Remarks at WorldBoston on Energy Geopolitics
Department Principal Deputy Assistant Secretary, Bureau of Energy Resources
Thank you, James, and let me thank World Boston as well for organizing this event and for offering this opportunity to discuss the geopolitics of energy. Let me also recognize Linda Cheatham, our Diplomat in Residence in Boston, who is working out of Tufts. She is a tremendous resource for all of you in the Boston area. And, if any of you are interested in joining the State Department, Linda would be very pleased to talk to you.
Energy issues have long been a factor in U.S. foreign policy, even when they might not have been in the headlines. But while energy has been an on-going factor in our foreign policy thinking, our understanding of energy and how it affects our economic well-being and other aspects of the international security equation has evolved. We are no longer in the world of the 1970s, something that was clearly identified in the strategic review Secretary Clinton launched shortly after coming into office. It was in recognition of those changes and the need to engage more effectively internationally on economics and energy security that the Secretary created the new Bureau of Energy Resources. It is the themes of dealing with the energy world of today, the energy world of tomorrow and how we get there, and the reality that there are billions of people in the world today without the access to energy they need that are the focus of this new bureau and which I would like to discuss with you tonight in terms of energy security in foreign policy.
The Energy World of Today – and Building the Energy World of the Future
Until very recently, our energy security thinking was deeply affected by the oil disruptions of the 1970s and their impacts on the global economy. It was in response to those disruptions that the United States and other countries made sharp changes in their patterns of oil consumption, built strategic stockpiles, established new international tools, such as the International Energy Agency and saw a search by oil companies for new energy resources in areas such as the North Sea.
These factors, these lessons remain important. Even as we become more energy self-sufficient, something I will discuss in more detail in a minute, 20 percent of the world’s traded oil supplies as well as 20 percent of the world’s LNG trade flow each day through the Straits of Hormuz.
However, there are important steps we have been taking at home and abroad that are boosting our energy security. Over the past four years, for example, the United States government has invested $90 billion in renewable energy and energy efficiency initiatives. In fact, the United States led the world in total overall investments in renewable energy in 2011, with public and private outlays reaching over $50 billion. In this same timeframe, the United States has also doubled the share of renewable energy in our total energy mix thus lowering imports of fossil fuel.
There is another important step we’ve taken: boosting energy efficiency. A frequently heard line, but one that remains valid, is that the best barrel of oil may be the one you don’t burn. It is in this spirit that the United States has further increased its energy efficiency efforts in the transportation sector by doubling MPG requirements for new vehicles.
The new Corporate Average Fuel Economy (CAFE) vehicle efficiency standards promulgated by the Department of Transportation and the EPA to raise economy standards have been called the most significant federal action ever taken to improve fuel economy and reduce carbon pollution. Under the new standards for cars and light-duty trucks spanning model years 2011 to 2025, these vehicles will travel twice as far on a gallon of gas as average fuel efficiency reaches a performance equivalent of nearly 55 miles per gallon by 2025. They will cut oil consumption by over 2.2 million barrels a day by 2025. Moreover, for the first time, national fuel efficiency and greenhouse gas emissions standards for heavy-duty trucks, vans and buses, have been finalized for model years 2014-2018, a move that should save truck owners and operators billions at the pump, and help American businesses.
As we move to consume energy smarter, U.S. domestic oil and gas production has also grown. We have seen unprecedented growth in unconventional domestic supplies such as shale oil and gas, which has been unlocked by innovation and entrepreneurship.
Crude oil production today in the United States is 6.2 million barrels a day, the highest level since 2003. The United States is, in fact, one of the fastest growing oil producers in the world, largely due to technological advances that enable us to increase production from shale and other unconventional sources. This year, North Dakota overtook Alaska to become our second largest oil producing state, thanks to increased production of tight oil from the Bakken shale formation. At the same time, Texas, still our largest oil producing state, boosted its output to over 1 million barrels per day, led by increased production from the Eagle Ford shale formation. The result is that America’s dependence on imported oil, which has been dropping since 2005, has fallen below 50% for the first time in more than a decade.
Oil is not the only energy story. What has happened in terms of the production and utilization of natural gas is nothing short of revolutionary. Although as recently as 2005 experts saw the need for growing imports of natural gas, U.S. natural gas production has been rising and rising rapidly, displacing significant amounts of coal and imported oil, with large corresponding reductions in CO2 emissions. According to the U.S. Energy Information Administration (EIA), over the last decade, U.S. shale gas production grew fourteen-fold. By 2030 the EIA projects that shale gas will represent 14% of total global gas supplies. In 2011, U.S. natural gas production experienced the largest year-over-year increase in history – and easily eclipsed the previous production record set in 1973. In 2012, experts forecast the United States may again be the world’s largest natural gas producer, surpassing Russia. Moreover, experts are talking about a renaissance in the chemical industry in the United States because of the increased availability of natural gas. Experts also note the possibility of the United States becoming a natural gas exporter in the not so distant future.
