The Next 100 Years: Energy Security in a Complex World

By joe_marroquin

Back in 2007, while doing some postraduage work at Texas A&M University, I focused some of my efforts on the geopolitics of energy security resulting in a paper that was published in the Atlantic Affairs Journal. If you’re interested in a broad canvassing of the energy field and some of the challenges that we face as a society, please feel free to take a read. The thinking is dated by about 15 years, but many of the same problems exist to this day. The work was later expanded into a book-length thesis.

The Next 100 Years:
Energy Security in a Complex World

Introduction

“Economic integration spreads wealth across the globe, but also makes local economies more subject to global market conditions.”

— United States National Security Strategy 2006

“Exponential” is the word that comes to mind when attempting to contextualize human progress for the last 150 years.  For the United States of America, this exponential growth in progress has been especially pronounced.  Today, the United States of America enjoys the largest economy on earth (Economist, 2007), utilizes 28% of the world’s energy (EIA, 2007), has the most efficient economy (EIA, 2007), enjoys a high human development index rating (HDI, 2006), our people live in a free market system, and our people enjoy living in the world’s first engineered liberal democracy (Kissinger, 1994).  According to the KOF index, a measure of globalization, the world today is more globalized than ever before (Figure 1).  Given this degree of globalization, regional economic impacts generally carry global consequences (NSS, 2006). 

Today, the world consumes over 420 quadrillion BTU of energy with 86% of it derived from the fossil fuels (EIA, 2007).  By the year 2030, the world is projected to consume over 620 quadrillion BTU and 84% of that energy is projected to be from the fossil fuels: an overall increase in energy consumption greater than 30% (EIA, 2007).  The 20th Century was the first century when the world was powered primarily by the fossil fuels (Yergin, 1991).  The 21st century will be the second century powered by the fossil fuels.  Given the tightly coupled nature of the world’s economies, any attempt to look at energy security for the United States of America must be done in the context of worldwide energy security and stability.  This paper will focus on energy security as a component of United States National Security Strategy.  It is organized as follows:

  • The Centrality of Fossil Fuels  
  • The Economics of Energy  
  • Geopolitical Considerations
  • Ecology and Its Discontents
  • Pathfinders for a Post-Hydrocarbon World
  • Discussion – The Role of Government
  • Conclusion


The Centrality of the Fossil Fuels

“Though the modern history of oil begins in the latter half of the nineteenth century, it is the twentieth century that has been completely transformed by the advent of petroleum.”

–Michael Yergin, 1991.

Three factors affect whether a particular energy source will be used by the societies of the world: density, abundance, and ease of utilization.  From an energy density standpoint, fossil fuels (hydrocarbons) offer to humanity one of the most compact sources of energy available (Figure 2).  When the energy density of oil, gas, and coal are compared against the energy density of other sources of energy such as wood, household waste, and ethanol we find that fossil hydrocarbons readily displace these alternative energy sources in terms of energy compactness.  On the other hand, the energy stored in the chemical bonds of fossil fuels is extremely weak when compared against the energy stored in the proton and neutron bonds of the atomic nucleus that can be released through the nuclear processes of fission and fusion. 

