The Geopolitics of Energy

Sept 12^th, 2012

Bill and I went to a talk at the Boston Public Library in Copley Square.  It was sponsored by ‘WorldBoston’ – an organization that brings in speakers, organizes forums and sponsors students to learn about world affairs. 

The Boston Public Library is an amazing building, of course.  It was built in a time when beautiful civic buildings were a point of pride and a center piece for communities.  Bill and I sat near a window where I was able to watch the sky darken outside around a beautiful brick building façade on the other side of the street.

The talk was on ‘The Geopolitics of Energy’ and the speaker was a ‘Principal Deputy Assistant Secretary’ in the state department.  The talk itself was pretty disappointing.  I haven’t hard so much acronym soup since attending sessions of the IETF.  A laundry list of programs that the state department is promoting that relate to energy policy worldwide.  The question and answer period was a little better.  The audience was extremely well informed and many of the questions were quite interesting.

But I did learn some things I didn’t know and some random things clicked together to form a better picture.

Energy policy is fundamentally attached to security issues, economic issues and climate issues, of course.  The speaker stressed that current government policy is work on increasing supply, increasing diversity of energy sources and improving efficiency of energy use.  The goal is to reduce the risk of our dependency on foreign sources of energy, drive down the cost of energy and reduce carbon emissions.

Supply:

• ·      Energy prices are currently low in the U.S. now because of a combination of increased local production of oil (because of improved technology – he didn’t specify what but perhaps better drilling technology ??) and dramatically increased production of natural gas (through improved technology which he didn’t name but I assume this is ‘fracking’). 

• ·      Nuclear.  The U.S. has issued some (10? 20?) permits for new nuclear plants.  I didn’t know this.  I don’t know where they are.  Japan is looking hard at their nuclear future.  But since Japan is an island they are unlikely to be able to walk away from nuclear energy.  They have no other option that they can afford.  The cost of importing energy is already strangling their economy.  Germany is evaluating the future of nuclear power in their country but it is extremely controversial and it isn’t clear what they will do.

Climate Change Issues

• ·      In the U.S., natural gas has effectively displaced coal as an energy source.  One of the results is that the U.S. carbon output is dramatically down.  He said it was down to the level of the 1990s.  I find that a little hard to believe without seeing some more details.  However the natural gas worldwide market is more complicated than the oil market. (In economic terms, it is less efficient).  Natural gas is more expensive in Europe than it is here so they are more likely to use coal.  The carbon output in Europe is rising because of this.  In Japan, the cost for natural gas is even more expensive so they don’t really use it at all.  

• ·      A member of the audience asked why the U.S. provides huge tax breaks to oil companies that are perpetual but tax incentives for renewable source like solar and wind come with sunsetting provisions. The answer was pretty unsatisfactory.  First – the state department deals with international issues – not national policy.  Second – the level of capital cost and risk associated with finding more oil is so high that it can’t be done without government support. (The implication is that the capital costs for renewable energy sources are lower and/or less risky).

Security Issues

• ·      20% of the world’s oil supply travels through the Straits of Hormuz.  This remains a huge risk to the world economy.  However, he mentioned several things I didn’t know that mitigate the risk somewhat.

o   There is a huge stockpile of oil that is intended to manage the world economy in the case of an emergency shock that will buy time to resolve things if there is a crisis.  (The goal is to have three months supply and we actually have between 4 and 5 months supply currently).

o   Several gulf countries have built underground pipelines that allow them to bypass the Straits of Hormuz in case of emergency.

• ·      The U.S. military is the largest user of fuel for transportation in the world.  The U.S. military is investing significant effort in reducing its fuel consumption through better technology.  (Vehicles running on natural gas, using solar power in Hawaii, other examples).

Political Issues

• ·      Russia is a large supplier of oil through pipelines to various countries in Europe.  They have used the threat of cutting off oil as a political strategy to influence neighboring countries.  The growing supply and technological ability to deliver LNG with tankers mitigates the threat.

Health Issues

• ·      The U.S. is working with a global coalition to provide better cookstoves to 3^rd world countries.  Air pollution from bad cooking fuel in cookstoves is a major health risk.  Better technology can provide healthier choices at a reasonable price point.