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Geopolitics - Oct 16

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Energy Debate Fact Check #2 - Is Energy Independence Good For the Nation?

Professor Cutler Cleveland, The Oil Drum
TOD editor Nate Hagens writes:
Beyond the immediate concern of roiling financial markets, candidates are at least somewhat aware of the complex challenges that lie ahead in the coming energy transition. One popular (and pleasing to the ear) phrase that is frequently used is 'Energy independence'. In my opinion, true energy independence, if possible, will require significantly more focus on reducing energy demand than on increasing energy supply, something we are hearing little about (perhaps because its...err...less likely to win votes?) ...

Below the fold is the second in a series of brief fact-checking exercises regarding the major energy issues in the campaign by Professor Cutler Cleveland.

Senators McCain and Obama—and every President since Richard Nixon—have argued that energy independence should be at the core of national energy policy. Energy independence typically is defined as zero reliance on energy imports. The underlying assumption is that relying on “unfriendly” Middle East nations for energy is bad for our economic and national security.

The argument for energy independence is flawed for economic, strategic, and environmental reasons:

1. “Unfriendly” nations are not our primary source of oil. Only 44% of U.S. oil imports are from members of OPEC, the international oil cartel that is dominated by Middle East producers. Canada and Mexico are the two largest single sources for imported oil in 2007. (Editors note: through 6/08, Mexico has dropped to #3, though this changes seasonally and may revert in 2nd half of year)

2. The U.S. oil resource base is depleted to the extent that it could not yield the roughly 3.7 billion barrels of oil the U.S imported in 2007 (not to mention the additional refined products imported). Domestic oil is far more expensive to produce than oil in most other regions, especially OPEC nations. Increased reliance on domestic oil will put upward pressure on oil prices.

3. Increased U.S. production would have little impact on the level or volatility of oil prices. The price of oil is determined in a global market by a complex array of forces including speculation, weather, geopolitics, decisions by OPEC, and most importantly, by market fundamentals--short and long run supply and demand forces. At the margin, producing decisions made in the U.S. have little influence on this process.
(15 October 2008)
Good discussion. While I agree with much of what Dr. Cutler says, I'd like to provide a counterpoint.

1. "Complete" energy independence is a straw dog, both for advocates and skeptics. It will always be a matter of degree. Nonetheless there is a world of difference between being completely dependent on energy from foreign sources, and being somewhat dependent.

2. Dr. Cutler's post assumes that the political relationships we have now are the ones that we will have in the future. This is an unreasonable assumption. A look at 20th century history shows how quickly relationships can change. Friends can become less friendly or hostile (Iran, Venezuela, Saudi Arabia). Enemies can become partners (China, Russia). Energy sales can be tools of political policy, and if one is overly dependent, one is politically vulnerable.

It's instructive to see how critical oil and coal were in World War II. The cutting off of oil supplies to Japan by the U.S. was the ostensible reason for Japan's entry into the war. Much of the activity on the Eastern Front represented Germany's need to get access to oil fields.

3. Ensuring a constant supply of oil requires that the U.S. maintain a large military presence in unstable parts of the world. It probably means a continuing series of actions like the Iraq War. It's also the cause of much anti-American feeling, a powerful recruiting tool for Al-Quaeda.

4. Right now, there is political support for energy independence, particularly from those on the nationalistic/military side of the political spectrum (for example, former CIA directors). It is a powerful motivation, articulated by people like Thomas Friedman and Gal Luft (Institute for the Analysis of Global Security - IAGS). Energy security provides a starting point for talking about energy, and perhaps for forming alliances.

Even though energy security may be seen as a conservative preoccupation, it would critical no matter who is in office - Obama, leftists or libertarians.

5. In addition to the political aspect of energy dependence, there are the economic consequences. Paying other countries for oil is bad for the balance of payments. Dependence on foreign oil (or oil in general) means that the economy will be whipsawed by volatile energy prices. Many business people say that they would rather pay a high but constant price for energy, rather than be prey to volatility.

-BA



Energy Independence and the Real Cost of Oil

National Priorities Project via Common Dreams
A new report shows US spends billions to defend access to global energy reserves

NORTHHAMPTION, Mass. - October 14 - According to a new report from National Priorities Project (NPP), the United States is spending between $97 and $215 billion dollars annually on military action to defend access to oil and natural gas reserves around the globe. The Military Cost of Securing Energy provides a critical analysis of the military cost of defending U.S. energy concerns overseas. The report estimates that the military spends up to 30 percent of its annual budget to secure access to energy resources internationally.

Along with the report, NPP has released corollary fact sheets on energy consumption and renewable alternatives (nationally and by state) and published a web-based quiz to help translate and disseminate these complex findings. These materials contain information about the various options for taking action and moving forward with more sustainable energy planning. The report, facts sheets and quiz can be accessed online here.

The report is authored by Dr. Anita Dancs, Asst. Professor of Economics at Western New England College, with Suzanne Smith, Research Director at NPP, and Mary Orisich, Research Associate at NPP. They have spent the past several months analyzing - using two different processes - the global pursuit of energy by the federal government and the U.S. military to estimate the amount of money being spent.

... Energy expert and author Michael Klare (who is also a member of NPP's board of directors), says this research shows the clear connection between the U.S. military, national security, and U.S. access to global energy supplies. "One of the main reasons that our troops are deployed around the globe is to secure access to energy resources," Klare says. "This paper shows that, without a doubt, energy security is tied in with national security and military action. The question that follows then is, is this a sustainable strategy - both in terms of the threat of foreign wars and the inevitable cost of human life, and also in terms of the rapid depletion of resources and concurrent destruction of the environment and changing climate - and if not, what do we need to do to change it?" Klare praised the authors for "their original and probing methodology that illuminates the ties between U.S. dependence on foreign oil and U.S. military policy more thoroughly than ever before."
(14 October 2008)



Venezuela's oil output slumps under Hugo Chavez

Jeremy McDermott, The Daily Telegraph
To win allies and forge an anti-American front, Mr Chavez sells oil to friendly countries at low prices. Ironically, the only big customer buying Venezuelan oil at the full market price is the United States, which the president routinely denounces as the "Empire".

"As production falls, the sales to the US become more important," said Pietro Donatello, an oil analyst from Latin Petroleum in the capital, Caracas. "Only the US is paying the full amount for Venezuelan oil and in cash, the rest are in some kind of barter agreements."

The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez's friends around Latin America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in instalments spread over 25 years.

The other half - 1.2 million barrels per day - goes to America, Venezuela's only genuinely paying customer...
(13 October 2008)


Dmitry Medvedev: Twenty years on, America must abandon its Cold War mentality

Dmitry Medvedev, The Independent
Seven years ago, because of the USA's determination to enforce its global dominance, an historic chance was missed – the chance to take ideology out of international politics and build a truly democratic world order.

After September 11 2001, Russia – like many other states – instantly, without a second thought, stretched out a hand of friendship. And we did that not only to rebuff terrorism but also for the sake of overcoming the division in the world after the Cold War. Yet, after the overthrow of the Taliban, there began a series of unilateral actions co-ordinated neither with the UN nor even with a number of the US's partners. It is enough to recall the decisions to abandon the Anti-Ballistic Missile Treaty or to invade Iraq.

Military bases are being set up all along the perimeter of our country. A third site for a global anti-missile shield is being created in the Czech Republic and Poland. Why, when taking these decisions, was it not possible at least to have a preliminary consultation with one's allies?...
Russia's President, Dmitry Medvedev, was speaking yesterday at the World Policy Forum in Evian, France
(9 October 2008)

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