The Energy Security Renaissance in North America

The Takeaways:

1. There are approximately 1.4 billion people in the world currently living in energy poverty (i.e. no access to electricity). The emergence of new energy producers can help breed a more competitive global gas market and spur on more coordinated, multilateral efforts to spread efficient energy use throughout the world.

2. With rising U.S. and Canadian oil production, and Mexico’s recent energy market reforms, a regionally coordinated energy framework would benefit North America. However, the question remains whether pipeline expansion and construction of new upstream facilities will prove economical for investors.

3. U.S. energy self-sufficiency depends on domestic energy infrastructure improvements and updating current export policies. Action must be taken at both the state and federal level in order to facilitate the transportation and exportation of domestic energy.

In less than a decade, the global energy market has changed drastically. Recent conflicts in Syria and Iraq, unforeseen increases in Libyan oil production, and heavy Western led sanctions on Iran have created an imbalanced global oil market. With Middle Eastern instability likely to continue into the foreseeable future, Robert Johnston expects that “decent returns and [a] lack of investment opportunities” in the Middle East, will lure energy companies towards investing in North American energy.

New drilling techniques in U.S. tight oil and Canadian oil sands have allowed for an increase of 4.9 million barrel per day in U.S. and Canadian oil production, which is “nothing less than a revolution in our global energy position,” according to Jan Kalicki. Despite lags in midstream infrastructure expansion, Johnston expects continued production growth in North America, albeit at a slower rate than previously seen – low oil prices and policy delays have caused several project cancellations in Canada for the least efficient wells.

In light of the growing energy opportunities, it is increasingly important to overcome infrastructural shortfalls and efficiently maximize U.S. oil production and exportation of refined products. As Shirley Neff noted, there is currently a “mismatch” throughout the U.S. “of crude [oil] qualities and refineries preferences.” U.S. refineries along the Gulf of Mexico predicated their investments on primarily refining heavier crude oil imports from Venezuela, the Middle East, and Mexico. The current state of U.S. infrastructure isolates the East Coast refineries, which are better suited for refining light crude oil, from the surplus of Midwest light oil. To compensate for this “mismatch”, U.S. companies are exporting their lighter crude products to Canada, where it is more efficiently refined and re-exported to the U.S. The panelists expect greater pressure for infrastructure expansion and crude oil export policy to alleviate these inefficiencies.

As global energy demand increases and climate change continues to melt polar ice, the Arctic, which holds an expected 525 billion barrels of oil reserves, is becoming more commercially prospective. With the U.S. claiming roughly 20% of the Arctic territory, and the U.S. poised to take over the chairmanship of the Arctic Council in the spring, Charles Ebinger is hopeful that higher priority will be given for the U.S. to take full advantage of the Arctic’s emerging resources, by actively engaging the energy industry and creating an Arctic Affairs Bureau in the State Department. Ebinger also supports a more regionally targeted U.S. national strategy for the Arctic, contrary to the current U.S. “one-size fits all” approach, which is “woefully inadequate” for addressing the regional topographic and wildlife variations. He notes that most companies are in the exploration phase and most plans for Arctic production are scheduled for 2030-2040. However, Ebinger warns that immediate U.S. Arctic policy planning should prioritize larger budget allocations for developing necessary resources for emergency response (i.e. Coast Guard) in Northern Alaska to avoid cruise ship and oil spill disasters in the Arctic.

While Arctic exploration continues, recent changes in the Mexican constitution have created “one of the most transparent and competitive regimes anywhere in the world today”, according to David Goldwyn. Designed to kick-start the Mexican economy, these changes allow for foreign investment in Mexico’s electric generation and upstream oil and gas production. EIA’s International Energy Outlook 2014 forecasts the new policies to increase Mexico’s oil production by .5 to 1.0 million barrels per day by 2040. Companies expect onshore and shallow water production to begin within two years, while deepwater production is expected to begin in eight to ten years.

Similar to the situation in Mexico, soaring Caribbean electricity prices, coupled with the North American renaissance, are causing Caribbean governments to consider switching away from credit purchased heavy Venezuelan crude oil to natural gas electricity production. The expensive transition to gas generated electricity, requiring an estimated $30 million infrastructure investment per country, would be more difficult in the Caribbean than in Mexico, because Mexican negotiations would be under the free trade agreement.

As Kalicki notes, the global axis of energy production is shifting from East to West, and the current global energy architecture for addressing the world’s energy issues is “out-of-date”. Goldwyn believes the Mexican and Caribbean developments increase the prospects for North American NAFTA-style integration, which could produce a new regime to support stabilizing global energy markets.

SPEAKERS

David Biette, Director, Canada Institute, moderator

Charles K. Ebinger, Senior Fellow and Director, Energy Security Initiative, The Brookings Institution

David L. Goldwyn, President, Goldwyn Global Strategies LLC, former State Department Coordinator for International Energy Affairs, and Co-Editor, Energy & Security: Strategies for a World in Transition

Robert ("RJ") Johnston, CEO and Director, Global Energy & Natural Resources, The Eurasia Group

Jan H. Kalicki, Wilson Center Public Policy Scholar and lead, Regional and Global Energy Issues; Co-editor, Energy & Security: Strategies for a World in Transition

Shirley Neff, Senior Adviser, US Energy Information Administration, former Senior Adviser, US Commission on the BP Oil Spill