Where We Stand: Our Principles On Creating Energy Security in the United States and Abroad

The United States has a vital national interest in a secure oil and gas supply and should employ the full array of foreign policy and national security tools to ensure an uninterrupted flow of oil and gas to the American economy. It should promote policies that enhance security, stability, and economic and democratic development of oil-producing countries. Since oil became the transportation fuel of choice for the United States in the early 20th century, the country has sought to keep it secure, readily available, and cheap.

U.S. oil and gas consumption is growing, and U.S.-based production has peaked and is declining due to exhausted reserves and environmental restrictions and regulations. The oil market, however, is global. Today, the oil supply is tight due to the growing consumption in large emerging markets, such as China and India. High political and security risks in the Middle East and elsewhere, including terrorism and the threat of terrorism, are driving up energy prices.Moreover, recent research demonstrates that the world is producing more oil than it finds, which, until reversed, means dwindling supplies.

The gas market is largely regional, but its global dimension is expanding as liquefied natural gas (LNG) consumption is on the rise.U.S. natural gas consumption depends on supplies from the U.S., Canada,Mexico, and the Caribbean. To address shortages, the U.S. will increasingly import LNG from more distant places, such as Algeria, Nigeria, and Russia. In 2002, LNG accounted for only 5 percent of net natural gas imports. This number is expected to rise to 39 percent by 2010 and as high as 66 percent by 2025.

The oil embargoes of 1973 and 1979 resulted in government- imposed, but failed, measures of energy conservation and government-funded development of alternative sources of energy, such as renewables (solar and wind), which for the most part are expensive and uneconomical.

As U.S. oil supplies decline, the U.S. is importing over half of its oil: 42.2 percent of these imports come from Organization of Petroleum Exporting Countries (OPEC) and 57.8 percent from non-OPEC countries. In the next three decades, the U.S. will increasingly depend on OPEC suppliers, which have greater reserves. This threatens U.S. national security and economic prosperity because each $5 increase in the price of a barrel of oil causes the gross domestic product to decrease by 0.3 percent. Clearly, the U.S. government, particularly the President, needs to address these energy security threats.

Leaders of al-Qaeda and other radical Islamist and terrorist groups, including Ayman al-Zawahiri and Abu Musab al-Zarqawi, have proclaimed that U.S. and Western economies and their oil lifelines are legitimate targets. Terrorists have attacked pipelines in Iraq, Colombia, and Chechnya, have assassinated oil company employees in Saudi Arabia, and have taken hostages on Nigerian oil rigs.

Terrorists have the intent and capabilities to cause severe disruptions “from well to wheels,” targeting oil fields, pipelines, ports, storage facilities, tankers, and refineries— both abroad and in the U.S. Terrorism involving LNG may be particularly dangerous because an a large exploding LNG tanker could cause widespread devastation.

The Heritage Foundation and the conservative movement advocate property rights protection, unrestricted and fair competition, free markets, business and governance transparency, and political accountability. If applied across the board, these principles will allow significant increase of the oil supply. Economic freedom, however, is sorely missing from the government-owned and government-regulated oil and gas industries around the world. Protectionism, over-regulation, and anti-market policies—both within OPEC and outside OPEC—limit the use of Western capital and technology to develop available resources.

The United States and international financial institutions that the U.S. influences need to promote political accountability, such as transparent parliamentary controls over oil and gas revenues and expenditures, transparent national oil funds to prevent the crowding out of non-oil sectors, and balanced budgets and low inflation, which are conducive to domestic and foreign investment in oil economies.

The U.S. should promote property rights protection for privately owned oil companies in supplier states, enhancing access to resources and defending against expropriation. The Administration and Congress need to apply principles of economic freedom to the foreign oil and gas sectors in cooperation with U.S. allies and other energy-consuming countries.

The United States should conduct security audits of critical energy facilities and develop and share best practices within and across the industries while preventing terrorists from gaining access to lists of vulnerabilities. The U.S. should also develop contingency plans to handle military and security threats to the oil supply in key countries, such as Saudi Arabia and Arab Gulf states, against massive terrorist attacks aimed at critical oil infrastructure, including ports, pipelines, and control and pumping stations. Particular attention should be given to maintaining Iraqi oil production above pre-war levels and expanding future production.

The U.S. should work with Russia to reverse its current policy of maintaining government-owned oil monopolies to create the conditions for increased Western investment in the private Russian and Eurasian energy sector.

The U.S. should also support democratic forces in Venezuela and encourage Venezuela to run PDVSA, the national oil company, according to commercial principles, not as a private revenue source for President Hugo Chavez. The Chavez government should be pushed to institute reforms to address political and social factors that have caused a significant drop in oil production. The U.S. should begin negotiations with the Chavez government on increasing Western oil companies’ access to Venezuelan hydrocarbon resources.

The U.S. should encourage Nigeria to develop the Niger Delta to prevent instability in that region and to address security, social, and economic development challenges that could interfere with oil production.

The U.S. should apply existing U.S. anti-monopoly legislation and develop new laws against government ministries and government-owned companies that engage in cartel-like behavior in the energy sector. The President should direct the Department of State to stop opposing application of the U.S. anti-monopoly laws against foreign government–owned energy suppliers. The U.S. should also work to strengthen the rule of law, democratic political control, and corporate transparency in handling oil revenue from government oil companies.

The United States should work with oil- and gas-producing governments to ensure economic stability, prosperity, and growth. In the long run, this will prevent internal instability from threatening the energy supply. The U.S. should use the G-8 and the Organisation for Economic Cooperation and Development to promote liberalization of the global energy sector, including the privatization of national oil companies, as well as full and equitable access for international oil companies to develop mineral rights in OPEC and non-OPEC countries.