Center for a New American Security

As a pilot site in the Army's net zero initiative, Fort Hunter Liggett in California is home to a solar microgrid project, pictured above. The first of four phases of the project was completed in April 2012 and generates one megawatt of electricity, enough to power 250 to 300 homes. Phase two is scheduled for completion this month. The project aims to increase the energy security of the base by producing all of its required electricity, making it independent of the macro-grid system.

In other solar news, a Maryland inventor claims that his recent patent of a flat panel “Solar Trap” will dramatically reduce the cost of generating electricity from solar energy and upend the global energy market.

Photo: Courtesy John Prettyman and the U.S. Army. 

On April 30, the United States Geological Survey (USGS) released a new assessment for oil and gas reserves in North Dakota, South Dakota and Montana. The assessment includes new estimates for the Three Forks Formation and updated estimates for the Bakken Formation.

By combining the estimates for Three Forks and Bakken, the USGS found that the region has far greater reserves of oil and natural gas than previously thought. The USGS estimates that the two formations have a total of approximately 7.4 billion barrels of undiscovered, technically recoverable oil, which is twice the amount that was reported in the 2008 assessment.

The recent assessment also found that the Three Forks and Bakken formations have a combined 6.7 trillion cubic feet of natural gas and 0.53 billion barrels of natural gas liquids, representing a threefold increase from 2008 estimates.

The use of hydraulic fracturing and horizontal drilling technologies to extract shale gas and light tight oil has unlocked the productive potential of the Bakken and Three Forks formations. As a result, the USGS has designated the shale gas and light tight oil as “technically recoverable,” meaning they are “producible using currently available technology and industry practices.” Hydraulic fracturing and horizontal drilling have brought about what some are calling an American energy revolution by allowing companies to access unconventional resources, which were previously thought of as unrecoverable.

The true extent of unconventional oil and natural gas reserves in the United States is uncertain, however, because assessments of technically recoverable reserves are far more predictive than they are factual. For example, in January 2012 the U.S. Energy Information Administration (EIA) drastically reduced their estimates of technically recoverable shale gas in the United States. In the 2012 Annual Energy Outlook, the EIA cut its estimates to 482 trillion cubic feet, far lower than the 2011 estimate of 827 trillion cubic feet. This reduction can largely be attributed to a reassessment of the Marcellus shale formation, based on additional drilling and production data. The revised estimate of 141 trillion cubic feet for the Marcellus formation was a 66 percent decline from 2011 numbers.

While tight oil production in the Bakken and Three Forks formations has the potential to upend the global energy order and dramatically reduce U.S. oil imports, the extent of the resource and ultimate production levels in the United States, and subsequent effect on the geopolitics of energy, are by no means a foregone conclusion.  

Photo: A drill in the Bakken oil field of North Dakota. Courtesy Stephanie Gaswirth and the USGS. 

Capitol Hill was active in the energy security arena this week.

On Wednesday, Secretary of State John Kerry testified before the House Foreign Affairs Committee and responded to questions about the Keystone XL pipeline. Secretary Kerry said he is “staying as far away from that as I can” because the Keystone review process is not complete. Kerry will make the final decision, but he believes “it is not yet ripe” for him to do so. The review process continues on Thursday with the State Department’s public hearing on the pipeline in Grand Island, Nebraska.

In other news, Deputy Secretary of Energy Daniel Poneman testified before the Senate Energy and Natural Resources Committee on Thursday. Poneman stated that DOE is nearly ready to make decisions on applications for the exportation of liquefied natural gas (LNG). These decisions will likely ultimately fall to Ernest Moniz, President Obama’s nominee for Secretary of Energy. Moniz has signaled support for natural gas, but has not yet been definitive on his position on LNG exports. Moniz received bipartisan support in a 21-1 vote in the Senate Energy and Natural Resources Committee on Thursday and will face a confirmation vote before the full Senate in the near future.

The Obama administration signaled continued commitment to advanced biofuels research and fuel supply diversification in the President’s FY 2014 budget proposal, released this week. From the proposed budget:

The Budget continues to promote fuel supply diversification by providing $282 million at DOE to develop and demonstrate conversion technologies to produce cellulosic ethanol and other advanced biofuels, such as algae-derived biofuels and “drop-in” replacements for diesel and jet fuel, for civilian and military uses. 

