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Is Energy Independence Undesirable?

Peter Grossman's picture
Peter Grossman 630
Associate Professor, Butler University
  • Member since 2002
  • 22 items added with 4,146 views
  • Oct 9, 2012
  • 693 views

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According to Mitt Romney, the United States will become energy independent when it no longer imports oil from unfriendly and unstable countries such as Venezuela and Middle Eastern kingdoms; in a Romney presidency we will only import oil from Canada and Mexico. Presumably, that strategy will make the U.S. energy supply more secure.

Romney’s view matches the one expressed by Barack Obama. According to Obama, energy independence is necessary because oil could be used as a “weapon” by “unstable, undemocratic governments.” Independence and energy security will be achieved, Obama says, by a vague “all-of-the-above” energy strategy.

It is undoubtedly true that Canada will not use the “oil weapon,” but then in reality, neither will anyone else.  As Roger Stern pointed out in an article in 2006, the “oil weapon” has existed mainly in the minds of Americans since 1973.  In fact, the Arab embargo was a fiasco for the Arab exporters who imposed it; the embargo became a crisis in the U.S. because of our own policies, especially price controls that prevented prices from rising to market levels.  But that’s clearly not how it is remembered here. Most Americans, like Obama, see the oil “weapon” dangling over our heads, wielded no doubt in the popular imagination by the robed sheikhs of 1970’s lore, or maybe these days by masked jihadists.

But it is an odd notion that the energy supply will be more secure by having fewer sources of supply—by, in fact, deliberately excluding most of the world’s sources. The more a country relies on itself and one or two others, the greater the toll any disruption would cause, the less secure in fact would be that country’s energy supply.

An embargo is certainly not the only possible reason for a market disruption.  The oil and gas markets could be affected by natural disasters, such as hurricanes that shut down refineries or earthquakes that damage pipelines. Drought would disrupt biofuel supplies, and all energy markets could be affected by labor conflicts, acts of terror and so on.  The key point is that the more limited the sources of supply the larger the impact these sorts of problems (and others) would have on the nation’s ability to meet its energy needs.

Back in the 1970s, when politicians of both parties made energy independence the ostensible goal of policy, officials of the Nixon and Ford administrations tried to decide just what “energy independence” was really supposed to mean. Nearly all experts agreed complete U.S. self-sufficiency was technically and economically impossible, but no one wanted to abandon a politically appealing slogan.  Among the many definitions of energy independence, one that stood out. William Simon, Treasury Secretary to both Nixon and Ford, suggested that energy independence meant having diverse sources of supply.  The more the better.  That was the key to energy security; that way no one country or even a group of countries could disrupt America’s access to oil.  In other words, energy self-sufficiency was not only technically and economically infeasible, it was also undesirable, and made us potentially less secure.

Few others bought into Simon’s argument and instead argued for the panacea of U.S. self-sufficiency. But Simon was right. Any deliberate policy that excludes access to foreign oil makes us less secure.  Still, we can take some consolation from the Romney/Obama energy independence plans; like all the other such plans (except for William Simon’s), they will remain rhetoric and will likely never be achieved

Image: Oil Tanker via Shutterstock

Discussions
Dan Wilson's picture
Dan Wilson on Oct 9, 2012

The author's point that oil producing countries are not at all likely to play the "oil weapon" against their best customer is true, but it misses the real danger of continuing to purchase oil from unfriendly and unstable nations.  The real danger of our continuing to be reliant on these nations for our oil supply is that the billions of dollars that we pour into them often goes to support individuals and groups that want to harm the U.S.  For instance, although the Bin Laden wealth that helped Osama grow al Qaeda did not come directly from oil, a majority of it came to the Bin Laden construction firm directly from the Saudi government which essentially granted the family a monopoly on the construction business.  And U.S. oil money is helping prop up President Chavez in Venezuela, who, along with his buddy Ahmadinejad, are not exactly in America's fan club.  And U.S. oil money is helping to prop up a system in Nigeria where the government is paying large sums of money to armed thugs to keep them from destroying their oil infrastructure.  While it would initially be painful for the economies of these countries to lose the tremendous flow of oil cash from the West, wouldn't it be better in the end if the U.S. was not reliant on these troubled states for it's energy or contributing to their internal turmoil? I fully agree that the U.S. needs a diverse supply of energy, but I believe we should be working on getting that diverse supply from within our own borders.  MIT has shown that with better technology, the continental U.S. has enough geothermal energy to provide enouch electricity for the entire country several times over.  And there is enough offshore wind potential to power the entire East Coast.  And there is enough solar power potential to power all of our industries.  It will take years, even decades, for the U.S. to arrive at the place where we no longer need oil from anyone other than ourselves and our close ally to the north, but that is the energy security towards which we should be diligently be working.  Yes, we need diversity, but not from an international supply of oil. 

douglas card's picture
douglas card on Oct 9, 2012

Your idea makes sense, BUT putting solar panels and a windmill on every roof, (with a couple days worth fo batteries) and an EV or at least hybrid in every driveway,  would help a lot.

