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Lesson 8: Security & Energy Policy

Overview

Our appetite for energy and fuel not only has significant environmental challenges but also economic and political implications. We tend to notice this only when there is a noticeable threat, crisis, or accident related to our energy access. Most of us have experienced the minor inconvenience of a neighborhood blackout; the Gulf War(s) is an example of high-stakes energy-related conflicts on an international scale.

Home sweet home, it's not.
Click for the transcript.

[Dr. Mathews is being escorted to a jail cell.] Police Officer: Here have a seat. [Dr. Mathews is now locked in a cell.] Dr. Mathew's: Today's lecture is about energy policy but also energy security. I am in the local jail. It's a tad spartan but it is an important aspect of how we deal with our economy. This is not a new subject, it's not something that was added since September eleventh. We have always been concerned about energy security. When you are in a military combat zone one of the first things you want to do is prevent the other team from moving around. So in doing that you take out their fuel supply. One of the first things we did when we started invading Iraq is to knock out their electricity. It's one of the common things you do. Our energy security is important for our national interests and it is important for our quality of life. These are some of the aspects we are going to deal with. And guys, can I get out of here now. Officer, sir, where are you going. No, over here...please. [Dr. Mathews looks around the cell.] Dr. Mathews: Mommy? [Video fades out]

Our energy supply and systems are intricately connected to our way of life and our national security, and this lesson delves into those connections and better comprehend the energy-related events and circumstances in an ever-changing regional, national, and international landscape.

Lesson Objectives

You'll be successful in this lesson when you can do the following:

  • Articulate oil history with regard to prices and security.
  • Evaluate current energy policies and their potential outcomes and consequences.
  • Identify and suggest potential energy security problems, options, reactions, and consequences.

Wake Up Your Brain

Question: If you were in Europe would you be concerned about access to Russian natural gas?

Yes
No


Click for answer.

ANSWER:
We have a strong desire for cheap energy. One of the reasons for high gasoline costs is due to high oil costs. As oil is internationally traded when there is a security threat (war, terrorism, or economic warfare) the prices rise. Similarly, if there is less fuel available the prices rise. In a cold European winter lack of access to natural gas could kill people [1]. So we do worry about oil access in the U.S., natural gas access elsewhere, and coal in places such as Japan. Putin has cut natural gas supplies to Europe previously and is threatening to do so again (Ukraine crisis). A fuel mixture is always a safer alternative as well as multiple sources.

US Energy Overview (PDF)

Read the Energy Security Council explanation of why oil is so important [2] to the U.S. Take note of why access to oil is important and flex vehicles among fuel choices (ethanol, natural gas, electricity) to reduce this sensitivity (economic impacts). Not discussed is the improving of fuel economy (higher mpg). Also, note that imports of crude oil are often a cause of oil insecurity with sometimes drastic impacts (gasoline rationing). We now are the leading nation for crude oil production and have significantly reduced imports (more on this later) but are still linked to international oil trade and the growing oil demand internationally.

link to us energy security council
Make note of the overlying themes.
Credit: United States Energy Security Council

This link above seems to be having some issues. So please take a look at these two links:

Oil and Petroleum products explained (use of oil) Energy Information Agency [3] The takeawy message being the importance of oil to the United States (heavy oil use).

How oil prices impact the U.S. economy [4] (Investopedia) The takeawy message being the importance of oil to the United States economy

OPEC

The Organization of Petroleum Exporting Countries (OPEC), has a simple charge, seen in the map below. For the geographically curious, mouse over any of the OPEC members to see an expanded view of the country. As you look through these, take special notice of the positions of borders and access to major bodies of water, as these often account for much of energy-related political intensity in these regions.

OPEC Objective: "Since oil revenues are so vital for the economic development of these nations, they aim to bring stability and harmony to the oil market by adjusting their oil output to help ensure balance between supply and demand" and "to achieve stable oil prices, which are fair and reasonable for oil producers and consumers."
Credit: JPM & EJS

This oligopoly (a monopoly only has a single controlling entity, an oligopoly has cohorts acting together to form a controlling entity) controls production via quotas for each member country. The lower the production, the higher the price per barrel (providing there is enough demand). The higher the production, the lower the prices per barrel, but more barrels are sold. (Note that Qatar is leaving OPEC to focus on natural gas production).

