to that concept. The US is hardly the only country in which this idea is gaining favor, and if we all pursued a go-it-alone mentality in this area, the resulting clash of consuming nations' energy interests would only benefit energy exporters. The study provides a useful set of criteria for energy security:
  • A competitive market
  • Stable and diverse supply with minimal disruptions
  • Low price volatility
  • Adequate spare capacity and logistical infrastructure
  • Diverse energy mixes
  • Protection of the global environment, including climate consideration
  • Flexibility to accommodate shifting demand pattern
  • Transparency and reliability of commercial relationships.
Interestingly, none of these seems restricted either to oil or to the US. Most could apply equally well to LNG, electricity, biofuels or any other form of energy that can cross international boundaries. Unfortunately, many of these principles are not reflected in the current US approach on ethanol, as embodied in both existing policy and the recent House and Senate energy bills. I have to wonder whether a global free market in biofuels might achieve more leverage on oil exporters than our heavily protected domestic ethanol program.

Like any overview, the 26 pages of the NPC study devoted to geopolitics skate over a number of issues that could have been explored in greater depth, not the least being its underlying assumptions about the superiority of a market approach in an energy environment that is increasingly dominated by large state players. Although it cites the actions and aims of these national oil companies many times, it only mentions OPEC once, leaving it to other chapters to cover one of the most important geopolitical dynamics in a tight global energy market.

Overall, the view of the NPC on energy geopolitics is diametrically opposed to that of the "green hawks" who see it as a zero-sum game, in which suppliers must be starved into submission by our rapid conversion to alternative energy. Although the NPC's internationalist, pro-trade position surely reflects the mainstream of opinion within the energy industry, it is unfortunately increasingly out of sync with a public and political sphere that has grown suspicious of free trade. Despite being the largest single recipient of global energy trade--a ranking we may shortly lose to Asia--many in the US yearn to be self-sufficient in energy, a condition we haven't experienced in my lifetime. The authors wisely remind us that it's no longer possible for the US to have an internal conversation about this, without influencing the plans of our suppliers and competitors.

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