April 9, 2002

April 9, 2002 | WebMemo on Energy and Environment

Strengthening National Security Through Energy Security

The terrorist attacks on September 11 have renewed concerns about the link between energy security and national security.As evidenced by the 1973 Arab oil embargo and the 1979 Iranian Revolution, anabrupt and prolonged loss of oil from the Persian Gulf region wreaks havoc on the U.S. economy, increases unemployment, and boosts inflation. In 1979, President Carter called this situation "a clear and present danger to our national security."[1] Twenty years later, in a response to a bi-partisan request from eleven U.S. Senators, the U.S. Department of Commerce conducted an investigation into the nation's increasing oil imports.That study, released in November 1999, concluded "that petroleum imports threaten to impair the national security."[2] More recently as violence has intensified in the Middle East, Iraq has threatened to use oil as a weapon against the U.S. by cutting oil exports for 30 days to show support of the Palestinians.[3] This is not the first time Iraq has used exports as a political weapon against the United States.[4] Saudi Arabia, the world's biggest oil exporter, responded by saying that it will not allow a shortage of crude oil. Clearly, however, the instability in this region increases U.S. vulnerability to a supply disruption from the oil rich Persian Gulf.

The oil and gasoline price shocks of the 1970's serve as a stark reminder of the impact of Middle East oil on the economy.Economic times were tough during this period: oil peaked at $39 a barrel in 1981, interest rates were double-digit, inflation was at 9 percent, and unemployment was close to 8 percent.[5] Government actions made things even worse: gas rationing, price controls, and a heavy hand of regulation, interfered with energy markets.[6] Further, recessions in the 1970s, the early 1980sand the early 1990s were all preceded by a rise in oil prices. 

Since the 1970's, Congress and the White House have talked a lot about energy security and national security.Yet, the nation is more dependent on foreign oil today than it was then.Achieving energy security requires more than rhetoric- it takes action.The U.S. needs a coherent energy policy for energy security and for national security.It has been almost a full year since President Bush proposed a balanced long-term energy plan that enhances U.S. energy security and responsibly solves the nation's energy needs.Shortly thereafter, the U.S. House of Representatives passed the Securing America's Future Energy Act (SAFE) of 2001 (H.R. 4), a comprehensive energy bill that incorporates many of the President's proposals.In the meantime, spiking crude-oil prices are pumping up gasoline and natural-gas prices, raising energy costs for businesses and consumers just as the U.S. economy is coming out of a recession.[7] Senate leadership is currently allowing floor consideration on an energy bill (S. 517) that does not permit a fair debate on a comprehensive energy proposal. This proposal, if passed as drafted, would fail to reduce the nation's vulnerability to an oil supply interruption and resulting price shocks.There is still time for the Senate to do what's right to enhance the nation's energy security.To do so, the Senate must include the following provisions in its legislation:

  • diversify the nation's supply sources;
  • permit exploration in a small sliver of the Arctic National Wildlife Refuge (ANWR); and
  • create excess capacity with a large stockpile.

Strengthening Opportunities Abroad.
The Bush Administration and Congress generally agree that oil imports should be reduced.While measures of oil import dependence are important, if viewed in isolation, they provide limited guidance to energy security. Oil dependence does not necessarily mean that the United States is vulnerable to an oil disruption.[8] For example, if the world oil supply came from many producers and one suddenly stopped exporting oil, it would have little effect on U.S. and world supplies and prices, even at a high rate of U.S. dependence.[9] Concentration, therefore, is a key factor in determining the nation's energy security.[10]

In 2000, U.S. net imports of petroleum accounted for 53 percent of domestic petroleum consumption.[11] Over 50 percent of these imports came from countries located in the Western Hemisphere as compared to about 24 percent from the Middle East.[12] The Energy Information Administration (EIA) projects that U.S. imports will increase to about 62 percent in the year 2020 with the Persian Gulf share the nation's imports from OPEC gradually increasing to between 48 and 51 percent.[13]

 

At the same time, more than half of the total North American imports in 2020 are expected from the Atlantic Basin, with significant increases expected in crude oil imports anticipated from Latin American producers, including Venezuela, Brazil, Colombia, and Mexico.[14] For example, production volumes in Mexico are expected to exceed 4.1 million barrels per day by the end of the decade and remain near that level through 2020.[15] Canada's output is also expected to increase over the next 2 years and is projected to add an additional 700,000 barrels a day from a combination of offshore projects and oil from tar sands.[16]

Likewise, West African producers, including Nigeria and Angola are expected to increase their export volumes to North America.[17] The Caspian Basin region output is expected to rise to almost 3 million barrels per day by 2005 and to increase steadily thereafter.[18]

Oil production from the former Soviet Union (FSU) is expected to reach 10 million barrels per day by 2005 and exceeds 14.8 million barrels per day by 2020, implying export volumes greater than 6.9 million barrels per day.