John Miller's picture
John Miller on Oct 11, 2012

Peter, Your comparison of Romney and Obama energy plans being similar is debatable (Re. http://theenergycollective.com/jemillerep/109856/what-energy-independence).  Mr. Stern’s article arrives at conclusions that appear to deviate from actual history.  Yes, price controls were counter to domestic free market function, but these were implemented after the 1973 Arab OPEC oil embargo.  The oil crisis during the early 1970’s was quite real.  Due to loss of only 5% of total U.S. oil supply normal market supply-demand balances were significantly disrupted causing numerous localized shortages.  The Government tried to mitigate these issues through a number of actions including the price control policies and eventually building the U.S. SPR.  After the dysfunctional new/old oil price controls were removed the market rapidly recovered, and the new developments of ANS and Gulf oil fields soon followed.

Increased energy security, defined as the sum of the reliabilities of each supply source, is achieved by reducing the overall risk of future oil supply disruption.  Arguably today we are at historic high levels of imported oil supply disruption risk.  Of the 19 million barrels per day (MBD) consumed in the U.S., about 2 MBD come from the Persian Gulf.  Due to the Iranian nuclear ambitions and their threat to shutdown the Strait of Hormuz the U.S. now faces possible immediate loss of 10% of total oil supply.  The SPR will help mitigate the impacts of this real threat to energy security, but the folks on the West and East Coasts will likely relive their memories of 1973 (Re. http://theenergycollective.com/jemillerep/93716/us-energy-security-and-next-energy-crisis).

I agree that making the U.S. totally independent of world oil markets is likely infeasible.  This factor does not affect the ultimate objective of energy security: to significantly reduce the risk level of future oil supply disruptions, be them natural (weather, quake, etc.) or man-made (Strait of Hormuz shutdown, embargos, etc.).  Since we can’t control the weather or unstable foreign governments, we need to focus on actions that can feasible be controlled.  This includes eliminating the need for Persian Gulf imports first.  The combination of further increased domestic oil supply (a large part of the Romney plan) and petroleum energy efficiency (a small part of the Obama plan), can feasibly eliminate this risk of disrupting up to 10% of current U.S. oil supply in the near future.  Developing other petroleum alternatives should be the next priority.  These policy actions would only reduce the number of available energy supply sources by a small percentage and increase U.S. energy security quite substantially. 

John Miller

Peter Grossman's picture
Peter Grossman on Oct 11, 2012

I appreciate the comments and recognize on some issues there can be differences of opinion.  But we should all be clear about the facts.  It is suggested above that 1970s price controls post dated the Arab oil embargo.  That is simply incorrect.  In fact, when the embargo struck the U.S. had had price controls in effect for two years.  Just a couple months prior to the embargo, (the summer of 1973) President Nixon announced the fourth phase of controls aimed primarily at the oil market. (Natural gas price controls had actually been in place since the mid-1950s.)  The embargo did reduce supplies but the shortages in the US were the result of controls.  Indeed, effectively world supply had returned close to normal just after the first of the year 1974, but due to controls the longest, angriest gas lines were in late February 1974--specifically the last week, since costs could not be passed along to consumers (according to the rules of Phase IV controls) until after the first of the next month. In other words, as world supply improved our gas lines initially got longer. Price controls on oil were not removed until January 1981 and played a major part in the 1979 gas lines as well. It is clear that once the controls were removed, market disruptions (the Iran-Iraq war; the invasion of Kuwait and the first Gulf War, etc.) led only to higher prices not the shortages that price (and I'd add allocation) controls had created.   My forthcoming book, US Energy Policy and the Pursuit of Failure, recounts this history. 

Peter Z. Grossman

 

John Miller's picture
John Miller on Oct 12, 2012

Peter, I stand corrected on the overall energy price controls that were in place prior to 1973.  As you are aware, these past market/price control regulations largely contributed to peaking of U.S. domestic oil production in 1970, which also contributed to the magnitude of the Arab OPEC oil embargo impacts.  What I was referencing was the Emergency Petroleum Allocation Act in 1973 and the Energy Policy and Conservation Act of 1975 that created an even more complex system of price controls of ‘old’ oil and deregulated/re-regulated ‘new’ oil (3-tiers).  Fixing the price of all existing domestic oil production led to accelerated depletion of domestic production and ironically encouraged the market to increase imports (the exact opposite objective of past Federal price controls).  Yes, these regulations contributed to the 1979 (Iranian Revolution) energy crisis as you state. 

