Mad Libs: The Geopolitics of Energy

What does the U.S. oil and gas boom mean for international energy markets and climate change initiatives? We asked top experts, and here's what they told us.

THE UNITED STATES WILL BECOME ENERGY INDEPENDENT WHEN… Major technological innovations occur in extracting oil from unconventional sources. —Jerry Taylor • We decide to take full advantage of our natural gas resource. —Gary Lash • (And if) hydrogen fuel cells are perfected. —Terry Engelder • Cars sold in the U.S. are no longer shut to competing fuels like methanol. —Gal Luft • Gasoline is expensive enough or taxed enough to spur deep changes in energy use. —Valérie Marcel • We take the urgency of climate change seriously and slash our oil use and carbon emissions. —Frances Beinecke • We give serious options to consumers to use different and cleaner forms of energy and fuels, and to get out of their cars and walk, bike, or take transit. —Kate Gordon • Integration of the global economy is reversed and energy no longer plays an important role in supporting economic growth. —Gregory NemetPigs fly. We are like the 500-pound man who, having lost 5 pounds, wants to know when he'll reach the same weight as Brad Pitt. —Michael Ross • Never. And would be a terrible idea. —David Victor • The sun ceases to shine. —John DeCicco

OPEC IS Not nearly as powerful as most Americans -- at least those who were old enough to read newspapers in the 1970s -- tend to believe. —Michael Ross • In serious trouble due to the increasing discoveries of unconventional oil and natural gas supplies. —Kenneth GreenFacing major emerging challenges -- shale oil, Iraq, falling OECD demand -- whose impact it as yet only grasps dimly. —Robin Mills • Increasingly beset with divisions from their member governments. —Terry Karl • A cartel in name only. —Robert Pindyck • An easy scapegoat to blame for high oil prices. —Christopher Knittel • An ineffective cartel that rides the wave of prices up and down and is unable to protect the long-term interests of its members. —Edward Chow • Still a powerful cartel that largely sets world oil prices through production expansions and contractions. —Daniel J. Weiss • A cartel that owns 80 percent of the world's conventional oil reserves yet produces only a third of the world's supply. —Gal Luft • Not going to pump that much more oil. Well, maybe Iraq is. —Steven Kopits • In trouble over the long haul. —David Victor • Declining in influence. —John Graham • Quickly becoming extraneous. —Gary Lash • Doing what cartels have done throughout history: hoping their customers cannot break their addiction. —Jay Apt


THE ENERGY SOURCE THE WORLD SHOULD RELY MORE ON IS Natural gas. —John Graham, Steven Kopits, Robin Mills, Donald Paul ("It's plentiful, it's versatile, and its use can be made quite clean."), Mark Thurber • Nuclear power. —Giacomo Luciani, Gal Luft, Jacques Percebois • Batteries. Energy storage is the holy grail in terms of enabling other big, important technologies and cleaning up the Earth. —Steve LeVine • Solar. —Reyer Gerlagh, Andrew Light, Daniel J. Weiss • First, conservation (which pays for itself many times over) and then renewables, which can power our lives without undermining our future. —Bill McKibben • Conservation. —Edward Chow • Efficiency (doing the same with less energy), not conservation (doing less). —Jay Apt • Efficiency. The most cost-effective energy strategy is reduced demand. —Daniel Esty • Markets. —Jerry Taylor • Ingenuity. What really matters is efforts on both supply and demand, and pretty much all progress on those fronts is coming from new ideas. —David Victor

CAP-AND-TRADE IS Just one approach to putting a necessary price on carbon that reflects its social and environmental costs. —Kate Gordon • A nice idea. —David Victor • A catastrophic failure and a bad idea to begin with. —Giacomo Luciani • Not as good as a carbon tax. —Eckart Woertz • A much more efficient way to reduce energy consumption and greenhouse gas emissions than the current set of policies we rely on. —Christopher Knittel • An effective Republican idea that has sadly been smeared and abandoned as a tool to reduce industrial carbon pollution by Republican leaders. —Daniel J. Weiss • A terrible idea and a dead-end energy policy. —Jonathan Adler • A good concept in theory but will probably do little to curb pollution on a global scale. —Gary Lash • An acceptable, but not ideal, substitute for more direct Pigovian taxation of carbon. —Ramteen Sioshansi • The best instrument to reduce emissions, given that policymakers have so often told the people that taxes are bad. —Reyer Gerlagh • Not a four-letter word! —John DeCicco • A scheme that allows smart people to make a lot of money from futile trading in carbon dioxide molecules under the false promise that it will cool the planet. —Gal Luft • Happening around the world, from Europe to California, Korea, Australia, and others. —Daniel Sperling • Not going to happen in the United States. —Jerry Taylor • Dead dead dead. —Steve LeVine

