Geopolitical issues are driving up the cost of oil and eroding U.S. energy security and could trigger another recession, according to energy experts.
But fuels derived from natural gas could help avoid a future oil crisis if they're poised to effectively compete in the oil-dominated transportation sector, members of the U.S. Energy Security Council said yesterday at a meeting of energy industry leaders.
"The U.S. is really facing an energy security paradox. We've expanded domestic oil supply, we've reduced demand through fuel efficiency, and yet gas prices in 2012 were at record high and OPEC revenues were at record highs," said Anne Korin, co-director of the Institute for the Analysis of Global Security and an adviser to the Energy Security Council.
"So drilling more and using less aren't going to solve our problem, which is price," she said. "So in order to solve the price problem, you have to focus on fuel competition."
Korin and co-author Gal Luft argue in their new book "Petropoly" that OPEC is increasing U.S. insecurity by driving up oil prices to balance their national budgets, particularly in the wake of the Arab Spring.
OPEC governments started handing out perks to their populations in response to the uprisings that have destabilized numerous regimes in the Middle East over the last two years. But the more a government spends on gifts for its people, the bigger its budgetary needs become, and if its main budget input is oil, it will need to sell oil at a higher price per barrel, Korin explained.
This puts the United States in a precarious position. A spike in crude oil prices has preceded nearly every major economic downturn in the United States since the 1970s. If the United States remains oil-dependent and prices continue to rise, it could trigger another recession.
World oil demand expected to rise
Growing demand in China and India compounds oil supply issues, which could bring global oil consumption up to 98 million barrels per day over the next three years while global production remains at around 86 million barrels per day, said John Hofmeister, former president of Shell Oil Co. and founder of the nonprofit group Citizens for Affordable Energy.
Oil production in Brazil, East Africa and the Arctic faces institutional and technological barriers, and with the Middle East in a such a volatile state, no one knows where that supply will come from, he added.
"Who will assure America can get its 20 million barrels a day?" said Hofmeister. "The answer is, if we don't do it ourselves, no one will."
That's where domestically produced natural gas could step in.
Compressed natural gas (CNG), liquefied natural gas (LNG), methanol, diesel, gasoline and even ethanol are all natural gas-based fuels that could potentially replace oil-derived gasoline and diesel. CNG-powered heavy-duty vehicles are economically attractive because of their large fuel cost savings, and there is strong interest in using them in the trucking industry, especially in fleets (ClimateWire, Nov. 30, 2012).
According to a study from the Massachusetts Institute of Technology, methanol could be the most promising option for large-scale market penetration of a natural gas-based fuel for light-duty vehicles because of its low fuel cost and low additional cost relative to powering a vehicle with gasoline.
Methanol can be made efficiently, has already been established commercially for use in the chemical sector, is relatively inexpensive because of low natural gas prices and produces less greenhouse gas emissions compared to other natural gas-derived liquid fuels, said Daniel Cohn, a research scientist at the MIT Energy Initiative.