After two decades of steady growth at 1.1 percent annually, non-OPEC supply from proven reserves is expected to increase steadily, from 46 million barrels per day in 2000 to 61.1 million barrels per day in 2020, providing significant competition to OPEC producers.[19] Two factors are attributable for non-OPEC's dependable growth: 1) reduced exploration and recovery costs, and 2) advanced technologies.[20] Additionally, over the past 25 years, non-OPEC supplies from the Alaskan North Slope, Mexico, the North Sea, and the Caspian Basin have all exceeded oil production expectations.[21] Expanding supplies of oil from these regions would enable the United States to reduce its import vulnerability from the Middle East and improve the nation's energy security.

Augmenting Domestic Supplies.
The most practicable way to augment supplies is to create additional production from secure areas.A potential supply of reliable domestic oil is located in Section 1002 of the Arctic National Wildlife Refuge (ANWR) located in the upper northeast quadrant of Alaska. This area has been described as "the largest unexplored, potentially productive onshore basin in the United States,"[22] and could produce oil equal to half of all U.S imports from Persian Gulf countries for 30 years.[23] Only a small sliver of 2,000 acres would be needed to tap into this source-leaving a full 99.99 percent of the 19 million acres of ANWR untouched by exploration.[24]     

Congress approved exploration of the 1002 Area in 1995, but President Clinton vetoed that legislation. If he had signed it, the United States would be well on its way to enhancing its energy security.Last August, the House of Representatives corrected this mistake by authorizing oil and gas exploration in the Section 1002 area.Given the growing instability in the Middle East and U.S. dependence on foreign oil, it is time for the Senate to open up Section 1002 to exploration.To do otherwise is misguided and would undermine national security.

 Promising areas of oil and natural gas discoveries are also located offshore in the Gulf of Mexico, in the Eastern Gulf of Mexico, and on the Atlantic and Pacific Outer Continental Shelf (OCS).Yet, despite the huge potential of these areas, federal law presently prohibits exploration on the Atlantic and Pacific OCS and the eastern Gulf of Mexico.A recent comprehensive assessment by the Minerals Management Service (MMS) estimated that the OCS total undiscovered, conventionally recoverable resources for the U.S. OCS are 75 billion barrels of oil.[25] Advanced technologies allow industry to pinpoint resources more accurately, extract them more efficiently and with less surface disturbance, minimize associated wastes, and restore sites to original or better condition.[26] Congress and the White House need to lift leasing restrictions and allow responsible exploration in these areas to enhance U.S. energy security.

Building Up Stockpiles.
A ready stockpile of oil that can be drawn upon to replace interrupted supplies is essential to sound energy policy.It is a potent domestic measure for dealing with supply interruptions.[27] It can also reduce the skyrocketing price increases that accompany supply interruptions.[28] To be effective, however, it must be managed correctly and used solely for its intended purpose.

To alleviate the economic disruptions caused by the 1973-74 Arab oil embargo, Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA, P.L. 94-163).The Act authorizes drawdown of SPR upon a finding by the President that there is a "severe energy supply interruption."In 1990, Congress liberalized drawdown authority for the SPR to allow for its use to prevent minor or regional shortages from escalating into larger ones and has further broadened it to include instances where a reduction in supply appeared sufficiently severe to bring about an increase in the price of petroleum "severe" enough to "likely cause a major adverse impact on the national economy.[29] The policy governing SPR use has generally been that SPR oil is to be used primarily to ameliorate oil supply shortages and their consequence (including higher prices), but not to be used to explicitly regulate prices.[30]

The Clinton Administration established a risky precedent for the use of SPR oil.Due to high gasoline prices and concerns about the supply and price of home heating oil in an election year, President Clinton directed a release of 30 million barrels of oil from SPR in September 2000.[31] Under this so-called "swap", bidders would return 31.5 million barrels would be returned to SPR in 2001.This repayment schedule was extended however, delaying return of nearly 24 million barrels of swapped oil until January 2003. SPR was established to protect Americans from a cut-off of oil imports, not to manipulate prices as was done under President Clinton.

