America’s Energy Sources

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Introduction

President Bush, in his January 31, 2006, State of the Union address, proposed an Advanced Energy Initiative to reduce American dependency on foreign energy sources. The following is a summary of U.S. energy sources and their potential for reducing America’s need for imports.

Oil

Oil is America’s largest source of energy, accounting for forty percent of America’s energy consumption. According to Energy Information Administration data, the U.S. produces about forty percent of the oil it uses. An overwhelming proportion of U.S. crude oil is refined in one of four states: Texas (twenty-two percent), Louisiana (twenty percent), Alaska (twenty percent), and California (eighteen percent).

Of the fifty-eight percent of America’s oil demand that is met through imports, about twenty percent, comes from the Middle East (though as CFR Vice President and Director of Studies James Lindsay notes in this interview with cfr.org’s Bernard Gwertzman, the fungible nature of the oil business to some extent negates the importance of which specific countries the U.S. chooses as its oil importers). The top suppliers of crude oil to the U.S. are Canada (1.8 million barrels per day), Saudi Arabia (1.6), Mexico (1.4), Nigeria (1.1), and Venezuela (just under one million).

The United States heavily relies on oil in its transportation sector. “The existing fleet of cars, SUVs, and trucks all depend on gasoline and diesel that will come from oil for the foreseeable future,” says Roger Kubarych, CFR fellow for international economics and finance. So too do America’s airplanes and some of its trains operate exclusively on gasoline.

There is no obvious expressway out of oil dependency. “You can’t change the characteristics of what’s in people’s driveways overnight,” says Kubarych. “It takes at least ten years from the time there is a choice.  And there is no choice yet. This is a twenty-five year problem.”

The alternative energy choices that do exist, or could, are certainly a mixed bag. Some offer tremendous potential, but each has its drawbacks.

Clean coal technologies

Coal is America’s second leading source of energy, behind oil, and provides for twenty-three percent of U.S. energy consumption. While oil is used primarily for automotive fuel, a vast majority of America’s coal is used to produce electricity. Should America develop cost-effective ways to tap coal energy, it would be a promising resource, given the large quantities of coal which could be mined within the continental United States. Some experts estimate that there is enough coal already in the United States to last over 200 years, even if current technologies are not made more efficient. Coal is a significant U.S. export, though sales have decreased considerably over recent decades, due mainly to increased competition from other coal-producing countries.

The president’s hope to spread clean coal technologies has met with a mixture of excitement and skepticism. “If we’re going to think about coal, we need to seriously consider carbon emissions,” says Richard N. Cooper, professor of international economics at Harvard. “Generally speaking, coal is even worse than oil in terms of climate change.”

Currently, the cleanest known method for the commercial burning of coal is coal gasification, in which coal ore is converted into a flammable gas. Coal gas still releases carbon into the atmosphere (which contributes to the greenhouse effect, climate change, and acid rain), but other contaminating substances associated with coal-burning are removed by this process.

Coal can also be liquefied, to be used as a replacement for gasoline. South Africa currently produces liquefied coal, which can be used in specially-designed automobiles, and sells it at roughly $45 per barrel. As of early February 2006, that price is less than OPEC nations charge for oil, though crude prices are famously volatile and there is no guarantee that South African liquefied coal will remain the cheaper option. With this in mind, experts say that arguments for the kind of infrastructural overhaul that would be necessary to begin importing or producing large quantities of liquefied coal are somewhat dubious.

Natural gas

American demand for natural gas has steadily risen over the past fifteen years. A slip in 2005, due to infrastructural damage caused by Hurricanes Katrina and Rita, does not seem likely to end this upward trend. Natural gas now accounts for twenty-two percent of America’s energy consumption, slightly less than coal. Like coal, natural gas is used primarily in the production of electricity. Consumption is expected to rise significantly in the coming years, due to a spike in demand for electric power plants fuelled by natural gas. Demand for liquefied natural gas (LNG) is also on the rise, though LNG is not without its risks.

The U.S. produces eighty-five percent of the natural gas it uses. An overwhelming majority of imports (ninety-five percent) are piped in from Canada. The major obstacles to increasing American natural gas output are infrastructural: the expense of building or extending a network of pipes, the expense of training skilled personnel, and the bureaucratic steps required to certify a site for drilling.

