Highlights
The total U.S. energy security risk score in 2018 fell 1.6 points (2%) to 75.8. Since total risk peaked in 2011 at 101.4 points, risk scores through 2018 have declined every year but 2017. The 2018 score is the fourth lowest since 1970,3 and U.S. energy security risks are now at their lowest level since 1995. Future U.S. Index scores out to 2040 calculated using the AEO2019 reference case suggest that after 2020, total U.S. risk scores will not exceed 74 points (an average of 73.4). This represents the lowest level of projected risk of the 10 EIA forecasts used since 2010.
Overview
Total energy security risk in 2018 fell 1.6 points, or 2.0%, to 75.8 points, the fourth lowest score since 1970 and the lowest since 1995. During the seven years since the total risk score hit its peak of 101.4 in 2011, scores have fallen almost 26 points (25%). There has been no comparable period where scores have moved so rapidly, either up or down. To put this decline into perspective, consider that during the decade leading up to 1980, the Arab Oil Embargo, the Iranian Revolution and hostage crisis, the invasion of Afghanistan by the Soviet Union, two U.S. recessions, and much else occurred. The events of this decade had a large impact on U.S. energy security risk, which jumped up 22 points to a score of 100 in 1980. In just the seven years since 2011, the U.S. energy security risk score plunged 24 points from its record almost entirely because of the direct or indirect benefits of the U.S. shale revolution. In other words, the magnitude of the shale revolution on U.S. energy security (to the good) has been as big, if not bigger than the combined impact of tumultuous geopolitical events that shook world energy markets profoundly in the 1970s.
The 2018 score was well below (8 points) the 30-year (1970-1999) average. Greater domestic unconventional oil and natural gas production from shale formations occurring against a backdrop of an increasingly efficient economy have been the biggest factors contributing to the improved U.S. energy security picture since 2011. The decrease in overall risk was driven by large shifts in a few metrics. Of the 37 Index metrics, 15 showed little change (±1%) in risk, 13 showed an increase in risk of 1% or more, and 9 showed a decrease in risk of 1% or more. Most of the risk decrease in 2018 can be attributed to crude oil price volatility and oil and natural gas import and import expenditure metrics that registered very large declines of 10% or more from the previous year (Table 2). Metrics related to the price of crude oil and total emissions were the only two to register an increase of more than 10%.
The risk score for crude oil price volatility, as expected, plunged by half in 2018, the largest drop of any metric. Crude oil price volatility is measured as the absolute average change in price over three years (in this case, 2016, 2017, and 2018). We noted in last year’s Index how the plunge in price in 2015—after the world price of crude oil tumbled from more than $100 per barrel in 2015 to less than $50 in 2016—would have no impact on this metric in 2018. Since 2015, the world price has recovered somewhat, and there have been no large swings comparable to what occurred in 2015.
Domestic crude oil production has increased rapidly and projections indicate continued growth for many years. From 2010 to 2018, crude oil production in the United States more than doubled to nearly 11 million barrels per day (MMbbl/d) from 5.5 MMbbl/d because of continuing development of shale plays, especially in the Permian Basin in West Texas and Southeast New Mexico. Texas was responsible for nearly 60% (+3.2 MMbbl/d) of that jump. Large production increases also were observed in North Dakota (+960 MMbbl/d), New Mexico (+500 MMbbl/d), Colorado (+400 MMbbl/d), and Oklahoma (+365 MMbbl/d). Even greater production is expected from these regions. EIA’s AEO2019 projects that by 2024, total U.S. crude oil production will exceed 14 MMbbl/d and stay above that level through 2040.
Largely as a result of the growing crude oil production, U.S. petroleum import risk fell 38% in 2018 to its lowest score going back to 1970. It is expected that by 2020, the United States will become a net exporter of total petroleum (crude oil and refined products) on an annual basis. The United States has been a net exporter of refined petroleum products since 2009. The anticipated increases in crude oil production coupled with greater efficiency means that by 2020 the country could be a net exporter of total oil. This is a remarkable development because just two years ago, EIA’s AEO2017 did not indicate that the United States would achieve status as a net oil exporter at least out to 2050. The changing expectation about domestic crude oil production, in particular, has been the main reason the United States almost surely will become a net oil exporter. Compared to the AEO2017, EIA’s most recent AEO2019 is projecting domestic crude oil production over the 2020 to 2040 period will average almost 4 MMbbl/d more, while refined product exports will average about 1 MMbbl/d more—an astonishing combined jump in the forecast of nearly 5 MMbbl/d in a mere two years.
Domestic natural gas production continues to race ahead and is expected to set production records each year to 2040. The risks associated with the security of U.S. natural gas imports, therefore, will continue to remain there for the foreseeable future. Since the risk score for this metric peaked at a record high of 181 in 2007, it has declined rapidly, eventually reaching a score of 0 once the United States became a net exporter of natural gas in 2018. Dry natural gas production in the United States grew 43% from 2010 to 2018 to 30.4 trillion cubic feet. The amount being exported also increased over this period, especially as liquefied natural gas. Looking to the future, EIA’s forecast indicates that by 2040 net LNG shipments of 5 trillion cubic feet will be more than twice as large as net pipeline shipments. Indeed, if current trends continue, the IEA reports that the United States could overtake Qatar and Australia to become the world’s largest exporter of LNG within a decade.
