Requiem or Revival?: The Promise of North American Integration

Chapter 12. International Energy Security and North America

232 Atendency exists among analysts of international relations to believe that an international energy crisis cannot occur through a supply disruption because such a crisis has not happened before—or at least has not happened recently. But such logic concerning the long term—namely, that oil exporters must sell their oil and therefore are not likely to disrupt supply—could in the short term break down under certain political and economic circumstances. Common wisdom holds that those who could disrupt supply, and thereby trigger a crisis, will not do so. This is because supplier countries rely heavily on the revenue from oil and are thus not willing to forgo it by provoking an energy crisis. However, in the short term, such constraints may not hold. It is the possible short-term propensity to disrupt the supply of crude oil or natural gas and the impact of such disruption on North America that this chapter explores. The purpose of the chapter is to convince the reader that the threat to the international energy market is real and that it can best be comprehended by analyzing the motivations and mechanisms that drive oil markets. Once these fundamentals are understood, through evaluation of scenarios and examples, such a crisis could be averted or at least mitigated in terms of effect. North America is a complex place, and not all three countries would be affected in International Energy Security and North America charles f. doran 12 12-8201-8 ch12.qxd 7/13/07 4:34 PM Page 232 International Energy Security 233 the same way by an energy crisis. Yet each member of the North American community clearly seeks a stable international political environment wherein the continuous supply of energy to the global economy is a foundational principle. All Oil Comes from a Single Barrel While most people know that the United States is the largest consumer of energy in the world, few are aware that it is also the largest producer of energy. But the sizable and growing disparity between the level of U.S. consumption and the level of U.S. production, as well as similar disparities elsewhere in the world, is creating economic and political problems. Moreover, despite conventional notions that the U.S. energy supply is secure because it derives from two reliable local suppliers (Canada and Mexico), in reality only a third of U.S. energy imports come from these suppliers. Canada provides about 24 percent of U.S. imported oil and natural gas, and Mexico supplies about 8 percent.1 That leaves some two-thirds of U.S. energy imports coming from other parts of the world, countries in which the sources of supply are much less reliable than those of North America. But even if all North American energy needs were met at home, the problem of energy security would not disappear for these countries. During a severe international energy crisis, prices would rise in North America on par with prices elsewhere. Because of the efficiency of the world oil industry and of world oil markets, all oil does indeed come from a single (extremely large) barrel. Any disruption of oil supply in one region is immediately transmitted to the world market through decisive and proportionate price increases. Moreover, as Mexico’s population and economy continue to grow, indigenous energy will increasingly be used to meet its own needs, especially if Mexico’s domestic legislation concerning foreign investment in the energy industry continues to constrain energy development.2 This constraint will have a particularly negative impact in high-cost areas such as the Gulf of Mexico, where the sophisticated technology of the international oil industry is most needed. Underlined by the reality that North America alone accounts for 29 percent of total world energy demand, the problem of energy vulnerability is large and troublesome. This energy vulnerability will only truly be ameliorated when alternative energy sources become available at prices competitive with petroleum and natural gas prices.3 Fusion, for example, looks on paper to be an ideal energy source, but the complex engineering necessary to 12-8201-8 ch12.qxd 7/13/07 4:34 PM Page 233 234 Charles F. Doran achieve commercial-grade energy outputs from fusion is far from being resolved. Most other alternative energy sources either possess undesirable side effects, such as damage to the environment, or are not cost-effective. Ethanol, for example, may help the corn grower...