A sharp deviation in oil prices combined with a drop in demand in some parts of the world “certainly has a revenue impact on all producer nations, not only on the ones supplying the economically depressed region,” according to a 2012 International Studies Perspectives article on Global Energy Security. “The 1998 price drop in oil, for instance, was partly triggered by a regional economic depression in Asia, but eventually translated into globally depressed crude prices.”

Relying on viable alternatives to imported foreign oil, such as natural gas or shale oil from the formations in Texas and North Dakota, may help secure U.S. energy supply, but it will not lead to true energy independence.

“The worldwide market for oil makes it almost impossible for a large country like the United States to gain independence, or separation, from that market,” according to a 2012 U.S. Congressional Budget Office report on energy security. Incidents anywhere in the world could cause oil prices to spike, and regardless of how much energy and oil we produce domestically, we’ll still pay the price.

U.S. oil production is on the rise. The U.S. Energy Information Agency predicts steadily rising global oil production through 2035, according to the National Intelligence Council’s most recent Global Trends report. Much of that oil production, the report suggests, will come come from unconventional oil and gas development in North America. “Shale oil production in the U.S. is still in its early stages, and its full potential remains uncertain,” according to the report. “Preliminary estimates for 2020 range from 5-15 million barrels per day.” That’s up to twice as much as the approximately 5.7 million barrels per day produced in 2011 (EIA).

However, even if the United States becomes a net exporter of oil, like Canada, Americans still would be vulnerable to fluctuations and price shocks in the global oil market.

“America faces a series of significant challenges regarding how we produce energy over the next several decades. Our current energy system undermines our national security, is economically unstable, and environmentally unsustainable,” — American Security Project’s Andrew Holland, American Security Quarterly, 2012

The Department of Energy defines energy security as the assured availability of energy at an affordable cost. The Congressional Budget Office defines it as the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets. U.S. officials recognize the immense importance of achieving energy security strategy, but a rapidly changing global landscape and dynamic variables like climate and economics hamper real-time changes.

Complicating matters further, the U.S. government is not the only party involved – in fact, it some cases, when it comes to energy and especially oil, its not even the main player. “In the United States, decisions about how much oil to import are made not by the government, but by private firms that extract, refine, and sell products made from oil—for example, gasoline, diesel, and jet fuel—to households and businesses,” according to a 2012 report by the U.S. Congressional Budget Office.

The increase in U.S. imports from Canada results in large part from the development of sophisticated technology that allows companies to extract oil from Canada’s tar sands.

“The United States regards secure oil supplies as part of its interest and mission,” the report continues, “and therefore includes global oil transit in its force planning.”

More simply put, the U.S. military could theoretically ensure a steady supply of oil by protecting oil flows closer to home – from Canada, Mexico, South America, the North Sea and Africa. But the United States also must consider the health of the overall global economic system. A massive shortfall of oil elsewhere in the world would not only affect the price of oil everywhere, but would also almost certainly undermine the global economic system.

Furthermore, the U.S. military relies on assured access to oil, and it isn’t inexpensive. “In addition to buying the fuel, the U.S devotes enormous resources to ensure the military receives the fuel it needs to operate,” according to a report on energy and risks to national security by Alexandria, VA-based CNA Solutions. “A large component of the logistics planning and resources are devoted to buying, operating, training, and maintaining logistics assets for delivering fuel to the battlefield—and these delivery costs exceed the cost of buying the commodity.”

Cornell University energy experts Danielle Cohen and Jonathan Kirshner caution against interpreting this shift as a race for oil. Cohen and Kirshner attribute the outcry to “the cult of energy insecurity” — the belief that U.S. national security requires foreign policy measures to assure access to energy. The scholars instead argue that pricing plays the dominant role in dictating access to energy:

“The problem for the next few decades … is not that we will run out of oil. It is that we will probably have to pay exorbitant prices to get it. And no foreign policy will change that, though wise domestic policies might.” — From “Myth-Telling: The Cult of Energy Insecurity and China-US Relations” by Cohen and Kirshner.