On abundance, in his seminal work, Nuclear Energy and the Fossil Fuels, Dr. M. King Hubbert while serving as chief geologist for the Shell Development Company analyzed fossil fuel abundance on the earth’s crust with emphasis on oil production and depletion rates for oil, coal, and nuclear fuels.  His analysis correctly predicted that the United States oil production would reach a peak in production by 1970 and projected that world oil production would peak near the year 2000 (Hubbert, 1956).  He estimated that coal production would peak in the United States after the year 2200 with eventual exhaustion by the year 2700 (1956).  He also estimated that our reserves of uranium could sustain humanity thousands of years into the future (1956).  Dr. Hubbert’s analysis regarding oil precipitated a forty-year crescendo of discourse by scientists worldwide regarding an impending oil peak.  In February 2007, The United States Government Accountability Office (GAO) released a comprehensive study warning that global oil production could peak without warning within the next forty years and that the United States is unprepared for such an eventuality.  Contextually though and by most analyses (Hubbert included), the fossil fuels are abundant in the earth’s crusts (Wikipedia, 2007).  Today’s estimates, refinements of Hubbert’s work, project that the world has approximately 100 years in liquid oil reserves (Economist, 2006).  We project that we have slightly less than 100 years in natural gas reserves (Wikipedia, 2007), that we have 300 years in coal reserves (Wikipedia, 2007), and that we have vast reserves of untapped oil in oil-shale and tar-sands which under the correct economic conditions can be harnessed to fuel the world for the next 300 years (Wikipedia, 2007).  Also, North America contains the world’s largest reserves of coal, tar-sand oil, and oil-shale oil (Bartis, Latourette, and Dixon, 2005).

Ease of extraction is the third component of making energy resources viable.  When looking at energy density and abundance we can surmise that nuclear fuels (fusion and fission) are the most attractive sources of energy for humanity (Wikipedia, 2007).  However attractive the promise of energy stored within the nuclear forces of the atom, the benefits of such technologically advanced energy sources come at very high prices.  Fusion holds the most promise for humanity but we have been unable to achieve a self-sustaining fusion to date for more than a few seconds at a time even after fifty years of research.  Our best estimates place commercial nuclear fusion technology fifty to one hundred years in the future (ITER, 2007).  Humanity has had better success with nuclear fission but the exploitation of this energy source has come at a significant cost.  First, nuclear fuel can be weaponized into nuclear bombs.  Second, the storage of nuclear fission waste that remains lethally radioactive for tens of thousands of years poses significant challenges for the entire planet.  Finally, although the safety record of the world’s nuclear programs remains excellent, nuclear fission reactors carry risks of nuclear reactor accidents that can threaten large geographic regions with dangerous radiation poisoning.  Today, advances in reactor technologies promise to increase the margin of safety while at the same time both minimizing the amount of nuclear waste and the weapons-grade material produced.

At the other end of the spectrum with renewables, the energy density in renewables, the technologies required to commercialize the technologies, and the lack of sufficient availability of renewable energy sources presents significant challenges to widespread adoption although work continues aggressively today.  Finally, on renewables, hydroelectric energy already provides a significant percentage of all renewable energy (approximately 4% of United States Energy production) but it is geographically limited to areas where there is enough relief for hydroelectric power to be generated.

The Economics of Energy

“Since the more than tenfold increase in crude oil prices between 1972 and 1981, world oil consumption per real dollar equivalent of global gross domestic product (GDP) has declined by approximately one-third.”

–Alan Greenspan, 2005.

From the previous section, we determined that fossil fuels were widely available throughout the earth in sufficient quantities to fuel the earth’s economies for two to three hundred years.  From an economics standpoint, fossil fuels are governed by the same forces of supply and demand that affect other aspects of our economy.  When discussing energy security, one of the traditional threats mentioned is that of “high energy prices.”  However, there are two challenges in discussing energy security economically using the subjective terms “high” and the similarly relative term, “price.”  Both the terms reflect subjective conditions that are difficult to quantify.  It is more useful to look at energy security from the overall supply of broad baskets of energy resources, the overall demand for such resources, the marginal rate of substitution between those energy resources, the stability of the resource, and the utility (efficiency) of our economy in making use of these energy resources. 

The second component that should be considered with respect to energy security and economics is the measure of how efficiently a society utilizes energy.  The United States of America is the most efficiently economy on earth (EIA, 2007).  That is because the United States moved away from hard industries to the post-industrial economies of services and information economy (both significantly more energy efficient than industrial economies).  Alan Greenspan quantified the reason for this shift:

“Much of the decline in the ratio of oil use to real GDP in the United States has resulted from growth in the proportion of GDP composed of services, high-tech goods, and other presumably less oil-intensive industries.”

