There are lots of nuances and implications to the law. (For more information, see Dodd-Frank Section1502.) But an essential one is that companies are being asked to know far more about where the raw materials in their products came from, and the conditions under which those materials were obtained, than ever before.

On behalf of a client I am currently researching the impacts of Dodd-Frank Secdtion 1502 on companies. A number of the firms I’ve interviewed see a broader trend toward ever higher standards of visibility, traceability and accountability in company supply chains. As they work to design processes that will enable them to comply with the new rules, they are trying to think ahead and design them to be able to accomodate new requirements, which they believe are all but inevitable.

Another example of these heightened standards for traceability and accountability is the recent announcement by fruit producer Chiquita Brands that it had committed to identifying – and eliminating from its list of fuel suppliers – all of the companies that it believes sell diesel made from Canadian tar sands oils. This action came after a pressure campaign from the environmental group ForestEthics.

We are entering an era when “fungible commodities” such as petroleum and tin are not as fungible as they once were. Companies are going to need to improve their supply chain game to keep pace with rising expectations for traceability and accountability.

What are your thoughts?

Balancing Arguments Made by Environmentalists

The ExxonMobil report provides a useful counterbalance to some of the arguments made by environmental groups. Regarding oil sands, for example, the report states “there is concern among a range of stakeholders regarding the increased energy intensity and water use associated with developing oil sands.” It goes on to cite studies on life cycle greenhouse gas emissions by the Alberta Energy Research Institute and IHS CERA, suggesting that “the oil produced at the Kearl project [in northern Alberta] will have about the same life cycle greenhouse emissions as many conventional crude oils refined in North America.”

For context, it’s worth noting, though the report does not, that the Alberta Energy Research Institute is funded by the government of Alberta, which has a major economic stake in exploiting its oil sands reserve, and research and consulting firm IHS CERA’s major customers are energy companies such as ExxonMobil. But the broader point, that the correct basis for comparison is a full lifecyle analysis, is important and the possibility of achieving impact-parity is worth noting.

A Question of Tone

Yet the ExxonMobil report also raises an interesting question of tone.

Hydraulic fracturing is coming under increasing scrutiny by advocy groups, the media, political leaders and regulators. It’s safe to say that the practice is highly controversial. This search on the New York Times Web site today is illustrative. It turns up several articles with a negative cast linked to hydraulic fracturing, along with two upbeat sponsored links touting “proven technology” and “safeguarding a valuable resource.”

Search results for "hydraulic fracturing" on nytimes.com on March 3, 2011

The ExxonMobile report references this controversy with notable blandness, stating, ”The industry has over 60 years of experience with the technique; still, the use of hydraulic fracturing in the growing development of unconventional gas resources has prompted public interest.” “Public interest” is an almost comically mild way of characterizing the debate over this practice.

This mild rhetorical style is not used consistently throughout the report, however. You only need only look at the company’s description of the public policy debate around the impacts of climate change to feel the rhetorical temperature rise. “Designing equitable policies to limit emissions and to create acceptable frameworks for the massive investments and financial transfers has been, and will continue to be, contentious.”

The inconsistent tone of the report is a relatively minor point. Far more important is a factual and comprenhensive discussion of what the company is doing and plans to do and what its results have been so far. But ExxonMobil and other companies would do well to attend to the tone of their sustainability reporting to make sure it portrays them as they intend.

UPDATE:

I just came across oil and gas industry guidelines for environmental reporting.

It may appear that these two traumas have nothing in common. Indeed, the havoc in the stock market will prove ephemeral, while the devastation of the Gulf oil spill could be with us for a generation or more. But they are linked by the role technology played in each of them.

As the New York Times noted, the oil drilling platform that exploded and sank in the gulf “was described before the accident as one of the most technologically advanced drilling platforms in the world.” Drilling for oil miles below the earth’s crust and a mile below the sea was once inconceivable. But now it’s a proud triumph of technological advancement. In the case of the stock market plunge, suspicions center on the role of computer-driven flash trading, the esoteric and technologically sophisticated mechanism for making profits by deploying more computing power than one’s competitors in the market.

The common thread joining these two stories is the ability of technology to elude the understanding of its creators, and its power to wreak havoc beyond our control.

It was over two years ago that the $7.2 billion dollar loss inflicted on Societe Generale by a rogue trader evoked for me the Exxon Valdez and the principal that technological sophistication brings power that tends to outpace our ability to understand it and leaves us unprepared for the consequences of its misuse.

