[Senate Hearing 109-448]
[From the U.S. Government Publishing Office]
S. Hrg. 109-448
U.S. FOREIGN POLICY, PETROLEUM, AND THE MIDDLE EAST
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HEARING
BEFORE THE
SUBCOMMITTEE ON NEAR EASTERN
AND SOUTH ASIAN AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 20, 2005
__________
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
LISA MURKOWSKI, Alaska BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
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SUBCOMMITTEE ON NEAR EASTERN
AND SOUTH ASIAN AFFAIRS
LINCOLN CHAFEE, Rhode Island, Chairman
CHUCK HAGEL, Nebraska BARBARA BOXER, California
NORM COLEMAN, Minnesota PAUL S. SARBANES, Maryland
GEORGE V. VOINOVICH, Ohio BILL NELSON, Florida
J0HN E. SUNUNU, New Hampshire BARACK OBAMA, Illinois
(ii)
?
C O N T E N T S
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Page
Chafee, Hon. Lincoln, U.S. Senator from Rhode Island, opening
statement...................................................... 1
Collina, Tom Z., executive director, 20/20 Vision, Silver Spring,
MD............................................................. 39
Prepared statement........................................... 43
Ebel, Robert E., chairman, Energy Program, Center for Strategic
and International Studies, Washington, DC...................... 35
Prepare statement............................................ 37
Gallogly, Stephen J., Director, Office of International Energy
and Commodity Policy, Bureau of Economic and Business Affairs,
Department of State, Washington, DC............................ 2
Prepared statement........................................... 4
Luft, Dr. Gal, codirector, Institute for the Analysis of Global
Security, cochair, Set America Free Coalition, Washington, DC.. 23
Prepared statement........................................... 26
Misenheimer, Alan Greeley, Director, Office of Arabian Peninsula
and Iran Affairs, Bureau of Near Eastern Affairs, Department of
State, Washington, Dc.......................................... 18
Person, George L., Jr., Director, Office of African and Middle
Eastern Affairs, Office of Policy and International Affairs,
Department of Energy, Washington, DC........................... 10
Prepared statement........................................... 12
(iii)
U.S. FOREIGN POLICY, PETROLEUM, AND THE MIDDLE EAST
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THURSDAY, OCTOBER 20, 2005
U.S. Senate,
Subcommittee on Near Eastern and
South Asian Affairs,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 2:44 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Lincoln
Chafee (chairman of the subcommittee) presiding.
Present: Senator Chafee.
OPENING STATEMENT OF HON. LINCOLN CHAFEE, U.S. SENATOR FROM
RHODE ISLAND
Senator Chafee. Good afternoon. This is the Committee on
Foreign Relations' Subcommittee on Middle Eastern and South
Asian Affairs. And it is a hearing on U.S. Foreign Policy,
Petroleum, and the Middle East.
The subcommittee is pleased to welcome two panels of
witnesses today. On our first panel we will hear from Mr.
Stephen Gallogly, a fellow Rhode Islander, and Director of the
Office of International Energy and Commodity Policy at the
Department of State, and Mr. Alan Misenheimer, Director of the
Office of Arabian Peninsula and Iran Affairs, also the
Department of State, and Mr. George Person, Director of the
Office of African and Middle Eastern Affairs, at the Department
of Energy. Gentlemen, welcome.
Our second panel consists of Dr. Gal Luft, codirector of
the Institute for Analysis of Global Security and cochair of
the Set America Free Coalition, Mr. Robert Ebel, chairman of
the Energy Program at the Center for Strategic and
International Studies, and Mr. Tom Collina, executive director
of 20/20 Vision. We look forward to your testimony, also.
The purpose of this hearing is to examine why the United
States is dependent on foreign fuel, how such dependence shapes
U.S. policies, while potentially contributing to terrorist
activities, and what ways we can effectively address this
problem.
An overdependence on oil can be a dangerous addiction. It
harms our environment and imperils our national security. Our
economy is vulnerable to price shocks from disruption of oil
supply, a lesson learned all too well in the 1970s. While we
learned it then, over the past 25 years we have been lulled
into a false sense of security by plentiful oil which ran as
low as $9 a barrel.
It is true that the United States imports oil from a
variety of foreign sources, including Canada, Venezuela, and
Mexico. However, nearly 30 percent of imported oil comes from
the Middle East, and that figure is expected to greatly
increase over time.
Given the region's enormous oil reserves and its general
instability, I believe it is important to continually inquire
as to how dependence on oil affects our foreign policy in the
region. Since I have come to the Senate, I have supported
commonsense policies to increase supply of alternative energy,
increase energy efficiency, and decrease demand. Unfortunately,
many of these initiatives have been defeated.
When the energy bill was approved, gas prices were roughly
$2 a gallon. Since that time prices have increased nearly a
third, up to roughly $3 a gallon. This rapid spike in prices
has a negative effect on the economy, and it does not appear to
be a short-term change.
This should demonstrate to everyone that our economy is
very vulnerable to oil shocks and we should be doing more to
address the problem.
Despite a barrage of warnings about the vulnerability of
New Orleans, our Government was surprised by the damage done
there by Katrina. I hope we have learned our lesson and do not
let the same thing happen on energy.
I called this hearing to begin to push this important issue
into the spotlight, to raise public awareness, and explore ways
to facilitate real changes in our foreign and domestic policy.
We will hear from the cochair for Set America Free Coalition,
Dr. Gal Luft, who will talk about his group's plan to reduce
dependence on foreign oil. Components of the plan include
increasing use of hybrid and plug-in hybrid electric vehicles
and use of biomass fuels, such as waste and switch grass.
I look forward to a discussion where we can assess the
viability and ability to implement these types of
recommendations. It is my hope that we will exercise the
necessary political will to address this critical issue of
energy security. The time has come to act.
Let us start in the middle, if I could, with Mr. Gallogly.
Welcome.
STATEMENT OF STEPHEN J. GALLOGLY, DIRECTOR, OFFICE OF
INTERNATIONAL ENERGY AND COMMODITY POLICY, BUREAU OF ECONOMIC
AND BUSINESS AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC
Mr. Gallogly. Thank you very much, Mr. Chairman. I am very
pleased to be here today to discuss U.S. Foreign Policy,
Petroleum, and the Middle East. I am also pleased to be joined
by my colleagues from the Department of Energy and from the
State Department.
It is especially appropriate to be testifying together with
the Department of Energy, because DOE and State work together
on literally a daily basis in pursuing international energy
objectives around the world.
Given the rise in energy prices we have witnessed over the
last year, I think this hearing is particularly timely. I would
like to focus my brief oral statement on our energy security
from a foreign policy perspective. I would ask that the written
testimony that I submit be submitted into the record.