THE ELECTRIC CAR IS Promising. —Jacques Percebois • Overhyped. —David Victor • Not the panacea it's made out to be. —Michael Ross • Far from being as green as most people believe. —Gary Lash • A very exciting possible alternative, especially if the energy mix powering it is diversified beyond coal and natural gas.Kate Gordon • Going to be the next big thing the moment it is cost-effective. —Ariel Cohen • A nice idea, but not yet ready for prime time. —Jonathan Adler • Probably less important than advertised in the near term and possibly far more important than expected in the longer term. —Gregory Nemet • The best hope of reducing U.S. oil consumption. —Wilfrid Kohl • Too expensive, too unreliable, too limited a range, and too much trouble to charge the batteries. —Robert Pindyck • Better suited for Europe, as the U.S. average mileage is so high. —Eckart Woertz • The technology that opens the door for solar, wind, and nuclear power to compete with petroleum products in the transportation fuel market. —Gal Luft • A nice fantasy until there is a major breakthrough in battery or other storage technology. —Edward Chow • Still far from providing a meaningful alternative to the internal combustion engine. —Ronald Ripple • Unlikely to be anything more than a vehicle for wealthy eco-conscious consumers and hobbyists. —Kenneth Green • Either ugly and affordable (Nissan Leaf) or beautiful and not affordable (Tesla). I want to have my cake and eat it too. —Maximilian Auffhammer • Here to stay. —Daniel J. Weiss • Still far off. —John Graham


How Is Energy Remaking the World?

To navigate the complicated new politics of oil and gas, FP asked the author of The Quest and leading U.S. energy historian to help shape our latest survey -- and guide us through the results.

The outlook for the U.S. energy supply is very different from what it was just four years ago, the last time oil prices were going up -- and the last time Americans were electing a president. Back then, it seemed the only questions were how fast oil imports would continue to rise and whether the United States was destined to import increasing amounts of natural gas. But the years since have seen an astonishing revival in U.S. oil and gas production, and with it a change in the national conversation about energy. In the presidential campaign ahead, the debate over America's energy policy is likely to be very different from years past.

The FP Survey on energy, which sounded the views of 57 experts, demonstrates just how much the debate is already changing. "Energy independence," a chimera invoked by every U.S. president since 1973, has now become a serious subject for discussion. But nearly two-thirds of FP's respondents do not think that the United States will be energy independent or that independence is a sensible goal in the first place. As one wrote, "Unless the United States wishes to adopt the economic policies of the former Soviet Union, the U.S. economy will always be linked to global markets for oil."

Even without energy independence, the growth in the North American supply will have enormous geopolitical ramifications -- not necessarily immediately, but over time -- according to the respondents. The top three consequences they listed are "less U.S. reliance on and influence in the Middle East," "diminished U.S. interest in combating climate change," and "less European reliance on Russian gas" (presumably because of newly tapped supplies of shale gas).

Another major story is the changing picture of global demand. Oil consumption may be destined to continue to rise in emerging markets, but not in the traditional major consumers. U.S. oil demand, in fact, is down about 10 percent since 2005. Simply put, the United States and other developed countries have hit "peak demand." An overwhelming share of respondents are convinced this is mainly a lasting structural change -- the product of more efficient automobiles and shifting demographics -- though, as one noted, it is "exacerbated by recession."

Over the past few years, governments have heavily promoted renewable energy sources such as solar and wind. The FP Survey respondents believe renewables will grow dramatically as a percentage of U.S. energy consumption -- nearly tripling by 2030. Wind energy alone will grow fivefold, they suggest, while solar energy will grow an astonishing 30-fold. But renewables are still growing from a very small base. Thus, by 2030, the respondents estimate, oil, natural gas, and coal will still account for 69 percent of U.S. energy, compared with 82 percent in 2011. Natural gas will gain markets, while coal will experience the steepest relative drop in market share.