It would be a good thing if our technophilic society learned humility from these episodes.

The Economist had a nice assessment of the post-Copenhagen landscape: mixed, essentially.

On the downside, the article said, a lack of firm mandate to cut emissions should have a chilling effect (pun accidental) on investment in clean tech. The article quoted VC Vinod Khosla as saying, “Almost all areas of clean technology will get a little less investor interest because there is no mandate.” And it said that German power company E.ON would back away from plans to accelerate plans to cut its emissions, which it had announced when it expect a firmer result out of Copenhagen.

On the upside, India and China have made important commitments to improve energy efficiency and rich countries have promised billions in green-investment support to poor countries. The article also rightly points out that a lot of the clean tech action to date has been driven by national, regional and local mandates and regulations, not international deals, and those were unaffected (so far) by Copenhagen. Finally, it’s worth noting that climate change mitigation is not the only driver of clean tech. Efforts to develop alternative energy supplies that are more secure than fossil fuels are an important driver as well. The recent period of volatile oil prices and geostrategic natural gas games in Eastern Europe (despite burgeoning global gas reserves) is a persistant motivator of investment in some cleantech subsectors. Chris Nelder is worth a close read for his take on the impact of resource scarecity on investment trends. He foresees a bull market in renewable energy investments. See his take on energy-related investment themes for the next decade here and here.

Some observers have taken note of a slow-down in venture investment in clean tech. Greentech Media tallied 2009 clean tech venture investments at around $5 billion in 2009, down from $7.6 billion in 2008.  But in the broader context of overall VC, that decline doesn’t look so bad. According to the National Venture Capital Association, U.S. total VC investments in the first three quarters of 2009 were $12.2 billion, down from $22.1 billion during the same period of 2008. That’s a sharper decline than clean tech alone experienced.

What are the key questions facing clean tech and energy in 2010? I’d love to hear your thoughts and take some suggestions of what to dig into next on this blog.

Happy New Year.

Solar Revolution: The Economic Transformation of the Global Energy Industry
Solar Revolution” provides an excellent overview of the spectrum of solar energy technologies and the prospects for the growth of solar energy. It is the

most thorough treatment I’ve ever read on the subject. Travis Bradford presents a holistic model comparing the total cost of solar energy with grid-based electricity alternatives and finds that solar is already more cost effective than many people realize. He also develops a sophisticated and persuasive model of the growth of the solar industry to show convincingly that solar is destined to become “the preferred energy choice for a large majority of locations and applications.”

Earth: The Sequel: The Race to Reinvent Energy and Stop Global Warming
Interesting and inspiring overview by Fred Krupp, president of Environmental Defense Fund, of the many technologies that are pointing the way to a carbon-free future and a chance of averting environmental catastrophe. Plenty of specific examples and some colorful characters as well. The book returns repeatedly to the importance of creating a cap and trade system in the U.S. It’s logic is as good as any I’ve seen, but it gives the carbon-tax approach short shrift (which is the author’s prerogative.) An engaging read for folks newly wondering how the world will get past fossil fuels.

Harvard Business Review on Green Business Strategy (Harvard Business Review Paperback Series)
Good collection of some classic and more recent articles on the topic of Green Business Strategy, including must-read “A Road Map for Natural Capitalism” by Amory Lovins, Hunter Lovins and Paul Hawken.

Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution
Charming and witty look at how sustainability happens–and doesn’t–at real companies. Real-world, nitty-gritty examples mixed with some punditry and policy, this book is a good complement to the literature about greening and sustainability. And author Auden Schendler is an engaging storyteller.

Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts (Business)
Dry but systematic and tailored to the needs of executives and corporate sustainability professionals. Recommended for those kicking off or managing corporate sustainability initiatives.

Strategies for the Green Economy : Opportunities and Challenges in the New World of Business
Nice, crisp and current overview of green/sustainability from corporate and corporate marketing perspective by long-time pundit and consultant Joel Makower.

Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage
Packed with light case studies and some handy frameworks. If you are doing corporate sustainability you should probably read it, but but I suspect it works best as a lead generator for the authors’ consulting business.

The Clean Tech Revolution: The Next Big Growth and Investment Opportunity
Good overview of the clean tech space.

The Prize: The Epic Quest for Oil, Money & Power
Liked it a lot. See my thoughts at elsewhere on this blog.

I welcome your comments on the above or your suggestions for other reading.

