A Safer World, Filled With Nukes

Can you stop the bomb's spread by making it easier to cut nuclear deals?

Is the best way to limit the spread of nuclear weapons actually to loosen restrictions on atomic energy deals around the world?

That's the counterintuitive policy prescription currently being debated by the Congress, the White House, the nuclear industry, and anti-proliferation activists. At stake is the U.S. role as a leading supplier of nuclear technology and components, and perhaps the Obama administration's stated goals of curbing the proliferation of nuclear weapons. The whole issue has taken on added urgency thanks to the nuclear talks with Iran, whose pursuit of nuclear technologies began, and purportedly continues today, under the guise of civilian uses.

The U.S. wants to promote the use of nuclear energy for power generation --it's the only large-scale way to generate electricity without emitting greenhouse gases -- and give a boost to the U.S. nuclear industry overseas. But it also wants to limit the risks of nuclear proliferation by, say, limiting the number of countries that can enrich uranium from the low levels needed for power generation to the higher levels needed for weapons.

To square that circle, Washington is hoping to sign (or renew) civilian nuclear cooperation deals with a spate of countries from South Korea to Saudi Arabia. For example, this week negotiators from the U.S. and South Korea sat down to try to bridge the gap dividing what Seoul wants and what Washington is prepared to offer, in order to renew a nuclear power accord that dates back to 1972. They'll try again in April.

Those deals, known as 123 accords after the section of the 1954 Atomic Energy Act that made them possible, usually come loaded with a host of restrictions on what the recipient country can and cannot do with American-made nuclear technology and materials. Talks to renew the deal with South Korea, for example, are hung up over the question of uranium enrichment: Seoul wants advance consent from the U.S. to enrich nuclear fuel, to bolster its own nuclear-export industry; Washington doesn't want another country enriching uranium, even a close ally, and especially when it still aims for the denuclearization of the Korean peninsula.

And that's the rub. When American nuclear technology was the only game in town, Washington could ladle all sorts of restrictions on deals with other countries and still win business. But America isn't any longer the dominant supplier in the nuclear business, as it was in the Eisenhower years. France, Russia, China, and South Korea are all becoming suppliers of choice -- without so many strings attached. (Meanwhile, international sales of U.S. reactors and nuclear components amounted to a relatively-measly $1.4 billion from 2009 to 2012.) Amid the global rush to build nuclear reactors, plenty of folks in Washington are worried -- not about another Fukushima-style meltdown, but rather out of concern that nuclear energy proliferation can lead to nuclear weapons proliferation.

"Everybody is getting access to nuclear materials, is coming within arms' reach of weapons. Is that what we want?" asks Victor Gilinsky, a former commissioner on the Nuclear Regulatory Commission and now a nuclear consultant.

Reps. Ileana Ros-Lehtinen (R-FL) and Brad Sherman (D-CA) re-introduced legislation in December that would increase congressional oversight of U.S. nuclear deals abroad and build in non-proliferation clauses into future agreements, such as a ban on uranium enrichment in recipient countries. "This legislation will encourage the adoption of strong nonproliferation provisions in our nuclear cooperation agreements and encourage governments to forgo the most dangerous technologies," said Sherman when it was introduced.

Supporters of the legislation say it's important because U.S. nuclear diplomacy goes far beyond merely helping other countries generate more electricity.

"These nuclear accords are serious agreements with enormous knock-on effects down the line. People used to think it was just about boiling water, but we know better now -- Iran has taught us that," Henry Sokolski, a leading anti-proliferation advocate and executive director of the Nonproliferation Policy Education Center, told Foreign Policy.

Predictably, the proposed legislation has the U.S. nuclear industry up in arms. The industry maintains that U.S. nuclear suppliers must be able to compete with other countries that put few restrictions on potential buyers, such as Russia's state-owned Rosatom, which is building nearly a score of reactors around the world.

Further, the nuclear industry contends that placing restrictions on what third countries can do with U.S.-provided nuclear materials and technology is actually counter-productive to non-proliferation goals, because it pushes American best practices and culture to the sidelines.

"U.S. nuclear trade policy is still stuck back in this 1980s-style vision of the world," Carol Berrigan, a senior director at industry trade group Nuclear Energy Institute, told FP. "The U.S. is definitely still very competitive in the global market, but we really are to a certain extent hamstrung, and if things continue the way they look to be going with congressional oversight, we'll continue to be put at an increasingly more significant disadvantage."

