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What are the Largest Risks to U.S. Energy Security?

John Miller's picture
Owner-Consultant Energy Consulting

During my Corporate career I provided manufacturing with power generation facilities’ technical-operations services and held different technical and administrative management positions.  In order...

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The security of U.S. energy supply has been a major Federal Government priority since the Arab OPEC oil embargo in 1973.  Since the energy crises of the 1970’s (1973 and 1979) numerous regulations were implemented to improve U.S. energy security by reducing the need for high risk oil imports.  Improvements included developing alternatives to petroleum oil fuels, increasing energy consumption efficiency and providing emergency oil supplies in the event of another large crude oil import supply disruption.  Most recently the increased development of renewable energy supplies has also been proposed as a means to increase U.S. energy security.  Even though current (2012) total U.S. petroleum consumption is at a 15 year low, domestic oil production is approaching historic highs, and net imports are at a 20 year low, U.S. energy security still appears to be at substantial risk.  What factors continue to put U.S. energy security at high risk despite implementing over 35 years of Federal regulatory actions intended to prevent and mitigate the impacts of a future major import oil supply disruption?

Energy Security Definition – Before we discuss the factors that affect energy supply performance it’s important to clearly define ‘energy security’.  Energy security is normally defined as the level of energy supply reliability, or inversely, the level of supply disruption risk.  Generally local or domestically produced and supplied energy is the most reliable and secure source.  Imported energy supplies are normally less reliable or secure depending on the imports’ origin and often the distance or routing the imports must be transported.  On average, the greater the percentage of domestically or locally produced-supplied energy, the greater the level of energy security.

In the U.S. about 16% of total (2012) primary energy is ‘net’ imported to fuel and power the economy and sustain the population.  Of the ‘total’ primary energy imports 86% are petroleum oils, 12% is natural gas, 1% is electric power, and the balance are specialty hydrocarbons.  Since the natural gas and electric power imports come from Canada, the U.S.’s most reliable trade partner, the highest potential risk to secure energy supply appears to be petroleum imports.  A little over half of U.S. crude and petroleum oil imports come from Canada and Mexico.  These imports are essentially as reliable and secure as U.S. domestic production supplies.  The balance of petroleum imports, which come from outside North America, generally have the highest supply disruption risks and lowest energy security levels.  Disruption risks include (trans-ocean shipment) weather related, unstable export governments, and other unpredictable or uncontrollable factors.

U.S. Energy Security Brief History – U.S. domestic crude oil production originally peaked in 1970 and total petroleum oil consumption continued to grow throughout the decade.  This led to a rapid increase in imports; largely from OPEC countries.  As a result of U.S. support of Israel during the Yom Kippur War, the OPEC Arab members embargoed all petroleum crude oil exports to the U.S.  This resulted in several month loss of about 4% total U.S. petroleum oil supplies and tripling world crude oil market prices.  

As a result of the 1973 Arab OPEC oil embargo the U.S. was subjected to a huge energy crisis that involved chronic petroleum fuels shortages, long waits in service station lines and frequent local supply outages.  These factors contributed to the worst economic recession (1973-75) prior to the recent 2007-09 economic recession.  To mitigate the impacts of another future oil import embargo the Federal Government implemented a number of energy policy or security related regulations beginning with the Energy Policy and Conservation Act (EPCA) of 1975, later followed by other regulations such as the Alternative Motor Fuels Act (AMFA) of 1988.  These regulations created the Strategic Petroleum Reserve (SPR), the Corporate Average Fuel Efficiency (CAFE) standards, mandated the developing alternative fuels (AF’s) to petroleum and AF vehicles (or AFV’s), and the development of ‘renewable fuel standards’.     

U.S. 1993-2012 Petroleum Oil Balances – The U.S. petroleum oil inventory-supply-consumption balances have gone through many changes and improvements over the past 20 years.  The SPR was built on the Gulf Coast and filled to a 727 million barrel (MB) capacity.  Petroleum oil supplied (consumption) peaked in 2005 and has declined by over 2 MBD currently (2012) largely due to efficiency improvements and increased AF consumption.  And, domestic crude oil and natural gas liquids production has recently increased to a 20 year high due to new production technology developments.  As a result of past energy policies and regulations to reduce petroleum consumption and recent innovations that have increased domestic production, U.S. total net imports have declined to early 1990 levels.  Refer to the following graph.

U.S. Total Petroleum Consumption and Imports

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Data source – EIA MER Table 3.3a Petroleum Trade: Overview

If one roughly defines the level of energy security as being proportional to the percentage of total petroleum consumed (supplied) from imports then U.S. overall energy security appears to have improved significantly in recent years; to a similar level as existed in the early 1990’s.  Fortunately 54% of total U.S. net petroleum imports originate from Canada and Mexico; the two most secure sources of imports.  This means that overall security of U.S. net imports could be approaching historic high levels.  This would be outstanding news, if it were not for the current level of potentially very high risk ‘Persian Gulf’ imports. 

