As the year started, we were in the beginning stages of an unprecedented upheaval in global energy and an associated shakeup of geopolitical presumptions. A whole string of dominoes were poised to drop. Especially potent was a global glut in natural gas -- a technological breakthrough in shale gas drilling, plus a surge in liquefied natural gas, which together promised to deliver a reliable flow of the relatively clean fuel for decades. This alone made Russia weaker in Europe, which now had new supplies to challenge Gazprom's monopolistic hold on the continent. But it also was a potentially fundamental influence on China, which consequently could substitute gas for some of its projected steep growth in oil and coal consumption, and thereby significantly lower the currently foreseen buildup of heat-trapping gases. On top of that was a trend toward bigger and broader electrification - for powering cities and vehicles - that could shake up everything. Depending on what fuel is used to create the power, among the outcomes could be a lower growth rate in global oil consumption, and weaker influence for some current petro-states.
All that was before the Arab Spring and the Fukushima nuclear power plant crisis, which are roiling the politics of Middle East petro-states, as Javier Blas writes interestingly at the Financial Times, and the future of nuclear energy.
Today, President Barack Obama dove into this vortex with a fresh attempt to reshape how the United States powers its economy, homes and vehicles. But, for those that are not doing so already, countries around the world will also have to begin reconsidering their energy strategies. Because one can no longer state flatly that Saudi Arabia will be the strongest energy force on the planet for decades to come. China isn't necessarily going to be quite the greenhouse gas-spewing machine of current projections. Russia may not be the neighborhood bully, and may become much closer to the West. And so on -- one must recalibrate one's national and corporate strategy to take into account the potential results of a primary energy shakeup. Take a look at this video clip, then read on to the jump.
Obama sees much stock in reducing America's diet of foreign oil (here is a laundry list of the energy initiatives he voiced today, compiled by Reuters. Here is the actual 44-page White House-released energy plan. Here is the video of the entire speech.). He set a goal of a one-third cut of oil imports by 2025 -- lowering imports to about 7.3 million barrels a day, a drop of around 2 million barrels a day. To get there, he derives half the cut from efficiencies such as a 60-mile-per-gallon vehicle standard, and a shift of long-haul semi-trucks to compressed natural gas. The other half would come from producing more domestic supply. Markets reacted fast -- at the Wall Street Journal, Dave Kansas notes that the share prices of companies associated with natural gas -- such as the makers of natural gas-consuming engines -- soared after Obama's speech; investors clearly see a bright future for gas.
Since oil is fungible, a drop in U.S. demand could theoretically reduce global crude prices, and hence improve the GDP rates of many industrial countries, while potentially reducing the flow of cash to some petro-states. But that's only theoretical, relying on the assumption that no other country exploits the situation by using more oil, Frank Verrastro, director of energy at the Center for Strategic and International Studies, told me by email. Verrastro said:
A reduction in U.S. consumption by 2025 means less stress on the global system. To the extent our reduction eases market conditions from what they otherwise would have been, you can make the hypothetical case that, yes, prices will be lower. In the real world, it may well be that lower prices just mean that China and others will increase their consumption levels and offset, at least in part, that savings. So there is no guarantee that this means lower prices for the U.S. or anywhere else.
In terms of the ideas actually having long-term traction, the jury is still out. Most of the proposals are not new, and have previously run into the Washington partisan buzz-saw. The new mileage requirement is one component that may not get congressional approval -- even though it's super-smart, and Detroit has made a decades-long habit of betting wrong on how efficient it should make its cars, it's again whining that it simply cannot be expected to improve mileage by so much, so fast.
Similarly, even though there is a global race on to crack open advanced batteries and electric cars, Obama gets much push-back from his political opponents that he is somehow solely inventing this new industry. Obama's idea is that all new federally purchased vehicles should be either hybrids or electric cars. Dennis McGinn, a retired vice admiral with the U.S. Navy and a leading energy strategist, said this particular initiative could boost the fledgling U.S. hybrid and electric car market. "That creates a nice demand signal," McGinn told me by phone after Obama's speech.
Looking at the big picture, a shakeup is already under way in the United States. It's from the advent of shale gas drilling, which has provided a means to shift away from dirtier coal-fired power plants. But shale gas is produced by hydraulic fracturing, a method that critics say is fatally flawed because it can disturb ground water. Shale gas companies as a group have stubbornly resisted a proactive campaign of rooting out their own bad actors, and openly disclosing the ingredients of their fracturing fluid. That has made critics more suspicious.
Obama sought to begin to bridge the gap by deputizing Energy Secretary Steven Chu to figure out how to resolve the risk questions in "fracking." He gave Chu a shout-out in his speech, crediting him for resolving the summer BP spill in the Gulf of Mexico by designing the cap that ultimately sealed off the Macondo well. Fixing up the discord over fracking may be no easier.
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