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RAND reports suggest US DoD use less petroleum fuel to deal with high prices, not count on alternatives
20 June 2012
According to three new reports on “Promoting International Energy Security” issued by the RAND Corporation, because the energy purchases made by the US Department of Defense are not large enough to influence world oil prices—despite DoD requiring considerable amounts of fuel to function—cutting fuel use is the only effective choice to reduce what the Pentagon spends on petroleum fuels.
From a cost perspective, the potential of alternative fuels is of limited, if any value, according to the lead report written by James Bartis, a RAND senior policy researcher. However, the US military can play an important role in promoting stability in major oil producing regions and by helping protect the flow of energy through major transit corridors and on the high seas, the reports suggest.
Bartis and RAND colleague Lawrence van Bibbe were the authors of a 2011 RAND report concluding that if the US military increased its use of alternative jet and naval fuels that can be produced from coal or various renewable resources, including seed oils, waste oils and algae, there would be no direct benefit to the nation’s armed forces. Any benefits from investment in alternative fuels by the US Department of Defense would accrue to the nation as a whole rather than to mission-specific needs of the military, they concluded. (Earlier post.)
While the Department of Defense (DoD) is one of the world’s largest fuel users, its consumption of about 340,000 bpd is a small fraction (less than one-half of 1 percent) of global petroleum demand. Considering that the United States produces over 8 million barrels of oil per day domestically and imports an additional 3 million bpd from secure supplies in Canada and Mexico, we can find no credible scenario in which the military would be unable to access the 340,000 bpd of fuel it needs to defend the nation.
While DoD and the services will have access to the wholesale fuel supplies they require, the purchase price may be uncomfortably high. As fuel consumers, DoD and the services have only one effective option to deal with high petroleum prices: to reduce use of petroleum fuels overall. This can be accomplished by purchasing equipment that is more energy efficient; by adopting maneuvers schemes that are more energy efficient; and, in the short term, by implementing energy conservation measures to reduce petroleum use. Alternative liquid fuels do not offer DoD a way to appreciably reduce fuel costs.—Bartis 2012
Pending a major technical breakthrough, renewable jet and marine fuels will continue to be far more expensive than petroleum-based fuels, Bartis said.
The RAND reports specifically examine the role of the US Air Force in promoting international energy security and provide a broad overview of the dynamics of the world oil market (volume 1), in addition to examining energy security issues in Turkey and the Caspian (volume 2), and the role the Air Force plays in assisting the US Navy in protecting the sea lanes from Hormuz to Asia (volume 3). A fourth volume examining energy security in Nigeria and other nations in the Gulf of Guinea is scheduled for later publication.
The other two key findings from Bartis’ introductory report are:
Where security shortfalls impede hydrocarbon production or transport, current and future US Air Force partnership-building capabilities offer security improvements that could promote greater production of petroleum and natural gas resources. Notable examples of nations where security shortfalls are significantly impeding investment and production are Nigeria; Iraq; Sudan; and, most recently, Libya. Unless addressed, pipeline security issues will impede investment in Turkey, Bartis suggested.
Although current and future Air Force partnership-building capabilities offer security improvements, partnerships associated with energy infrastructure protection are impeded by concerns that US assistance will threaten the sovereignty of the host country. Additionally, U.S. government concerns about human rights violations and corruption may impede partnership building in such countries as Nigeria, he noted.
The vulnerability of the petroleum supply chain can be leveraged to achieve broader US objectives, such as diffusing tensions along the Asian sea-lanes, where the US’ primary concern is the potential for conflict between the two regional pillars, India and China. Energy security concerns also may help strengthen existing partnerships (e.g., Turkey) or building new partnerships (e.g., India) with current and prospective allies.
Peak oil. In the lead report, Bartis notes that global oil supplies are finite and thus, at some point, oil production must peak. The question, he notes, is not whether but when and how that peak comes about. Considering both conventional and unconventional sources of petroleum, RAND’s best estimate is that global production will peak between 2030 and 2050.
