U.S. CHAMBER OF COMMERCE

2012 Index of U.S. Energy Security Risk

2012 Index of U.S. Energy Security Risk

Foreward

Since the second edition of the annual Index of U.S. Energy Security Risk was released last spring, pundits have rediscovered what we at the Energy Institute already knew: the United States has the potential to be an energy superpower. So swift have been the changes in the U.S. energy outlook that some are beginning to entertain seriously the previously unimaginable idea that U.S. energy independence actually may be within reach.

Despite that optimism, however, this year’s Index shows stubbornly high risks for 2012 and into the future. A closer look at some of the individual metrics—such as those related to natural gas—is encouraging, but it is clear we must do better to achieve such a lofty goal.

While some aspects of the energy landscape look very promising, the current energy policy landscape is as inhospitable as it has been in a long time. It does not have to be this way. The U.S. is on the cusp of a domestic energy renaissance, but policy and regulatory uncertainty threatens to hold back U.S. energy exploration jeopardizing the investment and jobs that go with it. Consider the following:

Horizontal drilling and hydraulic fracturing in shale formations have combined to open up vast new areas to natural gas, gas liquids, and crude oil production. The “shale gale” in natural gas has already had a big and beneficial impact on our energy security and economy. The application of hydraulic fracturing to shale gas formations has created a glut of natural gas, changed the energy landscape and brought new jobs in formerly depressed areas of Pennsylvania, Ohio, and West Virginia—even New York has benefited with spillover jobs. These benefits can and should increase, but only if governments at every level act sensibly.

Similarly, new exploration, drilling, and production technologies will be critically important in finding and developing the large amounts of domestic crude oil located in unconventional oil sands and shales and in deep water on the Outer Continental Shelf. Rapidly increasing oil production in North Dakota’s Bakkan Formation is largely responsible for reversing the Nation’s decades-long decline in domestic oil production and has contributed to North Dakota having the lowest unemployment rate of any state in the country. This mini oil boom, however, is occurring almost exclusively on private and state lands. If we want to sustain the growth in domestic production, it will be necessary for the government to allow access to our vast resources on federal lands, offshore and onshore, including the Gulf of Mexico, Alaska, and the Outer Continental Shelf. And there is no excuse for the continued delay of a permit for the Keystone XL pipeline, which would bring to America about 700,000 barrels each day of secure oil from our most reliable and stable trading partner, Canada.

Coal remains another secure source of energy, and the United States has about a 250 year supply, but it is under almost constant attack. An unprecedented “avalanche” of regulations coming out of the Environmental Protection Agency will shutter a growing number of base-load coal plants across the country. Greenhouse gas regulations recently proposed by the Environmental Protection Agency also make it virtually impossible to construct efficient, new coal-fired power plants. Rapid coal plant closures threaten to raise electricity prices and jeopardize the reliability of the electric grid.

The slow pace of growth for nuclear power is due to a number of factors. A major source of uncertainty facing this integral and reliable source of energy remains the permanent storage of spent nuclear fuel. Unfortunately, a sensible policy to manage the country’s waste safely and efficiently continues to elude policymakers, creating doubts about the longterm viability of this important and emissions-free resource. The permitting process remains lengthy and costly, and the increased costs of new plants poses a huge challenge for developers and utilities.

Moreover, the nation’s aging energy infrastructure is increasingly inadequate to meet growing energy demand. Blackouts, brownouts, service interruptions, and rationing could become commonplace without new and upgraded capacity. An increasingly archaic and byzantine system of approving energy projects, however, makes it extremely difficult to build energy infrastructure in the United States anymore.

Renewable power continues to grow, but it still accounts for a small portion of total electricity generation, and renewable projects are subject to the same siting and permitting delays other projects face. Federal lands are home to large renewable resources, and the government also must do all it can to make these available in a timely and predictable manner.

In addition to promoting greater domestic supply, greater use of the energy that is wasted every day is one of the best sources of “new” energy. Over the years, improvements in energy efficiency have had a large and beneficial impact on U.S. energy security. Policymakers should promote greater energy efficiency to keep this momentum going to lower future risks.

How U.S. energy security looks in the years ahead will depend in great measure on how these issues are decided in the next few years. This Index shows where we must improve and what will and will not move the needle. Policymakers and regulators should take heed, as the numbers tell the story plainly and objectively.

Karen A. Harbert
President and CEO
Institute for 21st Century Energy
U.S. Chamber of Commerce