Is it Worthwhile to Fight for Energy Security

1
Is it Worthwhile to Fight for Energy Security?

• Clinton Andrews
• Rutgers University

2
Energy Security

• Definition of Energy Security
• Imperfect Markets for Oil Electricity
• Rationales for Governmental Intervention
• The Special Role of Energy Carriers
• Energy Security as a Policy Driver

3
Focusing on Energy Security

• Yergin The objective of energy security is to
  assure adequate, reliable supplies of energy at
  reasonable prices and in ways that do not
  jeopardize major national values and objectives.
  
• Energy is a modern necessity. Energy security is
  a polarizing issue in U.S. politics.

4
U.S. Energy Use, 1635-2000 (Quadrillion Btu)
5
Energy Security

• Definition of Energy Security
• Imperfect Markets for Oil Electricity
• Rationales for Governmental Intervention
• The Special Role of Energy Carriers
• Energy Security as a Policy Driver

6
Petroleum

• Petroleum market suffers from dramatic and
  persistent price volatility.
• Unresponsive demand, lumpy supply, difficult to
  balance them.
• Both consumers and producers seek external
  interventions that improve price stability.

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5 Price Stabilization Regimes

• Standard Oil monopoly (
• Texas Railroad Commissions internationally
  influential pro-rationing of production (1930s)
• Seven Sisters cartel (Exxon, Shell, British
  Petroleum, Mobil, Chevron, Texaco, and Gulf)
  (1920s - 1970s)
• OPEC (1960 - present) effective only briefly
  during the 1970s-80s
• Saudi-American regime (1970s - present)

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Political Involvement in Oil

• Political interest in this economic commodity is
  not merely cynicalit is also prudent
• Interventions for market transparency, stability
• WW II oil not only determined capabilities, but
  also defined strategic objectives
• Cold War onwards ballistic missiles and nuclear
  weapons diminished oils military importance
• Balance of trade, interdependence

9
Security not the only Rationale

• U.S. government to intervene in the internal
  affairs of several Middle Eastern oil states.
• 1917 UK redrew the map of the Middle East in
  part for administrative convenience.
• 1950s-60s France and USA intervened in oil-rich
  Viet Nam mostly to slow the spread of communism.
• 1960s oilfields nationalized to return control
  to local decision makers.
• 1973 Western responses to the Arab oil embargo
  were also a gesture of solidarity with Israel.
• 1979 Blockade of Iran in part reflected western
  disapproval of hostage taking.
• 1991 Gulf war a direct response to the invasion
  of one sovereign nation by another.
• 2003 Iraq war also about deposing a dictator who
  had threatened to use weapons of mass
  destruction.

10
U.S. Petroleum Balance 1949-2000
11
Petroleum Balance of Trade 2001
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Electricity

• Supply is capital-intensive, storage is minimal,
  transmission and distribution are intrusive,
  price signals have been weak
• Industry sought and received regulated public
  utility status by 1930s
• Security adequate reliable supply
• Security also protect physical informational
  elements

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Energy Security

• Definition of Energy Security
• Imperfect Markets for Oil Electricity
• Rationales for Governmental Intervention
• The Special Role of Energy Carriers
• Energy Security as a Policy Driver

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U.S Energy Policy Rationales I

• August 30, 1954. President Eisenhower signs the
  Atomic Energy Act of 1954, opening the way for
  development of a civilian nuclear power program.
• July 6, 1962. President Kennedy condones a test
  in Sedan, Nevada as part of the Plowshare program
  seeking to develop peaceful uses for nuclear
  explosives.
• January 1, 1969. President Johnson signs the
  National Environmental Policy Act.

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U.S. Energy Policy Rationales II

• November 7, 1973. President Nixon launches
  Project Independence, with the goal of achieving
  energy self-sufficiency by 1980.
• December 22, 1975. President Ford signs the
  Energy Policy and Conservation Act, extending oil
  price controls into 1979, mandating automobile
  fuel economy standards, and authorizing creation
  of a strategic petroleum reserve.

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U.S. Energy Policy Rationales III

• April 20, 1977. President Carter unveils the
  first National Energy Plan.
• April 5, 1979. President Carter announces gradual
  decontrol of oil prices and proposes a windfall
  profits tax. Subsequently announces a program to
  increase the nation's use of solar energy,
  establishes temperature restrictions in
  nonresidential buildings, proposes an 88 billion
  decade-long effort to enhance production of
  synthetic fuels from coal and shale oil reserves.

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U.S. Energy Policy Rationales IV

• July 17, 1981. President Reagan sets free market
  emphasis to reduce government regulations and
  subsidies, decontrol of natural gas, research,
  and nuclear licensing reform.
• April 23, 1985. Beginning Reagans second term,
  he calls for energy strength built upon
  existing stability and security.
• March 17, 1987. President Reagan's Energy
  Security Report outlines Nation's increasing
  dependence on foreign oil.

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U.S. Energy Policy Rationales V

• December 21, 1990. President George H.W. Bush
  develops strategy and legislation on federal
  appliance efficiency standards, plus electric and
  gas utility deregulation.
• April 1994. President Clintons plan focuses on
  industrial competitiveness, energy resources,
  national security, environmental quality, and
  innovation. Acts administratively to continue
  electricity deregulation, support conservation
  renewables.

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U.S. Energy Policy Rationales VI

• May 17, 2001. President George W. Bush releases
  controversial Cheney plan, which emphasizes
  supply-side strategies.
• October 1, 2002. Revision to DOEs mission
  following September 11, 2001 we share a common
  overarching mission national security.
• January 28, 2003. President Bush says With a
  new national commitmentthe first car driven by a
  child born today could be powered by hydrogen,
  and pollution-free.