— Alan Greenspan, 2005

GDP is the standard measure of economic health and productivity for the world.  The more efficient our economy is at utilizing energy, the more value we create from that energy and the less amount of energy we require to generate value and compete effectively in the world economies.  Therefore, it is desirable that from an energy security standpoint, we advocate a highly efficient economy with respect to energy and high efficiency does not equate with low price.  Low energy prices promote waste.  High efficiency indicates “right-priced energy.”

The final consideration from an economic standpoint that will be addressed in this paper is that of stability of energy flows.  Alan Greenspan said that the history of the world petroleum industry was one of a rapidly growing industry seeking the stable prices that have been seen by producers as essential to the expansion of the market (2005).  Where scarcity drives prices higher, scarcity in one energy resource can be substituted with another if enough time is present for the markets to adjust.  Instability (both in wide fluctuation in price as well as supply) though, manifests itself as much more destructive to an economy.  Stable expansion of the oil supply at a similar pace as the world’s economic growth is critical.  From an economic standpoint, it is much more desirable to have high-energy prices in an uninterrupted manner than to have widely fluctuating prices or supply interruptions.

Geopolitical Considerations

“Oil prices had been persistently edging higher since 2002 as increases in global oil consumption progressively absorbed the buffer of several million barrels a day in excess capacity that stood between production and demand.”

— Alan Greenspan, 2005

As the world’s economies expand, they will require more energy – especially if they’re industrializing.  For decades, the world’s largest oil producers had maintained a surplus capacity in oil production capability that was used to moderate supply and demand while also maintaining high oil prices.  This spare oil production capacity could be used in different manners.  If a particular crisis developed in part of the world that interrupted production from that region, spare production could be brought online to keep prices from fluctuating.    However, this reserve spare capacity has been decreasing in recent years.  In large part, this is due to the expansion of the world economies including China and India.  If the world’s suppliers of oil are forced to produce oil at their maximum rate due to the continued expansion rate of the world’s economies, then the world will be locked into a perpetual supply-constrained scenario for oil and prices will increase.  The only release valve would be either economic slowdowns or substitutions for other forms of energy.  If the world’s economies industrialize and expand at a measured rate, then the prices should remain high enough for substitutes for oil to become available and for markets to develop in the form of tar-sand oil, oil-shale oil, etc.  However, if the world’s economies expand too quickly before the stable substitutions can be brought online, supply shortages in oil could cause instability in the world economies, driving recessions and depressions and forcing unconventional oil producers into potential bankruptcy.  Managing stable world fossil fuel expansion is a key to providing energy security for the United States.

Yergin wrote that the peoples of the developing world showed no indication that they would deny themselves the benefits of oil-powered economies (Yergin, 1992).  If Yergin was correct in his analysis, the world’s economies will continue to industrialize at an accelerating pace.  The populations of China and India are large enough to precipitate an increase in oil demand to where we will move into a supply-constrained scenario for oil if not for all the fossil fuels in the coming decades (barring global economic slowdowns).  The United States of America must prepare for this eventuality.

Ecology and Its Discontents

“Hydrocarbon Man shows little inclination to give up his cars, his suburban home, and what he takes to be not only the conveniences but the essentials of his way of life.  The peoples of the developing world give no indication that they want to deny themselves the benefits of an oil-powered economy, whatever the environmental questions.”

— Michael Yergin, 1991

In his book, The Prize, Michael Yergin describes a great clash between the benefits from on the one hand the economic growth fueled by hydrocarbons and on the other hand ecological protection (1991).  We can surmise that China and India with their 2+ billion people continue to experience economic growth between 5 and 9 % that their impacts to global fossil fuel emissions will continue to increase.  Since China adds the equivalent of one United Kingdom’s worth of electricity in dirty coal plants every year (Economist, 2006), we have to rationalize that growth with ecological protective measures in the United States alone.  The United States should exercise prudence and begin earnest dialogs on reasonable measures to protect the world’s ecology while at the same time not take stringent ecological measures which would adversely affect the economy of the United States and hamper our global competitiveness.