Natural gas has its advantages. Currently, it burns more cleanly than any other fossil fuel, including oil and coal. Natural gas can also be used to power automobiles, though the cost would be about twenty-five percent higher than gasoline models.

Nuclear energy

American confidence in the safety of nuclear energy was shaken in 1979 following an accident at a plant on Three Mile Island. New plant development slowed. But in 1986, the technology was all but completely forsaken. Ukraine’s Chernobyl disaster rattled even the strongest proponents of nuclear energy and plans to develop new plants were shelved. America’s 103 preexisting plants continued their operations, however, and according to David Victor, CFR senior fellow for science and technology, many of these plants have greatly improved their efficiency over the last fifteen years.

Now nuclear power seems to be on the verge of a comeback. China, which now has nine operational plants, is planning to more than quadruple that number. Similar projects are underway across East Asia, and Russia and India also have plans for new plants. President Bush’s inclusion of “safe nuclear energy” in his Advanced Nuclear Initiative would imply that the U.S. is not far behind. “The word on the street in the electricity business,” says Victor, “is that in the coming years we will see at least two, maybe three reactors being ordered.”

At a time of mounting concern about global warming and its links to the combustion of fossil fuels, nuclear power plants stand out as an alternative source of electricity. Nuclear energy is not the only option that does not produce carbon gas, but it is certainly the most reliably efficient. But despite a growing lobby of pro-nuclear environmentalists, there are still the issues of storing nuclear waste and guarding against terrorist attacks on nuclear plants.

Even setting aside concerns about safety, there is no guarantee that new nuclear plants would be economically competitive. “Certainly nuclear energy is a possibility,” says Cooper, “but at the moment it’s very expensive.” The Economist has gone so far as to say that nuclear energy’s “economics still look dodgy,” and many experts have argued that upping the production of American nuclear power would require significant government subsidies. Needless to say, this puts economists on edge. Subsidies might also prove unpopular with American taxpayers, already strapped as they are by rising energy prices.

Renewable energy sources

Renewable energy is a catch-all term, but refers primarily to solar energy, wind energy, water energy, and biomass technologies. These technologies aim to tap widely abundant—sometimes limitless—resources available cheaply within the U.S. They therefore make for exciting prospects, should they become viable in large-market contexts. President Bush, in his Advanced Energy Initiative, has promised to ramp up funding for solar and wind energy research.

But doubts loom. Lee Raymond, Exxon’s former chief executive, has repeatedly made bearish comments on the prospects of renewable energy, even calling research “a complete waste of money.” Cooper says wind farms, at least in terms of large scale energy production, might be impractical. “Wind is very sporadic, and limited,” he says. But Cooper isn’t inclined to discourage further research into the technology, and scientists are currently investigating the possibility of harvesting wind for energy, even in low-speed wind environments.

Exxon notwithstanding, a number of oil companies have recently commenced or expanded research projects into renewable energy. Victor points out that corn alcohol is already being used in some parts the U.S., mixed with gasoline, as an automotive fuel. More efficient oil substitutes could include other plants, such as switch-grass or biologically engineered “biomass.” But as yet, neither of these products is market-ready.

The International Energy Agency (IEA) has predicted that the trend of increased development of renewable energy will continue, and that renewable energy sources will triple their productivity by 2030. Even if this happens—and it’s no sure thing—the expanded renewable sources would still only account for six percent of the world’s energy output.

An inevitable choice, for now

There is much to be gained by expanding research into alternative sources of energy, but experts caution that it would be far-fetched, or at least premature, to expect that this research will necessarily pay for itself. Every alternative to oil, factoring in the costs of replacing infrastructure, is currently less cost-effective than oil itself. Even so, given longer-term environmental concerns, most experts agree that increased research is a reasonable proposition.

Just don’t expect rapid change, says CFR’s Kubarych. “Assuming some fancy new technology—or even expanded use of existing (but inferior) technologies like ethanol—is going to impact the next three years is fanciful. The only way to cut near-term oil demand is to drive the economy into recession, put on a punishing tax, or ration gasoline. None of these things is going to be done.”