America is an operation which requires managing, as with any household, company or multi-national. It has unique problems, some of which threaten the security of the country and its population, in particular it’s way of life... The United States of America is the largest economy in the world by a long way. It is also the largest consumer of energy — coal, oil, nuclear and probably soon renewable. At this point in time the American economy is driven by oil. The triangular relationship between companies, host governments and home-country governments is at the heart of policies and politics in the international petroleum industry. Issues facing America with regard to security of energy — and the economy and future of the country — are as follows:

America imports most of the oil it consumes. This is mainly for strategic reasons as America knows that to remain competitive, it must retain the reserves of oil that it has, in case of future shortages. The source of these imports has in the past been the Middle East, Saudi Arabia in particular. In recent years America has scaled up exploration significantly by expanding the exploration limits in the Gulf and off the Atlantic coast and also in the Arctic.

Oil prices are, in large, set by the OPEC oil producing companies. Non-OPEC countries follow the price setting. Costs of production as recently as 10 years ago were in the region of $20 per barrel, with selling prices of around $30 to $40 per barrel. The price skyrocketed to the $60 per barrel level in 2007, and to $100 plus today. It has remained remarkably constant, which suggests that the price is successfully manipulated. No-one is increasing supply to reduce price — or likely to in the short term.

Options are open. Solar, wind, biomass and wave solutions are being explored. At this point in time all are far too expensive. It is doubtful that any expenditure on research and development will make any of these technologies viable either from a cost point of view or an ability to provide sufficient energy to meet growing requirements for the next millennium.

Nuclear will close the energy gap. The recent Fukushima tsunami disaster has impacted on the implementation of this energy source, but is largely seen as a panic reaction — tsunamis are not common in Germany and 65% of France’s energy is provided by nuclear. America has numerous nuclear power sources around the country. However, the costs of a new nuclear plant are estimated at 5 times the cost of a coal fired power station — although the input costs are one third on an ongoing basis.

Coal is still readily available — and the technology is well established. It is likely that developing nations (like the BRICS) will continue to ramp up the energy production from this source. The reaction from environmentalists will continue to grow, but given the choice between less carbohydrates in the atmosphere for the Western world or no electrical power in the developing world (the larger portion of the world’s population), the solution is simple.

Fracking is a relatively new technology and being tested in a number of locations successfully in terms of energy production. While not inexpensive in America, it is American. The environmental impacts are being debated on a daily basis, but the potential appears considerable. LNG gas deposits are being found around the world and will contribute to the world energy pool. They are, however, still hydrocarbon inputs and have the potential to lead to pollution of the environment.

Finally, oil reserves around the world are still significant. The largest reserves are still in the Middle East, although significant reserves exist in North Africa, Russia, Indonesia, Venezuela, Mexico and numerous other locations in Africa. Unusual and significant reserves exist in the tar sands of Athabasca in Canada.

Required:

A) Discuss the Strategic issues facing America. What are the competitive factors, opportunities and risks facing the country regarding the supply chain for energy — and possible implications? 

B) What does the supply chain for energy look like for America? How could America resolve supply for energy by diversifying its suppliers and what would the impact be? 

C) What projects would need to be developed to the distribution of energy for America to remain competitive in the future?