Posted on 06/13/2007 11:43:56 AM PDT by Ooh-Ah
Hudson Institute, May 29, 2007
Thank you for having me here. .
Let me first start by three preliminary remarks.
First, I apologize for my neoconservative accent.
Second, we can all agree that I should express my opinions perfectly freely today, which means that they should not commit my employer. My company is kind enough to let me go on with my extracurricular, intellectual activities but since it doesnt control these activities it shouldnt be quoted in reference to them. These remarks are wholly my own, and are not intended to represent the positions or views of my employer company or colleagues.
My third preliminary remark is about methodology. I have volunteered to talk about Energy Security: the Groundwork for a new Western Alliance. To the risk of inflicting on you a couple of boring minutes, I wish to define the terms West and Energy Security before I go forward.
The West is a word with many meanings. I will take on board two of them.
First, the West is a group of civilizations the democracies of Europe, America and Israel whose identity was formed over many centuries under similar influences: the Greek emphasis on rational debate, the Biblical revelation that men are answerable for the morality of their actions, and a Roman praxis of power where military and administrative skills are cultivated as a separate field, free of theological or ideological considerations. These common influences unite Western countries in a way that these countries themselves often under-estimate, but which is immediately recognized by representatives of other cultures.
Second, the West is a political philosophy which underlies most Western political systems, but was adopted also by other civilizations, just as it was occasionally repudiated by some Western powers. I call Western, in this second sense, any political system which accepts two essential premises:
(i) The rights of individuals are valuable enough to curtail the free exercise of political power.
(ii) Power should be used to improve the lot of the people.
With apologies to the authors of your Declaration of Independence, none of these statements is self-evident. They slowly coalesced in civilizations influenced by Biblical and Greek thought. However, this political philosophy was never all there was in countries with a Western cultural heritage. Pure cynicism (the idea that the only goal of power is power itself) or metaphysical goals (the idea that power must be used to implement a transcendent worldview the will of God, the advent of communism or racial superiority) have always coexisted with these political principles within the Western culture.
Often enough, these alternative political views have prevailed. Even today, Russia or Venezuela are Western in the cultural sense, but not in the political sense. Indeed, it sometimes seems that every Western civilization yes, even the US is constantly wondering whether it should stick to the principles of government accountability and individual rights, or revert to the cynicism of raw power. Therefore, although the cultural West is a privileged ground for Western political philosophy, we should never under-estimate the fragility of these ideas, even in the most peaceful and privileged places.
Conversely, the Western political ideas of individual rights and the rulers responsibility to the people can take deep roots in other cultures. This has been shown by the effective establishment of the rule of law and democracy in India, Japan, and Turkey. These three countries can therefore be seen as members of the West in the political, though not the cultural sense.
I believe that in todays world, defending the principles of government accountability and individual rights all around the world is the highest task that organizations like yours can commit to. It is also the worthiest goal of those governments that do believe in these principles. This means that these governments should have, as an over-arching goal of their foreign policy, the defense and protection of Western political principles. This would be a true Western alliance not in the old sense of an alliance between Judeo-Christian countries, but in a more modern and more relevant sense: a combined effort of all countries which believe in individual rights and government accountability to stand up for these principles in the world.
Energy security has become, I believe, a good ground for such an alliance. It must be emphasized, however, that energy security is not the same as self-sufficiency: Ricardo is not dead, the law of comparative advantages is still valid and it makes perfect economic sense to provide some of our energy needs through international trade. We shall leave self-sufficiency, as the ultimate goal of economic policy, to Mr. Ahmadinejad.
The notion of energy security stems from the recognition of the fact that political powers have goals other than economic wealth. Let me rephrase this: most world powers, most of the time, are more interested in increasing their political strength than in maximizing wealth. Looking for energy security for the West therefore means, quite simply, making sure that dependence on other civilizations for Western supplies does not lead to a decrease of Western power. This decrease could result from excessive prices which debilitate the importer and provide the exporter with a war chest for the pursuit of its political goals or from direct pressure for political concessions. Examples of the latter have included Russia using its power as a gas provider to demand political compliance by its neighbors, or OPEC countries using the Wests oil dependence to try and separate Israel from its fellow Western countries.
