Domestic energy security risk grew in 2010, US Chamber reports

Increasing volatile crude oil prices and declining domestic production were major contributors as the US energy security risk worsened in 2010, the US Chamber of Commerce said in its US Energy Security Risk Index.

“These are the worst risks we’ve seen in recent history,” said Karen A. Harbert, president of the Chamber’s Institute for 21st Century Energy, during a teleconference with reporters. “They approach what we saw following the Iranian hostage crisis.”

The index tracks changes in energy security risk beginning in 1970 and projects future risk through 2035. It incorporates the most current data from the US Energy Information Administration and other federal agencies, she added.

The 2010 Energy Security Risk score was 98.0, the fourth highest since 1970 and a 6.5 point increase from 2009’s revised score of 91.5. Harbert said that the index is expected to remain very high—around 94—through 2035, based on EIA’s 2011 Annual Energy Outlook. Higher energy prices and expenditures provide much of the upward pressure, partially offset by steady gains in energy intensity and efficiency across all forms of energy, she said.

“As the economy picks up, the underlying weaknesses in our energy security posture are once again revealing themselves,” warned Stephen Eule, the institute’s vice-president. “In particular, higher energy prices and price volatility are contributed to increased risks. Development of domestic shale gas, however, is certainly a bright spot in an otherwise pretty gloomy outlook.”

Permit holdups may be possible for proposed pipelines to transport shale gas to markets, he added.

Harbert said that these projects won’t face obstacles as formidable as those for new interstate power transmission lines because the Federal Energy Regulatory Commission has authority to issue permits across state lines for them. “That means there will be a huge lost opportunity if the capacity to expand shale gas production is not realized,” she said.

“We’re also very concerned about crude oil, particularly from unreliable foreign sources,” Eule said. “That’s why the Keystone XL pipeline project is so important because it would bring a steady crude supply from a reliable supplier and put downward pressure on crude oil price volatility.”

Harbert said that EIA’s projections of a crude oil production recovery in the gulf may not fully reflect what has happened since US Interior Secretary Ken Salazar lifted the deepwater drilling moratorium he imposed late in the spring of 2010 following the Macondo well accident and crude oil spill.

“If you look at what’s happening in permitting in the gulf, we’re seeing only one permit a month, which is not the level we saw before the moratorium,” she said. “The situation isn’t good in Alaska either because it looks as if permits won’t be issued in time for the 2012 drilling season. This has been partially offset by more aggressive exploration on private land, which reflects the industry’s determination to produce more oil and gas domestically.”

Contact Nick Snow at nicks@pennwell.com

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