As the U.S. Navy works to diversify its fuel supply (partly through advanced biofuels) and deploy a “Great Green Fleet” in 2016, it should coordinate with ongoing efforts at the Department of Energy. By doing so, the Navy could strive to reduce costs, avoid redundancies and drive appropriate technological advancements.

For context, the Navy’s biofuel purchase for its 2012 "Great Green Fleet" demonstration, pictured above, carried a price tag of $26 per gallon in 2011, down from $424 a gallon in 2009.

Photo:   The Military Sealift Command fleet replenishment oiler USNS Henry J. Kaiser delivers a 50-50 blend of fuel to the guided-missile cruiser USS Princeton during the "Great Green Fleet" demonstration. Courtesy of Mass Communication Specialist 3rd Class Andrew M. Jandik and the U.S. Navy.  

President Obama’s nominee to lead the Department of Energy, Ernest Moniz, received bipartisan support on the Hill on Tuesday and appears likely to sail through the confirmation process.

Moniz, a physicist at MIT and former undersecretary of energy, has made his support for natural gas production in the United States clear, and he used Tuesday’s hearings as an opportunity to double down on this position. According to the Washington Post, Moniz said he would use the natural gas boom as a means of reducing carbon emissions, increasing domestic energy production and expanding manufacturing job growth.

While Moniz appeared unequivocal in his views on natural gas, he was less clear on his position concerning liquefied natural gas (LNG) exportation. Moniz’s position on the issue is paramount to the future on LNG exportation, because the Department of Energy is responsible for approving companies’ applications to construct LNG export terminals.

Move over, America.

East Africa has emerged as the newest potential player in the future geopolitics of energy. From oil in Kenya to natural gas in Mozambique, a region long thought to be devoid of energy resources is now receiving significant international attention. The opportunities and challenges of energy wealth abound in Kenya, Tanzania and Mozambique.

In Kenya, the U.K.’s Tullow Oil and Canada’s Africa Oil Corporation have struck black gold in the Great Rift Valley. In the coming years, the “Cradle of Mankind” may yield more than the bones of ancient humanoids. The companies making plays in the region are fast-tracking their exploration and evaluation, with plans to drill 11 new wells in 2013 (up from 2 in 2012). The region remains largely unexplored, but the companies are optimistic. According to Bloomberg, Tullow Oil estimates that the Rift Valley alone could yield as much as 10 billion barrels of oil. While such large reserves are not yet proven and production in Kenya is in its nascent stages, appropriate physical and legal infrastructure development and continued successful plays in the region could unlock East Africa as a vital source of supply to Asian markets in the coming decades.

Last week, the San Diego-based Sapphire Energy, Inc. announced a commercial partnership with the San Antonio-based Tesoro to refine the company’s algae-based “green” crude oil into fuels suitable for today’s infrastructure and engines.

(In the interest of full disclosure: Sapphire Energy, Inc. is a general supporter of the Center for a New American Security.)

“In less than one year, Sapphire Energy has started up its commercial demonstration to grow algae; has produced crude oil from our farm; and now with Tesoro as our first commercial customer, we’re providing barrels of our oil to be refined for market use,” Cynthia ‘CJ’ Warner, CEO and chairman of Sapphire Energy, said in a press release.

The volume of algae-based crude oil made available to Tesoro is small compared to the company’s refinery capacity. Sapphire today is producing about 2 barrels a day; Tesoro can refine about 675,000 barrels a day. But Sapphire is continuing to grow. “[Sapphire’s] demonstration plant was funded in part by a $50 million U.S. Energy Department grant and a $54.4 million loan guarantee from the Department of Agriculture,” Bloomberg reported. “It’s expected to produce as much as 100 barrels a day by the end of 2014.”

Tim Zenk, Sapphire’s Vice President of Corporate Affairs, told Quartz that despite the small volume of “green” crude oil that the company is selling to Tesoro, the commercial partnership nevertheless marks a watershed moment in the commercialization of renewable biofuel: “It re-enforces that the renewable crude oil we’re producing is market viable and works with the existing network of pipelines and transportation systems.”

America’s relationship with the Middle East’s energy resources is changing as U.S. domestic oil production continues to grow. A combination of hydraulic fracturing, horizontal drilling and advanced seismic technologies have contributed to the largest annual growth in U.S. crude oil production since Colonel Edwin Drake first drilled for oil in Titusville, Pennsylvania in 1859. Most of the crude oil is coming from shale formations in North Dakota and Texas – what we call “light tight oil.” Since 2010, the United States has, on average, increased monthly crude oil production by 50,000 barrels a day.