OPEC is important for 2 very important reasons:

  1. OPEC countries produce 40% of the crude oil.
  2. OPEC countries have 75% of the World Reserve of crude oil.
Major World Oil Producers: Proven Crude Oil Reserves (2002) and Total Oil Production (2001). See link to text version in caption for details.
We have discussed lifetime of a resource before. Here the situation is shown graphically. The reserves have GROWN over time despite the continued extraction. Note that much of the oil is in the Middle East (with most of that being OPEC controlled).
Click to expand to provide more information
Distribution of Proved Reserves in 1992, 2002, and 2012 as a Percentage
Country 1992 (total 1039.3 thousand million barrels) 2002 (total 1321.5 thousand million barrels) 2012 (total 1668.9 thousand million barrels)
Middle East 63.7 56.1 48.4
S. and Central America 7.6 7.6 19.7
North America 11.7 17.3 13.2
Europe and Eurasia 7.5 8.3 8.4
Africa 5.9 7.7 7.8
Asia Pacific 3.6 3.1 2.5
Credit: BP
Traditionally due to a high reliance on imports we needed to have good relationships with important oil exporting countries. Unfortunately, some countries are "hostile" to the United States, on the "axis of evil" list, and in regions of instability. There are also some well known "bottlenecks" in the international trade of crude oil. So the threat of supply disruptions is high. We are more secure now we produce more oil than we use.

Oil Prices

If we look at the price per barrel over a long time period (normalized to adjust for inflation) it is very evident that price instability influences the industry. This has major impacts because oil is still the dominant energy source for the world, including the US.

Line graph of the critical petroleum-related events and United States refiner acquisition costs from 1970 to 2000.  Complete description below.
Critical Petroleum-Related Events and U.S. Refiner Acquisition Cost, 1970 - 2000
This graph gives you a visual sense of crude oil prices relative to important political events and legislative actions over the past 30 years. Click on the link below for events and details. Pay special attention to The Arab Oil Embargo, the Iranian Revolution, Petroleum Price Decontrol, and the Persian Gulf Crisis. What's most important to grasp here is the basic relationships between certain events and oil prices. Description of the critical Petroleum-Related Events, 1970 - 2000 [5]
Credit: EIA

After 2000 the price increased, dipped, and spiked at above $100 per barrel! This link shows missing data. [6]

Flow of Energy

Now take a look at what the flow of U.S energy sources looks like. This chart is represented in quadrillions of BTU's, which about covers a year's worth of energy for this country. Notice the breakdown of where our energy comes from, how it is used and consumed, and particularly how dominant oil is in the mix. Most of the oil goes into transportation, there is some contribution from biomass but in 2018 it was ~5%.

Flow of energy (estimated) for 2018. Petroleum is a large contribution, mostly to transportation.
The US energy flow of 2015 clearly shows the dominance of petroleum and natural gas as energy sources.
Credit: LLNL

Video Description

View a 7:45 video describing the Sankey Diagram [7] from 2015.

Click to open a Transcript of The Sankey Diagram Explanation Video

Dr. Mathews: This is a Sankey diagram that gives us an indication of where we're using energy in the United States and its various sources. And so if I point a couple of things out, we have electricity generation over here, and we also have various sectors-- the residential, the commercial, the industrial, and the transportation systems.

So here's what we call energy services. So this is the combination of all our transportation energy and energy that we utilize. One other thing to note is that we reject a great deal of energy. Obviously, when we are using steam as a means of generating electricity, we are having a great deal of rejected heat. So the energy coming into the turbine, we don't extract all of it because we throw away this hot water, this low-temperature steam as well, and that's where that rejected energy comes from.

Even in transportation services, our vehicles are inefficient. We generate a lot of heat, where really we'd rather have kinetic energy. And so there are limits on how much we can improve that if we're, indeed, being restricted to the thermo cycle, that steam, that high-temperature means of generating energy.

So the thickness of these lines from these various sources-- so petroleum, biomass-- gives you an indication that we use a great deal more petroleum than we do biomass in our energy systems, but we get a sense of where those various energy sources contribute towards. The units here are in quadrillion BTUs, and so this is a great deal of energy. But let's simplify it a little bit and see where the individual fuel sources contribute to.

