PSC 2224 Final: Energy Policy Notes
Energy Policy
Conventional fuel is scarce - oil discoveries lowest since 1947
Saudi Arabia & Canada have biggest oil reserves (map from 2005)
As income is expected to decline, electricity consumption is expected to decline
“There are more jobs in solar than oil and gas, coal extraction in US”
19th century sources of energy
-whale oil (not very efficient, also a luxury, never used by the masses… kind of energy
in general at this point tho)
-petroleum in the US
-coal in the UK
Petroleum & oil — talking about fuel for automobiles and airplanes, not talking about
electricity
Oil wells
-home of oil industry is in Pennsylvania
-some wells that were dug in 19th century
-long been overtaken by Texas, but new tech (shale oil) causing a resurgence
British coal industry
-recent event: several months ago, Britain produced all its electricity without coal for one
day
-employment in UK coal mines // peak production in 1920s and 30s
Early post WW2 oil supply
-most oil before ww2 came from US domestic production in Pennsylvania and Texas
-After ww2, US oil companies established connections with Saudi Arabia and other
Middle Eastern countries via purchase agreements
-Why?
-US economy began to grow, population began to grow, income per capita,
GDP etc
-thus US demand for energy increased relative to pre WW2 period
-The UK had a joint agreement with Iran
The Majors, “Seven Sisters”
-Anglo-Persian Oil Company (now BP)
-Gulf Oil, Standard Oil of California, and Texaco (now Chevron)
-Royal Dutch Shell
-Standard Oil of NJ and Standard Oil of NY (now Exxon Mobil)
-before 1973, “controlled” 85% of world’s oil reserves
-only had control bc of agreements made, not because they owned the reserves or
land
US foreign relations with oil-rich countries
-US support for monarchs in Saudi Arabia, Iran, and Libya
-Tensions arose because of US support for Israel during Middle East crises
-Suez Crisis (1956)
Coordination by oil-rich countries (refer to blackboard slides for full notes)
-1945-60: Majors would only purchase oil at prices they specified to the oil-exporting
countries
-Saudi Arabia and Venezuela propose a “coordination commission”: for oil-producing
countries to set sales price demands from the Majors. (to avoid a competitive race to
the bottom that would be disadvantageous for all)
-1960: Kuwait, Iraq, Iran, Venezuela, and Saudi Arabia form OPEC
-1960-73: More countries join — Libya, Qatar, Indonesia, UAE, Algeria, and Nigeria
-Early 1970s: OPEC countries begin to push for higher prices from the Majors
Asymmetric interdependence
-vulnerability to disruption in supply
-oil is one of only commodities (ex: gold) in the world that has a global market, cost
less on speculation than true supply & demand
-Potential for political leverage with threats to disrupt supply — form of political
extortion//coercion
-Example: Nazi Germany trade relations with neighboring eastern countries in the
1930s
The 1973 Arab Oil Embargo
-Yom Kippur War (October 1973)
-Arab countries attempt to pressure US and other Western governments to change
policies toward Israel
-US refuses to change policy, but other countries do withdraw support for Israel at the
UN
-US continues to resupply Israel during the war
Western response to the embargo
-Formation of International Energy Agency in 1974 to counter OPEC
-European countries rely on domestic supply and new technologies (including nuclear
power)
-France recently used nuclear power plants for half of its electricity generation
-US invests in synthetic fuels and nuclear power, and promotes energy efficiency
-Congressional legislation to regulate electric utilities, energy conservation, and
special taxes for inefficient vehicles
-US Department of Energy is established as a Cabinet-level appointment in 1977
-DoE basically an R&D funding method for fuel, also nuclear weapons
-Car fuel emissions standards adopted (i.e., CAFE standards) in 1975
Investments in alternative fuel sources
-Synthetic Fuels Corporation established in 1980 to finance the development and
construction of commercial synthetic fuels
-converting coal to natural gas
-abolished in 1985 after failing to make a self-sustaining synthetic fuel supply
-Production Tax Credit (1992)
-Investment Tax Credit (2006)
-Recovery and Reinvestment Act (2009)
1979 Arab Oil Crisis
-Iranian revolution and Iran-Iraq War caused regional instability
-Disruption in supply raised oil prices to $40/bbl
-Contributed to “stagflation” in the United States
-inflation with recession
Change in US energy portfolio
-Low oil prices during 1960s, combined with smog concerns, spur new additions to
petroleum-fired capacity
-Oil price shocks during 1970s lead to increased utilization of coal-fired capacity for
caseload generation
-Rapidly rising oil prices lead many generators to switch oil-fired peaking capacity to
natural gas
-Historically low natural gas prices lead to increased utilization of combined cycle plants
at expense of coal units
“What happened to the coal industry” Natural gas — cheap natural gas
Electric reliability (instead of energy security)
-Security of electric supply must be guaranteed
-“Blackouts” or “brownouts” are not considered acceptable options
-price caps exist, but basically price of electricity to keep it guaranteed is “infinity”
-Electric supply must follow instantaneous changes in electric demand
-Problem: how to provide reasonably priced electricity for all demand conditions?
-net load: electric demand minus renewables
US institutional responses to electric reliability needs
-North American Electric Reliability Corporation (NERC), established in 2006
-NERC issues reliability standards for electric generators and companies
-States have their own integrated resource plans” to ensure reliability
-Some parts of the country have “capacity markets” to ensure electric supply is available
Document Summary
Conventional fuel is scarce - oil discoveries lowest since 1947. Saudi arabia & canada have biggest oil reserves (map from 2005) As income is expected to decline, electricity consumption is expected to decline. There are more jobs in solar than oil and gas, coal extraction in us . Whale oil (not very ef cient, also a luxury, never used by the masses kind of energy in general at this point tho) Petroleum & oil talking about fuel for automobiles and airplanes, not talking about electricity. Some wells that were dug in 19th century. Long been overtaken by texas, but new tech (shale oil) causing a resurgence. Recent event: several months ago, britain produced all its electricity without coal for one day. Employment in uk coal mines // peak production in 1920s and 30s. Most oil before ww2 came from us domestic production in pennsylvania and texas. After ww2, us oil companies established connections with saudi arabia and other.