Domestic oil supply comes from refinery production and imports. Reductions in U.S. fuel supply – which could result from a hurricane shutting down several major Gulf Coast refineries and pipelines for a few days – could tighten supply and cause prices to increase and remain high. In September 2008, Hurricanes Ike and Gustav shut down several Gulf Coast refineries as well as a major gasoline pipeline that supplies products to the U.S. Northeast. That particular supply disruption caused prices at the pump to spike for several weeks, even as world crude prices were declining.

Oil is traded on a global market, and prices are determined by supply and demand. As a result, and as the U.S. Congressional Budget Office points out in a 2012 report, “even if the United States increased production and became a net exporter of oil, U.S. consumers would still be exposed to gasoline prices that rose and fell in response to disruptions around the world.”

U.S. Vulnerabilities

The following facilities represent some the most important oil and petroleum infrastructure in the United States. The vulnerability of these systems depends on several factors, including location, capacity and redundancy.

Port of Houston
Newington, Va., Storage Facility
Louisiana Offshore Oil Port
Cushing, Okla.
Port of Miami
Port Everglades

Colonial Pipeline
Plantation Pipeline
Trans-Alaska Pipeline

Major U.S. Refineries

From Port (to Pipeline) to Pump: How Safe is U.S. Oil?

Nearly eight years ago, the U.S. government identified 15 scenarios in which hypothetical incidents were capable of threatening the nation’s economy and power supply.

One of those scenarios was the possibility of a large hurricane hitting a major metropolitan area such as New York City and causing catastrophic damage including knocking out power to millions, said homeland security expert David McIntyre.

“Although the threat was laid out at the federal level, state and local leaders did nothing to prepare for it,” he said.

The hypothetical became real on October 29 when Hurricane Sandy slammed into New York and New Jersey, idling nearly 70 percent of the East Coast’s oil refining capability, flooding entire neighborhoods and causing more than 100 deaths.

In a December hearing before the Senate Committee on Commerce, Science and Transportation, Patrick Foye, executive director of The Port Authority of New York and New Jersey, testified that the storm will likely cost the region tens of billions of dollars in damages.

Many experts say they believe future storms could be even more damaging. “That’s my concern for petroleum critical infrastructure,” said McIntyre, a former director of the Integrative Center for Homeland Security at Texas A&M. “What low probability but high consequence events are out there, and have we been properly preparing for them?”

Deciding which events to spend money planning for requires setting priorities, and the U.S. government hasn’t done a great job of that, said Todd Keil, former undersecretary of the Department of Homeland Security’s Office of Infrastructure Protection. “Identifying the risk and where you put your resources is the biggest challenge.”

The Department of Homeland Security has a classified list of facilities it has identified as “national critical infrastructure” based on two criteria – economic impact and potential fatalities, Keil said. The energy sector is among the 18 sectors reviewed.

Although the list is classified, some experts have suggested what types of high-priority infrastructure may be considered for it.

“If I had to pinpoint something I’d look to refineries,” said Adm. James Loy, former deputy secretary of the Department of Homeland Security. Refineries convert crude oil into usable petroleum products such as gasoline and jet fuel.

Pipelines play a critical role as well, and may be harder to secure and protect, said Paul Rosenzweig, former deputy assistant secretary for policy in the Department of Homeland Security. “If you have an oil refinery, you can put up fences, hire guards and do a pretty decent job of getting yourself together on that,” Rosenzweig said. “If you have a 2,000-mile pipeline from Canada to Texas, you simply cannot protect the entire pipeline.”

The Colonial Pipeline, for example, spans more than 5,000 miles from Houston, Texas to Linden, N.J., and delivers more than 2 million barrels per day of gasoline, diesel fuel and home heating oil from the Gulf Coast to the Northeast. The Colonial Pipeline also delivers jet fuel to major airports, including Atlanta International, Dulles International and Reagan National Airport in Washington.

Natural Disasters

Energy experts say natural disasters pose the greatest risk to energy infrastructure, in large part because most of the nation’s critical petroleum infrastructure is concentrated in and around the Gulf of Mexico.