Senator Chafee. Without objection.
Mr. Gallogly. Thank you. I want to stress that in the
immediate term, energy conservation and efficiency provide, by
far, the biggest resource for addressing our current energy
challenge and limiting our dependence on imported oil. In the
longer term, technology will be the key to significantly
improving our energy security.
The objective of our energy policy is to ensure that our
economy has access to energy on terms and conditions that
support economic growth and prosperity. We must also ensure
that the United States can pursue its foreign policy and
national security interests without being constrained by energy
concerns.
In addition, our policies must also be consistent with
America's broader economic and foreign policy goals and
complement domestic policy initiatives. I would like to
highlight four key elements of our national energy policy which
include, first, and you alluded to this, diversification of
energy supplies.
We have taken a number of steps over the years to promote
diversification of energy supplies worldwide. Key areas in
countries for major new contributions to global oil supply
include Canada, our leading supplier of imported oil, Russia, a
major producer of both oil and natural gas, the Caspian Basin,
and West Africa.
The second pillar of our energy policy, international
cooperation on strategic petroleum stocks. A core element of
our national energy policy is the use of strategic petroleum
stocks to respond to severe supply disruptions in coordination
with other energy-consuming countries. The critical role of the
International Energy Agency and multilateral cooperation was
recently illustrated by our coordinated stock release following
Hurricane Katrina.
Shortly after it became apparent that the hurricane would
have a serious impact on U.S. oil production and refining, we
worked with other IEA member states to offer 60 million barrels
of crude oil and product to world markets. This was only the
second coordinated release in the IEA's history. The IEA began
in 1974. And the action had an immediate chilling effect on
world markets.
The third element in our policy, maintaining dialog with
major oil-producing countries. Our objective for these dialogs
is not only to exchange information on oil markets, but to also
encourage producers to maintain responsible production policies
to support a growing world economy and to reduce oil price
volatility.
The fourth and final thought, but not the last in the sense
of importance, reducing global dependence on oil, particularly
over the long term. This includes strategies to improve energy
efficiencies and develop alternative fuels. The United States
has been a leader in advancing the research, development, and
deployment of advanced energy technologies.
In addition to domestic efforts, the United States has
initiated or served as a founding member of several
international technology partnerships designed to share data
and best practices among nations, while reducing the time and
expense needed to achieve technological breakthroughs.
In conclusion, we certainly remain aware of the potential
risks posed to the United States by reliance on imported oil
and by instability in the Middle East, where much of the
world's oil is produced. We need to remember, however, that oil
is a global commodity and that a disruption in supply anywhere
in the world can have an immediate impact on oil-importing
countries, no matter where the oil comes from.
Energy security is a leading administration priority, and
our national energy policy spells out the roadmap to achieve
it. In the long run we need new technologies that can fuel our
economy without posing threats to the environment or our
national security.
In the interim, our national energy policy must address the
familiar challenges posed by a hydrocarbon-based economy, where
oil reserves are concentrated in various challenging regions of
the world. Like the war on terrorism, this will require
sustained patience and determined efforts. The State Department
here and overseas will remain strongly engaged in that effort.
Thank you very much.
[The prepared statement of Mr. Gallogly follows:]
Prepared Statement of Stephen J. Gallogly, Director, Office of
International Energy and Commodity Policy, Bureau of Economic and
Business Affairs, Department of State, Washington, DC
Mr. Chairman, distinguished committee members, I am pleased to be
here today to discuss U.S. Foreign Policy, Petroleum, and the Middle
East.
OIL MARKET DEVELOPMENTS
Given the rise in energy prices we've witnessed over the last year,
I think it might be appropriate to first put our discussion of
petroleum and the Middle East in the context of current oil markets.
As we all know, in addition to the tragic human suffering
caused by Hurricane Katrina and Hurricane Rita, they also
impacted much of our oil and gas infrastructure on the gulf
coast. As a result, we've seen increases in the price of
gasoline at the pump, which have now moderated somewhat, and
concurrent rises in the price of diesel, home heating oil, and
natural gas.
Oil markets were already extremely tight before the
hurricanes struck. Over the last 2 years, oil markets witnessed
an unexpected surge in the growth of world oil demand. Much of
that rising demand has come from the United States and from
China, and is linked to strong economic growth. This
unexpectedly high demand had already translated into higher
prices.
This rising demand also eroded the surplus production
capacity that has been held by OPEC producers (mostly Saudi
Arabia) for most of the last 25 years. This loss of a potential
``cushion'' against supply disruptions added to market
uncertainty and to even higher prices.
At the same time, we have witnessed a reduction in surplus
refining capacity, worldwide, and the U.S. refining industry
was running above 90 percent of capacity prior to Katrina and
Rita.
The two storms disrupted U.S. oil production in the Gulf of
Mexico and onshore, and caused the shutdown of a number of
major refineries, sending prices worldwide to much higher
levels.
We expect oil markets will experience the effects of the
hurricanes for some time, as infrastructure and production both
on- and offshore takes some time to return to prehurricane
status.
HARD FACTS ABOUT ENERGY
In addition to recent market developments, we should take into
account a number of hard facts:
Imports supply almost 60 percent of our petroleum needs, a
percentage that has been rising for several decades.
Imports supply an even greater share of the needs of some of
our most important allies and economic partners.
We are no longer self-sufficient in natural gas. We now
import 15 percent of our natural gas, almost entirely from
Canada, but in growing volumes from Trinidad and other LNG
suppliers.
Almost two-thirds of proven world oil reserves are in the
Middle East. In contrast, the United States has less than 3
percent of the world's proven oil reserves.
The Middle East accounts for approximately one-third of
total oil exports, and 28 percent of world oil exports transit
the Straits of Hormuz.
Oil is a worldwide commodity, and, as we've witnessed
repeatedly over the last few years, a supply disruption
anywhere in the world can have an almost immediate effect on
prices worldwide.
Not all the facts about energy are bad; there is some good news:
Since 1970, the energy intensity of the U.S. economy, that
is the amount of energy we consume per dollar of GDP, has
fallen by almost 50 percent.
Aside from petroleum, we are largely self-sufficient in
energy, particularly in the generation of electricity, which is
produced from American coal, natural gas, hydropower, nuclear,
and renewables. In fact, imports account for less than 10
percent of all our nonoil energy sources.
The United States has the world's largest coal reserves, 250
years worth at current consumption rates.
We continue to find more oil worldwide. Estimates of the
world's remaining proved oil reserves were actually 18 percent
higher in 2004 than they were in 1990, despite all the oil
consumed in the intervening years. Improvements in petroleum
technology continue to unfold, enhancing recovery from existing
sources and making new sources possible.