So petroleum is definitely serving transportation. You can see that the bulk of it goes to our transportation services. Again, note the inefficiencies in the system because we generate a great deal of heat when we'd really like that kinetic energy to get us from A to B. Industrial users, obviously, some fuel oil as well goes into industrial uses. But the bulk of this transportation you can see is really coming from petroleum.

If we add in-- clicking the wrong button. If we add in biomass, you can see that biomass goes to industrial users. So a lot of that is going to be agricultural waste. People like the paper industry, they're going to cut down trees, use the rest of the biomass in their industrial heat needs to generate steam. But other uses as well. A lot of this is agricultural waste.

We do have a contribution to transportation services. The bulk of that is going to be in the form of ethanol in the United States, with a smaller contribution of biodiesel.

If we look at natural gas, we have a lot of industrial users. Again, they're using that for heat. Commercial users. Again, that's heat. Industrial users are going to use it for high-temperature steam as well for their particular needs. And of course, at home, natural gas for cooking, water heating, and home heating as well is now a significant source.

We are using a great deal more, however, going to electricity. The shale gas revolution has enabled natural gas prices to be considerably reduced and cheaper than coal. And so what we see is more utilities switching to utilize natural gas. When I do turn on coal, you can see it's actually a little bit larger.

This is 2015 data. I'm recording this in early 2017. I expect the new data to come out in another month or so, and we'll see a little bit of changing in the thickness. But for the most part, this would still be a good representation for a couple of years on. If we're now in 2020 and I haven't updated, please yell at me and I will certainly do so.

So moving on and adding in the coal, obviously, coal primarily serves electricity generation. Around 10% of the coal doesn't go into that area. Some of that's going to be coking coal, some of that's going to be direct uses for industrial, where they're looking at steam generation. A lot of it's coking coal, particularly for the steel industry.

Moving on to nuclear. You can see that, obviously, it serves electricity generation. And then if we start adding in the renewables, hydro is, of course, the largest. Mostly electricity generation. Some large industrial users will deliberately move close to hydroelectric sources and be very large consumers there and benefit from that large scale cheaper pricing. And of course, we don't want to move electricity over any considerable distance either, and so that makes that process a whole lot more efficient.

Wind, growing significantly. Still not as large as hydro but is certainly getting there. So while hydro is generally stagnant in its production, we're not going to see any significant increases in the big scheme of things, wind is still a growing contribution. Geothermal is next. That's been relatively steady. We don't have many locations where we generate electricity from geothermal. That, of course, may change, if CO2 has value and/or depending on how effective wind and other renewables can compete.

Moving next to solar. Solar I wouldn't have even mentioned a number of years ago. It's more than geothermal now. It is one of the most rapidly growing contributions to energy. Mostly, you can see here in the form of electricity, we have both solar plants serving the grid, as well as individual solar cells on roofs serving commercial and primary residential users.

So solar is one of the most rapidly growing entities. It started off very small so it can grow very rapidly, high percentages. We'll get to see what happens with policy and cost and subsidies, so the continuing contribution or the increasing contribution of renewables to our energy usage. Remember, we also have challenges with things like closing down nuclear plants. And we'll see whether natural gas prices still, indeed, stay relatively cheap or whether there are more users and then the price starts to go up again. And then I think we'll flip-flop a little bit back and have a little bit more coal and natural gas in the coming years for electricity derived percentages. Anyway, that is the flow of energy in the United States. 

The 1973 Arab Oil Embargo

To understand the events leading to the Arab Oil Embargo of 1973 you need to understand why Israel is in its unique situation. Go to the CIA World Factbook and select "Israel" look at the "background." Just as we Brits managed to screw up completely every country we ever "owned," Israel is no exception. It is a United Nations created country. In 1973 Egypt and Syria jointly attacked Israel on Yom Kippur (the holiest day in the calendar). It was the age of the "Cold War". Syria was receiving military supplies from Russia and Israel military supplies from the US, UK, and the Netherlands. When Israel had survived the initial attack, recovered their lost ground, and looked to be capable of capturing large chunks of Egypt, the Arab nations (note this is not the OPEC nations) embargoed (refused to sell) crude oil to the US, UK, and the Netherlands. They later expanded the embargo to the rest of Europe. The "Arab nations" are many of the key OPEC members. The resulting loss of crude oil and considerable uncertainty in the markets resulted in something America was not used to: rationing of gasoline and very significant gasoline price increases. As a result, conservation, efficiencies, nuclear power, the strategic petroleum reserve, membership in the IEA, increase domestic crude production, and fuel diversity became important to America's security. Does this sound familiar? Consider these options when you listen to the current administration's Energy Plan!