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U.S. Energy Policy Objectives

• Security improvements (reliability of supply,
  self-sufficiency, non-proliferation)
• Environmental improvements (climate change, air
  pollution, water pollution, land damage)
• Economic improvements (reasonable prices, less
  price volatility, job growth)

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Classical Rationales for Governmental Action

• above all, do no harm
• Improve allocational efficiency (correct
  market failures like pollution)
• Improve distributional equity (correct gross
  unfairnesses like freezeouts)
• Improve macro stability (correct structural
  imbalances like trade deficits)
• Enforce national norms, pursue national
  objectives, cater to special interests?

22
Energy Security

• Definition of Energy Security
• Imperfect Markets for Oil Electricity
• Rationales for Governmental Intervention
• The Special Role of Energy Carriers
• Energy Security as a Policy Driver

23
What are energy carriers?

• Electricity made from coal, methane, hydro,
  nuclear, solar, wind.
• Gases (Hydrogen, Methane) made from methane,
  coal, oil, biofuels, electricity
• Liquids (Biofuels, Gasoline) made from
  biostocks, oil

24
Full System Efficiencies of Alternative Types of
Cars

• Current technology car with gasoline fueled
  internal combustion engine
• Fuel cell car operated on gaseous hydrogen from
  methane steam reformer
• Fuel cell car operated on gaseous hydrogen from
  electrolysis via wind farm
• Electric car recharged by wind farm

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Current technology car with gasoline fueled
internal combustion engine

• 12 losses between oil well and filling station
  factor 0.88
• 38 efficiency of engine factor 0.38
• 20 losses in the automatic transmission between
  engine and wheels factor 0.80
• Full system efficiency 0.88 x 0.38 x 0.80 27

26
Fuel cell car operated on gaseous hydrogen from
methane steam reformer

• 12 losses between gas well and reformer factor
  0.88
• 30 losses in reformer from methane to hydrogen
  factor 0.70
• 10 losses for compression of hydrogen factor
  0.90
• 10 losses for distribution of gaseous hydrogen
  factor 0.90
• 3 losses for hydrogen transfer factor 0.97
• 50 for conversion to electricity in fuel cells
  factor 0.50
• 10 parasitic losses for the hydrogen fuel cell
  system factor 0.90
• 10 electric losses in the drive train between
  battery and wheels factor 0.90
• Full system efficiency 0.88 x 0.70 x 0.90 x
  0.90 x 0.97 x 0.50 x 0.90 x 0.90 20

27
Fuel cell car operated on gaseous hydrogen from
electrolysis via wind farm

• 10 losses between power plant and electrolyzer
  factor 0.90
• 30 losses for water make-up and electrolysis
  factor 0.70
• 10 losses for compression of hydrogen factor
  0.90
• 10 losses for distribution of gaseous hydrogen
  factor 0.90
• 3 losses for hydrogen transfer factor 0.97
• 50 for conversion to electricity in fuel cells
  factor 0.50
• 10 parasitic losses for the hydrogen fuel cell
  system factor 0.90
• 10 electric losses in the drive train between
  battery and wheels factor 0.90
• Full system efficiency 0.90 x 0.70 x 0.90 x 0.90
  x 0.97 x 0.50 x 0.90 x 0.90 20

28
Electric car recharged by wind farm

• 10 losses between power plant and homes factor
  0.90
• 8 losses in small home-based AC/DC battery
  chargers factor 0.92
• 20 losses for battery charging and discharging
  factor 0.80
• 10 losses in the drive train between battery and
  wheels factor 0.90
• 10 bonus for regenerative braking factor 1.10
• Full system efficiency 0.90 x 0.92 x 0.80 x
  0.90 x 1.10 66

29
Full System Efficiencies of Alternative Types of
Cars

• Current technology car with gasoline fueled
  internal combustion engine 27
• Fuel cell car operated on gaseous hydrogen from
  methane steam reformer 20
• Fuel cell car operated on gaseous hydrogen from
  electrolysis via wind farm 20
• Electric car recharged by wind farm 66
• But energy carriers improve economic efficiency

30
Valuing H2 Enerrgy Carrier

• Hydrogen costs must drop 50 to become
  competitive
• Cost of avoided oil war?Cost of Iraq war is 100
  - 2000 billion, say 200 billionSuppose 50 of
  war rationale was energy security Suppose one
  war per decadeDecadal cost of U.S. Persian Gulf
  oil imports is 210 billionSo 50 markup on
  Persian Gulf oil needed to internalize security
  costs
• Add in avoided health problems from air
  pollution, say 30 billion per decade, adding
  about 3 to national oil bill
• Suddenly hydrogen sounds more competitive!

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Increased Use of Energy Carriers -- Fit with U.S.
Policy Objectives
32
Increased Use of Energy Carriers -- Fit with U.S.
Policy Objectives
33
Increased Use of Energy Sources -- Fit with U.S.
Policy Objectives
34
Energy Security

• Definition of Energy Security
• Imperfect Markets for Oil Electricity
• Rationales for Governmental Intervention
• The Special Role of Energy Carriers
• Energy Security as a Policy Driver

35
So is it worthwhile to fight for energy security?

• Energy security is worth something but not
  everything.
• Back to Yergin The objective of energy security
  is to assure adequate, reliable supplies of
  energy at reasonable prices and in ways that do
  not jeopardize major national values and
  objectives.

36
In conclusion.

• Security rationale is valid but not very helpful
  in guiding policy makers to specific choices.
• More important are degree of trust in market
  mechanisms, preferences regarding painful
  tradeoffs between environmental protection and
  diversity of energy supplies, and desire for
  concentrated control over the energy economy.
• Needed are energy policies that explicitly
  balance security, economic, and environmental
  objectives.

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For more information

• http//policy.rutgers.edu/andrews

38
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