European Affairs

Carl Michael SmithEurope and the United States have slightly different energy needs, but for the most part the problems they face are very similar. Specifically, the United States imports about 60 percent of its consumption of crude oil and refined products, and just over half of those imports come from four countries: Canada, Saudi Arabia, Venezuela and Mexico.

In the last 20 to 30 years, the oil industry has diversified around the world for several reasons, not least because existing reserves are being depleted. Since the mid-1980s, there have been significant finds in the North Sea, Africa and Asia, and there has been a renewed interest in some older areas, primarily Russia and the countries of the Caspian Basin. In these areas, older production has been revitalized and new production is coming on stream.

World events - such as recent upheavals in Venezuela, Nigeria and, of course, Iraq - trigger almost instantaneous changes in the supply and price of oil that present considerable challenges to the major consuming countries. That is why President George W. Bush has directed that the U.S. strategic petroleum reserve be filled to its full capacity of about 700 million barrels.

The reserve, located mainly in salt domes along the Gulf Coast in Louisiana and Texas, is already at a record level of about 638 million barrels, and we are filling it expeditiously. We expect that it will be completely full by late 2004 or early 2005. The reserve is available to the president in the case of a national or supply emergency, and to fulfill obligations to our treaty partners, many of which are in Europe.

The situation is completely different with regard to our supplies of natural gas, nearly all of which originate in North America. Approximately 85 percent of the 23 trillion cubic feet of gas we consume each year comes from the lower 48 states and Alaska. Most of the remaining 15 percent comes from Canada, with less than one percent from Mexico.

There has been much discussion, in the government, in industry and among the general public about how we can increase supplies of liquefied natural gas (LNG), which currently adds about one percent to our domestic gas supplies. We now have four terminals in operation, one outside Boston, one in Maryland near Washington D.C., one in Georgia, and another in Louisiana. We receive LNG from four major sources: Qatar, Algeria, Trinidad and Tobago, and Nigeria.

In our overall energy mix, partly because the United States is such a large and diverse country, we have a wide range of sources. The United States thus has a pretty balanced portfolio. Oil, with about 39 percent, accounts for the highest share of primary energy consumption. It is followed by natural gas with 24 percent, coal with 23 percent, nuclear generation with 8 percent; and hydroelectricity generation and renewable sources with 6 percent. Of course the renewable figure continues to grow. About four percent of primary energy consumption is for commercial use, seven percent for residential use, 22 percent for industrial use, 27 percent for transportation and 39 percent for electric-power generation.

In electricity generation, the fuel sources are reasonably well balanced. In round numbers, about 50 percent is generated from coal and about 17 percent from natural gas. The share of natural gas is growing. In recent years, the trend has been toward gas-fired turbines to generate electricity, not only because the gas has been available but also for its environmental benefits. A further 20 percent of electricity is produced by nuclear facilities scattered around the country, and the rest comes from hydroelectricity, renewables and petroleum energy sources.

The Office of Fossil Energy at the Department of Energy has been very involved with other agencies and the White House in implementing the president's National Energy Plan that was announced in 2001. One aspect that directly affects the Office is the Clean Coal Power Initiative to upgrade coal-burning power facilities to improve efficiency, reduce the impact on the environment and meet some of the challenges of emissions.

In addition, President George W. Bush and Secretary of Energy Spencer Abraham have announced the $1 billion FutureGen Project, a partnership between the federal government and private enterprise. This is meant to build the world's first zero-emissions power plant and mark a milestone toward establishing a hydrogen-based economy. It will be based on coal and integrated gasification combined-cycle generation, combined with fuel cells. It will serve as a prototype plant and a test-bed for future technological advances. It will also add 275 megawatts of power to the grid because it will be a fully operating plant, not just a demonstration project.

Nevertheless, no matter how much we improve supplies, moving them through the infrastructure remains a tremendous challenge. We have hundreds of thousands of miles of natural gas pipelines, about 90 percent of which were installed before 1970. The same applies to our oil pipelines. The challenge will be to raise the capital not only to modernize our aging networks, but also to build for the future.

According to a recent report by the National Petroleum Council on the future use of natural gas in the United States, we shall need to build a lot of gathering systems and gas transmissions systems. The natural gas reserves that we have available are in Alaska and the Rockies. And then there are big question marks over the future role of liquefied natural gas.

How, finally, do we protect all of this? The terrorist attacks of September 11, 2001 underscored the need for the physical protection of energy facilities. But the issue was already receiving a lot of attention before 9/11, because almost all of our pipelines, refineries, local distribution facilities and oil heads are privately owned.

It has been up to private companies and individuals to protect their property in the past, and they have done a good job. The emphasis was previously on protection from theft, vandalism and natural disasters and, of course, on protecting the environment from spills. Local law enforcement, fire departments, first responders and mayors and governors of states were primarily involved.

After 9/11, the emphasis has shifted to the new Department of Homeland Security. Secretary Tom Ridge and his colleagues have been working very closely with state governors and mayors to put together the infrastructure security that is needed. It is a huge challenge because of the vast amount, and the diversity, of facilities that have to be protected.

Carl Michael Smith has been Assistant Secretary for Fossil Energy at the Department of Energy since February 2002. He is the primary policy advisor to the Secretary of Energy on federal coal, petroleum and natural gas programs, including research and development. He also manages the U.S. Strategic Petroleum Reserve and Northeast Home Heating Oil Reserve. He was previously the State of Oklahoma's Secretary of Energy.

 

This article was published in European Affairs: Volume number V, Issue number I in the Winter of 2004.