Markets work. We've been told that within 3 days of the
landfall of Hurricane Katrina, 30 tankers had been contracted
to ship gasoline from Europe to the United States. They weren't
responding to a government mandate, but to the spike in U.S.
gasoline prices.
Markets also work over the longer term, with high prices
stimulating the development of new supplies. This applies not
only to conventional oil and gas supplies, but also to
unconventional sources, such as heavy oil deposits and fuels
from natural gas, coal, and biomass.
ENERGY SECURITY
There are a number of elements to advance U.S. energy security laid
out in the administration's national energy plan. Energy security
begins at home, both on the supply and demand side. President Bush has
encouraged Americans to conserve energy, and in August, signed into law
the first national energy plan in more than a decade. The legislation
provides measures to promote energy efficiency, modernize our energy
infrastructure, encourage renewable resources, and support energy-
efficient vehicles. In addition to the energy legislation passed in
August, we also need to promote the development of new domestic sources
of oil and gas, including in parts of the Artic National Wildlife
Refuge. In the immediate term, energy conservation and efficiency
provide, by far, the biggest resource for limiting our dependence on
imported oil. In the longer term, technology will be the key to
significantly improving our energy security.
Given the scope of this hearing, I would like to focus my remarks
on our energy security from a foreign policy perspective, and focus on
the actions that we are currently taking to address energy security
concerns.
The objective of our energy policy is to ensure that our economy
has access to energy on terms and conditions that support economic
growth and prosperity. We must also ensure that the United States can
pursue its foreign policy and national security interests without being
constrained by energy concerns. In addition, our policies must also be
consistent with America's broader economic and foreign policy goals and
complement domestic policy initiatives. I would like to focus on four
key elements of our national energy policy, which includes:
1. Promoting the diversification of energy supplies,
worldwide;
2. Working with other oil consuming countries to respond to
supply disruptions, particularly through the coordinated use of
strategic petroleum stocks;
3. Encouraging major oil producing countries to maintain
responsible production policies to support a growing world
economy and to reduce oil market price volatility; and
4. Working with other countries to reduce global dependence
on oil, including through conservation, efficiency, and through
the development of alternative sources of supply.
1. Diversification of Energy Supplies
We've taken a number of steps over the years to promote the
diversification of energy supplies worldwide. Although the Middle East
is--and will continue to be--the dominant region for oil production,
the development of new supplies in a number of other regions in the
world is an important objective. I would like to touch on a few areas,
outside the Middle East, where we've been actively engaged and where
there has been considerable progress.
North America Energy Integration
Canada is our leading supplier of imported oil, natural gas,
uranium, and electricity, and Mexico is our second largest supplier of
imported oil. One effect of higher oil prices has been to stimulate
greater development of Canada's oil sands, which contain an estimated
175 billion barrels of oil. We expect these to be an increasingly
important source of oil, and some experts estimate production will rise
to 3.0 million barrels per day over the next 10 years, from about 1.0
million barrels today. Natural gas from Canada, and from Alaska through
Canada, will also play an important role in our energy future.
We have made strengthening our energy cooperation with Canada and
Mexico a top priority. We are linked, of course by geography, by
integrated pipeline networks, by energy that flows across each of our
borders in both directions, and by a spirit of close cooperation
between our governments and our peoples. To broaden our cooperation, we
established a North American Energy Working Group in 2001 to serve as a
forum for exchanging information and pursuing joint strategies, such as
harmonizing certain appliance standards to facilitate trade and
establishing a mechanism for scientific and technical cooperation. We
are deepening cooperation on these issues through the trilateral
Security and Prosperity Partnership of North America, and will next
meet on energy issues November 7 in Ottawa.
Caspian Basin Pipelines
A major U.S. foreign policy priority since the mid 1990s has been
the development of multiple pipelines to provide for the export of oil
and gas from the Caspian region to the rest of the world. The Caspian
basin has been a significant new source of non-OPEC oil in recent
years, and production should continue to grow in coming years. In
addition to enhanced energy security, our policy in the region has been
aimed at strengthening the sovereignty and economic viability of new
nation states, enhancing regional cooperation, and avoiding the
potential bottlenecks and conflicts that might arise from rising
petroleum exports through the Turkish Straits.
I just returned from Georgia, where I participated in ``first oil''
ceremonies for the Baku-Tblisi-Ceyhan pipeline. This pipeline is a real
milestone for development in the region, and reflects years of work on
the part of the three governments and the oil companies involved. We
expect first shipments from this pipeline to be loaded in the
Mediterranean around the end of the year.
Russia
Russia is a major producer of oil and gas. From 1999 to 2004,
Russian oil production grew by about 3 million barrels per day, making
it the single greatest source of new non-OPEC supply. Much of this
growth has taken place in collaboration with U.S. and other
international oil companies, and Eximbank and OPIC helped provide
financing and insurance for some of these projects. We join the
Department of Energy and other agencies in the United States-Russia
Energy Working Group, which has focused on government-to-government
cooperation in a range of economic and technical activities. We also
joined with the Department of Commerce and other agencies to establish
the United States-Russia Commercial Energy Dialogue, which focuses on
facilitating commercial cooperation both within and outside Russia.
West Africa
The administration recognizes Africa's emerging role as a major
energy supplier. Nigeria, Angola, Gabon, Equatorial Guinea, Republic of
Congo, Cameroon, and Chad are significant producers, and other
countries, such as Sao Tome and Principe and Mauritania are emerging as
potential producers. Much of the increased production is the result of
the development of new technology to find and extract oil from deep
offshore deposits, and U.S. energy firms, both majors and independents,
have played a key role in bringing this technology to bear in West
Africa.
From a government perspective, we have a strong policy interest in
assisting oil producing countries to channel their energy resources
into solid and sustainable economic development as well as increased
transparency and accountability that will benefit their populations. We
negotiated a bilateral energy cooperation framework agreement with
Nigeria, and supported the World Bank's involvement in independent
monitoring arrangements for the Chad-Cameroon pipeline project, which
led to significant amounts of Chadian oil entering world markets
starting in July 2003. Nigeria is also a pilot country working with the
G-8 under terms of the Anti-Corruption and Transparency Action Plan
developed at the Sea Island and Evian Summits. Another sign of our
commitment was the establishment of a more pronounced U.S. Government
presence in Equatorial Guinea to support our ongoing work in the areas
of energy security, human rights, and good governance in Equatorial
Guinea.
2. International Cooperation in the Use of Strategic Petroleum Stocks
A second pillar of our national energy policy is the use of
strategic petroleum stocks to respond to severe supply disruptions, in
coordination with other energy consuming countries. Since 1974, we have
been working with our partners in the International Energy Agency (IEA)
to coordinate our efforts. The 26 IEA members collectively account for
4.1 billion barrels of government and industry-held oil stocks, of
which roughly 1.4 billion are government-controlled strategic stocks
for emergency response. The U.S. Strategic Petroleum Reserve, managed
by the Department of Energy, was filled to its target level of 700
million barrels in August of this year.