Random Reasons for Volatility

Oil is a complex market, and analysts struggle to explain its gyrations. Supply is affected by many things, including reserves, politics, and possibly financial speculation in recent years. John Lipsky of the IMF concluded in a recent speech at the 4th OPEC International Seminar, however, that  “financial market dynamics and flows have not been a major driver of recent oil price trends.”

What is behind oil price volatility? A 2005 study by Hui Guo and Kevin L. Kliesen, economists at the Federal Reserve Bank of St. Louis, concluded that “crude oil price volatility is mainly driven by exogenous (random) events such as significant terrorist attacks and military conflicts in the Middle East.”

Impact of Volatility: Dampening Growth (Except for Oil Companies)

A common sense suggests that low oil prices help drive economic growth while high oil prices tend to dampen growth. But the St. Louis Fed study demonstrated that volatility itself–whether yielding price increases or declines–can put a brake on economic growth. The study found that ” sharp oil price changes—either increases or decreases—may reduce aggregate output temporarily because they delay business investment by raising uncertainty or induce costly sectoral resource reallocation.” In order words, “an increase in the price of crude oil from, say, $40 to $50 per barrel generally matters less than increased uncertainty about the future direction of prices.”

Similarly, a report published last month by Amanda Logan and Christian E. Weller at the Center for American Progress (which describes itself as a “progressive” think tank) cites data from the Bureau of Economic Analysis to show that consumers and businesses curtail spending following periods of energy price volatility. The Logan/Weller report also found that, while energy price volatility may dampen economic growth, the energy companies themselves can benefit from it. The study found that “the profit rate of oil—and coal—companies increased on average by 0.8 percentage points during periods of high energy price volatility and that there is a 63.0 percent chance that the profit rate will increase during periods of extraordinary price volatility.”

Can Renewable Energy Help?

There are a variety of policy options for trying to smooth out energy prices, but they all have their limitations. (Wonks may want to refer to a 2008 report on this topic by the International Bank for Reconstruction and Development.)

But I was wondering: Does renewable energy suffer from the pricing volatility of fossil fuels? After all:

• The energy sources (wind, water, sun, geothermal) are basically eternally free, and
• The supplies are more broadly distributed than fossil fuels

According to a 2008 report by the government-sponsored National Renewable Energy Laboratory, “whether a utility owns its renewable generation or purchases renewable energy through a power purchase agreement, the price is known and essentially fixed over time.”

So while stocks of renewable energy companies may be volatile (it is, after all, a very young industry), renewable energy itself may exhibit substantially more price stability than fossil-fuel based energy. This could end up being a significant, but less-noted, benefit of the uptake of renewable energy.

And price stability is worth money.  (Hence the flourishing markets for insurance and options and futures.) So isn’t possible that higher costs for some forms of renewable energy may be at least partly justified by the promise of stabler prices?

Your Thoughts?

I would love to hear your thoughts: Will renewable energy prices be less volatile, and will energy consumers pay for that benefit?

If you travel in Internet circles and are tracking developments in clean tech or alternative energy, you have noticed that Web 2.0 and energy have sometimes shared a stage.

We had, for example, climate change fighter Al Gore speaking at O’Reilly’s recent Web 2.0 Summit (update: produced with TechWeb). At least one energy-related play took the stage there as well. Elon Musk, founder of electric-car maker Tesla was there as well.

The Link Between Energy and Web 2.0 Seems Tenuous

Al Gore and others have cited the potential of Web 2.0 to reach, connect, galvanize and organize consumers and social entrepreneurs to fight climate change.

And Web 2.0 and energy technology have both attracted lots of investment in recent years.

Nonetheless, the link between Web 2.0 and energy would seem to be tenuous. Indeed, as Michael Arrington of TechCrunch noted about Musk’s appearance at the Web 2.0 conference, “What do space flights and electric cars have to do with Web 2.0? Absolutely nothing.”

Future of Energy Depends on Some Principles at the Heart of Web 2.0

But Arrington missed an important connection between energy and Web 2.0 at the level of the principles that are driving both.

Web 2.0 means different things to different people but at its core there are a few phenomena that underpin the success of some of today’s biggest internet businesses and have accounted for a large changes in consumer behavior. These phenomena include

• The long tail
• Broadcasting to consumers gives way to dialog
• User participation & empowerment; the rise of consumer-created content

(Here I face an audience problem. If you are a reader from the Internet world—the types of folks I talked to every day at Jupiter and Forrester, the list above needs no explanation. If you are a reader from the energy world, this may seem like impenetrable jargon. Sorry about that I hope that what follows clears things up a little.)

