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Report: U.S. Energy Security Risks Worsened in 2010

The energy security risks of the United States worsened significantly in 2010, but shale gas has the potential to improve the security of natural gas supplies and lower energy costs, according to the second edition of an annual report by the U.S. Chamber of Commerce's Institute for 21st Century Energy.

Karen Harbert, the institute's CEO, told reporters Thursday that the Energy Security Risk Index (ESRI) for 2010 was 98, up 6.5 points from the revised score of 91.5 reached in 2009. The 98 mark is the fourth-highest ESRI since 1970.

"The score was higher primarily because of energy prices and price volatility," Harbert said. "This has been the worst year for risks since the 1980s and the Iranian hostage crisis. That's not good news. The message this sends to policymakers is that we've got to get more serious about having a vibrant and viable domestic energy policy, and that the time to get one is now."

The report warned that although the United States was slowly emerging from its economic recession, the nation was still "mired in an energy recession."

"Access to domestic energy resources -- onshore and offshore, fossil fuels and renewable -- is purposely being limited by policy and regulation," Harbert said, adding that new energy technologies like hydraulic fracturing (fracking) "find it difficult to take root in an uncertain policy environment, which means that we are losing opportunities to help some of these technologies achieve commercial scale and drive costs down the learning curve."

The Chamber's report, "Index of U.S. Energy Security Risk 2011," predicts that for the next 25 years the nation's energy security situation will remain extremely risky due to rising energy costs -- especially for oil -- coupled with lower crude oil output from Alaska and the Gulf of Mexico. Crude oil output is forecast to fall 1.3 million b/d below previous expectations, adding to market insecurity.

But there is good news. The Chamber refers to recent estimates made by the Energy Information Administration, which doubled the volume of technically recoverable shale gas resources (see Shale Daily, July 11; Dec. 17, 2010).

"Increasing shale gas supplies and further improvements in natural gas extraction technologies will further delink the prices of crude oil and natural gas," the report said. "Greater supplies of natural gas are expected to lower the costs of producing electricity and residential heating and other uses."

Harbert said having plentiful shale gas resources would be meaningless if there wasn't the proper infrastructure.

"There will no doubt be a huge lost opportunity if the capacity to expand into the shales is not realized because of a lack of infrastructure to distribute the natural gas to the marketplace," Harbert said. "I think the only way that shows up in the index as a huge decrease in energy security risk is if those resources are brought to bear.

"Obviously, there is downward pressure on natural gas import expenditures per GDP because of the existence of domestic resources. But the forecast decrease [in energy security risk] won't happen if we don't have the pipelines."

Steve Eule, the institute's vice president, mentioned efforts by TransCanada Corp. to build the 1,700-mile Keystone XL Pipeline extension. If approved by the federal government, the pipeline would transport crude oil from the Alberta oilsands to Texas for processing.

"We are concerned about signing and permitting holdups with [natural gas] pipelines," Eule said. "You can see what's going on with the Keystone Pipeline. We certainly don't want the same thing going on with natural gas pipelines."

Harbert said one advantage the natural gas industry has over the electricity industry is that the Federal Energy Regulatory Commission has the responsibility and authority to permit natural gas pipelines across state lines, but it doesn't have that same authority on electric transmission lines.

"FERC has allowed more of that [shale gas] capacity to be built," Harbert said. "As we evolve into this burgeoning, growing and transformational natural gas market we're going to continue to look for ways to quantify the index to make sure we capture where there are hurdles."

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