With the United States already a net natural gas exporter and set to become net oil exporter by 2020, the risk scores for the metrics measuring oil and gas import expenditures and oil and gas import expenditures as a share of GDP also will move to zero. The U.S. also is expected to become an even larger exporter of coal, which will contribute to a positive balance of trade in energy as well. The risk score for oil & natural gas import expenditures per GDP is, at 9.5 points, at its lowest level in the record, and the risk score for nominal oil and natural gas import expenditures, at 26 points, is lower than at any time since 1974. By 2020, scores for both of these are expected to be 0. At that time, the balance of trade in oil and gas will favor the United States. These developments will set the four oil and natural gas import-related metrics at 0 going forward, which explains the very low projected total risk scores out to 2040. Over the 30-year baseline period from 1970 to 2009, these four metrics ranged from about 5% to 21% of the total U.S. risk score and averaged 11%. Eliminating these risks will therefore have a big and beneficial impact on future risk scores.
Crude oil prices rose 28% in 2018, from about $55 to $71 per barrel. The firming world price of crude oil in 2017 and 2018 after the big drop in price between 2014 and 2016 and greater production efficiency helped to spur increased production of crude oil and natural gas. Output of both fuels fell in 2016 after the world price of crude oil tumbled 57% between 2014 and 2016. The rising crude oil price in the past two years has been comparatively modest and was not enough to send the crude oil volatility metric higher. At $71 per barrel, the price of crude oil in 2018 was about 56% higher than the 30-year baseline average price. Despite much greater U.S. crude oil production in the EIA forecast, greater global demand and declines in production elsewhere create conditions where crude oil prices will rise in the future. By 2035, EIA expects the global price of crude oil to breech $100 per barrel. It is worthwhile to note, however, that the expected increase in price is much lower than the expected increase in forecasts from just a few years ago, when the per barrel price was forecast to exceed $150 in a couple of decades. Although a significant contributor of future risk, the price of crude oil is not expected to be as big a contributor as it once was.
The risk associated with energy-related carbon dioxide emissions increased by 12% and energy use per capita by 4% in 2018, resulting from largely increased economic growth and greater energy demand stemming from more heating and cooling degree days. Emissions from the residential and commercial sectors led the way, rising by 7.4% and 2.8%, respectively. A Kaya Identity analysis suggests that while the economy (and the power sector) continued to decarbonize in 2018, it used slightly more energy to create a dollar of GDP. The contribution to emissions from GDP also was higher than it has been for some time because of faster growth. The same factors that led to a rise in economy-wide emissions also caused power sector emissions to increase, but by less than 2%. Nevertheless, decarbonization of the power supply continues. Figure 2 measures the contribution of the Kaya components to cumulative changes in power sector emissions since 1970.5 It shows how changes in electricity intensity and the carbon content of the energy supply used to generate electricity started to reduce emissions in this sector.
Although long-term trends in the risk scores for the six Energy Use Intensity metrics are declining—except for household energy efficiency, which has been doing so for decades—risk scores for four of the metrics in this category increased in 2018. Transportation Sector metrics, however, continued to improve in 2018. It is much too soon to determine if the reversals in household energy efficiency, energy use per capita, energy intensity, and commercial energy efficiency scores indicate a trend or are just one-offs that occur from time to time. As mentioned earlier, EIA reports that the United States experienced a relatively high number of both heating and cooling degree days in 2018, which increased energy use, particularly for households. In the Transportation Sector, risks related to motor vehicle miles per gallon declined a healthy 5% in 2018, while those related to vehicle miles traveled intensity and petroleum fuel use declined only marginally. The long-term improvements in each of these metrics should proceed apace, supported by vehicle efficiency standards.
Record high and low risks scores tend to bunch at the beginning and end of the database. Of the 37 metrics, 12 had their highest risks scores from 1970 to 1973 while 16 had their highest risk scores from 2016 to 2018 (Table 3). Although the lowest total risk score for the entire United States was in 1994, only one metric had its lowest risk score in 1993 to 1995 period. Many risk scores around that time, especially those related to imports, expenditures, and price and volatility, were comparatively very low, if not at their record lows. Efficiency-related metrics were also much lower compared to previous years. The very low score in 2018 was driven by steep declines in fuel import metrics and expenditures that occurred against a backdrop of continued improvements in efficiency, transportation, and, more recently, environmental metrics. Indeed, 14 metrics, almost all related to efficiency and emissions, had their highest score among the first three years for the record, and their lowest score among the last three years. Growing domestic oil and natural gas production also has pushed down the risk score for the four import metrics, three of which had their lowest score within the last three years.
