The U.S. Energy Briefing: Policy Options and Recomendations

April 28th.2011

Presentation Roadmap

• Where is Demand Going?

• Constraints on Supply meeting Demand

• Trends Requiring Clarification

• Vulnerabilities

• Energy Independence vs. Energy Security

• National Interests

• Objectives

• Option 1: Domestic Drive

• Option 2: SEGB

• Implementation

• Evaluation and Fallback

Where is demand going?

Domestically: – Transportation

• Increasing proportion and magnitude– Industry

• Efficiency improvements reducing proportion

Internationally: – China and India

• Large population• Economic growth

– Growth in demand around the world• OECD – 60% of demand today• And Non-OECD – 60% of demand in 2030

What are the constraints on supply meeting demand?

Domestically:• Incomplete access – Alaska• Trade restrictions – Biofuels from Brazil• Environmental considerations – Nuclear

meltdown, CO2 emissions• Reduced reserves – U.S. oil production has

peaked

Internationally:• Lack of spare capacity – OPEC production is 6%

less than capacity• Lack of refineries – built for certain types of

crude oil, in order to produce certain types of petroleum products

• Lack of investment – should be overcome by higher oil prices?

What Trends Require Clarification?• Energy decisions are necessarily long-term

• Efficiency vs. Conservation

• Fossil fuels greatly more significant than renewables

• Sufficient oil reserves for at least up to 2050

• One world energy market

• Energy is more than oil, but …

Specific vulnerabilities that the U.S. should address

Domestically:• Where does US oil come from? • Infrastructure – awareness after Katrina

Internationally:• Terrorism – increased reliance on insecure

areas– Niger Delta, Russia, Middle East

• Transportation routes• Lack of diversification

– Locations and sources of energy• Information

– Oil projections?• Lack of investment – failure of NOCs• Chinese mercantilism

Country 000s barrels /day

Canada 1,944

Saudi Arabia 1,479

Mexico 1,198

Nigeria 1,163

Venezuela 1,135

Largest U.S. oil imports by country (2006)

Oil Transportation Chokepoints

Strait of Malacca15 million b/d

Bab el-Mandab3.3 million b/d

Suez Canal4.5 million b/d

Strait of Hormuz17 million b/dBosporus Strait

2.4 million b/d

Energy Independence vs. Energy Security

• Energy Independence: – Producing sufficient energy domestically to meet domestic demand (i.e. zero

imports of energy)– Is it actually possible?

• Maybe only with nuclear power, development of Canadian tar sands– Can we follow Brazil?

• No – biofuels are inappropriate, little chance of more oil discoveries

• Energy Security: – Availability, affordability, adequacy, reliability of energy resources

• Moderating demand, expanding and diversifying supply (including alternatives), strengthening global energy trade and investment

National InterestsVital• Ensure the viability and stability of major global systems

(trade, financial markets, supplies of energy)• Prevent, deter, and reduce the threat of the use of nuclear

weapons anywhereExtremely Important• Support our strategic partners in the Middle East and

around the worldImportant• Reduce detrimental effects of Climate Change on U.S.

mainland

Objectives

What are the main U.S. Energy Objectives?• Energy Security

– Diversification of types and sources– Energy efficiency– Energy conservation– Increased energy investment– Open markets and increased access

• Reduce the threat of nuclear weapons proliferation– Safe and secure nuclear facilities around the world

• Climate change mitigation– Reduced CO2 emissions

Option 1: Domestic Drive

• Assumptions: – U.S. is in a better position to control its destiny– International cooperation encounters too much bureaucracy– Likelihood of increased international turmoil in the futureDomestic Energy

Supply• New energy types – increased nuclear power, renewables• Infrastructural development – additional pipelines, reserves• Improved access to reserves – opening up of ANWR

Domestic Energy Demand

• Efficiency and conservation advances– Subsidies for efficiency improvements in homes and business– Stricter CAFE standards and tighter energy controls of industry, tighter building codes– Cap-and-trade system of CO2 emissions for industry

• Increased public transportation, increased tax on gasoline

Wider environment • Federal support of R&D into new technologies (carbon sequestration and fusion)• Increased sponsorship of geophysical programs at U.S. universities• Development of renewable energy sources when at least marginally cost effective

Option 1: Domestic Drive

Pros:– America’s demand as a global percentage is high, efficiency improvements will have an effect on global statistics

– More likely to lead to long-term success– Could be used as a model for the international community– Protects U.S. industry– America will be more secured in the event of international turmoil

Cons:– May be unpopular with American citizens and businesses– Ecological damage if Alaska is opened up to oil prospectors– Gasoline taxes may harm economic growth in the short-term

Option 2: Supranational Energy Governing Body (SEGB)

Assumptions:– Meaningful action possible only through international cooperation– Sovereignty issues will restrict role to free market policy promotion, centers

of research, and some international policing

Organization • Includes existing bodies (IEA, IAEA, and OPEC), all states will be invited to join• States must be committed to basic tenets (efficiency, diversification, free trade)

Free Market Policy • Reduce energy trade barriers – ineffective and inefficient• Encourage governments to sell oil above production cost• Global cap-and-trade CO2 emission system• Global strategic petroleum reserves in case of supply shocks

International Policing

• Multinational force will guard maritime transport chokepoints• Global monitoring and surveillance of pipe-lines, other potential terrorist targets• SEGB to mediate on energy-policy disputes (e.g. Ukraine-Russia)

Research and Technology

• Body will fund multi-national research programs (CERN, other locations)• Technology transfer of efficiency improvements to developing world• SEGB will have access to all reserves for surveying purposes

Output Improvements

• SEGB takes control of marginal field when oil companies want to pull out• SEGB funds EOR projects (Enhanced Oil Recovery) when non-profitable for firms

RecommendationObjective Amount of Change

Option 1 Option 2

Increased diversification of sources 3/10 5/10

Improved energy efficiency 4/10 5/10

Improved energy conservation 3/10 8/10

Increased investment 4/10 4/10

Opening up of markets 3/10 8/10

Reduce threat of nuclear-weapons proliferation

2/10 7/10

Reduce CO2 emissions and effects of climate change

4/10 8/10

Probability of Success 80% 40%

Recommendation: Option Two: International Cooperation

Implementation

• Initial summit meeting of SEGB:– Define specific goals– Decide initial membership criteria– Invite Heads of States of all nations

• Identify contributors to the multinational maritime guard

– Locate bases for coast-guard vessels, terms of engagement

• Discussion of mandates between IEA, IAEA and SEGB– Ensure there is responsibility for all areas of energy security– Discussion of merger strategy between various bodies

• Commence SEGB geological survey of existing oil fields• Commence discussion on cap-and-trade endowments

Evaluation and Fallback

• Predetermined timetable of efficiency and supply improvements– Annual evaluation of whether targets are being reached– Focus on which states are not meeting targets – additional

programs/subsidies/penalties

• Resolution of international energy disputes and increased access

Fallback:– If initially unpopular, SEGB could be restricted to G8+2 (China and India) and main

energy exporters (including OPEC)– If SEGB ineffective, option one remains a fallback possibility