The quest for energy security means finding appropriate responses to the reality or to the threat of such pressures. Theoretical responses can include:
1. Develop alternatives by reducing the content of imported energy in the domestic GNP. This is a natural reaction to every price increase. Between 1979 and 1983 there was an 11% decline in worldwide consumption of oil, and a 17% decline in U.S consumption. However, even absent price signals, security concerns should lead to such investments.<
2. Turn to friends: make sure that the largest possible percentage of energy imports comes from countries which share your worldview and geopolitical goals. This is the best way to combine the benefits of international trade with the goal of energy security. For the US, it could mean strongly supporting investment in the Canadian energy industry; this industry, after all, enjoys huge resources which rightly led the current Prime Minister to describe his country as a potential energy superpower. It could also mean increasing the share of nuclear power, which mostly relies on uranium from Australia and Canada and engineering from Europe and North America.
3. Create overcapacity, so that any supplier which would be tempted to leverage its position for political advantage can be replaced by another supplier. The French policy on balancing its gas purchases from Algeria and Russia is an example of this policy. It should be noted at that stage that for overcapacity to be created, government must interfere either by direct funding or by creating incentives. A free market never knowingly creates overcapacity. This is only one of many illustrations of the fact that a free market is the perfect solution for a world without politics or war.
4. Build credible counter-threats, so that a power tempted to threaten you with the disruption of energy supplies can be kept in check with a threat on one of its own essential supplies food, finished products, or regime security. This is the bargain at the core of the US-Saudi alliance: the Saudis guarantee US oil supply and the US guarantee the survival of the regime. Of course, this only works if there is a real balance of threats: each player will always be tempted to maximize its advantages and see how far it can go without incurring unacceptable danger. It is therefore no accident that the US-Saudi alliance, although real, has been so chequered.
All this, however, is rather theoretical. What is today, in practice, the situation in terms of energy security for the West, and what can be done to improve it? I will first analyze the situation of transportation, then turn to the production of electricity.
Transportation: the dependence on oil
Transportation remains almost entirely fuelled by oil. This is slightly less the case in Europe, which has a strong electricity-powered rail network. This oil dependence is creating increased energy insecurity for all Western countries. Even the United States, the largest oil producer in the West, only produces a third of its oil consumption (7 out of 20 mb/d).
For the 30 years following the 1973 oil shock, oil importing countries have succeeded in reducing OPEC market share in the world oil market, from 55% in 1973 to 31% in 1986. OPEC market share than grew to 42% of oil production in 1997, then went down again as Russia reinforced its oil industry; it is at 38% today.
However, if OPEC countries have lost ground compared to the early 1970s, they can be relatively confident that they control the future. According to IEA data, 75% of conventional oil reserves are situated in OPEC countries (the OPECs website itself mentions 79%). According to the IEA reference scenario, world demand for oil is expected to grow by 40% between 2006 and 2030 (from 85 mb/d to 118 mb/d) and more than two thirds of this increase in production will come from OPEC countries.
Not only does OPEC seem to control the future, one of its members Saudi Arabia controls short-term market adjustment almost by itself: it is the only country with sufficient overcapacity (almost 50% over its current production of 11 mb/d) to modify production in a way that has an immediate effect on price from day to day. It is so dominant in OPEC that it can often use the organization as a lever to increase the world impact of its own national energy policy. Finally, Saudi Arabia alone provides 15% of the US oil consumption and is confident that this share will increase in the future.
This is not satisfactory from the point of view of Western energy security. Some OPEC countries have friendly relations with the West, but this pales when compared to the divergence in political values and geopolitical ambitions. There is therefore a significant risk that future political tensions may lead OPEC countries to use their growing hold on Western energy consumption to force political concessions that our countries would not want to make. After all, it has happened before.
In order to counter this threat, Western countries should go back to the list of responses which I quoted below: turn to friends, create overcapacity, develop alternatives and build significant counter-threats.
