U.S. Energy Sources, 2011

Source: Energy Information Administration, 2011

Affordable and reliable access to oil is the core of energy security. Despite the rise of natural gas and efforts to develop alternative energy sources, the U.S. and the world still rely on oil as their largest source of energy. Consider how much oil the U.S. consumed last year. The U.S. consumed 6.87 billion barrels of oil in 2011, which contributed to about 35% of total U.S. energy consumption. Natural gas followed at 25%, while coal came in third at 20%.

Over 70 percent of this oil consumption went toward transportation purposes. However, not only is oil used to power cars, trucks, and airplanes, it is also used to create plastics, synthetic materials, chemicals, asphalt, heating oil, and more.

The director of the energy security initiative at Brookings Institution, Charles Ebinger gave this definition of energy security: “At the most basic level, energy security means having access to the requisite volumes of energy at affordable prices.“

The brunt of energy security revolves around the fuel that is being pumped through the world at the greatest volume, and is thus also the most vulnerable to price fluctuations. That fuel is oil, and is projected to be oil for decades into the future.

Energy security is not a military operation issue … it’s a market-centered subject.

- Michael Rühle, Head of Energy Security Section, NATO

When the public thinks of ensuring energy security, they may think of military combat and defense of physical infrastructure crucial for producing or shipping petroleum. In reality, such military operations are rarely required. Rather, the global marketplace is the main stage for regulating energy security through pricing, production levels, and trade between nations. The market determines how much oil is available, how much it costs, and where it can be shipped to. As a result, energy security, defined as ready access to energy at affordable prices, is dependent on the international oil market.

Players in the global oil trade include international oil and gas corporations, such as Exxon Mobil Corporation, as well as state-run enterprises, such as Saudi Aramco Oil Company of Saudi Arabia. In the latter case, governments have a key voice in determining the operations of the company, which are focused on strategic national interests rather than maximizing profits.

The military does play a key role in maintaining the peace and stability in regions necessary for the free trade of oil. But as long as the market is allowed to function normally, global energy security is ensured by the decisions and operations of the oil companies themselves.

So who are these corporate movers of the world’s energy?

Oil companies run the gamut from a few hundred employees to tens of thousands; production capacities from a few thousand barrels per day to tens of millions; and from wholly state owned and run to private, for-profits. The most influential of them can be grouped into three categories:

International oil companies (IOC) – Private companies that operate internationally and independently of national interests. IOCs are profit-driven and have to answer to shareholders. Examples include Exxon Mobil, Royal Dutch Shell and BP (formerly British Petroleum).

National oil companies (NOC) – State-owned companies that primarily operate within national borders and according to national interests. The OPEC countries and some non-OPEC countries run national oil companies, and use the revenue stream as a significant source of funding for their governments. Examples include Saudi Aramco and Petroleos Mexicanos (PEMEX).

NOCs that operate like IOCs – State-owned companies that are market-oriented and operate with a corporate strategy, while acknowledging the objectives of their country. Examples include Petrobras of Brazil, Statoil of Norway.

How big are these oil companies?

State-run NOCs are, in general, much larger than IOCs. Saudi Aramco, the largest of the NOCs and overall, earns over $1 billion in daily revenue according to Forbes, with estimates of annual profit usually north of $180 billion . It had an average production of 11.15 million barrels of oil a day in 2011, according to the CIA World Factbook. By comparison, Exxon Mobil, the largest of the IOCs, brought in $41.1 billion in profits and produced an average of 2.3 million barrels a day.

Where do these oil companies operate?

To get a sense of where oil companies operate, we’ve profiled two companies: the largest NOC and the largest IOC. They come from two of the top oil-producing countries in the world: Saudi Arabia and the United States.

A look at a national oil company: Saudi Aramco Oil Company

Saudi Aramco, headquartered in Dhahran, is the largest oil company in the world and Saudi Arabia’s national oil company. It holds approximately one-fifth of the world’s proven conventional oil reserves, spread out over about 100 oil and gas fields, including eight “super-giant” fields, in the kingdom.

