The average global temperature has not risen now for a couple of years. A barrel of crude oil is down $100 from its recent high and gasoline costs half of what it did last summer. So why still bother with energy policy? Don’t we have other, more immediate priorities today, such as saving our homes and jobs?
There is still one major reason to keep pursuing energy reform: national security.
The United States must change its energy ways not because of climate change — although protecting the environment is still a priority — but because our dependency on crude oil makes the nation vulnerable.
Anyone who is still agnostic about the need to diversify energy sources should look at what happened in Europe this winter. Several years ago, Russia and Ukraine got into a squabble about unpaid natural gas bills. Russia turned off natural gas supplies to Ukraine. Europe became “collateral damage” in that fight, because its move to cleaner energy made it overly dependent on natural gas, and 25 percent of those needs are being supplied by Russia. The problem is that Europe’s natural gas flows not from Russia, but indirectly through Ukraine. Russia is happy to use energy as a weapon to bludgeon former Soviet satellites back into the Greater Russian imperial fold, as well as to tighten its grip over Europe.
In 2006, when Russia decided to pull on Ukraine’s energy chain, an arrangement was agreed to between Moscow and Kiev, with the intermediation of Brussels. The European Union then announced it was going to reduce its dependence on Russian natural gas. Two years later Moscow pulled the chain again, but the European Union was no less dependent on Russia.
This is happening in the middle of one of Europe’s coldest winters in decades. Snow fell in London in early November, the first time since the 1920s. Canals in Holland froze over and people went skating. Russia leveraged the cold, just as it used “Father Winter” to stop Napoleon’s armies and then Hitler’s. In the Balkans, homes went without heat and light and factories shut down. The Czech Republic actually restarted a Soviet era nuclear reactor — something it had been obliged to retire in order to join the European Union. European newspapers denounced the trap of “cleaner” energy and demanded that Brussels back out of the forced march towards natural gas. But it was too late.
Even more frightening for average Europeans is that Moscow is now telling Brussels that Europe can be spared by agreeing to the building of natural gas pipelines that run directly from Russia. Instead of diversifying its energy sources, Europe is being pressured by Russia into concentrating them even more.
This is true energy power politics. We should learn from Europe’s mistake. Moscow has approved its national security doctrine for up to 2020, and its focus is control of hydrocarbon-rich regions in competition with the United States.
The lower price of oil has rendered many alternative energy projects uncompetitive, but that has not deterred the kingdoms of the Persian Gulf, which are pursuing new energy sources such as nuclear and solar. One obvious reason is to be able to leave more oil for export and collect more foreign exchange. A deeper reason is that the kingdoms realize that their oil reserves are limited and that the price of different grades of crude will continue to creep up and lead to demand shifting to more competitive energy sources and technologies. The kingdoms are astutely anticipating the future and smoothing the transition.
When the world’s economy starts to come back to life, we could see energy prices shoot up and stay up for a year or two. If the global economy remains weak, a sudden jump in energy prices could be enough to stall the recovery.
Developing a new energy strategy also is critical as oil supply routes become increasingly vulnerable. The hijacking of a Saudi supertanker recently underlined that weakness. The Sirius Star was released in January after the owners paid more than $3 million to Somali pirates. That transaction not only released the tanker but also guaranteed that more attacks on the high seas will be attempted against these giant, low riding and slow moving targets.
Saudi Aramco’s other costs were much greater — legal fees of $300,000, the cost to provide security, negotiate and deliver the ransom was $200,000; and daily tanker fees of $50,000 piled up to $2.5 million after 50 days. There are also opportunity costs. Oil was trading at $55 a barrel the day the tanker was seized, and at $40 the day she was released. That’s $30 million lost on two million barrels kept from market. Including other miscellaneous fees and penalties, the total cost to Saudi Aramco was almost $40 million.
The Saudis paid up to cut their losses. If they had had to replace the tanker, Saudi Aramco would have suffered even more losses as it takes two to three years to order and build a new one. There are only about 500 “very large crude carriers” or VLCCs like her — out of a fleet of about 3,500 oil tankers in the world. Saudi Aramco’s fleet is made up of 21 VLCCs today, although it has ordered another 20 and expects to have them in less than three years. The Saudis have resisted the temptation to save money today by canceling any of those orders, something that others with less cash reserves are doing and which will lead to supply bottlenecks later.
Without the Sirius Star, the Saudis would have faced a shortfall of about 12 million barrels to the United States a year. A Saudi VLCC makes about six round trips a year to the United States.
Since her hijacking in November, calls from ship owners and insurers grew for military assistance. By early 2009, 18 nations had already sent warships, and a half dozen more nations were still expected.
But even 60 warships will only be able to provide security in a corridor 400 miles long and 10 miles wide in the Gulf of Aden. In late January Somali pirates still managed to hijack a German liquefied petroleum gas tanker traveling in the corridor. The warships will be unable to provide any security in the other 99 percent of the million square miles of the western Indian Ocean. This grand show of force points to just how limited our naval power has become since the end of the Cold War. The oceans are largely unpatroled these days and pirates, terrorists and criminals can move around and do as they please.
Even assuming that VLCCs headed for the United States make it safely around the Cape of Good Hope, our oil from abroad still won’t be safe.
Nigeria is another hotspot where pirates, organized crime gangs and rebels all collaborate. Last year Shell and Chevron had to suspend all operations in the Niger Delta for months, because of unremitting attacks on facilities and personnel. The region is rife with gang wars over control of stolen oil supplies that are often collected by just tapping unprotected pipelines. Piracy is a threat to navigation off the shores of Nigeria. Ten days after the release of the Sirius Star, local pirates attempted but failed to hijack a Nigerian VLCC, the Front Chief. Pirates also target offshore oil platforms, taking money, hostages and tugboats.
There is evidence also that Nigerian and Somali pirates are collaborating. With a slumping world economy, international crime syndicates will be able to tap an almost unlimited supply of recruits in poor countries. And maritime mercenaries will train and harden them.
Fuel supplies intended for U.S. troops in Afghanistan also are creating a security risk. More than 90 percent of the fuel and materiel destined to U.S. and NATO operations in Afghanistan go through Pakistan. The Taliban and other Islamist forces in Pakistan have been attacking supply convoys in transit.
The Islamists are reverting to the same tactic they used against the Russians in the 1980s — if you can’t defeat a superior force on the battlefield, then make your battlefield their supply lines. The U.S. quickly negotiated a new right of way through some former Soviet republics. The problem is that the route will be more time consuming and costly than shipping in supplies by sea to Karachi, and perhaps not much safer if Islamists pivot and coordinate attacks on the new overland route.
These incidents show that the world is already in an energy “Cold War.” We’ll be lucky it doesn’t become a “hot war” soon.
The Indian Ocean is becoming perhaps the most volatile and strategic region in the world. Not by coincidence, the United States is working with India to give it all the new weapons it needs to play an increased military role in the Indian Ocean, especially as it serves as point man in the multinational naval force against Somali piracy. Boeing inked a multibillion-dollar contract to supply long range maritime aircraft to India. Bids are being requested by India for new medium range aircraft, and India is rushing out its first home-built aircraft carrier. Michael G. Frodl is a tax attorney, former chairman of the Environmental Law Committee of the Bar Association of Washington, D.C., and an advisor on emerging risks. He is a cofounder of the Forum for Environmental Law, Science, Engineering and Finance. His personal views do not represent those of FELSEF. He can be reached at firstname.lastname@example.org.