Unfortunately, despite their generation of soft power, such programs have not been developed to their full potential. Part of the reason is the growing realization that the American model of developing unconventional resources is not easily transferable. Another constraint on these programs came from the U.S. side, due to the Obama administration’s sensitivity to accusations that such programs were simply vehicles to promote American businesses and—even more controversially—that the United States was promoting practices abroad whose environmental safety had not yet been confirmed at home. While the Trump administration is less likely to be swayed by such concerns, maintaining and augmenting such programs to improve energy governance over time will require more—rather than less—resources devoted to civilian agencies in the U.S. government.
The Soft Power of Spare Capacity
Along the Gulf coastlines of Texas and Louisiana lie sixty-two massive underground salt caverns. They were made by a process of injecting freshwater into wells drilled thousands of feet into the caverns, then pumping out the saltwater that resulted. One cavern alone is easily large enough to accommodate Chicago’s Willis Tower, the second tallest building in North America. These caverns house America’s massive Strategic Petroleum Reserve (SPR), a pool with a capacity of more than 700 million barrels of crude oil that is held by the U.S. government to address sudden supply disruptions. The amount of oil held in them is not arbitrary; as a member of the IEA, the United States is required to hold at least ninety days of net imports in reserve.
Many view the new energy abundance as making these gigantic caverns obsolete. Just as America’s rising import dependence during earlier decades spurred efforts to expand the size of the reserves, the long-term decline in import dependence could be an impetus to shrink them. Certainly, this has been the logic of some who have seen America’s energy prowess as an opportunity to sell off existing oil reserves in order to finance other expenditures.
A more creative mind might have a different future in store for the SPR. Rather than using its contents to generate windfall revenue, these strategic reserves might bolster American soft power by allowing the United States to exercise a pale Saudi-like influence over global oil markets in times of crisis. Chapter Two explored how tight oil production itself is not really a replacement for OPEC or Saudi Arabia’s traditional role of actively balancing the global oil markets by calibrating its production levels. But a radical rethink of how the United States uses its SPR might allow it to come a lot closer.
The bar has been set intentionally high for the release of SPR stockpiles into the market. The legislation President Gerald Ford signed in 1975 to establish the SPR laid out specific and stringent circumstances under which the United States could tap into the reserve. Initially, the president was authorized to tap into the SPR only in the event of a “severe energy supply interruption.” In the wake of the 1989 Exxon Valdez spill, Congress moved to give expanded authority to the nation’s chief executive to allow sales from the SPR under circumstances where a shortage had not yet occurred, but was anticipated, and where “action taken . . . would assist directly and significantly in preventing or reducing the adverse impact of such shortage.” Subsequent revisions further loosened the criteria but still in a very conservative fashion.
In fact, the SPR has only been used on three occasions in coordination with other IEA members for the specific objective of addressing an actual or possible shortage. In January 1991, within hours of the onset of the bombing of Iraq during the first Gulf War, President George H. W. Bush announced the sale of some crude from the SPR. In 2005, following Hurricane Katrina, President George W. Bush did the same. And, six years later, in the face of international military action again Libya in 2011, President Barack Obama authorized the sale of crude oil from the SPR.
Advocates of maintaining such a high bar for tapping into the SPR have strong arguments in their favor. They are concerned that politicians might be tempted to use the SPR for short-term political purposes. Defenders of the status quo also contend that using the SPR to tame rising prices—not just to respond to changes in supply induced by earthquakes, revolutions, or short-term events—will only delay an inevitable spike in prices once the SPR is exhausted or after releases from the reserves stop.
These arguments deserve deeper examination in light of the new energy environment. In a world of tight oil, the benefits of using the SPR to smooth peaks and troughs—rather than just respond to actual or anticipated crises—are at least worthy of more serious consideration. As U.S. policymakers become more confident in and knowledgeable about the supply response of tight oil to price changes, they could potentially calibrate releases from the SPR in response to rising prices—with a declared commitment that such interventions will not be without end. A sharp increase in oil prices—whatever its source—will have the effect of inducing higher tight oil production. The use of the strategic petroleum reserve to shave off the spike in the price, without eliminating it altogether, could soften the blow of the price rise for the months (not years) required for the tight oil supply response to come online. Concerns about political manipulation could be addressed through the establishment of an independent body—perhaps along the lines of the Board of Governors of the Federal Reserve System—that would be charged with deciding when to release stocks.
