In its fourth annual report, the Institute for 21st Century Energy reported a desirable 6.6 percent decline in its index tracking U.S. energy security. The institute is part of the U.S. Chamber of Commerce, which represents the interests of more than 3 million businesses.
As assessed by the institute, the overall level of risk to America’s energy security decreased in 2012 to a level of 95.3. As measured by the same entity in 2011, the energy risk index was at a level of 102.0. The lower the overall index, the lower the amount of measured risk to U.S. energy security.
The energy risk index tracks 37 different metrics that are grouped into four general categories. Geopolitical, environmental, reliability and economic constitute the four groupings.
All four of these groups of individual metrics improved in 2012. Reliability showed the greatest year-over-year improvement, going from 114.4 in 2011 to 102.2 in 2012. The next best improvement in measured risk among these four groupings was in the economic index, where the 2012 measure of 95.6 was a meaningful improvement from the 2011 index level of 103.3.
Among the entire 37 metrics tracked, 26 showed lower risk in 2012 than in 2011. As an example, risks related to carbon dioxide emissions fell to their lowest level since 1994. A slower economy, increasing use of natural gas and selected efficiency improvements all contributed to the reported decrease in emissions.
One of the leading factors allowing the energy risk index to decline is the development and implementation of unconventional oil and gas production in the U.S. As noted by the institute, domestic oil production increased by 815,000 barrels per day in 2012. The last comparable increase in domestic oil production is likely the opening of the Trans-Alaska Pipeline in 1977.
Combined with America’s extensive and the world’s largest supplies of coal and the trend toward oil and gas independence, the future reliance on unstable regions of the globe for energy resources should decline. Additionally, increasing supplies of these energy resources should result in decreasing input costs, allowing U.S. manufacturers and consumers to benefit from declining prices.
For the foreseeable future, the institute is expecting the overall energy risk index to continue to fall. On average, the index is anticipated to show energy risk for the U.S. of approximately 92.7.
Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.