U.S. Energy Security Strait of Hormuz Threat – All OPEC imports from the Persian Gulf region are shipped via marine tankers through the Strait of Hormuz.  Due to Iran’s developing nuclear arms program, the pending threat to Israel, and U.S. sanctions to possibly curtail Iran’s nuclear arms development, Iran has threatened to the shutdown of the Strait of Hormuz in retaliation.  If and when Iran carries out their threat to shutdown the Strait of Hormuz the U.S. would immediately lose about 2.2 MBD of crude oil imports or almost 12% of current total petroleum oil supplied (consumed); far greater than the 4% lost during the 1973 Arab OPEC oil embargo.

Strait of Hormuz Shutdown Impacts – The impact of losing all Persian Gulf imports could be substantial.  Not only would the U.S. be subjected to a very quick loss of 2.2 MBD of imports, but the impact on world markets could also be devastating (up to 20% of all world market crude oil supplies currently flow through the Strait).  World oil prices could directionally double almost overnight, sending world energy markets and economies into chaos.  While the U.S. and UN conventional military forces should be able to readily take-on and neutralize Iran’s conventional forces, it’s Iran’s small-independent, unconventional forces that likely pose the greatest and longer term threat to Persian Gulf shipping and regional OPEC oil infrastructures.

Fortunately the U.S. has an SPR to replace the possible lost Persian Gulf crude oil imports.  The U.S. currently has 695 MB of stored SPR crude oil, which is equivalent to 94 days-supplied of current total net imports.  This volume of emergency crude stocks will definitely help mitigate many of the impacts of a Strait of Hormuz shutdown.  Unfortunately the current U.S. SPR connected crude oil infrastructure will not alleviate all possible shortages throughout the country.

The SPR is located in the Gulf Coast which can readily supply crude oil locally and to the mid-continent via existing pipeline and barge infrastructures.  The other Coastal regions, however, are not as easily supplied from the SPR.  To illustrate let’s begin with reviewing how the U.S. manages energy supplies under normal and emergency conditions.  The Federal Government has divided the country into Petroleum Administration Defense Districts (PADDs).  Refer to the following map. 

Image

PADD 4 gets all of its imports from Canada and will be least affected by a loss of Persian Gulf imports.  PADD’s 3 and 2 receive very significant Persian Gulf imports, but will also be fairly unaffected by Iran shutting down the Strait of Hormuz since the SPR located on the Gulf Coast is more than adequate to replace essentially all lost imports.  Existing pipeline, river or canal transport is generally adequate to transfer SPR crude inter-PADD from the Gulf Coast to the Midwest.  The East and West Coasts, however, face significant constraints to accessing Gulf Coast SPR emergency oil. 

To transport SPR crude oil to the East and West Coasts will require loading tanker ships and port-to-port transfers.  PADD 1’s closer proximity to the Gulf Coast SPR will obviously be advantageous compared to PADD 5, which requires marine shipments via the Panama Canal.  The Federal Jones Act will also be a significant barrier to efficient SPR-PADD’s 1 & 5 transfers, which will require an Administrative variance, and still be significantly constrained by international marine tanker availability.

PADD’s 1 and 5 Strait of Hormuz Impacts – Besides the logistics constraints described above PADD’s 1 and 5 current petroleum supply-demand and imports balances could lead to greater impacts to energy security upon loss of Persian Gulf imports.  To illustrate the percentage of petroleum consumed from imports, these data were developed for PADD’s 1 and 5.  Refer to the following graph.

Percent of Total and Persian Gulf Imports to Total Petroleum (Supplied) Consumed

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Data Source – EIA PAD District: Product Supplied and Imports by Country of Origin.

The above data shows that PADD 1 was most reliant on total and Persian Gulf petroleum imports 20 years ago.  Since 1993 PADD 5 percentage of imports has steadily increased.  Currently (2012) PADD 5 imports 48% of its total petroleum supplied (consumed), of which the vast majority (40% of the total PADD 5 petroleum supplied) come from outside North America, and 15% (of total supplied) come from the Persian Gulf.  The level of PADD 1 imports have dropped very significantly and percentage level of exposure to both total imports and Persian Gulf imports are now significantly lower than PADD 5.  The combination of having the greatest SPR access logistics barriers and large reliance on outside North America imports generally puts PADD 5 at greatest risk (i.e. the lowest petroleum energy security level) to a disruption of Persian Gulf imports.

Another factor that will be detrimental to PADD 5 following a potential Strait of Hormuz shutdown by Iran will be the impact of total crude and petroleum oil loss to other World countries.  Approximately 17 MBD is transported through the Strait to supply world markets.  Currently 2 MBD are shipped to the U.S. and the balance is shipped to many countries around the world.  With the total loss of Persian Gulf crude and petroleum oil, many countries will be forced to aggressively compete for the balance of available world crude and petroleum oil.  This factor will also very negatively impact PADD 5’s ability to meet its current import oil demand level.  Overall impact on the West Coast economies and populations could be many times greater than experienced during the 1973 Arab OPEC oil embargo.