The critical role of the IEA and multilateral cooperation was
recently illustrated by our coordinated stock release following
Hurricane Katrina. Shortly after it became apparent that the hurricane
would have a serious impact on U.S. oil production and refining, we
worked with other IEA member states to offer 60 million barrels of
crude oil and product to world markets. This was only the second
coordinated release in the IEA's history, and the action had an
immediate calming effect on world markets.
I would like to underscore just how important our allies were in
this effort. The U.S. Strategic Petroleum Reserve consists of crude
oil. There are some stocks of home heating oil in a separate reserve,
also managed by the Department of Energy. However, because Hurricane
Katrina damaged a number of U.S. refineries, it became clear that world
gasoline markets would be particularly tight. European members of IEA
hold substantial stocks of refined products, and we, therefore,
designed a mixed-stock draw in response, to consist of both crude oil
and refined product. I also want to point out that the IEA Secretariat
did a superb job in coordinating the whole effort among the member
countries. We continue to monitor oil markets carefully with our IEA
partners, and are prepared to release additional stocks if the
situation merits it.
Finally, I'd like to add that in addition to coordinating releases
from strategic reserves, the IEA's small, expert staff provides
information and analysis on the energy markets and developments. The
agency also provides expert guidance to important nonmember countries,
such as Russia and China, on investment policies, strategic stocks, and
how to work better within energy markets. This dovetails with work the
United States and others are doing in the Asia Pacific Economic
Cooperation (APEC) forum and contributes to enhanced energy security.
3. Dialogues with Major Oil Producing Countries
A third pillar of our national energy policy is to maintain a
dialogue with major oil producing countries. Our objectives are not
only to exchange information on oil markets but also encourage
producers to maintain responsible production policies to support a
growing world economy and to reduce oil market price volatility. We
have had dialogues with a number of the major oil producing states,
particularly Middle Eastern producers, for a number of years, in some
cases since the 1980s. These have included formal bilateral exchanges
with some countries, and regular discussions among high-level officials
and through our Embassies in the region.
Through our continued dialogue with producers, we have identified a
number of areas where oil producers and consumers have shared
interests. Neither consumers nor producers benefit from instability in
energy markets. We recognize that price fluctuations are necessary in
any commodity market to balance supply and demand, but no one welcomes
chaos and uncertainty. Furthermore, some producers share our concerns
about the impact of high oil prices on world economic growth,
particularly the impact on developing countries. They remember all too
well the collapse in oil prices that accompanied the Asian financial
crisis in 1998, and would like to avoid a repetition.
As evidence of the maturing relationship between producing and
consuming countries, the TEA member states and APEC countries are
working with key producers to improve efficiency and transparency of
oil markets--to try to avoid the sort of market surprises that led to
some of the shortages we see today. Producer-consumer energy
ministerials that started in the early 1990s have led to the
ministerial-level International Energy Forum (IEF). The IEF is an
informal group consisting of about 50 countries and international
organizations, dedicated to promoting better understanding of
international oil and energy market developments and policy issues
among its members. The IEF Secretariat, located in Riyadh, Saudi
Arabia, is leading efforts on developing of the Joint Oil Data
Initiative (JODI), which is designed to improve our understanding of
developments in the oil market.
Oil, of course, is only a part of our broader dialogue with a
number of key Middle Eastern producers. With respect to oil, however, I
think our dialogue has matured over the years, as our shared interests
in market stability and world economic growth have led to frank and
honest exchanges.
4. Reducing Global Dependence on Oil
Our policy includes initiatives to reduce global dependence on oil,
particularly over the longer term. This includes strategies to improve
energy efficiency, worldwide, and develop alternative fuels. The United
States has been a leader in advancing the research, development, and
deployment (RD&D) of advanced energy technologies. In addition to
domestic efforts, the United States has initiated, or served as a
founding member of, several international technology partnerships
designed to share data and best practices among nations while reducing
the time and expense needed to achieve technological breakthroughs.
The United States hosted the first meeting of the Carbon
Sequestration Leadership Forum (CSLF) in June 2003. This partnership
advances technologies for capture, transport, and storage of carbon
dioxide to mitigate greenhouse gas emissions from sources such as coal-
fired powerplants. The 21 members, including Saudi Arabia and India,
have approved 10 capture-and-storage projects as well as a Technology
Roadmap to provide future directions for international cooperation.
The International Partnership for a Hydrogen Economy was launched
in April 2003 to implement internationally the goals of the Hydrogen
Fuel Initiative and FreedomCar Partnership. The Partnership's 16
countries and the European Union are working together to advance the
global transition to the hydrogen economy, with the goal of making fuel
cell vehicles commercially available by 2020. The Partnership will work
to advance research, development, and deployment of hydrogen and fuel
cell technologies; and develop common codes and standards for hydrogen
use.
The GenIV International Forum (GIF) Policy Group, composed of 10
countries and EURATOM, is providing a framework for international
cooperation in research and development for the next generation of
nuclear energy systems, which are intended to be safer, more economic
and secure, and able to produce new electricity and, potentially,
hydrogen.
The Methane-to-Markets Partnership (M2M) is a new global initiative
to advance international cooperation on the recovery and use of methane
as a valuable clean energy source. The Partnership works closely with
the private sector to develop methods to recapture wasted methane
escaping from landfills, leaking from poorly maintained oil and gas
systems, and vented from underground coal mines. Inaugurated in
November 2004 and now composed of 15 countries and the European
Commission, M2M will improve energy security, economic growth, air
quality and industrial safety, and reduce greenhouse gas emissions
throughout the world.
In January 2003, President Bush committed the United States to
participate in the largest and most technologically sophisticated
research project in the world to harness the promise of fusion energy,
the same form of energy that powers the sun. If successful, this $5
billion, internationally supported research project, the International
Thermonuclear Experimental Reactor, or ``ITER'' as it is known, will
advance progress toward producing clean, renewable, commercially
available fusion energy by the middle of the century.
The United States is committed to working with other countries,
especially developing countries, in building future prosperity while
improving energy security, reducing pollution, and addressing the long-
term challenge of climate change. Toward this end, the President
announced the launch this past summer of the Asia Pacific Partnership
for Clean Development and Climate which will focus on voluntary
practical measures taken by member countries to create new investment
opportunities, build local capacity, and remove barriers to the
introduction of clean, more efficient technologies. Current membership
in the Partnership includes the United States, India, China, Australia,
Japan, and South Korea.