"If you look at how we influence non-proliferation globally, it's been largely through commercial engagement," she added.

"We would argue that you transfer your safety and non-proliferation culture with your technology. Is the world a safer place with U.S. safety features and culture?" added Paul Genoa, another NEI director.

Caught in the middle has been the White House, which has been trying to strike a balance between promoting nuclear power and non-proliferation for years. In 2009, the U.S. reached a commercial nuclear deal with the United Arab Emirates, in which the Gulf nation foreswore enriching uranium for nuclear fuel. Tabbed the "gold standard" of nuclear pacts, the agreement became, in the eyes of non-proliferation advocates, the model for future deals with other countries.

Except that it didn't. Not all countries are prepared to permanently waive rights, such as the ability to enrich uranium, that are enshrined in the nuclear Non-Proliferation Treaty. South Korea, for instance, wants the right to enrich U.S.-supplied uranium as part of the renewal of its own nuclear deal. Jordan, which rebuffed a deal with the U.S., has dreams of becoming a regional nuclear fuel supplier. And Vietnam would only make non-binding political commitments regarding enrichment in its own nuclear accord with the U.S., inking a deal with Russia and Japan, in the meantime, to build its first reactors.

The Obama administration has moved away from the idea of a "gold standard," if one ever actually existed, and is now embracing civilian nuclear deals on a case-by-case basis. Administration officials say that flexibility is the best way to make sure that the U.S. can compete with foreign suppliers, and that U.S. nuclear know-how and culture stay prominent in the market.

"High standards of non-proliferation are achieved when we have a robust nuclear export industry, and our nuclear export industry is robust when we have strong non-proliferation technologies," a senior administration official told FP.

"Other countries don't have those stringent requirements, so we need to make sure that we don't have countries choosing the low road just because it's easier for them."



Should America Start Exporting Oil?

Energy execs and a powerful senator say it's time -- even though the U.S. still doesn't drill enough to supply itself.

Washington, long accustomed to hoarding America's energy imports, is now starting to debate the once-unthinkable: whether to start exporting crude oil from the United States. The political debate, which kicks off in earnest Tuesday with a speech and paper by Alaska's Republican senator, Lisa Murkowski, shows just how far the U.S. energy revolution has transformed generation-old ideas about energy security and the country's vulnerability.       

Exporting oil is banned by U.S. law. But Sen. Murkowski will try to make the case for why the U.S. needs to take a fresh look at the prohibition, and why exporting crude oil might make sense for a country that is still, and will apparently always be, a net importer of the stuff.

The pro-export bandwagon has plenty of supporters: oil companies, free traders, a spate of energy analysts, and the edit pages of the Washington Post and Chicago Tribune. Jack Gerard, the chief executive of the American Petroleum Institute, the oil lobby, is expected to repeat his group's call for an end to antiquated export rules in a wide-ranging speech on Tuesday. Energy Secretary Ernest Moniz has said it's worth revisiting the ban, too.

"Murkowski and Moniz are looking to put the issue on the table, and Murkowski is signaling that the GOP is ready to talk about this," said Skip York, an analyst at Wood MacKenzie, an oil and gas consultancy.

Generally speaking, proponents figure crude exports will lead to higher domestic production, lower prices for consumers, and a healthier trade balance.

But there's plenty of opposition to the idea as well, most notably from Democratic lawmakers such as Ed Markey and Robert Menendez, who say shipping U.S. oil overseas will hurt consumers by raising the price of oil and gasoline, no small matter in an election year.

"The calls to overturn decades of U.S. law to permit the export of American crude oil are about boosting the oil industry's profits at the expense of our energy security and our consumers," Sen. Ed Markey (D- MA) told Foreign Policy. "With the U.S. still getting nearly half of the oil it imports every day from OPEC, we should ensure that the oil we produce here stays here to reduce our dependence on unstable regions and protect consumers and our economy."

With a few exceptions, the United States has banned exports of crude oil since the energy traumas of the early 1970s, particularly the Arab oil embargo that underscored just how vulnerable the American economy is to supply shocks and volatile oil prices. Ever since, the export ban has been apparently irrelevant: U.S. dependence on imported oil kept rising as production plummeted, reaching a nadir in 2005 when the United States imported three out of every five barrels of oil it consumed.

