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  • 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.
  • 7. 5 Price Stabilization Regimes
    • Standard Oil monopoly (< 1911)
    • Texas Railroad Commission’s 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)
  • 8. Political Involvement in Oil
    • Political interest in this economic commodity is not merely cynical—it 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 oil’s military importance
    • Balance of trade, interdependence
  • 9. Security not the only Rationale
    • <WW I, Pursuing profits, Standard Oil persuaded 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 20 111 Vietnam 55 USA 73 399 Venezuela 100 Jordan 8 45 UK 98 Japan 90 477 Saudi Arabia 100 Iceland 57 3042 Norway 100 Haiti 98 640 Nigeria 95 Germany 85 176 Iran 96 France 14 41 Canada 31 China Oil as % of Export Earnings Oil Exports as % of Consumption Country Oil Imports as % of Consumption Country Exporters Importers
  • 12. 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
  • 13. 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
  • 14. 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.
  • 15. 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.
  • 16. 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.
  • 17. 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 Reagan’s 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.
  • 18. 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 Clinton’s plan focuses on industrial competitiveness, energy resources, national security, environmental quality, and innovation. Acts administratively to continue electricity deregulation, support conservation & renewables.
  • 19. 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 DOE’s mission following September 11, 2001: “we share a common overarching mission: national security.”
    • January 28, 2003. President Bush says: “With a new national commitment…the first car driven by a child born today could be powered by hydrogen, and pollution-free.”
  • 20. 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)
  • 21. 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
  • 25. 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 H 2 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 billion Suppose 50% of war rationale was energy security Suppose one war per decade Decadal cost of U.S. Persian Gulf oil imports is $210 billion So 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!
  • 31. Increased Use of Energy Carriers -- Fit with U.S. Policy Objectives + - + - - Biofuels Decentralized Centralized Conversion : Hydrogen Natural Gas - Gasoline Electricity Economy Environment Security Objective : Carrier :
  • 32. Increased Use of Energy Carriers -- Fit with U.S. Policy Objectives + - + + + + - Reliability + + - - - - + + + Biofuels + + - Decentralized + + + + Centralized Conversion : + + - + + Hydrogen - - + + - + - Natural Gas - - - - - + - Gasoline + + + - + + Electricity Job Growth Low Price Volatility Reasonable Prices Less Land Damage Less Water Pollution Less Air Pollution Slow Climate Change Non-proliferation Self-sufficiency Economy Environment Security Objective : Carrier :
  • 33. Increased Use of Energy Sources -- Fit with U.S. Policy Objectives + + - + + Reliability + + - - - + + + Biomass + + + - - + + + + Hydro + + - + + + + + + Wind + + - + + + + + + Solar Photovoltaics + + - - + + + - + Nuclear Fission + - - + + - + - Natural Gas + - - - - + - Petroleum + + + - - - - + + Coal Job Growth Low Price Volatility Reasonable Prices Less Land Damage Less Water Pollution Less Air Pollution Slow Climate Change Non-proliferation Self-sufficiency Economy Environment Security Objective: Source:
  • 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.
  • 37. For more information
    • http://policy.rutgers.edu /andrews
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