Why has the West Coast’s Energy Security Substantially Declined? – The West Coast, led largely by California and Alaska, was substantially more petroleum imports independent 20 years ago.  Unfortunately since 1993 the combination of depleting Alaska’s ANS and California’s (on-shore) SJVcrude reserves-production, and shutting off access to California’s proven (OCS) offshore reserves resulted in a loss of about 1.1 MBD of PADD 5 total domestic petroleum production.  Fortunately, the combination of energy efficiency improvements and alternative fuels developments helped reduce PADD 5’s total petroleum consumption by about 0.1 MBD during this period.  This combination of lost production and reduced consumption has unfortunately increased total PADD 5 crude and petroleum oil imports by 1.0 MBD; from sources largely outside North America.  These factors have led to PADD 5 being at highest risk within the U.S. to loss of Persian Gulf imports.

In Conclusion – The U.S. West Coast (PADD 5) energy security appears to have declined substantially over the past 20 years and to levels potentially worse than during the 1970’s energy crises.  Despite 35 years of Federal and State regulations intended to increase energy efficiency, replace petroleum with alternative fuels and vehicles, and installation of the SPR, PADD 5 is at greatest risk within the U.S. to a very possible near future loss of required petroleum imports.  If the U.S. & UN sanctions fail to peacefully curtail Iran’s nuclear ambitions, Israel could find it necessary to make a pre-emptive military strike to protect their country from the growing Iranian nuclear threat.  Iran’s obvious response will be to retaliate by shutting down the Strait of Hormuz.  This action will cut off almost 20% of the world’s total crude and petroleum oil supplies, which could plunge the U.S. West Coast (primarily California) and many World Nations into major new energy crises.

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Robert Bernal's picture
Robert Bernal on Aug 20, 2013

The response to such inevitable energy crisis was surely known decades ago. That would be the complete electricfication of the majority of all agricultural, industrial, commercial and residential processes. Instead, the national strategy has been the exact opposite, one of which gave away ALL vital and strategic interests to China. For example, ALL the battery technologies, and ALL the meltdown proof fission reactor designs have been abandoned.

By now, we should have had 90% of our mobility powered by electrics and the remaining 10% powered by the wide assortment of fossil fuels, and biofuels (as biofuels can only power a small percentage on the large scale). If for some reason, meltdown proof nuclear was deemed unsafe, for more expense, we could have had Concentrated Solar thermal Power towers providing almost unlimited energy, 24/7 via a higher capacity grid.

The ONLY way to energy security is to rebuild our industrial complex around the 21st century, and to do so pronto. Sadly, this country does NOT have any worthwhile plan!

John Miller's picture
John Miller on Aug 20, 2013

The major issue with energy security is perhaps politicians viewing the issue somewhat narrowly or possibly being overly influenced by special interests.  The original plans some 30 years ago largely envisioned displacing some level of petroleum with alternatives such as natural gas, LPG, methanol, ethanol, electric, and possibly hydrogen, in addition to efficiency improvements, and, expanded domestic petroleum production.  Unfortunately electrification of transportation has made minimal progress, let alone for the machinery used in Agriculture, Industrial, etc. as you state.  The Federal Government over the past 10-20 years has put more priority on biofuels than needed electric equipment/vehicle technologies.  Why?  Someone influenced the current and past Administrations that advance biofuels (cellulosic, algae, etc.) were going to be the primary and very viable solutions.  So instead of advancing EV’s and the battery technologies to displace the need for petroleum, a major focus has instead been placed on various biofuels.  With the recent and increasing concerns over carbon emissions, most advanced biofuels have failed to deliver; yet.

The number of nuclear facilities has for some economic and various ‘China Syndrome’ type reasons, stagnated since the late 1990’s.  Fortunately many improvements in operating efficiencies and reliabilities allowed nuclear net power generation to increase very significantly until the past couple years.  Many of these units are unfortunately approaching 30 years old and face major revamps/rebuilds or retirement.  More advance nuclear technologies will definitely be needed in near future years.  Since variable, non-dispatchable wind/solar PV will require large (>60%) baseload and intermediate backup power, nuclear should plan a key role in future power generation mixes.

As far as solar thermal, cost effectiveness will be a significant challenge.  Solar thermal has the obvious advantage of power storage options, but the efficiency and cost of thermal and chemical power storage options compared to CCGT natural gas and advance nuclear will be a major technology challenge in the future.

Robert Bernal's picture
Robert Bernal on Aug 21, 2013

Thanks for the reply.

I just get impatient sometimes. I agree that CSP is more expensive than NG… and realize that excess CO2 was not really considered a concern decades ago, therefore a lag in electrification and advanced nuclear (even though it seems that policy makers would’ve consulted with scientists that should have known by the math based on assumptions of growth at that time).

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