This domestic progress comes at a time when new consumers and producers are entering the global energy market picture, adding further dynamism to the energy security equation. There are new major consumers or net consumers, such as China, India, Indonesia, and Brazil, coming on line as their economies experience rapid and strong growth. At the same time, there has been new oil and gas coming from traditional suppliers, particularly from Qatar and Canada. We are also seeing new oil and gas discoveries coming from traditional and newly emerging African oil producers as well as the possibility of new techniques being able to tap long-known but once seemingly out of reach deposits such as Brazil’s pre-salt.
Countries are looking at the U.S. experience with new technologies and are considering applying those lessons themselves, for example in developing shale and other unconventional gas supplies. Given this situation, the State Department developed the Unconventional Gas Technical Engagement Program, or “UGTEP,” to share our experiences, both on what has worked or could have worked better, to talk about what we have learned, and to talk about the importance of getting the regulatory framework right. The program engages with countries seeking to utilize their unconventional natural gas resources to help them identify and develop those resources in ways that follow good environmental and other sound practices. Although the U.S. shale gas experience cannot be precisely duplicated, UGTEP can be instrumental in helping governments understand the complexities of shale gas development. Governments often can have limited capability to assess their own country’s shale resource potential or are unclear about how to develop shale gas in a safe and environmentally sustainable manner. Through UGTEP we can share expertise and help them achieve greater energy security and meet environmental and other objectives.
Similarly, we are working with other countries to drive transformational and sustainable clean energy technologies by providing tools and platforms to improve the policy environment for energy efficiency, renewable energy, and clean energy access. Awareness of the impact CO2 emissions and the importance of sustainability are also factors that have to be taken into account when talking today about energy security. If one follows the work of the International Energy Agency, for example, one can see the attention given the potential environmental impacts of various policy options.
To help realize a cleaner, more sustainable energy future, the United States was a founding member of the newly created International Renewable Energy Agency, or IRENA. The IRENA is a non-UN international agency with over 100 members and an additional 58 countries that likely will join in the near future. Within IRENA, the United States is leading the discussion on building the enabling environments in developing countries to leverage limited public sector resources to unlock private capital investments in transformational energy projects that will increase access through renewable resources.
We have also helped develop the UN Secretary General’s public-private initiative on Sustainable Energy for All (SE4ALL), which was an important element of the Rio+20 Conference in June. SE4ALL is designed to increase access to sustainable energy, primarily in the developing world. An important component of SE4ALL is recognition of the key role the private sector must play in finding, developing, and delivering energy. Bringing together multinational corporations, key governments, civil society groups, and other stakeholders, SE4ALL is a public-private partnership that has committed over $50 billion in support of three goals to be achieved by 2030: (1) universal energy access for the 1.3 billion people without any access to modern energy services; (2) doubling the rate of improvement in energy efficiency; and (3) doubling the rate of renewable resources in the global energy mix. Bank of America, as co-chair of the initiative, headlined the efforts with a 10-year $50 billion commitment to invest in these three areas.
In building the energy world of the future, it is critical – as the above examples suggest – to note and facilitate the role of the private sector. There is development and application of new technologies, the fruit of American innovation and the work of many of the great academic institutions here in Boston. There is a great technological revolution underway in the sector. Experts already talk about changes in the development of unconventional gas that will greatly reduce, recycle or perhaps even eliminate the need for the amounts of water used today in hydraulic fracturing. Moreover, advances in energy are not just limited to the latest drill-bits and horizontal drilling, but include innovative software, in sophisticated smart-grids, and computer controls for industrial automation to cut energy use. And American companies are world leaders in wind these fields, as well as in solar, hydro, power transmission, supply- and demand-side energy efficiency technologies, and smart grids. The International Energy Agency estimates that the world will see $5.9 trillion – yes trillion with a “t” – in new investments in hydroelectric and other renewable power between 2011 and 2035. And the world’s need for the latest equipment and technologies ties into what we call Economic Statecraft at the State Department, which emphasizes the role and the importance of economics and market forces to strengthen our diplomacy and advocacy for policies to meet our economic goals, such as helping to create and sustain the growth of well-paying, productive American private sector jobs.
Confronting the Realities of Energy Poverty
This brings us to another factor in our understanding of energy security, the essential role energy plays in economic development and in elevating the human well being of the billions of those without access to the types of safe energy they need.
