Energy—What the Future Energy—What the Future Holds for State Holds for State PolicymakersPolicymakers

National Governors AssociationNational Governors AssociationNGA Center for Best PracticesNGA Center for Best Practices

Estes ParkEstes Park10 October 200510 October 2005

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Today’s PresentationToday’s Presentation

• The FactsThe Facts

• What It MeansWhat It Means

• What We Can Do NowWhat We Can Do Now

• What We Can Start Doing (Finally)What We Can Start Doing (Finally)

• Wrap-UpWrap-Up

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Are we on the verge of Are we on the verge of a crisis?a crisis?

•Probably notProbably not

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Do states need to act?Do states need to act?

•AbsolutelyAbsolutely

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The Bottom LineThe Bottom Line

• Energy prices have risen dramaticallyEnergy prices have risen dramatically

• Price may be reaching all-time highsPrice may be reaching all-time highs

• The era of high prices is here to stayThe era of high prices is here to stay

• Some people are not going to be able to pay their Some people are not going to be able to pay their

heating bills this winter.heating bills this winter.

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• Maybe—just maybe—our Maybe—just maybe—our consumptive behavior patterns will consumptive behavior patterns will begin to changebegin to change

• States need to look atStates need to look at– TaxesTaxes– RPS and other incentivesRPS and other incentives– More creative environmental driversMore creative environmental drivers

Katrina exacerbates prices but will abate.

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The FactsThe Facts

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U.S. Energy Consumption by Fuel, 1970-2025(quadrillion Btu)

0

10

20

30

40

50

60

1970 1980 1990 2000 2010 2025

Petroleum

Nonhydropower Renewables

Hydropower

Coal

Natural Gas

Nuclear

Annual Energy Outlook 2005

History Projections

Take-away:We are consuming more

fuel-based sources

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U.S. Crude Oil Production by Source, 1970-2025(million barrels per day)

0

2

4

6

8

10

1970 1980 1990 2003 2015 2025

Lower-48 Onshore

Alaska

Lower-48 Offshore

ProjectionsHistory

Annual Energy Outlook 2005

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0

5

10

15

20

25

30

1960 1970 1980 1990 2000 2010 2025

U.S. Petroleum Production, Consumption, and Net Imports,1960-2025 (million barrels per day)

56%

58%Net Imports

Consumption

Production

Annual Energy Outlook 2005

History Projections

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Real Gasoline PricesReal Gasoline PricesOver $3 today

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Heating Oil PricesHeating Oil Prices

$3 today

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U.S. Natural Gas Production, Consumption, and Net Imports,1960-2025 (trillion cubic feet)

0

5

10

15

20

25

30

1960 1970 1980 1990 2000 2010 2025

15%

20%

Net ImportsConsumption

Production

Natural Gas Net Imports, 2003 and 2025(trillion cubic feet)

2.8

0.4

2.6 3.1

0

1

2

3

4

5

6

7

Pipeline Liquefied Natural Gas

2003

2025

Annual Energy Outlook 2005

History Projections

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Natural Gas Spot Price, 2004-2006(dollars per thousand cubic feet)

0

3

6

9

12

15

2004 2005 2006

History

Medium Recovery

Fast Recovery

Slow Recovery

Short-Term Energy Outlook, September 2005

History Projections

Price was$2.50 in 2003

Averageis $9

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What It MeansWhat It Means

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Why We Haven’t Felt More Why We Haven’t Felt More Impact—Yet?Impact—Yet?