You can see these phenomena at work in the coming energy environment.

The Long Tail. The premise of The Long Tail is that blockbuster products are not the only interesting ones. With the Internet reducing the cost of discovery and distribution, viable marketplaces can be created by aggregating a large number of niche products which collectively attract a large number of consumers.

What we see in the energy world is a gradual expansion beyond blockbuster sources of energy (coal, gas and oil) to a more diverse set of energy sources including wind, solar and biomass. According to the US Department of Energy, 87% of energy production in 2006 was from top 4 sources but that will drop to 82% by the year 2030. Niche sources of energy are arriving on the seen that complement the dominant sources and may create a Long Tail energy market. The New York Times recently reported one whimsical but technically feasible example: biodiesel made from coffee grounds.

The Internet is an enabling technology for Long Tail markets and no real analog exists in the energy sphere. But visions of an upgraded electrical grid will certainly lower electricity distribution costs and create more liquid markets for electricity that could make small-scale providers viable.

From Broadcasting to Dialog. In the old world of media and marketing, marketers and media companies broadcast their messages to passive consumers. In the Web 2.0 world, consumers are understood to be active participants in the creation of brands and of media itself. Utilities today have a broadcast relationship with their customers. Utilities provide power and opaque monthly bills and expect nothing but payment from their customers.

But we are moving toward a world in which power customers will be in dialog with their suppliers. They will receive regular or even real-time information about electricity pricing and demand, and will be able to manually or automatically adjust their energy demand to take advantage of variable pricing. Utilities are deploying smart meters with this scenario in mind. (A recent post of mine discusses this.) Consumers will also be able to see how their power consumption compares to the averages in their area and with the power of this collective intelligence modify their demand. A startup called Greenbox is working on this.

User Participation. Online user participation this can refer to user comments and ratings, blogging and user-generated advertising, among other things. In the energy sphere it includes phenomena like user-generated power sources—such as rooftop solar panels or personal wind microturbines–being connected not only to homes but back to the power grid, so that consumers can sell excess power back to utilities when they don’t need it themselves.

Overall, a lot of what I see happening in energy involves exploiting connectivity, communication, decentralization, and the aggregation of small-scale inputs. Another one that has been theorized along these likes has to do with plug-in electric cars, whose batteries, by the millions, could be used as a distributed form of electrical storage available to local or even regional power users when cars are idle, fully charged and connected to the grid in their garages.

Power at an Intimate Scale

Some of these ideas were explored a few years back by Rebecca Willis, an independent researcher and Vice-Chair of the UK Sustainable Development Commission, in a great “pamphlet” titled “Grid 2.0: The next generation”.

Her vision of how electric power generation will change in the future can be captured in a couple of quotes from the document:

In Grid 2.0, much more power will be generated at community and household level through renewable and low-carbon technologies like solar and wind power, small-scale combined heat-and-power, heat pumps and biomass boilers.

Microgrids, peer-to-peer networks linking generators within a village, housing estate or university, for example, will allow efficient use of smallscale generation

I have not seen her ideas cited much over here, perhaps because they were locked up in a PDF file; perhaps because she’s UK-based. But her work is worth reading.

Do you buy the idea that the future of energy will exhibit some of these Web 2.0 characteristics? I’d love to hear your thoughts.

In that vein, I have just finished reading what is probably the definitive history of the oil industry. It’s called The Prize : The Epic Quest for Oil, Money & Power, by Daniel Yergin, who is chairman of Cambridge Energy Research Associates.

At 788 pages (before notes), this is a comprehensive book. It is also a fascinating narrative and as relevant and valuable today as it was when it was published in 1991. (The paperback was issued in 1993).

What follows is not a detailed review of the book but rather a list of a few of themes that stood out most for me.

Oil and international geopolitics. Anyone who lived through or studied the “oil shocks” of the 1970s is at least a little familiar with the role that oil plays in international geopolitics. What is fascinating, though, is that oil has played this role almost from the beginning of the industry. The book shows, for example, the key role that oil began to play in military strategy as early as World War I, demonstrating that reliable supplies are critical not only to economic security but to military security.

Tumultuous boom-and-bust cycles of oil prices and supply. The oil industry has been plagued by cycles of boom and bust from its inception. This wreaks havoc with investment plans. And it also provides some context for the rise of the giant oil trusts, like Rockefeller’s Standard Oil, and the logic of building integrated oil companies that control sources of production, refining, distribution and marketing, which were an attempt to tame the wild dynamics of the industry.

