New Chamber of Commerce Report Claims Risks to U.S. Energy Security Lowest Since 1995

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Years of dramatic gains in U.S. Oil & Gas production, driven by advances in hydraulic fracturing, horizontal drilling and advanced seismic imaging, boosted U.S. energy security in 2018 to levels not seen in a generation, according to the recently released report, Index of U.S. Energy Security Risk, prepared by the U.S. Chamber of Commerce's Global Energy Institute (GEI).

Crude oil prices rose 28% during 2018 -- to $71 per barrel at yearend 2018 from $55 per barrel at the start of that year -- which helped stimulate a significant increase in domestic production, thus enhancing domestic energy security, said the report, released December 17. If the U.S. had been less self-sufficient in oil, a 28% price increase would have hurt its energy security.

The index was created a decade ago to quantify risks to U.S. energy security. The GEI chose 1980 as the index's baseline year, and it set the baseline risk number at 100 for that year. Lower scores indicate lower risks (and greater security) and higher scores show a higher risk (and less energy security). The annual risk scores have ranged between 70 and 105.

In 2018, risks to U.S. energy security fell 2%, to 75.8, the lowest score since 1995, the report said. Looking out to 2040, the GEI sees a stable horizon of risks to U.S. energy security.

Click on the image at right to see a graphic of U.S. energy security risks.

A big reason for that is domestic oil and gas production, which is expected to continue growing.

"Our Index has documented the incredible story of how the shale energy revolution has ensured America's energy security," said Marty Durbin, president of the GEI. "Our nation's diverse energy sources, including coal, renewables and nuclear, add to that energy security and make the U.S. the largest energy producer in the world. This benefits our economy, our global security, and the environment."

The institute's overall energy security index is based on 37 measures that are grouped into nine categories. Those categories are further grouped into one of four sub-indexes with different weighting for:

• Geopolitical (30% of model weighting)
• Economic (30% of model weighting)
• Reliability (20% of index weighting), and
• Environmental (20% of model weighting)

Among the 37 metrics, the price of crude oil is the most impactful, at 9% of the overall energy security index. The least impactful metric is research and development and global coal, tied at 1.1% of the overall model.

Click on the image at right to see a longitudinal graphic on how the scores for the nine risk categories have fluctuated over time.

Over the last seven years (2012-2018), as the "Shale Gale" gathered speed, U.S. crude oil production soared, driving down overall domestic energy security risks by 24 points. The lessening of overall risks to U.S. energy security is "almost entirely because of the direct or indirect benefits of the U.S. shale revolution," the report said.

U.S. crude oil production averaged about 11 million barrels per day (BBL/d) in 2018, roughly double what it was at the start of the shale revolution less than a decade before. Production is expected to grow to an average about 12.3 million BBL/d in 2019 and about 13.2 million BBL/d in 2020, according to a recent estimate from the U.S. Energy Information Administration (EIA).

If there is any significant category of risk to U.S. energy security, at least in the near term, it lies in the area of "critical earth elements," deposits of which are located almost exclusively overseas, often in countries that are unstable. The GEI-coined term "critical earth elements" includes 17 "rare earth elements" plus 18 other high-value minerals that are considered important and strategic, but are not considered rare earth minerals.

The U.S. imports over 50% of 31 "critical earth elements," the GEI report noted, citing a 2018 report from the U.S. Department of Commerce (DOC). This high level of import dependence makes the U.S. economy "susceptible to supply shocks," the GEI report added.

The report noted the rapid growth of advanced technology, such as renewable energy systems, electric vehicles, battery energy storage systems and smart phones, has led to a surge in demand for various critical earth elements found overseas.

"Electric vehicles, fluorescent lighting, photovoltaic cells, and wind turbines are all examples of technologies that use these materials," said the institute's report. "Moreover, many U.S. defense and weapons systems are now totally dependent upon these types of materials, almost all of which come from foreign sources. So it is not just energy security that is at issue, but national security, too."

"These key elements have not always been as critical in our energy mix," the report continued, "but they are much more significant now. If expectations are borne out, (they) will gain even more in importance in the future. Growing demand for these materials in the energy sector may lead to larger energy security risks."

Click on the images at right to see the shares of cobalt and rare earth minerals that are produced in free, partly free or not free countries, measured from 1995-2018.

The index, now it its 10th year, includes an assessment of critical earth elements for the first time. The group's report contains no recommendation about how to raise the security scores for these minerals, and it noted future indexes will have to grapple with methodological modifications to fit these materials into an overall energy security index.

Critical earth elements aside, the report's relatively upbeat tone is a marked contrast to the gloomy outlook of the institute's first energy risk index report, issued in 2010. "At its inception in 2010, the index showed a dire energy security situation in the United States," this year's report noted. "Our index showed energy security deteriorating, with total risks heading steadily higher ... and every indication was that future risks would remain near the record high for decades."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.