More important than “when” global oil production might reach its maximum is the form that that maximum takes on. A consensus is developing that global oil production is less likely to come to a sharp peak and more likely to hit a plateau that might continue for some decades and then slowly decline. While a production plateau is far less catastrophic than a sharp peak and rapid decline, it is likely that oil prices could be both high and very volatile during the plateau period. In response to these high prices, demand will moderate as petroleum consumers look for transportation options that are more energy efficient. Also, during this period of high prices, vast amounts of alternative fuels, derived from oil shale, coal, biomass, and possibly algae, would become economically competitive, which would moderate further price increases and extend the duration of the plateau.
Could oil production peak before 2030? Yes, but the reasons for an earlier peak have less to do with geology and more with above-ground actions that might occur in producing and consuming nations. For example, enduring political instability or conflict in a major oil-producing nation or region could reduce production levels and cause global production to peak earlier than it would otherwise. In this case, we would expect petroleum prices to rise considerably. Alternatively, an early supply peak could occur in response to a global agreement to reduce greenhouse gas emissions...If [a 50% reduction in greenhouse gases by 2050] is to be achieved or even approached, it is inconceivable that global oil production will continue to grow much beyond its current level of about 85 mil- lion bpd. In this case, we would expect consumer prices for petroleum products to increase (for example, as a result of a tax or other mechanism that would decrease demand) but prices paid to crude oil producers to drop in response to decreased demand.
Could oil production peak after 2050? That is also a possibility; in fact, continued growth in production would be consistent with the 120-year historical experience of growing oil production despite periodic episodes of oil anxiety. This would occur if advances in technology allowed economic expansion and greater recovery of global oil resources, including access to unconventional resources, such as oil shale; improved recovery of tight oils, such as those being produced from North Dakota’s Bakken formation; and greater development of oil sands.—Bartis 2012
Caspian region. The study highlights the growing importance of the Caspian region for global oil supplies. In this region, energy infrastructure protection appears to be addressed fairly well, considering relatively low threat levels.
Turkey has ambitions to become an international energy hub, moving oil and natural gas from the Caucasus, Central Asia and the Middle East to Europe, said Andrew Weiss, the lead author for this portion of the study. To achieve that ambition, he said, Turkey needs to improve protection of its pipelines and energy infrastructure, which have been the target of repeated terrorist attacks by the Kurdistan Workers Party (PKK).
Weiss highlighted oil tanker traffic through the Bosporus Strait—a major international chokepoint—as another vulnerable area.
Asia. The Asia sea lanes are a growing security concern because of the increasing dependence of Asian economies on imported oil and natural gas from the Middle East. Three-fourths of the oil passing through the Strait of Hormuz is heading toward Asia, while less than 15% is directed toward the United States.
Those statistics alone suggest that overall US interests are best served by a multinational approach to the protection of the energy sea lanes to Asia, according to RAND senior fellow Ryan Henry, lead author of the third volume of the series. Multinational cooperation in sea lane protection also provides a means of dampening the simmering tensions and lingering disputes that prevail within Asia, he suggested.
The research was sponsored by the Office of Operational Planning, Policy and Strategy, Deputy Chief of Staff for Operations, Plans and Requirements of the US Air Force. It was conducted within the Strategy and Doctrine Program of RAND Project AIR FORCE.
RAND Project AIR FORCE is a federally funded research and development center for studies and analysis aimed at providing independent policy alternatives for the US Air Force.
Bartis, James T. (2012) Promoting International Energy Security: Volume 1, Understanding Potential Air Force Roles
Weiss, Andrew S., F. Stephen Larrabee, James T. Bartis and Camille A. Sawak. (2012) Promoting International Energy Security: Volume 2, Turkey and the Caspian
Henry, Ryan, Christine Osowski, Peter Chalk and James T. Bartis. (2012) Promoting International Energy Security: Volume 3, Sea-Lanes to Asia
Promoting International Energy Security, Vol. 4: The Gulf of Guinea, Forthcoming
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