The dramatic power shift from oil companies to exporting countries. One of the central narratives of the book is about the shift of power from oil companies and the Western countries from which they hailed, to the oil-exporting nations. This was driven by ever escalating demand for oil in the developed world and a growing sophistication on the part of oil producers in linking political and economic objectives. In the early days of global oil exploration, the major oil producers in the Middle East were barely countries themselves, emerging from the collapse of the Ottoman Empire and the withdrawal of colonial rule with little ability to assert themselves on the global stage. The book vividly illustrates the transition from the period in which sophisticated global oil companies were able to manipulate local rulers and secure valuable terms to the days when savvy political leaders from oil-producing countries and oil ministers began to call the shots and began to capture substantially more of the value of the oil they were sitting on.

Larger-than-life characters. The book is populated by memorable characters with quirky personalities, audacious goals, and often a high tolerance for risk. The profiles of John D. Rockefeller, Marcus Samuel, JP Getty, Armand Hammer were great. My favorite character, though, is Calouste Gulbenkian, “son of a wealthy Armenian oil man and banker, who had built his fortune as an importer of Russian kerosene into the Ottoman Empire…” Gulbenkian became known as Mr. Five Percent, after negotiating a 5% stake of a Persian oil concession for himself. He was a relentlessly effective negotiator and “totally and completely untrusting.” He would often retain multiple experts for their and pit them against each other until he alone determined what he felt was the truth of the matter at hand.

Scarcity, capital costs, planning horizons. There is a striking contrast between the dynamics of this old-economy industry, in which so much crucially depends on scarcity and access to supply, and new-economy industries, in which so much depends on technology, innovation and distribution. Old and new each have some of each, of course, but the supply component is so dominant in the oil industry. A related element is capital costs and planning horizons. High and long in oil, lower and shorter in high-tech. A world of low distribution costs and zero marginal costs—like the Internet world I’ve been living in for nearly ten years—like a fairyland compared to the oil business.

Security, economic growth, and the environment. The book’s conclusion articulates what I suppose has been the conventional wisdom for a long time: that energy security, economic growth and environment concerns are in conflict. “A far-reaching clash between anxieties about energy security and economic well-being on the one side, and fears about the environment on the other, seems all but inevitable,” Yergin wrote. It is striking that today, at least in some circles (including the coming Obama administration) it is commonplace to argue that those goals are not in conflict any longer, that developing alternative energy sources will benefit the environment, reduce our reliance on unstable fuel sources, and fuel economic growth (through investment in and development of new technologies and markets related to them). Today, a lot hinges on our ability to finesse or transcend the “far-reaching clash” that Yergin described.

This is a great book. If you are serious about being informed about the energy industry, I’d consider it essential reading. You can buy it at Amazon by following this link: The Prize : The Epic Quest for Oil, Money & Power

(Note, if you buy from that link, you are also buying me a cup of coffee. Thanks!)

What are you reading? Any suggestions to share?

How Much of Our Oil Comes from the Middle East?

According to the Energy Information Administration (EIA), the US imports 5.9 million barrels of oil per day from OPEC, whose 13 members include middle eastern nations of Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emirates and Qatar, plus Libya, Algeria, Nigeria, Angola, Venezuela and Ecuador. The Middle Eastern members of OPEC accounted for 29% of global oil production in 2005 according to the EIA. (There should be more current figures around but I can’t find them just now. Please leave a comment if you know where to find them)

The EIA says the US consumes 20.68 million barrels of oil a day, so 28.5% of our daily oil consumption is currently supplied by OPEC nations.

How Is Our Oil Used?

While oil is our single most important source of energy, it is of course not our only one. According to the EIA, oil accounted for about 39% of all Btus consumed in 2007. Here’s our energy consumption broke down by source in 2007:

39.2% petroleum

23.3% natural gas

22.4% coal

8.3% nuclear

2.4% hydro

4.3% non-hydro renewables

Hardly any of the oil is used to generate electricity; coal and gas are much more heavily used for that purpose. Most of our oil—some 70% of it—goes toward transportation. That’s about 14.5 million barrels of oil per day consumed by transportation. That means that transportation is a good place to start looking for ways to reduce our consumption.

How Can We Reduce the Amount of Oil We Use for Transportation?