“The real greatest vulnerability is the rather unsexy natural disaster and accident stream,” Rosenzweig said. “That probably outweighs the terrorist threat, either through physical attack or cyber, by a significant degree.”

Houston alone contains many major refineries that together account for approximately 30 percent of the nation’s refining capacity, Rep. Michael McCaul, R-Texas, said in a 2011 House Homeland Security Committee hearing. Houston’s 25-mile ship channel and surrounding area receives almost 25 percent of all U.S. oil imports.

“If catastrophe struck the port, there is little spare capacity to import and refine crude oil anywhere else in the country,” McCaul said in the statement prepared for the hearing.

Elsewhere in the Gulf of Mexico, hurricanes pose a threat to such critical facilities as the Louisiana Offshore Oil Port, a terminal approximately 18 miles south of the Louisiana Coast. The LOOP is the single largest point of entry for oil tankers carrying crude oil to the United States, and it is the only platform in the nation capable of accommodating oil supertankers.

“The Houston Ship Channel is significant. The Colonial Pipeline is significant. The LOOP is significant,” Keil said. “There would be a significant impact should something happen to any of those.” The impact could range from short-term supply disruptions and price spikes to longer term shortages, depending on the severity of the incident.

When Hurricane Katrina hit the Gulf in 2005, it caused a 95 percent reduction in daily Gulf oil production, according to the U.S. Energy Information Administration. The storm closed refineries, disrupted crude oil and petroleum imports and caused oil prices to skyrocket. And experts say it may get worse before it gets better.

“Most if not all of the predictions are for more storms and for more severe storms,” Loy said. “It is a quite serious matter for both the industry and the people who respond to such events.”

Cyber Threats

National security experts cite cyber safety as another significant – and rapidly growing – concern with respect to the energy sector. “Unfortunately, most of our infrastructure today is in one way or another connected to the Internet,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank. “Once you have access to the Internet, you basically are open to everything that the Internet brings.”

Thomas Cellucci, a former commercialization officer who managed public-private partnerships at the Department of Homeland Security, also emphasized the growing cyber threat. “That’s the biggie,” Cellucci said. “Cyber attacks are really something that ‘govvies’ worry about, and they should.”

Increasingly, refineries and pipelines run on computer-controlled systems called supervisory control and data acquisition – or SCADA – systems. Designed to increase efficiency, the systems also create vulnerabilities.

“The attacks that are most likely to cause real civilian harm are attacks on the industrial control systems,” said Stewart Baker, former assistant secretary for policy at the Department of Homeland Security. “Not the Windows networks, but the industrial systems that are built on software increasingly and that make pipelines work, refineries work.”

Targeting industrial systems is on the rise. In July 2012, a security company discovered the Stuxnet virus. Many speculate that the sophisticated virus was state-sponsored—either by the United States, Israel or both—and designed to infiltrate and undermine Iran’s uranium enrichment facility.

One month later, state-owned Saudi Arabian Oil Co., better known as Saudi Aramco, reported that a virus called Shamoon infiltrated the company’s computers. “More than 30,000 computers that it infected were rendered useless and had to be replaced,” said Secretary of Defense Leon Panetta in an October 2012 speech. “It virtually destroyed 30,000 computers.”

There is no evidence that the U.S. has encountered such an attack on domestic oil infrastructure, Baker said, but the likelihood increases as the tools required to execute an attack get easier to use. “My biggest worry about this is that every year, the kind of damage that can be done by a handful of people grows.”

Baker said he’s also concerned there isn’t enough preparation for mitigating these threats. A lot of the attention has focused on making systems harder to hack, he said, which is really about putting up defenses, and not about what happens if those defenses fail.

Terrorist Attacks

The energy sector, along with the transportation and banking and finance sectors, is one of the most likely to be targeted by terrorists, Keil said. “These three things together I think are very, very primary targets – from an operational perspective and from an ideological perspective.”

