U.S. CHAMBER OF COMMERCE

2012 Index of U.S. Energy Security Risk

2012 Index of U.S. Energy Security Risk

Not so long ago, rising levels of natural gas imports led many observers to conclude that the U.S. was going down the same path with natural gas it had trod with crude oil. Since 2007, that has no longer been the case. Indeed, the downward trend in projected natural gas imports is an important and positive development that was not foreseen just a few years ago.

This is seen in the metric for security of natural gas imports, which combines two different components: (1) the share of U.S. natural gas supply met by imports; and (2) a freedom and diversity adjusted measure of foreign natural gas supplies. The resulting index indicates the degree to which changes in import levels expose the U.S. to potentially unreliable or concentrated supplies of natural gas.

The historical trend for this metric was until 2008 clearly in the direction of rising risks and was driven by growing imports of natural gas. Recently, however, the combined use of horizontal drilling and hydraulic fracturing has allowing producers to tap profitably into domestic shale formations holding very large quantities of natural gas. As a result, since 2007, the risk score for this metric has plummeted 91.3 points, from 186.9 to 95.6.

Greater production of shale gas also promises much lower future risks for this metric than would have been the case looking at projections of just a few years ago, when shale gas production was in its infancy. For example, EIA’s AEO 2006 forecast that by 2030, imported natural gas—much of it in the form of liquefied natural gas—would account for 21% of U.S. supply. In its AEO 2012, EIA forecasts that by 2022 the U.S. will become a net exporter of natural gas. Our ability to realize these gains in security will depend on the ability of companies to explore and develop these shale gas resources and build the infrastructure necessary to move these new supplies.

Like crude oil and natural gas, coal reserves are highly concentrated geographically. In 2008, the last year for which data are available, the 10 countries with the largest coal reserves held 879 billion short tons, about 93% of the world total.

The United States had 261 billion short tons the largest recoverable reserves of any country in the world—more than one-quarter of global supplies. The U.S. has very secure coal supplies, with enough reserves to last well over centuries. Federal regulations targeting coal and lower natural gas prices are expected to reduce domestic demand for coal. Many U.S. companies, therefore, are increasing their exports. The AEO 2012 forecast suggests that coal exports in 2035 could be more than 180% greater than projected in the AEO 2011. Growing U.S. coal exports will continue improve the security of worldwide coal supplies.