MIDDLE EAST ENERGY DEVELOPMENTS
Since the focus of this hearing is on petroleum and the Middle
East, I would like to close with a few observations on developments in
selected countries.
Saudi Arabia, which is the world's largest oil producer and
exporter, we believe, has tried to play a moderating role in oil
markets over the last year by increasing its oil production. Much of
the kingdom's remaining surplus production capacity, however, consists
of heavy crude oil, and, as we discovered last year, following
Hurricane Ivan, there is a worldwide shortage of refineries with the
ability to convert heavier crude to product. Nevertheless, maintaining
a margin for increased production in critical. Saudi officials have
promised publicly to expand production capacity to both meet greater
market demand and to maintain 1.5-2.0 million barrels per day of
surplus capacity.
Kuwait has steadily expanded production and is currently producing
2.6 million barrels per day. Kuwait is making significant long-term
investments in its oil infrastructure in order to raise production to a
target of 4 million barrels per day by 2020, including a proposal to
bring in the technical expertise of international oil companies in
order to maximize production in its northern oilfields.
The United Arab Emirates has also expanded production over the last
few years and is currently producing approximately 2.5 million barrels
per day. Earlier this year, Exxon Mobil Corporation confirmed that it
has been chosen by the Abu Dhabi Supreme Petroleum Council for final
negotiations regarding participation in the Upper Zakum offshore
oilfield.
Qatar, with 800,000 barrels/day of production, is not one of the
larger Middle East oil producers, but has combined its enormous gas
reserves with an attractive investment climate to become a center for
the development of liquefied natural gas (LNG) exports and gas-to-
liquids processes. Over the last decade, Qatar appears to have
attracted more investment from the international oil companies than all
the other Middle East countries combined.
Iraq has the potential to become one of the world's largest oil
producers. The country is currently producing about 2.1 million barrels
per day, and exporting 1.4 million barrels per day. As security
conditions improve, we expect those figures to rise. As we have stated
on earlier occasions, Iraq's oil and other natural resources belong to
the Iraqi people, and they will determine how the country's reserves
are developed.
Algeria has witnessed a steady rise in production, of both oil and
gas, since ending its civil war, and is viewed by international oil
companies as an attractive place to do business.
Libya has emerged from years of isolation as an important new
player in world energy. The country has hosted several bid rounds for
exploration tracts in the country, and American firms have been quite
successful in competing for those opportunities. In particular, we are
encouraged by the fact that Libya has focused on making the bidding
process as transparent as possible.
CONCLUSION
In conclusion, we certainly remain aware of the potential risks
posed to the United States by reliance on imported oil, and by
instability in the Middle East, where much of the world's oil is
produced. We need to remember, however, that oil is a global commodity
and that a disruption in supply anywhere in the world can have an
immediate impact on all oil importing countries, no matter where their
oil comes from. I also think it worth noting that increases in energy
prices we've seen over the last 2 years have very little to do with the
Middle East. They are much more directly related to strong world
economic growth and, more recently, to acts of God on the U.S. gulf
coast.
Energy security is a leading administration priority, and our
National Energy Policy spells out the roadmap to achieve it. In the
long run we need new technologies that can fuel our economy without
posing threats to the environment or our national security. In the
interim, our national energy policy must address the familiar
challenges posed by a hydrocarbon-based economy where oil reserves are
concentrated in various challenging regions of the world. Like the war
on terrorism, this will require sustained, patient, and determined
effort. The State Department here and overseas will remain engaged in
that effort.
Thank you.
Senator Chafee. Thank you, Mr. Gallogly. Let us go over to
the Department of Energy.
Mr. Person.
STATEMENT OF GEORGE L. PERSON, JR., DIRECTOR, OFFICE OF AFRICAN
AND MIDDLE EASTERN AFFAIRS, OFFICE OF POLICY AND INTERNATIONAL
AFFAIRS, DEPARTMENT OF ENERGY, WASHINGTON, DC
Mr. Person. Thank you, Mr. Chairman. I am honored and
humbled to appear before you to talk about this very important
issue, petroleum, our economy, foreign policy, and as it
relates to the Middle East. I would also like to reinforce the
close working relationship with my colleagues at the table and
ask that my written testimony be submitted for the record as
well.
Senator Chafee. Without objection.
Mr. Person. Thank you. Energy is the lifeblood of our
economic well-being, and petroleum plays a dominant role. As an
actively traded commodity, the price is set in a global market.
A significant disruption anywhere will have global economic
impacts. As a result, the United States can experience rising
prices regardless of whether or not the disrupted source is a
direct supplier.
Let me spend a couple of minutes on a few statistics. Forty
percent of our total U.S. energy consumption is oil. That
demand is expected to rise from about 20.5 billion barrels to
about 26 million barrels per day in 2020. At the same time,
U.S. domestic production will likely decline.
About 59 percent of the oil we use comes from international
sources. The International Energy Administration forecasts that
that could reach 65 percent.
Of the 12 million-plus barrels that we use daily, about
one-fourth comes from Canada and Mexico, what we would like to
say, ``our backyard,'' while the Organization of Petroleum
Exporting Countries, OPEC, provides about 42 percent. Saudi
Arabia is ranked third in terms of exports to the United
States.
The Middle East accounts for 71 percent of the world's
proven, conventional oil reserves, recognizing the large
reserves of Canadian tarsands and the great potential there and
in other regions.
Looking at the overall crude oil prices, dating back to
2003, we can look at a number of factors. OPEC production
policy, the global demand, geopolitical risks of concerns, the
limited surplus, production capacity, and a tightness in the
refining capacity.
On August 30, prices hit a high of $70.85 per barrel. For
the fourth quarter in 2005, EIA projects that that will average
about $64.42. For 2006 it will average about $64.50. Since late
February it has been hovering above $50. And this brings me to
a couple of guiding principles that we believe guide our
interaction both in terms of domestic priorities and our
relationships with partners around the world.
The President's national energy policy of 2001, emphasized
the importance of international relationships. The recently
signed Energy Policy Act of 2005 also looks to promote greater
energy security.
In implementing our energy policy we are guided by several
fundamental principles. Free market. Free market. Supply,
demand, and prices are best set by free market. Diversity of
supplies, sources, and type. Energy diplomacy. Ongoing, quiet,
effective dialog between producing and consuming countries to
facilitate a frank exchange of views, and to promote greater
understanding, energy efficiency, and conservation, two quick
ways of becoming--reducing our dependency, becoming more
efficient, and encouraging conservation.
Domestic production. Yes. We must increase oil and gas
production and we must take advantage of other energy
resources, including renewable and nuclear. Energy security is
obviously a cornerstone of our policy. We must be prepared and
ready to provide strong assurance of protection against a
severe supply disruption.