There are complications to this proposal. Most obviously, in shaving off a price spike, an SPR release would remove at least some of the incentive would-be shale producers had to invest in more production. But there are also potentially significant benefits. Together, more responsive U.S. tight oil production and the more liberal use of the SPR could prove to be at least a partial substitute for the loss of Saudi spare capacity, if the kingdom ultimately concludes that it will leave responsibility for balancing supply and demand to others. Should the United States find a working mechanism to calm global oil markets, it would be yet another way for the country to project soft power. Yes, good arguments exist against becoming an activist on this front. But policymakers should weigh these downsides against the upside of moderating the serious economic toll that oil price spikes can take on the U.S. and other economies, and the reality that the old way of dealing with them—leaning on Saudi Arabia and OPEC—may be less viable than at any time in the past forty years.
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In 2007, Brazil discovered enormous oil reserves lying far beneath the ocean floor under salt formations more than a mile thick. President Luiz Inácio Lula da Silva announced the discovery from his presidential palace in the capital of Brasília, declaring that it “proves that God is Brazilian.” Few American political figures have been so bold or brash to declare that the energy boom is an indication of God’s favor. Yet unquestionably, the new energy abundance has endowed the United States with much more than just large physical quantities of oil and gas. It has, in addition, brought significant strategic advantages in bolstering many dimensions of America’s soft power. Whereas the Trump administration has openly described itself as being most interested in “hard power,” the unconventional boom grants it the ability to augment both. In an era where many see America’s soft power in decline and where international respect is generated not only due to military strength, but also to leadership on global issues, the new energy prowess of the United States provides a welcome opportunity to bolster the foundations of American strength. It will, however, require political leadership that both views the new energy abundance in an expansive way and parlays these opportunities into tangible outcomes.
SEVEN
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Energy Abundance, Climate, and the Environment
At the turn of the century, environmentalists and “Big Oil” appeared to be moving toward one another. With the world anticipating a global climate change agreement, companies like Shell and BP made large-scale investments in renewables. Shell was running the world’s largest solar power–producing plant in Germany in 2004. BP had not only invested bill
ions of dollars into renewable energies and low-carbon technologies, it also redesigned its logo to resemble the sun and even declared in 2000 that its name stood not for British Petroleum but “better people, better products, big picture, beyond petroleum.” Big Oil was no doubt motivated to explore cleaner energy sources in part by “the end of easy oil,” whereas the greens saw a future reliant on fossil fuels as being environmentally unsustainable. Environmentalists and Big Oil did not necessarily agree on the problem, but they seemed in consensus on the prescription: the need to develop alternatives to fossil fuel energy.
Alas, this moment of unusual alignment was short-lived. The majors largely sold off their renewable energy investments several years later, consolidating efforts behind finding and producing fossil fuels. Some explained, quite simply, that—at the time—the renewables business was not profitable. Faced with a global recession, industrialized countries shied away from policies that would have slapped a price on carbon. Instead of fretting over the need to seek out more difficult-to-extract oil in more difficult-to-operate countries, the oil and gas industry was suddenly able to access huge quantities of unconventional oil at commercial prices in countries with low political risk. The consensus to develop alternative fuels had the economic rug pulled out from under it. Soon after, in the United States, the national security rug followed, as unconventional oil eased the fears of Americans formerly worried about increasing reliance on foreign fuels.
No assessment of the interaction between energy and geopolitics today would be complete without consideration of the relationship between the new energy abundance and efforts to tackle one of the greatest transnational challenges of the times: climate change. Although great scope for debate remains, a serious effort to disentangle rhetoric from reality at least allows us to draw some preliminary answers to some pressing questions. First, fears that the new energy abundance will blow a hole in efforts to address carbon emissions—at least for now—seem exaggerated; if anything, the evidence suggests that there have already been modest benefits to the climate from more shale gas production. Second, with additional support and direction from policymakers worldwide, the new energy abundance could be an important part of the global effort to address climate change. Finally, taking the need to address climate change seriously does not need to come at the expense of encouraging the oil and—particularly—gas boom in the United States and elsewhere; in fact, too much disregard for climate and the environment could actually have a boomerang effect on America’s newfound oil and gas prowess.
The New Energy Abundance and Carbon Emissions
Can two entirely reasonable people make completely contrary arguments about the relationship between the oil and gas boom and carbon emissions and climate change? Yes. In fact, it happens all the time. The first might present a compelling case for why this new energy abundance harms efforts to rein in carbon emissions—focusing, for example, on how more abundant oil and gas leads to increased consumption of these fossil fuels and, therefore, greater emissions. She might argue further that unconventional oil is associated with higher levels of carbon emissions, and she could also highlight how lower prices for oil and gas reduce both the political will and the economic rationale for investing in renewable and alternative energies like nuclear. The second person might make the opposite case, heralding the virtues of the new energy boom in helping the world come to terms with climate change. She would be more likely to focus on how in the United States—where the energy revolution has been the most pervasive—absolute levels of carbon emissions have declined since fracking became a household word.