The current tenor of the ecologic movement (as well as the energy independence movement) is that the United States should invest in ethanol and other renewable technologies in an attempt to reduce our dependence on foreign sources of oil.  Care should be taken that the analysis performed is not too superficial by well-intentioned legislators.  Energy independence is arbitrary if all of our trading partners are fully dependent on fossil fuels and if we rely on trade with them for our well-being.  Energy from renewable sources does not show the promise to materially impact the bulk of the world’s energy production (EIA, 2007).  Therefore, increasing taxes on energy companies to subsidize well-intentioned but immaterial or unproven renewable ventures could adversely affect the economic viability of the energy companies on which we rely critically for our vital energy supplies.  The ecologic movement (and energy independence movement) while well-intentioned, require maturation before they should affect material legislation.

Pathfinders for a Post-Hydrocarbon World

“We have worked with industrialized and emerging nations on hydrogen, clean coal, and advanced nuclear technologies…”

— United States National Security Strategy 2006

M. King Hubbert’s projections and predictions have been proven correct in many circumstances and the GAO agrees that the world is nearing an oil peak (GAO 2007).  At the same time, we know that the world has approximately 200 to 300 years of viable fossil fuel reserves.  However, we also know that the world’s emerging economies are growing at phenomenal rates.  We also have some indicators that the hydrocarbon age is causing damage to the ecology of the planet.  There is no definite date on when the Hydrocarbon Age will end but given all of the factors presented above, it will end within the next couple of centuries.  Therefore, energy security has to encompass the quantification of this occurrence and the long-term planning for a transition to a post-hydrocarbon economy: beginning with a planning phase.

Today, there are no viable energy sources on the planet aside from nuclear power which can in their entirety replace today’s 420 quadrillions BTU of energy and tomorrow’s projected 620 quadrillion BTU of energy.  Renewables at best are projected to displace 8-10% of our energy consumption by 2030 (EIA, 2007).  On this second hydrocarbon century, it is time to begin to identify pathfinders for the future.  Pathfinders must explore alternatives that have the capability to replace the bulk of the energy that is currently generated by fossil fuels and not minor percentages.  All available indicators show that the most likely alternatives will be some form of advanced solar technology in tandem with perfecting the nuclear technologies of fission or fusion all combined with hydrogen technologies for transportation.  All of these options present enormous scientific, engineering, and technical challenges to the United States of America and to the world and successful pathfinders could take decades or centuries to perfect and commercialize.

The United States participates in the world with respect to hydrogen, fusion, fission, clean coal research (NSS, 2006).  The United States though should seriously consider establishing strongly integrated joint ventures with the post-industrial economies of the world to identify the true future pathfinders that will provide clean, economically viable sources of energy for the centuries to come.  Such programs should be milestone-driven.  At the same time, the United States government is contemplating additional taxes to energy companies to fund multiple pathfinder technologies like ethanol.  Milton Friedman wrote that governments were poor substitutes for markets (1980), care should be exercised that the foundations of our energy industries are not undercut by well-meaning legislators working under the idealistic umbrellas of energy independence and ecology to divert funds dubious pathfinder projects.  As oil becomes scarcer, oil companies will need to drill numerous new wells to make up for production declines.  They will have to invest in new technologies like tar-sand extraction, water injection, deep-sea drilling, and oil-shale extraction to continue to provide energy to the world in a proven fashion.  Energy companies are over-taxed, not under-taxed in our current environment.

Discussion – The Role of Government

“There has been an energy crisis because government created one…there is one simple way to end the energy crisis and gasoline shortage tomorrow…Eliminate all controls on the prices of crude oil and all other petroleum products… the monopolistic behavior of the OPEC cartel might keep petroleum products expensive, but they would not produce the disorganization, chaos, and confusion that we now confront.”