International oil company: Exxon Mobil Corporation

Exxon Mobil, based in Irving, TX, is the largest of the world’s public multinational oil companies. As a public multinational company, it operates worldwide, unlike Saudi Aramco, which focuses its operations in Saudi Arabia.

Map tiles by Stamen Design, under CC BY 3.0. Data by OpenStreetMap, under CC BY SA.

Exxon Mobil operations in North and South America

Oil companies are constantly involved in exploration to replenish their reserves. Last year Exxon Mobil added 2 billion oil-equivalent barrels to its proven oil and gas reserves, replacing 116% of production for the year.Their activities include partnering up with Rosneft, Russia’s biggest oil company, to jointly develop 31 million acres in the Kara Sea north of Siberia. They also made a significant discovery in the Gulf of Mexico Hadrian complex, bringing their total estimated recoverable resources in the area to over 700 million oil-equivalent barrels.

Maps: Exxon Mobil 2011 Financial and Operating Review.

- There is no such thing as absolute energy security, due to the globalized nature of the energy market and the complexity of energy geopolitics. With oil a globally traded commodity, unrest and disruption anywhere in the world has the potential to impact oil prices and supply everywhere.

- Nor is complete energy independence particularly desirable. Though presidents and politicians have long touted energy independence as a holy grail of sorts, in reality energy independence would make the United States an island and vulnerable to the threats that such isolation brings. It would also make the U.S. less of a leader around the world, affecting trade relationships with other countries and lessening U.S. influence and sway in those regions.

- The U.S. military has used force or the threat of force to protect its energy interests around the world, primarily in the Middle East, for more than five decades, safeguarding foreign oil sources and the sea lanes through which they pass. Oil has remained a vital U.S. national security interest, shaping America’s foreign policy toward many countries and regions.

- More than half of the world’s oil is transported by sea, making maritime security one the most crucial factors of energy security. Before getting to U.S. consumers and industry, oil leaves ports and harbors around the world and passes through global choke points – narrow sea lanes that are often highly vulnerable to disruption. Throughout history, the world’s largest choke points have been the target of attacks, including piracy, robbery, and mining by hostile nations. These vulnerabilities continue today, and in some cases are on the increase.

- Protecting oil tankers passing through the Strait of Hormuz, a key choke point, is extremely expensive. By some estimates, the United States has spent as much as $8 trillion on maintaining its military presence in the Persian Gulf in recent decades. But with greater domestic energy supply and Obama’s ‘pivot to Asia’ policy, America is reassessing its role in the region.

- The balance of power is shifting to the East. With burgeoning economies driving Asia to lead the world in net oil imports, emerging countries such as India and China are changing the global political landscape in the postmillennial era.

- The U.S. builds close relationships with oil-rich countries to help secure our energy supply, but it can also turn a blind eye to corruption, human rights abuses and other problems in those countries that can also undermine global security. Many argue that only if the U.S. becomes less dependent on foreign sources of oil can it firmly and effectively promote reforms in many of these oil-rich countries.

- The U.S. may be overlooking what people call its natural partner in energy security — Latin America. The region, home to many of the world’s biggest oil suppliers such as Venezuela, is close and much more stable than the Middle East. Several other nations there, such as Brazil, are on the cusp of becoming major producers. But because of the so-called U.S. disengagement in the region, Americans are losing opportunities in terms of energy security cooperation with Latin American countries, especially South American countries. This has potential negative long-term implications for U.S. energy security.

- In terms of technology, the U.S. has benefited greatly from the development of economical hydraulic fracturing and technologies to recover previously inaccessible heavy oil. Ongoing research and development of new technologies, such as the use of microbes to enhance oil recovery, is certain to greatly affect our future energy supply and help increase energy security.