• Increases have been gradualIncreases have been gradual

• Lower energy intensityLower energy intensity

• Low inflationary pressureLow inflationary pressure

• Growing economyGrowing economy

• No serious supply problemsNo serious supply problems

• No panic or anxietyNo panic or anxiety

G F ENERGY LLC CrossroadsCrossroads

•Prices are reaching all time Prices are reaching all time highshighs

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Issue #1Issue #1

• Energy has been under-priced in USEnergy has been under-priced in US– All the other OECD countries manage All the other OECD countries manage

demand through high taxesdemand through high taxes

• Its not that prices are too high; Its not that prices are too high; they have been too lowthey have been too low

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Issue #2Issue #2

• US is the most wasteful countryUS is the most wasteful country– US uses 3 times as much electricity per US uses 3 times as much electricity per

capita as Japancapita as Japan

• Huge potential to use energy more Huge potential to use energy more efficiently without drastic lifestyle efficiently without drastic lifestyle changeschanges

• There is money to be made selling There is money to be made selling efficiencyefficiency

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US: 7.8US: 7.8Germany: 4.2Germany: 4.2

China: 1.1China: 1.1Brazil: 1.1Brazil: 1.1India: 0.5India: 0.5

• n metric tonnes of oil equivalentn metric tonnes of oil equivalent

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Issue #3Issue #3

• Energy pricing is being globalizedEnergy pricing is being globalized– Oil prices are driven by Chinbra*, they used to Oil prices are driven by Chinbra*, they used to

be driven by USbe driven by US– Natural gas was priced domestically, now it is Natural gas was priced domestically, now it is

priced globallypriced globally– Coal pricing in US is becoming globalizedCoal pricing in US is becoming globalized

•Prices are out of our controlPrices are out of our control

– *China, India, Brazil=Chinbra*China, India, Brazil=Chinbra

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Issue #4Issue #4

• Failure of environmental alternativesFailure of environmental alternatives– Despite RPS in 19 states, renewables Despite RPS in 19 states, renewables

will remain a single digit contributorwill remain a single digit contributor– Cars are off limits to politiciansCars are off limits to politicians– Demand-side incentives never take offDemand-side incentives never take off

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U.S. Electricity Generation by Fuel, 1970-2025(billion kilowatthours)

0

1000

2000

3000

1970 1980 1990 2000 2010 2025

Petroleum

Renewables

Coal

Natural Gas

Nuclear

Annual Energy Outlook 2005

History Projections

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0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1980 1990 2000 2010 2025

U.S. Carbon Dioxide Emissions, 1980-2025(million metric tons)

6,528 in 2010

8,029 in 2025

0

200

400

600

800

1000

1980 1990 2000 2010 2025

Carbon Dioxide Emission Intensity, 1980-2025(metric tons per million 2000 dollars of GDP)

501 in 2010

396 in 2025

Annual Energy Outlook 2005

History Projections

5,789 in 2003

558 in 2003

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The Blame GameThe Blame Game

• Very little blame game so farVery little blame game so far

• New energy legislation has mini-fine New energy legislation has mini-fine for gougingfor gouging

• Oil companies keeping out of troubleOil companies keeping out of trouble—so far—so far

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What states must doWhat states must do

•Be ready to deal with people Be ready to deal with people unable to pay their heating oil unable to pay their heating oil and natural gas billsand natural gas bills

•Urge people to conserveUrge people to conserve

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What States Can DoWhat States Can Do

• Raise energy taxesRaise energy taxes– GasolineGasoline– Natural gasNatural gas– SUV registrationSUV registration

• Strengthen RPS lawsStrengthen RPS laws

• EducateEducate

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States need to fixStates need to fixenvironmental problemsenvironmental problems• Still too many gasoline formulationsStill too many gasoline formulations

• Clean air battles have gone on too Clean air battles have gone on too long-time to build cleaner and more long-time to build cleaner and more efficient fleetsefficient fleets

• Be sure state electricity regulators Be sure state electricity regulators get it rightget it right

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Wrap-upWrap-up

• Chances are we have averted a crisis Chances are we have averted a crisis – But there are crisis scenarios that could But there are crisis scenarios that could

happenhappen

• We have avoided paradigm change We have avoided paradigm change for decades nowfor decades now

• Are we are on the verge of change?Are we are on the verge of change?