With one exception, both interlocutors would be correct to some degree. The one exception relates to the claim that the carbon intensity of unconventional oil is greater than conventional resources; the facts suggest this argument is more wrong than right. As described in the beginning of the book, unconventional oil is an umbrella term that pulls together a number of resources whose commonality is that they all require unusual (or unconventional) methods to extract them from the earth. These resources differ considerably, including in their carbon footprints.
One form of unconventional oil—oil sands—is associated with higher emissions, about 17 percent greater than most other conventional crudes. These higher emissions are largely due to the greater energy required both to extract and to process this oil. It is, however, useful to keep in mind that oil sands—while accounting for close to two-thirds of Canada’s oil production and for about one-third of all types of unconventional oil—only constitute about one-fortieth of overall global oil production. Extra-heavy oil and oil shale—two other unconventional oils—also are associated with higher emissions, but they constitute an even smaller amount of global oil production.
By contrast, the production of tight oil—which accounted for more than half of all types of global unconventional oil production and half of U.S. crude oil production in 2017—involves significantly lower emissions than those associated with oil sands. The reasons are twofold. First, tight oil is extracted through fracking, a far less energy-intensive process than that used for oil sands, which are produced either by what is essentially mining or by heating the viscous resources to high temperatures while it is still in the ground. Second, tight oil in the United States (the only place besides Argentina and Canada where it is being produced commercially as of 2017) is what is known as “light oil,” meaning that it needs minimal refining before it can be used as gasoline or other end products by consumers.
In fact, emissions associated with tight oil are similar to and, in many cases, lower than those associated with conventional production. Some research outfits have calculated that tight oil actually has even lower carbon emissions than the lighter conventionally produced crudes from Nigeria and elsewhere; it is these imports to the United States that tight oil has tended to displace. Stanford professor Adam Brandt, although focusing on the frequent flaring of natural gas produced alongside oil, makes essentially the same point when he says, “if flaring were controlled, the Bakken [tight oil] crude would have lower emissions than conventional crude.”
The carbon intensity of unconventional oil aside, both debaters would have some support for their positions. Common sense, for example, suggests that if the price of oil were lower, people would use more of it. This point is also supported by two contrasting scenarios of the future created by the EIA in 2017. One scenario, the “High Oil and Gas Resource and Technology Case,” imagines that the United States produces dramatically more oil overall, and more tight oil in particular, in both 2020 and 2050. This higher production leads to lower prices than would otherwise exist and does result in greater usage of oil across the decades examined. The implications for carbon emissions are not surprising. In both the reference (or “most likely”) scenario and the high-resource scenario, emissions from the energy sector are lower in an absolute sense in 2020 and 2050 than they were in 2011, due to greater efficiency and the use of more climate-friendly fuels. But the high-resource case involves 3 percent greater carbon emissions in 2050 than the reference one due to greater consumption. The data on the extent to which the low oil prices of 2014–2016 have spurred consumption growth are both limited and mixed; while the world as a whole saw faster demand growth in 2015 and 2016 than in the two years before the price crash, in the United States, one year saw robust demand and the other much more modest demand.
Another likely impact is that the downward pressure on the price of oil will make it more difficult for alternative fuels to be competitive in transportation. The Paris-based IEA concluded in a 2013 study that until technology advances, few other fuels will be cost competitive so long as oil remains below $90 a barrel. Of the twenty possible alternative fuels examined, only natural gas and coal-to-liquid technologies had lower production costs than oil when it is at $60. The climate effects of each are very different. While moving natural gas into transportation could lead to a diminished global carbon footprint, a move toward coal-to-liquids (without capturing ca
rbon) would take the environment in the opposite direction.
For these reasons, some people will conclude that addressing climate change is easier in a high oil price environment with the threat of scarcity, rather than one of abundance and lower prices. Nevertheless, it is worth remembering that high oil prices also brought with them strong arguments to pursue other technologies that were less carbon friendly than oil. Throughout the mid-2000s, when the price of oil was high and climbing, there were multiple efforts in the U.S. Congress to introduce greater support for technologies that could convert coal-to-liquids despite the fact that diesel and jet fuel made from coal emit twice as many carbon emissions as oil. One such effort was the Coal to Liquid Fuel Energy Act of 2007—cosponsored by fourteen U.S. senators including Senator Barack Obama—which would have provided government loan guarantees to projects advancing these technologies. Enthusiasm for coal-to-liquids was not limited to the United States, but included South Africa and China; Beijing reportedly sought to ramp up its efforts to turn coal into liquid fuel by twenty-fold between 2010 and 2020. Generally viewed as only being commercial if the price of oil is around or above $60, coal-to-liquids efforts may have taken off had the new energy abundance not squelched talk of such pursuits.
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