Energy has been a key component of economic growth and development since the beginnings of the industrial revolution. The first textile and other mills were established along the Merrimack and other rivers of the Northeast because they were the means to power machinery in the late 18th /early 19th centuries. We may have moved past those waterwheels, but the need for energy remains core today for manufacturing, commerce, and our daily lives, and this is even more the case in the developing world.
There are 1.3 billion people in the world today who do not have access to electricity. There are 2 billion people who do not have even a safe, healthy way to cook their food. Addressing these needs and doing so in an economic and sustainable manner is part of our thinking about energy security. For example, at the Summit of the Americas last April, President Obama and his fellow Western Hemisphere leaders agreed to a program called Connecting the Americas 2022 or Connect 2022. Through Connect 2022 the Hemisphere’s leaders are working to achieve access to electricity over the next decade for the 31 million people in the region who lack it today. The key is enhanced electrical interconnections. The initiative will serve to reinforce regional and bi-national efforts to bring electricity to all parts of the hemisphere. It means education for children, reliable power for clinics and hospitals, and lower costs for business. Additionally, it will create a business climate that accelerates development of renewable energy and attracts private investment, big and small. Finally, Connect 2022 will open markets that bring the best in power technology to markets that need low-cost and efficient solutions.
Another example of what we are doing to address energy poverty is the Global Alliance for Clean Cookstoves. The United States is a founding member of the Alliance, an initiative led by the United Nations Foundation with 34 participating countries and hundreds of public and private partners, to save the lives of the nearly 2 million people who die each year from air pollution related to cookstoves. The aim is to improve livelihoods, empower women, and combat climate change by creating a thriving global market for clean and efficient household cooking solutions. Our goal is for 100 million homes in developing countries to adopt clean and efficient stoves and fuels by 2020.
There is another aspect to combating energy poverty and that is doing what we can to help countries that are now developing energy production for the first time or on a significantly expanded basis to do so in a way that those energy resources benefit the country’s citizens and their development. The focus here is on fostering good governance and transparency in the energy sector. If a country gets this right, they can avoid the “resource curse” of mismanagement and corruption that have beset too many countries rich in energy and other resources.
One way we do this is through the Energy Governance and Capacity Initiative, which aims to help emerging oil and gas producers develop the capacity to govern their sector responsibly and in the best interests of their people. Another way is through support for the Extractive Industries Transparency Initiative or EITI, an international program that has emerged as a global standard for revenue transparency and multi-stakeholder engagement on sector issues. The September 2011 announcement by President Obama that the United States would implement EITI as part of its commitments under the U.S.-initiated Open Government Partnership set the example that transparency benefits countries at all levels of development. In easing sanctions on Burma, we developed groundbreaking reporting requirements to help ensure investments by U.S. companies benefit the Burmese people. We also strongly support implementation of the "Cardin-Lugar" extractive industries disclosure rule, also known as Section 1504 of the Dodd-Frank Act, and are working with European partners to achieve consistency between their rules and ours, to the benefit of companies that are listed on stock exchanges both here and elsewhere.
In closing, today’s energy equation, while still linked to issues we have known and had to work for decades, has widened to account for new producers and new consumers which affect how we think about energy security here in the United States. Thinking about energy security must take into account greenhouse gas emissions, climate change, and sustainability, both in terms of how we obtain and manage energy today and build the energy systems we will need for tomorrow. It is not enough to think about what we have, but we must also think about the 1.3 billion people in the world who still lack electricity and or the 2.5 billion who lack a way to cook their food safely and how those people are going to be brought into the modern economy.
There are no silver bullets for meeting our energy needs. An all of the above energy strategy that utilizes all of the tools at our disposal is the best way forward. We are seeing tremendous and exciting changes in the world’s energy picture. Through a sustained, all-of-the-above approach to U.S. energy security, we will continue to reduce our reliance on foreign oil, and maintain an economy that is sound and sustainable. But just doing this in the United States is not enough. We need to engage others to get their buy-in; after all, as has been said frequently if one or some of us are not energy secure, our own energy security is undermined.
The goals and initiatives I have discussed are all part of the United States’ goals of increasing global energy security and promoting economic prosperity. These steps are, however, not just for governments. Citizens and the private sector have essential roles in building a secure energy future as well. There are important steps we can take that do not have such huge price tags – energy-saving light bulbs and other appliances are not as expensive as power plants, but can help in our efforts. But there are also major business opportunities here in the U.S. and around the world as we build a sounder energy future. The bottom-line is that energy security remains a vital priority, something we all can – we all have to -- take steps to help achieve.