We have seen some of the impacts based on Hurricanes
Katrina and Rita, in terms of the delicate U.S. energy balance.
The Department of Energy, or DOE, works through many
cooperative arrangements and agreements to promote greater
energy security. Here in our own region, working with Mexico
and Canada through the North American Energy Working Group we
are seeking to increase the reliability by integrating our
systems. We are working with many other partners throughout the
region, including the Gulf of Guinea that we think has the
potential to play a greater role.
I want to emphasize that diversifying energy sources
through alternative energy sources is very important. Renewable
can and should play a greater role. We have many international
relationships, including IEA, or International Energy Agency.
We have a United States-Africa Energy Ministerial process.
There is a Summit of America process. There are international
agreements, also, through the IEA, over 30, looking at advanced
energy sources.
Energy diplomacy remains very important, because it is a
key element in addressing the fluctuations in the energy
market. We look to develop those partnerships and
relationships. Saudi Arabia, Qatar, Iraq, Libya, Algeria,
Egypt; all of these countries play a role in that process.
We are also working through the International Energy Forum,
an informal organization of consuming and producing countries,
to build a greater understanding of what are the key issues
impacting the energy market. And also we are encouraged by the
business forum under that organization that recognizes that the
private sector has a very important role. So we see progress
there.
Again, energy security, energy efficiency, and conservation
are very important policy tools. And we are looking to expand
the use of alternative energy sources. The Department of
Energy's budget, our international partnerships all attest to
the emphasis on alternative energy sources.
I would like to close by acknowledging that the Middle East
is and will remain a strategically vital region with respect to
national and global energy security, that true energy
independence in the increasingly global energy market appears
to be difficult to achieve in our heightened carbon-based
world, but there are opportunities for improvement. And we are
working toward that and new energy sources. And we will
continue to forge alliances and long-term research development
and deployment is quite important.
Thank you.
[The prepared statement of Mr. Person follows:]
Prepared Statement of George L. Person, Jr., Director, Office of
African and Middle Eastern Affairs, Office of Policy and International
Affairs, Department of Energy, Washington, DC
Mr. Chairman and members of the committee, I am honored to appear
before you this afternoon to talk about the important role that
petroleum plays in our economy and our foreign policy, particularly as
it relates to the Middle East.
Energy is the lifeblood of our national economic well-being, with
oil currently playing the dominant role. Oil is an actively traded
global commodity, with its price set in a global marketplace. Given the
nature of the modern market, a significant disruption in oil supplies
anywhere will quickly have global economic impacts. As a result, the
United States could experience rising oil prices as a result of a major
oil supply disruption regardless of whether or not the disrupted source
is one of our direct suppliers.
Oil currently accounts for approximately 40 percent of total U.S.
energy consumption. As our economy grows, our demand for oil will grow.
Demand is expected to rise from an annual average of 20.5 million
barrels per day (bpd) in 2005 to near 26 million bpd in 2020. At the
same time, forecasts indicate U.S. domestic oil production is expected
to fall from 5.42 million bpd in 2004 to 5.21 million bpd in 2020.
Increasingly, the United States will rely on foreign sources to meet
its oil needs. In 2005, approximately 59 percent of the oil we use in
America is expected to come from foreign sources. The most recent
Energy Information Administration (EIA) forecast suggests that our
dependence on imports could grow to 65 percent by 2020.
Put simply, the United States imports oil because we consume more
oil than we can produce domestically. Today, the United States accounts
for about a quarter of total world oil consumption. Virtually every
forecast of U.S. oil for the next 10-20 years shows trends of flat to
declining domestic supply and increasing oil product demand. This will
result in an increasing dependence on imports.
So far in 2005, the United States has had net imports of
approximately 12.1 million barrels per day of petroleum (this includes
crude oil and refined products). More than one-fourth of the imports
came from our North America Free Trade Agreement or NAFTA partners,
Canada and Mexico. An additional 700,000 barrels per day came from
North Sea producers. In 2005, Organization of Petroleum Exporting
Countries or OPEC producers have accounted for 42 percent of U.S. gross
oil imports, with Saudi Arabia and Venezuela ranked as the third and
fourth largest foreign oil suppliers, respectively.
MAJOR SOURCES OF U.S. PETROLEUM IMPORTS, 2005*
[All volumes in million barrels per day]
------------------------------------------------------------------------
Petroleum
Total oil Crude oil product
imports imports imports
------------------------------------------------------------------------
Canada........................ 2.121 1.608 .513
Mexico........................ 1.648 1.558 .09
Saudi Arabia.................. 1.597 1.522 .075
Venezuela..................... 1.59 1.329 .261
Nigeria....................... 1.131 1.041 .09
Iraq.......................... .558 .558 0.00
Algeria....................... .467 .214 .253
Russia........................ .452 .264 .189
Angola........................ .406 .399 .007
United Kingdom................ .376 .232 .144
U.S. Virgin Islands........... .326 0.00 .326
Eduador....................... .287 .278 .009
Norway........................ .242 .133 .109
Kuwait........................ .206 .198 .008
Other......................... 2.012 .898 1.114
-----------------------------------------
Total Imports........... 13.419 10.232 3.188
------------------------------------------------------------------------
* Table includes all countries from which the United States imported
more than 200,000 barrels per day in 2005. Totals may not add due to
independent rounding.
The Middle East (including North Africa) accounts for approximately
71 percent of the world's proven, conventional oil reserves. Saudi
Arabia alone holds close to one-quarter of the world's proven reserves,
with each of the other four major producers arrayed around the Persian
Gulf--Iran, Iraq, Kuwait, and the United Arab Emirates (UAE)--each
accounting for 8-40 percent of global reserves (See Figure 1). In
addition to having the heaviest concentration of oil reserves in the
world, Middle Eastern producers also have the lowest production costs
in the world.
current state of the world oil market
Crude oil prices have risen fairly steadily since early 2003,
prices having been propelled higher by a combination of OPEC production
policy, soaring global oil demand, geopolitical risks in key producing
regions, limited surplus oil production capacity, and tightness in
global refining capacity (See Figure 2). With supply already tight,
Hurricanes Katrina and Rita have had a pronounced impact on U.S. oil
supply since late August, with nearly 60 million barrels of crude oil
production and approximately 100 million barrels of refined products
having been lost to date.
The market continues to cope with questions on Gulf of Mexico
supply losses and indications of falling demand. After dropping for a
number of days to reach a low closing price of $61.36 on October 6, the
price of crude oil rose slightly and is currently hovering around $64 a
barrel on the New York Mercantile Exchange. The Energy Information
Administration's most recent forecast (October 12) calls for oil prices
(West Texas Intermediate or WTI) to average $64.42 a barrel in fourth
quarter 2005 and $64.50 a barrel in 2006. Oil hit a new high of $70.85
a barrel on August 30.
