U.S. CHAMBER OF COMMERCE

2012 Index of U.S. Energy Security Risk

2012 Index of U.S. Energy Security Risk

Highlights

The total U.S. energy security risk rose to a record high in 2011, and the trend for future risk looks worse than projected last year. Following the drop in risks measured in 2009 propelled in large part by the economic recession, 2011 marks the second year in a row of rising risk. The total risk score would have been higher still were it not for favorable trends in a few individual metrics, particularly those related to natural gas.

This 2012 edition of the Index incorporates the most current energy data, including the Energy Information Administration’s (EIA) Annual Energy Outlook 2012 (AEO 2012), to provide an up-to-date assessment of the trends having the greatest impact on energy security over the past year. The Index is based on a combination of 37 different energy security metrics covering the years 1970 to 2035. Highlights include the following:

Total energy security risk reached a record high in 2011. The U.S. energy security risk score jumped 3.8 points (3.9%) in 2011 to a record high 101.3 points. This is 17.1 points above the 30-year average. Based on last year’s forecast data, the total risk score in 2011 had been expected to dip slightly instead of rise. Higher than expected energy prices driven by a large price spike in crude oil prices and import expenditures and persistently high year-to-year price volatility were largely to blame. This is only the third year on record with a risk score of 100 or above (1980 and 2008 being the other two years).

As in 2010, increasing risks primarily were seen in measures related to higher energy prices, expenditures, and high volatility driven by sharply rising crude oil prices. Of the 37 Index metrics, 13 showed an increase in risk, 21 showed a decrease in risk, and three showed essentially no change in risk in 2011. While the number of metrics displaying rising risk scores was comparatively small, they generally had the largest numerical change in risk scores. The change in metrics with declining risk scores tended to be more moderate with the exception of natural gas imports.

Shale gas continues to improve the energy security picture of the country by increasing the security of natural gas supplies and putting downward pressure on energy costs and expenditures. The continued increase in natural gas production from shale caused the score for natural gas imports to plunge 31.3 points (24.6%) in 2011. Although the overall U.S. risk rose in 2011, the improvement in this metric alone shaved 0.4 points off of the increase. Moreover, cheap natural gas, along with continued use of coal, helped keep the lid on retail electricity prices. Increasing shale gas supplies resulting from improvements in natural gas extraction technologies have essentially uncoupled the prices of crude oil and natural gas in the United States. Continued growth in shale gas production can give the United States a tremendous competitive advantage for years to come.

The rise in overall risk was moderated by reduced natural gas imports, improvements in carbon dioxide emissions and the power sector, and steady, if modest, improvements in most energy efficiency measures. Mild weather and fuel switching from coal to natural gas in the power sector were largely responsible for a decline in risks related to carbon dioxide emissions. The trend toward increased capacity diversity and margins in the power sector noted last year continued into 2011. Productivity per mile traveled in the transportation sector improved in 2011, as did industrial energy efficiency. Both reflect continuation of longer-term trends.