Turning to friends and creating overcapacity can be done, to a limited extent, by the development of unexploited US oil fields in Alaska and the Gulf of Mexico. By far the largest opportunity, however, would be strong support for the development of the Canadian oil sands. Although production from these oil sands is currently not more than 1 mb/d, the wealth of recoverable resources is possibly greater than that of Saudi Arabia up to 310 billion barrels according to some estimates, or 40 times the yearly consumption of America. Making a larger part of this supply available in front of the OPEC supply will immediately improve Western energy security. There is therefore a case for a strong, coordinated investment effort, under the stewardship of the Government of Canada and the Province of Alberta, by all Western countries which own relevant technologies Canada itself, the US, and those European countries which have a wealth of oil and gas engineers. This would be a great step towards actually creating a new energy superpower in the Western world.
Of course, the risk will always exist that a strong increase in oil sand production would reduce oil prices to the point of threatening the profitability of these very investments in a word, overcapacity. Some amount of government intervention, through tax credits or subsidies, in order to increase the initial profitability of these investments would therefore be a good idea.
The development of alternatives, in the case of transportation, include several short term options biofuels and liquefied coal are the most commonly quoted. However, there is little hope that these fuels can actually replace oil, even though they can reduce its foreign content. The only credible long-term alternative to the oil economy that has appeared in the field of transportation is, for now, the gradual development of a transportation network based on hydrogen. The technology already exists, but there are two main obstacles:
Making the price of hydrogen-powered vehicles competitive;
Building a production and distribution network which can parallel and rival with the oil network
Overcoming these obstacles will not be a short-term feat. But it is worth it for Western governments to make it a common priority, justifying the launching of a massive transnational research and development program. Western companies are quickly developing their skills in the mass-manufacturing of hydrogen; European and North American companies are leaders in gas liquefaction and transportation. Western governments should therefore have no great difficulty in bringing these skills together, by offering these companies a share in trans-Atlantic development projects.
These programs, by the way, would also need to give a strong role to oil companies. They are the ones who could feel threatened by the development of a hydrogen economy if they do not have a say in managing the transition. They are also the ones who know how to build and manage the huge networks of pipelines which will be needed if hydrogen is to get out of the almost experimental stage in which it seems to remain stuck.
As for significant counter-threats, they can only be a temporary measure, which should only be contemplated as long as a situation of energy insecurity endures: the final goal should be to reduce energy threats, not to create a permanent balance of terror. Let me simply point out, however, that withdrawing Western military protection from any Middle East oil-producing country be it Iraq or any other country immediately means deteriorating energy security. Regimes whose survival depends on the West will be replaced by regimes who owe us nothing. These regimes will therefore have no incentive to keep the oil flowing or to limit the outrageousness of their political demands.
Electricity: the nuclear option
When it comes to the production of electricity, many Western countries and most certainly the United States also face the threat of deteriorating energy security.
The late 1990s and the beginning of this decade, in the United States, were the years of a massive boom in investment in gas-powered electricity plants. Natural gas generating capacity was multiplied by 4.5 between 1993 and 2004, from 65,000 to 225,000 MW, representing nearly 100% of the whole net increase in US electricity generation. This was based on an increase in US gas supply, and a generally optimistic assessment that this increase in supply would last.
However, geologists can make mistakes in their forecasts like any of us. In fact, US gas production peaked in 2001 and all signs are that US reserves are being depleted far faster than was initially thought. Extraction methodologies continue to improve, which may offset these depleting reserves but as demand continues to grow for domestic heating and electricity, the current gap between US gas production (19 trillion cubic feet) and consumption (24 trillion) is certain to increase in the next decades. According to IEA projections, this gap will more than double and will reach 11 trillion cubic feet of gas in 2025.
