We've Reached an Energy Watershed

John M. Deutch | Feb 23, 2012

Our energy outlook is at a real watershed. Tremendous change has taken place and we haven't quite yet understood its significance, but it is a positive change.

Usually, energy only brings us bad or discouraging news. But now there is a great deal of potential for a more optimistic outlook, brought to North America by the tremendous availability of gas and oil from unconventional shale deposits.

The outlook for gas is that we are going to have an extended supply available at a reasonable cost of extraction for the foreseeable future. This implies that gas prices will be low and that gas will become a substitute for renewables, nuclear, and coal plants, especially older ones. We will be generating electricity from gas at a much lower cost than other developed countries, our competitors, will have to pay.

In the meantime, there is a great deal more potential for oil production in North America from shale. North Dakota is becoming the third-largest state producer in the United States. North America will be producing a higher percentage of its oil requirements than it is currently and importing less oil from abroad. The economic consequences are enormous.

This is a pattern that will be repeated to some degree in other parts of the world, including Asia, Latin America, North Africa and Europe. We are in a position where our dependence on major resource holders in the Persian Gulf, Middle East and elsewhere is declining, along with their market power. The geopolitical implications are more advantageous to the United States, as there will be a greater supply for the rapidly growing emerging economies and the United States and Europe will have a more secure supply of cheaper oil and gas.

Turning to nuclear power, the United States is not pursuing nuclear energy in a steady and consistent pattern. To a large extent, the nuclear option has been more embraced by France, Germany and Japan. Since the early '80s, nuclear dominance has certainly moved outside our borders.

As for renewables, there will be less money available for assistance programs. There will also be a new examination of what the best tools are and how we can use cost-effective renewable technology in the long run.

The future of coal depends on a robust demonstration of carbon capture and storage technology. We need to have this done at scale at three to five facilities in the United States.

When considering external threats to our energy world, solutions have to come both from the private sector and the federal government. We are still far from having a well-understood procedure for doing that. It's a very complicated subject. The Department of Homeland Security has not yet clearly developed a road map that both the government and the private sector can actually turn into practice. Cooperation with Europe and developed Asia would be helpful in streamlining the process.

Former directors of the Central Intelligence Agency have had the tendency to expect the worst and hope for the best. The likelihood of something interrupting the grid in the United States or Europe is high, and is more likely to be an attack on the information systems that control the grid rather than a physical attack. It is a serious risk.

Homeland Security has taken a great deal of time to get itself up to speed. The agency still doesn't have the kind of smooth operations with respect to planning or developing that are necessary. So, we have to wait and see how it goes. It could take some time.


Industry thought leaders will be discussing this topic and more at the upcoming EnergyBiz Leadership Forum, Harnessing Disruption, taking place in Washington D.C., March 19-21, 2012. Review full conference details by visiting www.energybizforum.com

Energy Central

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