The Strategic Petroleum Reserve

The events of the 1973 Arab Oil Embargo resulted in the US joining the International Energy Agency [8] and the formulation of the Energy Policy and Conservation Act of 1975. There were 2 important outcomes from these events (the act and joining IEA):

  1. The Strategic Petroleum Reserve was authorized in the Energy Policy and Conservation Act of 1975; it was also a requirement for membership (90-day supply of crude oil) in the IEA. This 90-day storage of crude and the promise to share crude oil between member countries was to dilute the influence of an embargo on individual countries. In the US we "drilled" massive skyscraper-sized holes in deep salt deposits to store crude oil from around the world. Look at the SPR website [9] to find out when these stored reserves can be released.
  2. The CAFÉ (Corporate Average Fuel Economy) standard was also introduced, setting goals of 18 mpg with the 1978 model year increasing to 27.5 in 1985. Do you remember seeing this graph below? Now MPG standards are getting higher and this will impact how much oil we need (reduce the demand). So environmental and energy security benefits!
 Line graph showing the steady increase in light duty cars and trucks from 1975 to 2020.
The introduction of the CAFÉ standard was responsible for the increase in the mpg of new model automobiles until about 1988. We have not made much progress since then although predictions are that the efficiency will increase. However, the efficiency goals are being reconsidered by the EPA under the Trump administration.
Credit: EIA

Natural Gas

Similarly, the Middle East also has much of the World supply of natural gas.

Bar Graph.  See link to text version in the caption.
Natural Gas Reserves-to-Production Ratio (how many years each nation could continue to produce natural gas at the current rate with the current reserves).
Click to expand to provide more information
Natural Gas Reserves-to-Production Ratio, 2012
Region Years
North America about 10
South and Central America about 45
Europe and Eurasia about 60
Middle East about 145
Africa about 70
Asia Pacific about 30
Credit: BP Statistical Review of World Energy

Physical Security

The events of the Gulf war and many other conflicts and embargoes have demonstrated the relative ease by which the flow of oil can be disrupted. The transportation of crude oil over large distances, geographic or political bottlenecks, and the concentration of the oil producing regions makes dependency on oil a dangerous situation. As pointed out already, pipelines are very easy targets. They are hard to protect because of their length and they are not easy to fix when there are problems (man-made or natural). There is a similar threat to energy security if we are dependent on natural gas (like Europe).

map of the United States and the major natural gas pipelines which are concentrated in central and eastern United States.
U. S. Natural Gas Pipelines.
There are major natural gas pipelines linking the fields to the population centers. We use large diameter pipes because there is an economy of scale (Pir2). We also use high pressure to increase the mass of gas that we can transport (65 atmospheres in the large pipes).
Credit: NETL

Moving the Oil Around

Oil resources, which are represented here in red, appear fairly well dispersed according to this map, although lots of oil is under the control of specific countries and regions. But wait.....the U.S. appears to have no oil resources. Why? Click on the link below the map to find out why the U.S. appears empty.

World map showing which countries export oil.
Countries of the world that export oil. Why isn't the U.S. one of them?
Why does the U.S. appear to have no oil resources? What is misleading here is that this map is showing the countries that export oil. Oil in the "red-zones"is oil that will be leaving the country, and 100% of the domestically produced U.S. oil stays home - U.S. oil basically does not leave the country. Remember, the U.S. needs to import a significant amount of oil from other countries just to keep up with its massive oil appetite. Why does the US appear to have no oil resources? Click here for the answer.
Credit: USGS
World map showing the flow of crude oil.
World Crude Oil Flows
Large quantities of oil travel via ship and pipeline, most out of the Middle East, but some from Africa, and South America. Often the pipeline has to cross several countries and sometimes ends up at a port! It would be very easy to mine a stretch of water.
 