If transportation is the biggest use of oil in the U.S., how can we reduce the oil we consume for transportation? There are three main ways.

Drive less. A variety of factors can reduce the amount of driving Americans do, but perhaps the most effective is raising the cost of driving. For example, according to the Federal Highway Administration, recent rising fuel prices caused American to cut back on driving by more than 4% in March 2008 compared with March 2007.

Employ oil substitutes. The main candidates here are a) natural gas for fleet vehicles, a centerpiece of the T. Boone Pickens plan; b) plug-in electric vehicles, which draw electricity from the power grid and thus ultimately from electric sources such as coal, natural gas, or alternative sources of electric generation such hydroelectric wind or solar.

Increase vehicle fuel efficiency. The golden age of increasing fuel efficiency in this country was between 1975 and 1987, when the average fuel economy of the new cars produced rose from 13.1 miles per gallon to 22 miles per gallon, at a compounded annual growth rate of 4%. Improvement has not been steady since, however. According to a study by the EPA:

Since 1975, overall new light-duty vehicle fuel economy has moved through four phases:

1. a rapid increase from 1975 through the early 1980s,

2. a slower increase until reaching its peak in 1987,

3. a gradual decline until 2004, and

4. an increase beginning in 2005.

A variety of factors influence average fuel efficiency, including federal and state mandates and the mix of vehicles consumers choose to buy. (An SUV fetish increased SUV’s share of light-duty vehicles purchased from 10% in 1990 to 30% in each year since 2003.) But assuming a 4% annual improvement in fuel efficiency, over 10 years it would lead to a reduction in gasoline consumption of over 30%.

Three caveats:

1. If the resulting lower cost of car travel motivates consumers to drive more, the net reduction will be somewhat less.
2. This is a static analysis that assumes no increase in fuel demand during the period; obviously that’s unrealistic. The EIA’s Annual Energy Outlook 2008 has projections of demand and fuel use through 2030. I have not taken the time to factor those projections into my light-weight analysis, but at a high level they seem to be projecting an increase in US demand for liquid fuel (which is a broader category than petroleum) of about 10% over 30 years—so a very gradual increase that could be offset with efficiency and other measures.
3. The impact of new fuel-efficient cars is dilluted by continued presence of older, less efficient cars on the roards. If you know where the figures are on this, please point the way.

Can Improved Fuel Efficiency Liberate Us from OPEC?

The 5.9 million barrels per day we import from OPEC represent about 40% of the total amount of oil used in the US for transportation. So a 30% reduction due to improved efficiency would take us a long way, but not far enough to render OPEC imports unnecessary. The Obama plan does call for other measures besides boosting fuel efficiency, including supporting the adoption of plug-in hybrid cars and streamlining drilling for oil in permitted domestic areas.

Given our recent experience of a sharp drop in driving as a result of higher gas prices, it would seem that higher taxes on gasoline would nudge us closer. If we acheived a 30% reduction in oil used outside the transportation sector (in industrial and building uses) that would put us within spitting distance of the 5.9 million barrels according to this static analysis.

But what would that mean geopolitically?

What Does OPEC Independence Mean Geopolitically?

This is a big question, one I hope to explore in more depth in the future. But here I will just make two observations. First, OPEC’s share of world oil production is about 38% according to EIA data from 2005. Since most non-OPEC countries are net importers of oil, OPEC has substantial pricing power over oil. Even if The US stops importing oil from OPEC, the price the US pays for oil from other countries can still be significantly influenced by OPEC’s actions. Second, US independence from OPEC may be necessary but not sufficient to ensure geopolitical independence from the region, as important parts of the world, allies and trading partners of the U.S., will continue to be dependent on OPEC unless they embrace similar programs.

Further Reading

There is tons written on this subject.Here’s a very recent article slamming the presidential candidates for misrepresenting the true costs of “energy independence.” But from my reading, I think the authors represent the candidate’s positions. Obama, for one, doesn’t talk about energy independence (which I think is a misguided goal) but rather independence from Middle Eastern oil, which is easier to achieve but with perhaps less of a geopolitical impact than we might hope. The author also pins Obama’s plan on alternative energy, but my read is that is depends largely on improved efficiencies.

For an view on why the benefits of energy independence are overstated, see this essay in the Washington Post from January.

Your Comments?

The more I dig into this topic, the more I appreciate the complexity of it. I’m sure I missed some important points here. Feel free to point them out in your comments, or link to other sources of information and perspect to help fill in the picture a bit. Thanks.