U.S. Energy Security Improves
America’s energy security is at its strongest point in two decades, according to the latest edition of the Energy Institute’s Index of Index of U.S. Energy Security Risk. This 2016 edition of the Index, the seventh in the series, provides an updated look at U.S. energy security incorporating the most recent historical data and updated forecasts. The Index employs 37 different measures of energy security risk and covers the period from 1970 to 2040. Like a golf scorecard, a low Index score is better than a high Index score.
Total energy security risk in 2015 fell for the fourth year in a row, dropping 3.1 points (3.8%) to 78, its lowest level since 1996. This decline follows a 6.3 point drop in risk in 2014 and a 4.3 point drop in 2013, and 9.5 drop in 2012. This represents a total decline in risk of 23.2 points over the last four years. The 2016 score dipped 7.0% below the 30-year (1970-1999) average. Like in the preceding couple of years, the unconventional oil and natural gas boom in the United States has increased supply security and reduced net imports, all of which to contributed to lower energy security risk.
To explain this good news, one need look no further than the application of hydraulic fracturing, horizontal drilling, and advanced seismic imaging throughout the country’s vast shale formations. The rapid increase in domestic oil and natural gas production has lowered energy imports and expenditures for those imports and put downward pressure on prices. Despite slumping prices, domestic crude oil output still increased by more than seven percent in 2015, off the pace of previous years but still quite good. Natural gas production achieved a record high, with a five percent increase in 2015. Continued improvements in energy efficiency also have contributed to the lowering of energy security risks that we’ve seen over the past few years.
It’s not all good news, though. Crude oil price volatility rose significantly, driven by the desire of Saudi Arabia to capture greater market share by driving down sharply the price of crude oil. Rapid shifts in prices in either direction—volatility—can create unstable market conditions that increase energy security risks. One thing we’ve learned recently, however, is that America’s energy entrepreneurs are up to the challenge and will maintain high levels of output that should help keep prices from rising too much. As prices firm up, we can expect that U.S. producers will continue to do what they do best—innovate.
The Index of U.S. Energy Security Risk is available at energyxxi.org