Mid East Conflicts

 A Kuwaiti man lighting a gas well on fire.
On withdrawing from Kuwait land, the Iraqis ignited the oil and gas wells, producing significant loss of a valuable resource, lots of pollution, and lots of black smoke that was visible from space, as seen below.
Credit: NOAA

The Iran/Iraq war resulted in reductions of the production of crude oil because of the fighting and deliberate targeting of oil production regions and flooding (did I tell you about Iraq opening the floodgates of a large dam to flood an Iranian oil producing region?) Obviously the oil field fires of the Gulf War demonstrated the outcome of deliberate sabotage. Natural disasters such as earthquakes can also produce fires and disrupt the flow of oil and natural gas.

Satellite image showing evidence of burning oil wells
Ignited oil wells in Kuwait and Iraq are shown in this enhanced satellite image. Very thick black smoke is rising from these fiery hot centers.
Credit: NOAA

Looking at this image you should be able to easily identify the three significant bottlenecks in the routes used to transport oil from the Persian Gulf to Europe and points beyond. This illustrates the significance of geography to a region's political and economic well-being, and the geographic nature of conflicts, disputes, and alliances between regions and countries. This beautiful view of Northeast Africa and the Arabian Peninsula was captured by NASA's Galileo spacecraft, on December 9, 1992, as it left Earth en route to Jupiter. Visible are parts of Egypt (left of center), including the Nile Valley; the Red Sea (slightly above center); Israel; Jordan, and the Arabian Peninsula.

Map of the middle east showing the suez canal, the Strait of Hormuz and the Yemen Red Sea Entry as the bottlenecks in the transportation of oil.
Major bottlenecks in the transportation of middle eastern oil.
Credit: NAVY

Imagine the disruption of oil transportation and world energy supplies, to name just one product, that would occur if the Suez Canal, Strait of Hormuz, or the southern Red Sea port near Yemen were closed, shut down, or locked up.

An aircraft carrier traveling through the Suez Canal.
It is not just merchant traffic. The canal is currently (2014) being widened so the larger vessels can go through.
 

 

Energy Policy and Security

As usual "the times, they are a changin'!"

 link to the White House stance on Securing American Energy
White House page on Energy Security.
Credit: whitehouse.gov

Please look over the current White House stance on Securing American Energy [10] (apologies for the use of political documents).

The general topics are:

  • Increasing Safe and Responsible Domestic Oil and Gas
  • Reducing Oil Imports
  • Increasing Vehicle Efficiencies (passenger and trucks)
  • Clean Energy Innovation
  • Increased Renewables
  • Nuclear Power as a viable option
  • Smart Grid progression

You should have the goal of writing a short paragraph on each of these subjects above. Here are a few (5) pages extracted from the Blueprint for a Secure Energy Future [11]to get you started.

Also take a quick scan of the George Bush era stance [12].

Lesson 8 Coverage Map

This map represents a visual summary of the topics and ideas relating to Energy Security. It's a quick way to compare your notes, see the links, and get a quick refresher on the main concepts for this lesson. Move the mouse over the image for more information. When finished here take the lesson 8 quiz.

Accessible Version (word document) [13]

Deliverable

After looking at this map, please take the L08 quiz.


Source URL: https://www.e-education.psu.edu/egee101/node/527

Links
[1] http://en.wikipedia.org/wiki/Russia%E2%80%93Ukraine_gas_disputes
[2] http://www.usesc.org/energy_security/energysecurity
[3] https://www.eia.gov/energyexplained/oil-and-petroleum-products/use-of-oil.php
[4] https://www.investopedia.com/articles/investing/032515/how-oil-prices-impact-us-economy.asp
[5] https://www.e-education.psu.edu/egee101/node/752
[6] https://www.e-education.psu.edu/egee101/sites/www.e-education.psu.edu.egee101/files/Lesson07/oil_prices_2012.gif
[7] https://youtu.be/p6LXT3-P7QY
[8] http://www.iea.org/
[9] http://energy.gov/fe/services/petroleum-reserves
[10] https://obamawhitehouse.archives.gov/energy/securing-american-energy
[11] https://www.e-education.psu.edu/egee101/sites/www.e-education.psu.edu.egee101/files/blueprint_secure_energy_future_Oil_WhiteHouse.pdf
[12] http://georgewbush-whitehouse.archives.gov/infocus/energy/
[13] https://www.e-education.psu.edu/egee101/sites/www.e-education.psu.edu.egee101/files/Lesson08/Lesson%208%20Coverage%20Map.docx