This trend will mean that the US will lose the security currently provided by the fact that almost all of its imports come from friendly Canada. Canada produces about 7 tcf of gas annually, consumes about 3 tcf, and simplifying a bit sells the difference to the US. However, Canadian production is likely to peak in the coming few years, while domestic demand is increasing. The US will therefore gradually need to import up to 15 to 20% of its gas from overseas. This justifies the current wave of investment in re-gasification terminals for liquid natural gas coming to the country by ship, as opposed to pipelines. But solving the technological obstacles to gas imports wont solve the energy security difficulties, since most of the main alternative exporters Russia, Qatar, Indonesia, Egypt, Nigeria may some day have considerable incentives to leverage their power in order to extort political concessions.
The US must therefore begin the process of reducing the share of natural gas in its energy mix.
Of course, the US has one readily available alternative, coal, with fuel that is extremely abundant on its territory. However, not all investment decisions can unfortunately be decided behind the closed walls of think tanks. Coal is the most air-polluting, and by far the worst emitter of CO2, of all hydrocarbon energy sources. There are, it is true, effective technologies to capture air pollutants, and even experimental technologies to sequester and bury CO2. However, these technologies almost double the price of burning coal, making it uncompetitive compared to nuclear and even (at current prices) compared to gas. The sequestration technologies for CO2 are not fully developed, and will probably face many new technical challenges. And more importantly, in the current scare about global warming, I do not see how any Western government could hope to obtain public support behind a massive drive to switch to coal. Nondemocratic or semi-democratic governments have no such problems, of course and indeed, the world should expect a big increase in coal-generated electricity from Russia, China and Central Asia in the near future. But in democracies, the political equation that would make this possible is just not there.
Before I come to nuclear power, let me review quickly some other technologies which should be encouraged as part of a lasting solution to the energy security problems of the West.
Large Hydro-Electrical power is probably the most reliable, CO2-free source of power. It requires large investment, but creates no waste and is the most energy-efficient of all sources of power. Jurisdictions like Quebec and Manitoba in Canada, for instance, are building their strength as net exporters of electricity across North America by making the best use of their hydro-electric resources. Yes, there will be long discussions with local communities and environmentalists. However, these discussions should not be a reason to give up beforehand, as is shown by the success in both provinces to date. The main limitation to hydro-electrical power is capacity: not all places have the required combination of water and elevation.
Renewables offer a limited part of the solution and one that is especially favorable to Western co-operation. Skills in windpower, solar power, and wavepower still tend to be diluted between several smallish companies, most of them situated in Europe and North America with a quick emergence of India. Opportunities to work together and regroup are now occurring naturally around several projects. At a political level, these opportunities should be encouraged and not impaired by protectionist considerations. However, renewables suffer from poor economics the unit kWh is significantly more expensive than in classic fuel sources and from the fact that they do not ensure continuity of supply: the wind does not always blow and the sun does not always shine. Therefore, their development may be encouraged in order to reduce energy dependency, but will never become the backbone of any modern energy system.
Conservation technologies which allow the same benefits to be accrued to the economy while consuming a smaller input of energy should clearly be encouraged. Buildings, especially, can be made more energyefficient; electricity grids can carry more power without the need to build more lines. However, past experience has shown that increases in efficiency have never led to a net reduction in the demand for energy. As efficiency increases, demand simply moves on to new needs, and fuels economic growth. Indeed, every improvement in energy efficiency in the past the combustion engine, the electricity grid, the Internet has led to economic growth, and definitely not to a decrease in the total consumption of energy. Therefore, conservation should be encouraged as a booster of the economy rather than a contributor to energy security. If anyone tells you that conservation can replace investment in new capacities, what they really mean is that they want to give up on future economic growth.
None of these alternatives conservation, renewables and hydro-electric power therefore offers a solution which is at the same time compatible in the long term with energy security, applicable in all geographical areas, and usable for base load needs. The specificity of nuclear is that it combines these three characteristics. It also provides a great opportunity for renewed Western co-operation.
Nuclear energy combines several characteristics which, brought together, should make it a central part of Western energy policy.