But then the hydraulic fracturing revolution took the United States, and the world, by storm. Fracking unleashed huge amounts of natural gas, in turn setting the United States on the path to become a net gas exporter. At the same time, it made the United States into an oil-pumping powerhouse again.

Crude-oil output rose from about 5 million barrels a day five years ago to nearly 8 million barrels a day now. In 2012, U.S. oil-production growth topped the world. The Energy Information Administration just revised upward its outlook for crude production, and expects the United States to flirt with 10 million barrels a day by 2019.

Still, despite the fracking boom, the United States is far from self-sufficient in oil. It still imports around 10 million barrels a day, more in absolute and relative terms than it did at the time of the OPEC embargo. And plenty of energy experts, including in the U.S. government, expect crude production to taper off after that 2019 peak.

So why are crude exports even on the table?

In a way, it's because oil exports are already sneaking out the back door, in the form of refined products such as diesel fuel, gasoline, and petroleum coke. The United States now exports about 3 million barrels of refined products a day -- making the country a net exporter of the petroleum products, if not of oil itself. The hodgepodge of laws and regulations governing energy exports never banned the sale of finished goods, just the raw material. So part of the U.S. energy bonanza is finding its way overseas anyway.

As Sarah Ladislaw of the Center for Strategic and International Studies wrote recently, U.S. energy exports seem to be guided by "molecule laws," where hydrocarbons are treated differently depending on their molecular makeup.

Allowing exports of crude oil, proponents say, will help boost domestic production and enable a more efficient use of energy resources. Refineries on the U.S. Gulf Coast are optimized to process heavy, sour crudes, such as those that come from Canada, Mexico, Venezuela, and parts of the Middle East. The fracking boom, meanwhile, has unleashed torrents of light, sweet crude that could better be refined elsewhere -- but can't, because of the export ban.

Since there is a glut of domestic production in the center of the country, and a dearth of ways to ship it exactly where it's needed, U.S. oil prices trade well below the global benchmark price. Over the last year, the spread between U.S. West Texas Intermediate crude and London-traded Brent crude has reached $23 a barrel; right now, it's around $13 a barrel.

That's good news for Midwestern refiners, who can buy cheaper crude and then make gasoline and other products. But it doesn't do much for consumers, who still buy gasoline derived from the higher, global price. And it doesn't help U.S. oil producers, who get less money per barrel than their international peers.

"In terms of the U.S. consumer, there is no perceivable benefit from a ban on exports. To the degree there is a benefit in the market, it's to refiners who have access to cheaper crude, not necessarily to U.S. consumers," said Ed Morse, oil analyst with Citigroup in New York.

Echoing the debate that has taken place in the last couple of years over U.S. exports of natural gas, opponents of crude-oil exports worry that shipping relatively cheap U.S. fuel abroad will lead to higher prices at home.

Sen. Robert Menendez (D-NJ) warned President Barack Obama about the impact of exports on prices at the pump in a letter in December.

"Why would we want to export oil and raise American oil prices to match the world's oil price? Crude oil that is produced in the U.S. should be used to lower prices here at home, not sent to the other side of the world," he wrote.

Supporters of oil exports argue that free trade would actually lower prices.

"If exports of crude are allowed, it should have a damping effect on global prices, and a damping effect on gasoline prices. So ironically, you could move to a lower price gasoline environment by allowing crude exports," said Citigroup's Ed Morse.

Just as with exports of natural gas, supporters also point to the potential trade dividends. If the United States can eventually export 500,000 barrels a day -- and it already ships 100,000 barrels a day to Canada, one of the rare exceptions allowed under current rules -- that would be worth more than $16 billion a year at current prices.

Given that crude exports would help the trade balance and, by ensuring more domestic production, boost job creation as well, Wood MacKenzie's York thinks the White House could support easing the ban, despite the tricky politics.

It's still unclear yet whether there's enough momentum in Washington to end the ban on oil exports, and the physical glut in the Midwest may not max out until next year. But the very fact that top policymakers, including one of the leading energy voices in Congress, are taking a fresh look at the wisdom of restricting trade in a crucial global commodity speaks volumes about just how far America's energy revolution has already gone.

Win McNamee/Getty Images