I don’t believe we are in disagreement on the negative impacts of price controls on oil markets.  Where I’m still not sure we agree is the supply-demand fundamentals.  Physical loss of OPEC imports in 1973 also had a significant impact on supplies and shortages.  The largest shortages were with Independents that did not have access to limited domestic supply or available Majors’ inventories.

Today we generally have access to plenty of oil and have only experienced actual short-term supply disruptions due to weather and equipment failures.  The most recent example is the California refinery outages.  It was predictable that the California politicians called for an investigation of the oil companies due to the very recent shortages and rapid run-up in retail prices.  Despite these supposed oil company market manipulation investigations being fairly common over the years (none to my knowledge ever found a violation of the law), politicians still reflexively believe that market prices should not change and possibly be controlled.  My most recent experience during hurricane Katrina found that Major oil companies actually fear legal action by politicians and are willing to sell motor fuels at a loss during these weather related shortages.  This legal threat-fear response is another form of price controls that affect markets.  Majors can generally afford the loss, Independents suffer financially.

I look forward to reading your book,

John Miller

Joel Brown's picture
Joel Brown on Oct 15, 2012

"Energy independence" is not so much undesirable as it is irrelevant.  Even if we buy zero barrels per day from the Middle East, an achievable end, we will likely continue to project power into the region in order to insure that global supply is not disrupted.  The price of crude here will be the global price unless controls on the price of domestic production are put into place.  That's the surest way to increase our reliance on imports.  Dr. Grossman is perfectly correct that legislation limiting our buying options can only damage our situation.


On the other hand, the market for natural gas is North American and BTU-based.  If we are so stupid as to allow domestic prices to rise to European, or even worse, Asian refined products and crude-based pricing by exporting more than our surplus, we are dumb indeed.  The only way to manage our exposure to the politics of the major oil producing regions (including Venezuela) is to follow Director Woolsey's advice to end the oil monopoly on transportation fuels.  Natural gas and its alcohol derivatives promise a means to that end.  Provided the ideologues stop yammering about "putting solar panels and a windmill on every roof" and come to grips with the fact that natural gas displacing coal for power generation has done more to reduce CO2 emissions than renewable energy sources and conservation combined.  It offers more of the same in transportation.  BTW, dcard88, there's never been a battery plant operated that doesn't have toxic waste in the form of heavy metals beneath its structures.

Jesse Parent's picture
Jesse Parent on Oct 17, 2012

I generally agree, JB, with perhaps one exception. The first paragraph about oil is very good, and leads into this point which I very much agree with. I actually wonder if the following is the most significant or likely 'gateway' towards creating any sort of energy change/adaptation/evolution within the US:

"The only way to manage our exposure to the politics of the major oil producing regions (including Venezuela) is to follow Director Woolsey's advice to end the oil monopoly on transportation fuels.  Natural gas and its alcohol derivatives promise a means to that end."  

Transportation will be a keystone for many parts of the US take on energy, even if simply a means by which Americans comprehend energy - 'gas prices'. If it was instead "natural gas prices", or something other than the current pump habits, that might be an avenue for change. If the natgas industry can combine with the transportation & manufacturing industry, that would be a 'revolution' I'd be curious to see. But I want to see more inependent analysis and have some fracking questions answered before I hail such as the way to go (of course).

"Provided the ideologues stop yammering about "putting solar panels and a windmill on every roof" and come to grips with the fact that natural gas displacing coal for power generation has done more to reduce CO2 emissions than renewable energy sources and conservation combined." 

But what about all of the above? Put them on there anyway and start hardnessing as much energy as you can. Not everyone is so sure the drop in emissions will remain as significant as it is, but in general I think taking coal out of the mix as much as possible is a good idea. You can't say that in a presidential debate yet, though, at least when coal-job swing states are in the mix.

I think the US should be pushing forwad with solar as much as it can, even with the huge shadow of Solyndra still clouding the metaphorical skies. But I do wonder now if, even from 'an envrionemntalists perspective', trying to encourage a shift from oil to natural gas in the tranportation sector would be a wise first step. Continued dollar votes with hybrids and EVs is important, too.

But why not a natural gas - electric hybrid?

Peter Grossman's picture
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