First, it is economically competitive. Although nuclear plants are expensive to build up to $2,500/ kWh against $1,300 for classic coal and $600 for natural gas they provide, once built, the cheapest kWh of all sources of energy: about 5 c/kWh, against approximately 9 c for natural gas at current prices. Hydro-electricity can often compete but as weve seen, its not always available. As for coal, it used to be competitive with nuclear, but the investments needed to avoid pollution and capture CO2 almost double the total price.
Second, nuclear is dependent on resources which can be found overwhelmingly either in Western countries or in stable countries which a well-oriented foreign policy can turn towards an alliance with the West. Canada and Australia together hold a third of the worlds known uranium reserves. Canadas reserves are almost certainly under-estimated, due to the nature of uranium ore in the Athabasca basin: uranium is concentrated in small pockets of very high-grade ore, which makes it relatively difficult to find. The third major uranium producer is Kazakhstan. This country is not historically Western but has always behaved in an exemplary way in the field of nuclear safety, and could welcome a Western alliance as a way to counter the influence of big, uncomfortable neighbors. When you add to these three countries the reserves of the USA, South Africa, Namibia, Brazil and Niger, you have reached 80% of total world resources. This is obviously, from a geo-political point of view, a more pleasant situation than that of oil or gas.
Third, the most advanced skills in nuclear engineering and operations can be found in North America, Europe (especially France), Japan and India. China is quickly joining this group, and Russia retains excellent skills, but the combined forces of Western nuclear industries still give Western countries a huge lead over rival powers. This is even truer for the next phase in the development of nuclear energy: the commercial development of the fast-breeder technology, which uses a mix of uranium and plutonium as fuel and behold the wonders of nuclear physics generates as much plutonium as it burns. This plutonium can then be separated and used again hundreds of times before losing its quality. Fast-breeder reactors therefore offer the prospect of several centuries of increased energy security for the countries which master this technology. Currently, the most advanced countries in that respect are France (which has a fast-breeder in operation and is developing a more advanced model for 2025), Japan and India. France is also, by far, the technology leader in the separation process which allows the re-use of plutonium from fast-breeder fuel. The US had developed these skills in the past, but gradually abandoned the fast-breeder option in the past decades and will need to co-operate with other countries in order to start it anew.
The Wests goal of energy security should therefore lead to increased scientific co-operation between North American, European, Japanese and possibly Indian scientists in order to build new series of nuclear reactors: first uranium-fuelled water reactors (in the next two to three decades), then plutonium-fuelled fast-breeder reactors. A common security interest will therefore lead to increased scientific and industrial co-operation, which is as good a ground for an alliance as there can be. In the meantime, growing reliance on nuclear power will reduce the importance of alternative relationships, such as those that both Europe and the US have been creating with Middle Eastern countries in order to secure their energy supply.
The first steps of this new Western alliance are already there. Even before the recent French elections, during these painful years when differences in foreign policy had created a serious rift between the US and France, co-operation between the two nuclear industries was significantly strengthened. In the past 12 months, the three Japanese nuclear companies have joined forces with the three world nuclear giants: Toshiba purchased US-based Westinghouse, Mitsubishi entered in a formal alliance with France-based AREVA for the development of future plants, and Hitachi allied itself with General Electric. French engineers have been increasingly working with the US government in order to build a recycling industry in the US a first step towards the eventual re-introduction of fast-breeder reactors in North America. Similarly, the Japanese recycling industry was developed with French support. Industrial relationships with India are still forbidden due to the status of this country in the Nuclear Non-Proliferation Treaty, but the US with French support is working actively to welcome India again as a full member of the world nuclear industry. Each of these developments brings together democratic countries, which believe in the rule of law and the rights of the individual, and separates their fate a little bit more from partners which do not share the same values.
It will be interesting to observe what role Canada will play in this new development apart from its obvious role as one of the worlds main providers of uranium. The Canadian nuclear industry is at a crossroads. On the one hand, it has a wealth of talent in science and engineering which makes it one of the serious nuclear industries in the Western world. On the other hand, it has not been part of the recent industry consolidation, and it remains under some political pressure not to diversify from its home-grown technology, in spite of the fact that utilities around the world are turning away from it for their future new builds. The future will tell whether the Canadian nuclear industry chooses to acquire new skills in which case it can play an active role in the renewal of the worlds nuclear base or whether it decides to only focus on its home market and technology, in which case it risks isolating itself and gradually losing technological ground.