How does the United States fit into the global picture? After all, the real growth in consumption is taking place in emerging markets. China already consumes more energy (not to be confused with just oil) than the United States. In the conclusion to The Quest, I offer a view of the future that comes in two parts. First, based on what is known and can be foreseen today, global energy demand will increase about 35 percent over the next two decades. Second, while renewables will grow in absolute terms, so will conventional energy, owing to the continuing surge in coal, oil, and natural gas consumption in emerging markets like China. Thus, on a worldwide basis, the mix in energy demand will not be too different from what it is today. The real changes in the composition will come after 2030.

Foreign Policy put that view to the respondents, and more than three-quarters agreed. But some highlight the uncertainty: "It totally depends on global action on climate," one said. Another wrote, "Agree on total demand but disagree on the mix. I think total hydrocarbon demand will be lower."

Shale gas, in terms of its impact, may well be the biggest innovation in energy supply in the last two decades. Although initially cheered by many environmentalists as providing more of an alternative to coal, it has become controversial because of questions about how it is produced. Yet it is already 37 percent of U.S. natural gas production, up from just 2 percent at the beginning of the last decade, and virtually all respondents expect it to continue to increase. The question is by how much. The top shale gas environmental issue, by far, is considered to be water impacts, followed by methane leakage, according to respondents. But nearly three-quarters are convinced environmental issues can be managed "so that shale gas production can continue on its growth track."

"Peak oil" may have been a very hot topic back in 2008. But not today. Fully 85 percent of respondents reject the notion that world oil supply is about to decline. Implied in that answer, however, is that unconventional "liquids," such as Canadian oil sands and liquids found with natural gas, will be an increasing share of supply.

Who will be the future heavyweight champs when it comes to world oil? Three-quarters of respondents believe the top producer a decade from now will be Saudi Arabia. But 18 percent cast their vote for Russia, and a few even for the United States. The top consumer? Most think that America will remain No. 1, but more than a third predict that by 2025 China will have outstripped the United States.

The surge in Chinese demand and the much-increased visibility of Chinese oil companies around the world have generated a new specter: the possibility of a geopolitical competition and even a clash between the United States and China over access to oil. Yet the heat around that question seemed much greater a few years ago, when peak oil was a more prominent concern than it is today. That shift is borne out in the survey. Three-quarters think access to oil will primarily be "a commercial matter" between the United States and China. But there are certainly dissenters. "Whether directly or indirectly," one said, "access to oil will be the main source of tension in Sino-American relations."

Oil prices have a habit of surprising. After all, they do not exist in a vacuum but are the product of economic growth, political development, and technology. Still, 55 percent believe that, five years from now, prices will be between $100 and $150 a barrel -- around or not too much above where they are today. But notably, 22 percent think prices could be under $100, while only one respondent said they could be above $175. Sixteen percent answered, "Who knows?" Said one, "I would be rich if I could predict this."

Forecasting oil prices is a fraught business, even for experts. But on one thing the majority agree: What happens with Iran, from sanctions on its oil exports to the possibility of conflict if its nuclear negotiations with major world powers fail, will have a big impact, given that the country has been a major exporter, at around 2.2 million barrels per day. Still, other factors could mute the impact of an Iran-related price spike, particularly the big increase in Saudi production and Europe's weak economy. In terms of security of supply, one area is at the top of the list of concerns: 70 percent say that "the impact of a potential oil supply disruption" in some part of the Middle East is what "keeps me up at night." (Twenty-three percent demurred, with one putting it this way: "I sleep well.")

This is a U.S. election year, of course, and energy will likely be one of the major issues. On a scale of 1 to 10, 10 being worst, the respondents gave President Barack Obama what averaged out to a 5.8, with the biggest cluster around 7 and 8. Climate change, in various forms, was identified as America's No. 1 energy problem, and many likewise think the Obama administration's "biggest mistake on energy issues so far" is "not enough attention to climate change." Agreeing with Mitt Romney, 56 percent support the proposed Keystone XL pipeline, which Obama has rejected for now, while 31 percent oppose it and 13 percent are not committed. At the top of the "biggest success" list for the Obama administration are "new fuel-economy standards" for automobiles and "a measured approach to natural gas drilling."

Overall, the survey makes one thing very clear. For years, the prospects of an "energy transition" away from conventional energy and toward new alternatives have been much debated. Whatever the timing for any transition, the FP Survey demonstrates that a transition in energy thinking is certainly at hand.

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