Monday, December 5, 2011

Getting your Head on Straight re: DOD Energy Strategy and Planning in a Rapidly Changing World

In the earliest days of this blog one of my best sources for clarity was former International Energy Agency (IEA) senior analyst Sohbet Karbuz. This man knows more about the way global energy markets function, and more about the ways DOD participates in them, than perhaps anyone on the planet.

Well, I've come back to him recently to try and grok the significance of some of the reports you may have seen lately saying the US is about to become a net oil & gas exporter, and that large fossil energy firms are increasingly focusing their efforts on unconventional resources (e.g. fracking for nat gas, shale gasoline extraction) in North America and Australia.

Here's some clarity on the contents of a CNA's recently released report on US Energy Security. First of all, the report's authors seem to have gaps in their understanding of the way the global energy markets function. In particular, they ascribe imaginary powers to individual nations and orgs when they say things like:
We are held hostage to price fixing by a cartel that includes actors who would do our nation harm, and we are too often called upon to risk the lives of our sons and daughters to protect fragile oil supplies from this very cartel. 
and ...
OPEC can increase production and drive down gas prices, erasing market incentives for developing alternative fuels ... the price of gasoline at the pump can too easily be manipulated by suppliers.
This doesn't do much to bolster the credibility of those who wrote and reviewed the report. But the report also mixes misleading or mistaken statements like those above with others that are much more on target. Here's Karbuz's take:
None of those [above quoted] claims make any sense. I was thinking about writing a few paragraphs on how the world oil markets functions and how oil prices are set. But I see that a reasonably good answer to those wrong arguments comes again from the report itself: “oil is a global commodity, priced on the global market. No matter how much more we produce here in the U.S., we can’t control the price of oil.”
He's also got a lot to say on the reports recommendations, particularly on biofuels. 

There's much more to process, and by the time you've finished Karbuz's analysis (on his blog, HERE), you'll have a better feel for what's going on, and also better context in which to consider the implications for DOD of the continuously changing energy landscape.  Andy Bochman

1 comment:

Joe Walsh said...

Andy -- Interesting comments and thank you for the lead to Karbuz's blog post. What is notable - and reassuring - is that Mr. Karbuz's comments match up very closely with what I heard Sec Nav Mabus say at the Navy Energy Forum this fall, to paraphrase: even if we can derive more supply domestically from new sources or techniques, we are still reliant on a global commodity subject to all of the volatility implicit in that market"