Whether Canada chooses to take part in its nuclear dimension or not, however, a new energy alliance between North America, Europe and Japan is currently being born with India a possible future member. This alliance is based on the political will to develop new energy sources, in order to reduce the energy threats from hostile or rival powers. It is expressed in growing scientific and industrial co-operation between the countries which have developed the greatest skills in these technologies. And if successful, it can be instrumental in gradually making the world a safer place, and strengthening the existing friendship between countries united by their political values.
Let me conclude this broad overview by recapitulating quickly the ways that western government policy can take on board the goals of energy security:
Under the stewardship of the Government of Canada and the Province of Alberta, encourage energy investment in the Canadian oilsands, as the effective hydrocarbon counterpoint for the West to the Middle East;I thank you very much for your attention. Review policy framework to ensure sufficient support for existing hydrocarbons to reduce their environmental footprint, and for emerging renewable and conservation technology so that they can all play / continue to play a role in the overall diversity of the energy mix in the west;
Ensure the most effective and expeditious regulatory frameworks for the range of energy projects and related infrastructure currently under consideration (hydropower, pipelines, transmission lines, windmills or whatever else), so as to lessen the uncertainty around new project development;
Similar to the global efforts on fusion energy around ITER, coordinate efforts to facilitate the development of the hydrogen economy; a global research program, uniting Europe, North America and Japan, and involving oil and gas liquefaction companies, would be perfectly warranted given the huge interests at stake;
Bring together the leading countries in nuclear energy to facilitate the nuclear renaissance and the continued development of the next several generations of nuclear technologies.
Armand Laferrère was appointed as President of AREVA Canada Inc. from July 10, 2006. From 2002 to 2004, he was a personal advisor to Nicolas Sarkozy (then the French Minister of the Interior) in charge of the Departments budget and public service reforms.
What a terrific post! Thank you very much.
It’s good to see the French coming around to throw their lot in with the West, rather than the Muslim Arabs. It’s turnarounds like this that make predicting the future, based on past trends, an impossibility.
In addition to the nuclear power, I would really like to see development of the the 2 trillion barrels of oil trapped in American oil shale. I understand that Oil-Tech a company in Utah has solved the clogging retort problem, and all that is really needed is the capital to buy the mining equipment and retorts.
The West is a word with many meanings. I will take on board two of them.First, the West is a group of civilizations the democracies of Europe, America and Israel whose identity was formed over many centuries under similar influences: the Greek emphasis on rational debate, the Biblical revelation that men are answerable for the morality of their actions, and a Roman praxis of power where military and administrative skills are cultivated as a separate field, free of theological or ideological considerations. These common influences unite Western countries in a way that these countries themselves often under-estimate, but which is immediately recognized by representatives of other cultures.
Second, the West is a political philosophy which underlies most Western political systems, but was adopted also by other civilizations, just as it was occasionally repudiated by some Western powers. I call Western, in this second sense, any political system which accepts two essential premises:
(i) The rights of individuals are valuable enough to curtail the free exercise of political power.(ii) Power should be used to improve the lot of the people.
With apologies to the authors of your Declaration of Independence, none of these statements is self-evident. They slowly coalesced in civilizations influenced by Biblical and Greek thought. However, this political philosophy was never all there was in countries with a Western cultural heritage. Pure cynicism (the idea that the only goal of power is power itself) or metaphysical goals (the idea that power must be used to implement a transcendent worldview the will of God, the advent of communism or racial superiority) have always coexisted with these political principles within the Western culture.
One logical step he is not mentioning is that with addition of nuclear power capacities it will be possible to switch to hybrid/rechargeable cars as a substitution for oil-driven transportation. Already existing electrical grid will need to be expanded to allow plug-ins versus developing from zero of a hydrogen infrastructure.
Exactly, with enough electricy generation capacity, you can take care of the transporation needs.
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