In response to renewed concerns about domestic energy security, the House passed a resolution expressing its support for filling the SPR to its full authorized capacity of 1 billion barrels.As of March 28, 2002, SPR contained 560.9 million barrels of oil.The SPR has a maximum drawdown capability of 4.18 million barrels per day for 90 days, with oil beginning to arrive in the marketplace 15 days after a presidential decision to initiate a drawdown.[32] On November 13, 2001, President Bush order fill of SPR to it current physical capacity of 700 million barrels.Oil shipments have begun and are expected to be completed by 2005.[33]

The likelihood that a producer state will use oil in an attempt to influence U.S. policy is directly related to its chances of success.[34] The greatest benefit of a stockpile, like that of the nation's nuclear arsenal, may be its mere existence.Thus, it is in the national interest that the Bush Administration push forward with its SPR initiative.

Enacting Comprehensive Energy Legislation.
U.S. dependence on foreign oil has increased steadily since the 1973 Arab oil embargo.Projections show the nation's dependence increasing to over 60 percent by 2020 if Congress fails to take necessary actions to enhance the nation's energy security.[35] The White House and the House of Representatives have acted responsibly to reduce the nation's vulnerability to supply disruptions proposing measures that strengthen our alliances with oil producing countries located outside the Persian Gulf region, increase domestic production by opening up 2000 acres in Section 1002 of ANWR to oil and gas exploration, and filling the Strategic Petroleum Reserve to its maximum capacity.If the Senate fails to affirm these provisions, it will have missed a sensible opportunity to make the nation more secure.

Conclusion
Instability in the Middle East, a reduction of domestic production, and projections of increased energy usage call for a long-term energy plan for the United States. President Bush has proposed a balanced energy plan that will enhance the country's national and energy security.Last August, the House of Representatives passed legislation to do likewise.It is now time for the Senate to responsibly pass an energy package that enables the nation to increase its energy and national security.     

Charli Coon is a policy analyst at The Heritage Foundation.
 

 
[1] David A Deese, Joseph S. Nye, edts., Energy and Security, (Cambridge, Massachusetts): Ballinger Publishing Company, 1981, p. 3.

[2] U.S. Department of Commerce, The Effect On The National Security Of Imports Of Crude Oil and Refined Petroleum Products, An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, as Amended, November 1999, p. ES-9.The following Senators requested this investigation: Bingaman, Breaux, Landrieu, Conrad, Enzi, Lincoln, Lott, Dorgan, Baucus, Murkowski, and Burns, p. ES-1.

[3] Thaddeus Herrick, "Iraq to Halt Oil Exports in Support of Palestinians," The Wall Street Journal, April 9, 2002, p. A2.

[4] Thaddeus Herrick, "Iraq to Halt Oil Exports in Support of Palestinians," p A2.

[5] H. Josef Hebert, "So Where's the Crisis?", ABCNEWS.com, March 23, 2001 at http://abcnews.go.com/sections/business/Daily News/oilprices_1970s-000324.html (April 9, 2002).

[6] Ibid.

[7] Thaddeus Herrick, "Iraq to Halt Oil Exports in Support of Palestinians," p. A2.

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Department of Energy, Energy Information Administration, Annual Energy Outlook 2002, p. 89.

[12] National Energy Policy, Report of the National Energy Policy Development Group, May 2001, p. 8-4.

[13] Department of Energy, Energy Information Administration, Annual Energy Outlook 2002, p. 89.

[14] Department of Energy, Energy Information Administration, International Energy Outlook 2002, p. 38.

[15] Ibid. at 37.

[16] Ibid.

[17] Ibid.

[18] Ibid. at 34.

[19] Ibid.

[20] Ibid. at 35.

[21] [21] Ibid.

[22] U.S. Department of Energy, Energy Information Administration, Potential Oil Production from the Coastal Plain of the Arctic National Wildlife Refuge: Updated Assessment, May 2000, p. vii.

[23] The National Center for Public Policy Research, Ten Second Response, Fast Facts on the Environment, "Teamster Chief James Hoffa Warns Politicians In Both Parties Not To Stand In The Way Of Oil Exploration In Alaska," at http://www.nationalcenter.org/TSR23902a.thml (4/05/02).

[24] Charli E. Coon, "Domestic Energy Production: Vital For Economic and National Security," Executive Memorandum, No. 787, October 30, 2001.

[25] Testimony of Carolita Kallaur, Associate Director, O

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