There has recently been an indication that rising oil prices have
begun to impact demand. Since the hurricanes, crude oil and product
prices have both fallen as the market tries to determine the extent of
the slowdown in demand. In its most recent forecast, the Energy
Information Administration lowered its assessment of 2005 global oil
demand by half million bpd, now projecting average world demand growth
of 1.2 million bpd this year.
Unexpectedly high demand beginning in 2004 took the oil market by
surprise. Having had a relatively healthy cushion of surplus oil
production capacity for a number of years, the market has recently had
to get used to a narrow cushion of 1 million bpd or so, with virtually
all of that located in Saudi Arabia (See Figure 3). Saudi surplus
capacity consists mostly of heavy, sour crude oil, the type of crude
oil most difficult to refine into the highly valued light products such
as gasoline and diesel fuel.
(FIGURE 1)
(FIGURE 2)
(FIGURE 3)
GUIDING PRINCIPLES
Our growing reliance on imported oil was a driving force behind the
development of the President's National Energy Policy (NEP) in 2001 and
our efforts in support of the Energy Policy Act of 2005 signed into law
by President Bush on August 8, 2005. The NEP recognized that increased
reliance on imported oil could have adverse implications for our
national security and our economic well-being, and proposed several
policy actions aimed at reducing our dependence on foreign sources of
oil through increased energy efficiency and increased domestic
production, including through the Arctic National Wildlife Refuge or
ANWR.
In implementing our energy policy, we have been guided by several
fundamental principles:
Free Market: We are guided by the belief that issues of
supply, demand, and price are best settled by the free market.
Diversity of Supply: To meet our long-range energy needs, we
must expand and diversify our sources of energy, especially oil
and natural gas, and through the research, development, and
deployment (RD&D) of alternative energy sources.
Energy Diplomacy: Ongoing, quiet dialogue has proven to be
the best vehicle for our interaction with producing countries,
enabling us to frankly exchange views on oil market
developments and to promote a greater understanding of key
issues.
Energy Efficiency and Conservation: Two of the most
expeditious ways to enhance current supply are to become more
efficient in how we use energy and to encourage energy
conservation.
Domestic Production: One of most immediate ways we can
reduce reliance on foreign oil is to increase our reliance on
domestic producers--the United States needs to produce more oil
and gas, as well as take advantage of other energy resources,
including renewables and nuclear.
Energy Security: Given our dependence on imported oil, it is
essential that we provide strong insurance against the
possibility that the flow of international oil could be
interrupted.
I will touch briefly on those principles that are particularly
pertinent to today' s discussion.
DIVERSITY OF SUPPLY
The development of additional energy sources has become
increasingly critical as recent events such as Hurricanes Rita and
Katrina have demonstrated the delicate balance that characterizes the
U.S. energy market. The current market tightness is heightened as oil
demand continues to grow, so access to additional energy sources is
critical to both global and U.S. energy security. The Energy Policy Act
of 2005 reaffirms the importance of building and strengthening
international alliances to advance foreign policy objectives, including
national and global energy security and economic growth. The DOE is
strengthening our energy security by identifying and working to develop
energy opportunities around the world. The DOE encourages cooperative
trade arrangements to develop new resources, as well as maintains and
establishes dialogue with major consumers, such as the Group of Eight
(G-8) countries, China and India, to reduce oil demand growth; monitor
market developments; and respond to supply disruptions.
Through initiatives such as the North American Energy Working Group
(NAEWG) involving the United States, Mexico, and Canada, we work with
our immediate neighbors to enhance reliability by facilitating critical
infrastructure protection, better integrating our energy systems. NAEWG
convenes regularly to discuss issues such as critical infrastructure,
energy efficiency, natural gas and electricity. DOE staff recently met
with Canadian Government and industry officials to discuss the
potential for Canada to increase natural gas supplies to the United
States this winter.
During the summer of 2005, the DOE organized a Colombia Oil and Gas
Investment roundtable and conference to assist in attracting U.S.
investment in the Colombian hydrocarbons sector. These events not only
supported President Bush's commitment to President Alvaro Uribe, but
also promoted energy supply diversification.
The DOE has also continued to cultivate relationships with more
distant, non-Middle East suppliers such as the resource-rich Caspian
States. The United States-Kazakhstan Energy Partnership met as recently
as September 2005 to further advance bilateral energy cooperation on
energy security, oil and gas, electric power, nuclear energy, and
alternative energy technologies. Similar partnerships exist with Russia
and Azerbaijan, and the DOE also works with Turkey to facilitate energy
transportation through infrastructure development in the region.
The DOE's efforts to diversify energy sources cover every region of
the world, and this summer the United States-Indonesia Energy Policy
Dialogue met in Jakarta to advance oil and gas, electric power, and
coal sector cooperation. The DOE is actively supporting the objectives
expressed in the White House joint statement issued during the state
visit of President Yudhoyono in May 2005, wherein the Governments of
the United States and Indonesia pledged to deliver a progress report on
energy investment and regulatory issues under the Energy Policy
Dialogue to Presidents Bush and Yudhoyono.
Additionally, the DOE has been meeting with American oil companies
involved in oil and gas production operations in the Gulf of Guinea.
Nigeria's importance as the fifth largest oil supplier to the United
States has made recent unrest in the oil-rich Niger Delta an energy
security concern, and we will address these developments at the
bilateral energy consultations scheduled with Nigerian officials in
November 2005 in Washington, DC. Other issues to be discussed include
the recent oil bid licensing round, planned increases of Nigerian oil
production, gas flaring elimination, and construction contractor needs,
including international competition for rigs and services. The DOE is
also working to strengthen our bilateral relations with other African
oil producers in the Gulf of Guinea and Angola. We continue to promote
good governance and greater transparency in Equatorial Guinea, Sao Tome
and Principe, Cameroon (and Chad via their pipeline) and Gabon. Angola
currently provides 4 percent of our imports. That number could double
in the next 5 years.
Even DOE activities with nations of the Middle East are focused on
diversification of energy sources both in terms of sources and types of
fuel. Recent meetings with Libyan officials focused on development of
oil, liquefied natural gas (LNG), and hydrogen. As per the increased
focus on LNG in the Energy Policy Act of 2005, the DOE is working to
develop relationships with LNG suppliers while the Federal Energy
Regulatory Commission (FERC) streamlines the approval process for LNG
infrastructure.
In addition to pursuing relationships with non-Middle East energy
suppliers, it is important to acknowledge the significant efforts by
the DOE to diversify energy supply through alternative energy sources.