— Milton Friedman, 1980

The role of government in listening to the people of the United States must be a careful one that fully distills the complex yet direct requirements that the people have of our government.  From the previous sections, the United States government should work to 1) provide energy stability and prevent energy disruptions, 2) promote stable free markets and economic expansion, 3) provide shelters in case of global economic slowdowns, and 4) plant seeds for the long future.  Also from the previous sections, the United States government should not be distracted by well-intentioned yet incorrect reactions to energy security such as 1) preventing high prices, 2) securing energy independence, 3) taxing energy companies to provide funding for immaterial renewable technologies, and 4) being overly mindful of ecologic matters when the rest of the world is not mindful.

The United States should continue to take measures as needed to prevent disruptions in oil and fossil fuels to the markets of the world and should perform this function in conjunction with the world’s industrialized powers.  Disruption (along with wild fluctuation) is singularly one of the greatest threats to the economies of the world and not high prices.  The United States should focus on the global expansion rates of the world’s economies and should pay close attention to the economic cycles of the world’s economies.  Also, if it appears that oil prices are forcing global economic shocks, the United States should work to accelerate substitution technologies within the United States and abroad to ensure stable energy prices as the world’s economies expand.  In case of economic slowdowns, the United States should provide umbrellas to energy industries that can only operate at certain economic costs.  Finally, the United States should work with the industrial countries of the world on the pathfinders for the future like solar, hydrogen, advanced fission, fusion, clean coal and work to develop milestone-based transition strategies that can be implemented in a free-market fashion to transition the world to a post-hydrocarbon economy in the next two centuries.

The ecological movement and energy independence movements have strong lobbies on our government and recent global events have caused their perspectives to be reinforced.  There is a material risk that the analysis being performed by well-intentioned ecological and energy independence movements to be faulty given the realities of globalization and the percentage of energy derived from fossil fuels.  The United States government needs to charter comprehensive analysis (not pro-fossil fuels or against fossil fuels) but rather comprehensive analysis that factors all aspects of energy security before undertaking energy independence, low price seeking, or simplistic taxation and incentive schemes.  

Conclusion

“Experience should teach us to be most on our guard to protect liberty when the government’s purposes are beneficial.  Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers.  The greater dangers to liberty lurk in the insidious encroachment by men of zeal, well-meaning but without understanding.”

— Justice Louis Brandeis
Olmstead v.  United States
277 US 479 (1928)

The 21st century will also be a century of oil and fossil fuels.  Instead of it being a period of exponential growth in fossil fuel use though, many of the exponential growth we experienced in the last 100 years will show the arresting forces of the logistics function:  tapering to a new static level.   From our current vantage, we can say that we are in the middle-ages of the hydrocarbon age.  Already, we can see the end of the hydrocarbon age.   Conventional oil production is about to peak, unconventional oil will have to replace the shortfalls.  Ecologically, there is evidence that the utilization of hydrocarbons has a negative impact on our climate and biosphere.  We are engaged in wars safeguarding access to oil resources.  Now is not the time to panic and undertake wasteful mass-scale subsidization of unproven renewables approaches.  Now is the time to purposefully plan and execute a comprehensive energy strategy for the future.  Free market economies have worked well for us, and we should leverage that efficiency in our capital markets.  At the same time, there are a few areas where markets cannot solve our problems like in the extreme future thinking and seed research needed for truly transformational pathfinder energy technologies.  There is much risk that well-intentioned but not well-thought-out legislative schemes can fundamentally hurt the world’s energy producers with over-taxation.  Today, we have the time, energy resources, educational systems, peace, and global integration required to both provide for our current energy security while planning and executing a purposeful and intelligent transition to a post-hydrocarbon world (within two centuries).    Only through the intelligent application of academically acquired knowledge and prudent application of resources can the United States government provide the energy security that is so vital to the National Security Strategy of the United States of America.

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Here is the paper as published in the AAJ:

AAJ Fall 2007