In 2006, a group of al-Qaida terrorists launched a well-planned, but unsuccessful attack against the Abqaiq processing facility, one of Saudi Arabia’s most crucial oil facilities. Two days after the attack, according to a report released by the Jamestown Foundation, al-Qaida affiliated cleric Sheikh Abd-al-Aziz bin Rashid al-Anzi published the terrorist group’s religious justification for attacking oil infrastructure called “The Religious Rule on Targeting Oil Interests.” In it, he wrote: “Targeting oil interests is lawful economic Jihad. Economic Jihad in this era is the best method to hurt the infidels.”

Former al-Qaida leader Osama bin Laden also urged his followers to attack the oil industry as a way of striking at the center of gravity of the U.S. and its allies.

Keil said the terrorist threat to energy infrastructure is particularly worrisome when it comes to cyber. “What we were seeing is that [the terrorists] up to this point were using the cyber arena more as a tool rather than a weapon,” Keil said. “But that’s just around the corner. I think we’re probably on the cliff of the established terrorist groups using cyber as a weapon.”

But identifying and prioritizing cyber threats and other infrastructure risks does not mean the U.S. is prepared to deal with such risks, Keil said.

“There was a lot of assessment and risk identification work being done,” he said, “but there were no metrics to determine if actual steps were being taken … we had no idea if anything was being done or not.”

The Department of Homeland Security started developing a way to assess progress a few years ago, Keil said. Current Department of Homeland Security officials declined to comment.

But homeland security veteran McIntyre said it’s still unclear how the federal government prepares for threats, a reality he said is particularly troubling when considering low-likelihood, high-impact scenarios.

To McIntyre, that means an incident on par with shutting down refineries, simultaneously attacking three different parts of a major pipeline, or preventing heating fuel from reaching parts of the Northeast U.S. for a prolonged period of time.

“But unless somebody has some sort of public oversight, we don’t know if that’s been considered,” McIntyre said. “That’s why I think the legislative branch needs to be sure they’re providing oversight on critical infrastructure issues.”

There is a striking overlap between the world’s sources of energy and the world’s sources of instability.

- Sen. John Kerry, Testimony before the Senate Committee on Foreign Relations, 2009

Many of the countries the U.S. depends on for oil and petroleum products have corrupt governments at varying levels, crime problems and face civil unrest. Whether initiated al-Quida in Iraq, militant groups in Nigeria or armed rebels along the Columbia-Venezuela and also the Columbia-Ecuador border, attacks on the oil and gas industry can cripple and cause major economic damage.

The United States spends a tremendous amount of time and money to secure our oil and counter the threats that disseminate throughout the global supply chain.

Top exporters to the U.S.

A look at some of the major threats to the U.S. oil supply today:

High risk Medium risk Low risk

The U.S. receives nearly 60 percent of its oil and petroleum imports via tanker, according to a 2011 report from the American Petroleum Institute. Many of the tankers arriving in U.S. ports carry crude oil and petroleum from Mexico, Saudi Arabia, Venezuela and Nigeria. Threats to production in these crucial supplier countries – whether from natural disaster, crime, or terrorist or cyber attacks – threaten both the global supply chain and the Unites States’ access to oil.

“There is much greater confidence in oil supplies than in 2008,” said Daniel Yergin, Pulitzer Prize winning author and chairman of IHS Cambridge Energy Research Associates, in a 2012 testimony before the U.S. Senate Energy Committee on Energy and Natural Resources. “East Africa is emerging as a major new oil and gas play. Ghana is joining the ranks of exporters. Major new discoveries have been found off the coast of French Guyana in Latin America.”

The shale oil boom in the U.S. has pushed production up almost 20 percent since 2008. In Canada, with the development of the oil sands, production has nearly tripled since the beginning of the 21st century. “Today the output from the oil sands – 1.7 million barrels per day – is greater than Libya was producing before its civil war,” Yergin testified.

Scientists and energy scholars are working to solve this efficiency problem, but until they do, the widespread adoption of alternative energy sources is not realistic. One alternative energy source that has the capacity to replace oil and coal is nuclear energy. Nuclear energy is efficient, cost-effective and abundant. However, there is social and political resistance to nuclear energy in America.