WorldCity Business Magazine

Beyond big oil

by Mary Dempsey

The United States’ seemingly insatiable appetite for energy is the single-biggest contributor to the annual trade deficit, which hit $767 billion in 2005. It is the bane of environmentalists who worry not only about the depletion of fossil fuels but also air quality and climate change linked to energy use. And it is the worry of Americans faced with sticker shock every time they fill their gas tank or receive their heating bill.

But those concerns did not prompt President George Bush’s recent call for an end to U.S. dependence of foreign oil. Rather, according to three experts at a DHL Connections event, national security is driving the new focus on energy policy.

“Energy policy is clearly a military security issue,” Eric Farnsworth, vice president of the Council of the Americas, told participants at WORLDCITY’S breakfast briefing in late February. “The U.S. is the biggest energy user in the world, although China could overtake us. The security of energy supplies to the United States is now a national security issue.”

Farnsworth joined another Washington, D.C.-based expert, National Defense Council Foundation President Milton Copulos, in a presentation titled “The Future of Oil.” Rounding out the panelists was Yong Tao, the director of the Building Energy, Environment and Conservation System Lab at Florida International University.

Tao led a team of students participating in the U.S. Department of Energy’s Solar Decathlon competition to design energysaving homes.

While the panelists acknowledged that national security is the momentum behind the national energy debate, they said economics have much to do with why energy has been propelled to the forefront.

“The fundamental difference is that we now see oil at $55 a barrel. That’s not going to change. At that price, a lot of things that didn’t make economic sense two or three years ago do now,” Copulos, an economist specializing in energy. The National Defense Council Foundation is a think tank that studies security issues, including energy security and the U.S. war on drugs.

Farnsworth said there are other factors contributing to the debate. “Up until this point, we’ve had technology to develop alternative fuels but not the technology to institute them,” he explained.

The United States is currently the planet’s largest market for energy, although China is quickly catching up. During his State of the Union address in January, the president surprised many by calling for an end to U.S. dependence on foreign energy sources. Less than two weeks later, when the government released annual trade statistics for 2005, energy emerged as the top U.S. import when measured by value. It was also the singlelargest contributor to the nation’s trade deficit.

WORLDCITY’S analysis of U.S. Census Bureau data found that the country last year spent nearly $182 billion alone on crude oil imports. The Miami Customs District, which extends from Fort Pierce south to Key West – including the airports and seaports in Miami and Fort Lauderdale – took in $3.2 billion in gasoline, jet fuel and other refined petroleum products. Nearly all of it came on tankers through Port Everglades in Fort Lauderdale.

The shipments were up 5 percent in volume, but a dramatic 105 percent in value, thanks to the rising price of oil products on world markets.

Tao said that if energy consumption in the United States is visualized as a pie chart, “transporation is about 30 percent of it.”

Looking ahead

In their DHL Connections presentations, both Copulos and Farnsworth cautioned that what the White House wants is not necessarily what Congress will deliver. However, Tao said he’s already seen signs that the president’s call to action was more than just political rhetoric.

“From a researcher and engineering point of view, I would describe [the president’s speech] as good news. Although we are cautious about it, I’ve already seen a change,” the FIU associate professor said. “When the Solar Decathlon started in 2002, there was very little support for it. That has changed.”

The 20 universities chosen to take part in the 2007 decathlon will each receive $100,000 over two years. When FIU participated in 2005, it received $5,000.

The panelists acknowledged that energy is a military-security issue. They said the United States not only needs to secure its supply, but it should diversify its energy needs and sources so it can draw on different suppliers. As an example of how the United States’ energy needs have grown, Copulos said: “The force we sent to the Persian Gulf in ‘91 used more than four times as much oil as the entire U.S. military force sent to liberate Europe during World War II.”

Tao said the United States will never replace oil as an energy source, but it needs to look for alternative sources to supplement it. He cited solar energy, which currently makes up only about 1 percent of the national energy grid. He also said wind energy could be a minor source of power.

Copulos said ethanol should also be part of the answer. “We could double our ethanol production in this country in 18 months,” he said, although he acknowledged that it would take a long time for ethanol-burning cars – and corresponding ethanol-stocked gas stations – to become commonplace.

“There are 200 million privately owned vehicles in the United States. Repowering them is out of the question, replacing them all is even dumber. We’re stuck,” he said, adding that flex-fuel vehicles that use a mix of ethanol and traditional gasoline is the best option for now.

The most successful use of ethanol occurs in Brazil, the world’s largest producer of the alternative fuel. In South America’s largest country most new cars can run on ethanol, gasoline or a mixture of the two. And Brazilian aircraft maker Embraer is reportedly looking into the production of jets that use alternative fuels.

The head of Brazil’s development bank, BNDES, recently said his financial institution is interested in providing investment money to increase ethanol production for export to other Latin American countries.

In Venezuela, meanwhile, state oil company PDVSA announced that it plans to plant nearly 700,000 acres of sugar cane by 2009 to open the door to production of 25,000 barrels-a-day of ethanol. The company is also studying the possibility of building 15 ethanol plants.

Venezuela’s interest in ethanol is principally as an additive to gasoline, replacing methyl tertiary butyl ether (MTBE) as a way to boost octane. MTBE has been linked to groundwater pollution.

Brazil’s ethanol is mostly made from sugar cane. In the United States, corn is the biggest source of so-called “gasohol,” now most frequently used in rural areas in the Midwest.

Ethanol factor

Under the Energy Policy Act of 2005, the United States is required to boost its ethanol production to 7.5 billion by 2012. That’s about half what Brazil currently produces.

“We’ve talked about energy as a national security policy of the United States, but growing a democratic hemisphere is [also] of interest to the United States,” Farnworth said. “We can find ways to collaborate more aggressively and more intensively with willing partners.”

Canada is currently the largest supplier of energy, including natural gas, to the United States. Farnsworth said Brazil could also grow to be a more important energy trader because of its ethanol supplies.

“We need energy. Brazil has energy,” he continued. “There must be a way we can develop energy partnerships, if you talk about it as mutuality of interests.”

Tao said education must be a key component of any shift from traditional energy sources. And, given the urgency of the energy situation, the professor said the private sector cannot be expected to come to the rescue. “Is the market the driving force or is it the government the driving force?” he asked. “I think, in this case, it needs to be the government stepping in.”

Copulos disagreed while Farnsworth noted that there are real economic opportunities for alternative-energy companies willing to invest in the future.

“This idea would not have made it into the State of the Union address if there wasn’t something behind it,” he said. “But these things are not going to happen today. They’re not going to happen overnight.”