Not all of this U.S. light tight oil is displacing Middle East crude, of course. A number of factors matter, most importantly the crude oil grade. The United States is producing light tight oil, that is, low-density crude oil, whereas the United States imports heavier crudes from the Persian Gulf, including from Saudi Arabia. Moreover, U.S. refineries have been increasingly geared to absorb heavier crudes, from the Persian Gulf, but more so from Canada, Mexico and Venezuela.

Nevertheless, the glut in U.S. crude oil production and declining demand for oil (a consequence of slow economic growth and more fuel efficient vehicles) have contributed to a powerful notion that the United States is relying less and less on oil from the Persian Gulf and could conceivably help wean America off crude oil imports from the Middle East entirely (a debatable point).

Whether or not one believes that the United States can break the tether to Middle East oil, U.S. allies and partners in the Persian Gulf are increasingly nervous about America’s long-term security commitment to the region. After all, if the United States no longer relies on energy from the region, why should American foot the bill for protecting the sea lanes – that backbone of the crude oil trade in the region – or so the narrative goes.

The United States has a number of stakes in stability of the Persian Gulf oil trade even if it does rely less on oil from the region. Supply shocks will contribute to higher global oil prices, which will be felt at home. Moreover, supply shocks are damaging to our allies, particularly those in East Asia that have grown more dependent on oil and gas from the Middle East and North Africa. But there are other legitimate security concerns as well, which were not far from General Martin Dempsey’s mind when he responded to a question on Monday about how the American energy revolution will impact U.S. interests and presence in the Persian Gulf. Here’s what the Chairman of the Joint Chiefs of Staff said:

Today marks the 75th anniversary of the nationalization of Mexico’s oil industry.

In a January post on EnergyTrendsInsider.com, I wrote that one of the top energy trends to watch in 2013 will be developments around Mexico’s oil industry. Here is an excerpt from that post:

Mexico’s oil industry has been in a perpetual state of decline. In its heyday, the country was the world’s second largest oil producer, just behind the United States. But when the industry was nationalized in the 1930s, it all began to go south. Private foreign companies – with their capital, skills and technology – left the country and spent years seeking compensation from the government to cover their losses. In their place, the industry was left with the state-owned Petróleos Mexicanos – Pemex. Unfortunately, Pemex never quite brought the same resources to bear as its foreign competitors and has been plagued by technical deficiencies that have contributed to poor management of its oil fields and their subsequent decline. One need only look to Mexico’s Cantarell super-giant oil field as a case in point: production has sharply declined from about 2 million barrels a day (mbd) in 2004 to 400,000 barrels a day in April 2012. It bodes poorly for a government that relies on oil revenue for roughly 35 percent of its budget.

 

But all that is starting to change and Mexico’s moribund oil industry may be on the rebound.  Since his election in July, Mexican President Enrique Peña Nieto started the move toward privatization of the oil industry, which would help bring the necessary capital, technology and skills to onshore oilfields that have been in decline and the deepwater oil fields that have effectively gone untapped. If the industry does turn around, Peña Nieto may singlehandedly be responsible for unleashing the country’s energy potential, potentially adding as much as 1.6 mbd of petroleum to North American output by 2020.

Mexican President Peña Nieto has run into some opposition in Congress, particularly around the future of Pemex. On Sunday, Peña Nieto tried to allay concerns that his support to allow private investment in the country’s oil sector would be the death knell for Pemex, which has long been heralded as a symbol of the 1938 nationalization order and national identity.  Pemex will not “be sold, nor will it be privatized,” he said. Instead, Pemex would be “modernized and transformed.”

I recently set out to learn more about the process of fracking, with an interest in the risks and the mitigation of risks, as well as the national security implications of America’s potential natural gas glut. 

While there are innumerable diagrams and images available online from a variety of sources detailing the process, I did not find any clear, coherent messaging from government and industry entities.  So, I turned to a 2010 documentary titled “GasLand” where director Josh Fox appears to go to great lengths to paint fracking in the least optimistic light, climaxing with a scene in which he lights methane-laced tap water on fire as it streams from a rural Pennsylvania man’s faucet.  Immediately after watching “GasLand,” I watched “FrackNation,” which originally aired on AXS TV in January 2013, by director Phelim McAleer specifically aimed at debunking the myths professed in “GasLand.”  At the end of half a day in front of the television, I had more questions than I had answers.