Development of renewable generating capacity in the United States can
greatly relieve pressures on markets for conventional energy sources
over time, and supporting similar measures in other countries can
mitigate global demand growth for traditional fuels. In the
transportation sector, development of alternative fuels such as
hydrogen and ethanol could curb the world's growing appetite for oil
while reducing greenhouse gas emissions. In the power sector, enhanced
use of nuclear and renewable electricity generation and clean-coal-
fired powerplants could reduce greenhouse gas emissions as well as
demand for natural gas. Several offices within the DOE and the national
laboratories cooperate to research and develop domestic alternative
energy applications and form domestic and international partnerships
for the advancement of such technologies.
Multilaterally, including through organizations such as the
International Energy Agency (IEA), Nuclear Energy Agency, and Asian
Pacific Economic Cooperation (APEC) and initiatives such as the
Hemispheric Energy Initiative and African Energy Ministerial, we are
successfully leveraging financial and technical resources to pursue
common energy goals, including energy diversification. The IEA was
founded, specifically, to help member countries reduce dependence on
imported oil through the development of alternative sources as well as
through improved energy efficiency. Through more than 30 IEA
Implementing Agreements, member and nonmember governments pool
resources for the research, development, and deployment of nonfossil
energy technologies. Some of these programs include the IEA Clean Coal
Centre, the Energy Conservation in Buildings and Community Systems
Program, the Advanced Motor Fuels Program, and the IEA Bioenergy
organization. The United States is also spearheading or participating
in international initiatives such as the International Partnership for
the Hydrogen Economy (IPHE), the Carbon Sequestration Leadership Forum
(CSLF), the international engagement of GEN-IV nuclear powerplant
design, the Clean Energy Technology Exports (CETE) initiative, the
International Thermonuclear Experimental Reactor (ITER) consortium, and
the FreedomCAR and Fuel Partnership.
ENERGY DIPLOMACY
In both times of crisis and times of quiet, active energy diplomacy
has remained a key ingredient in our efforts to deal with fluctuations
in the energy markets. We work on a regular basis with our allies in
Europe and Asia, and through international organizations like the
International Energy Agency, to share information, to coordinate our
energy policies, and to discuss advances in energy technology. We
continue our efforts with producing and consuming nations, and
developing countries to improve oil market data for more efficient
markets.
We have strong bilateral relationships with various oil producers
throughout the Middle East and North Africa. For instance, Saudi Oil
Minister Naimi and the Secretary of Energy cochair an annual forum
(most recently this past May) on oil security sponsored by the Center
for Strategic and International Studies and we have regular energy
bilateral consultations at the working level with our counterparts in
the Saudi Oil Ministry. The DOE also participated in this year's United
States-Saudi Trade Mission, which sent Saudi representatives to several
U.S. cities to meet with industry officials to encourage investment in
Saudi Arabia.
Qatar is another important bilateral partner--we held working-level
bilateral meetings with Qatari energy officials this past May, and we
often meet with Qatari officials or with U.S. industry representatives
invested in Qatar, regarding natural gas development. We are actively
engaged with the Iraqi Oil Ministry, seeking ways that we can be of
assistance in the Ministry's efforts to revitalize the Iraqi oil
industry. The U.S. Department of Energy has a good relationship with
our counterparts in Kuwait as well, and the Kuwaiti Ministry of Oil has
recently asked DOE to renew our annual bilateral dialogue.
In North Africa, we have moved quickly to take advantage of renewed
relations with Libya, helping ease the reentry of U.S. oil companies
after being absent for so long. Our relationship with Algeria is
particularly strong, and we continue to cooperate with the Algerian
Ministry of Energy on solar technology, liquefied natural gas, and
regional energy development. DOE also has extensive interactions with
Morocco on renewable energy through our technical assistance and
advisory role in the creation of the regional renewable energy center
in Marrakech. Morocco played an important role in cohosting the last
United States-African Energy Ministerial in 2002 and continues to be a
valuable partner on regional energy issues. With Egypt, we have
developed a firm relationship in recent years based on trade policy and
science and technology, and Egypt has recently become active in the
CSLF and earlier this year exported LNG for the first time.
Our energy diplomacy extends to a multilateral level as well. For
instance, the International Energy Forum (IEF) has become a key fixture
over the past several years in fostering relations between consumers
and producers. Next month, Secretary Bodman will attend the
inauguration of the IEF Secretariat in Riyadh. The IEF Secretariat was
proposed by Saudi King Abdullah at the IEF meeting in Riyadh in
November 2000, and Saudi Arabia has played a key role in its formation.
We hope to play an increasingly active role in the Secretariat as it
continues to develop its role and mission. We are encouraged by the
progress, while recognizing that the United States could play a more
active role in the coming years.
Of particular importance, the IEF Secretariat will direct the Joint
Oil Data Initiative or JODI, which is an effort involving nearly 100
countries to create a more transparent, efficient world oil market by
providing better information to market participants. The next IEF
biennial meeting will take place in April in Doha, Qatar, bringing
together ministerial-level officials from 60-70 global energy producers
and consumers. The meeting will focus on developing a common view on
energy security and methods of enhancing investment in oil production.
Notably, at the last IEF held in May 2004 in Amsterdam, the first
Business Forum was held between Ministers and chief executive officers
of major international and national oil companies. We believe that the
Business Forum reinforces the important role of the private sector in
terms of providing the necessary capital and expertise that will
facilitate expanded oil and gas productive capacities to meet the
growing global energy demand.
With a view of promoting greater access, we want to encourage
goverment around the world to create a favorable investment climate
that will facilitate increased oil and gas exploration and production
to meet global energy demand and to advance economic imperatives for
those producing countries. As the role for natural gas increases in the
energy equation for the United States and other countries, LNG and gas-
to-liquid technologies may eventually help to globalize regional gas
markets. There are significant opportunities and, obviously, some
challenges in terms of energy supply diversification and security.
ENERGY SECURITY
As we strive to enhance supply around the world and become more
efficient in how we use energy at home, it is still essential that we
be able to take quick action to assure supply in the event of an
emergency. Our relationship with the International Energy Agency, which
grew out of the Arab Oil Embargo of 1973, is now over 30 years old. The
IEA now has 26 member nations, all committed to holding oil reserves
and to taking common action to address the ill effects of oil supply
disruptions. The strength and promise of the IEA was demonstrated only
last month, as the IEA acted quickly to supplement supply in the
followup to Hurricane Katrina and its impact on U.S. gulf oil
production and refining.
On September 2, IEA members implemented a response action in the
amount of 2 million bpd for a period of 30 days. Given the loss of
refined products due to the storm, IEA members were asked to emphasize
the drawdown of petroleum products where possible. There's little doubt
that the IEA action contributed to the recent record level of gasoline
imports into the United States.
ENERGY EFFICIENCY AND CONSERVATION
Energy efficiency and conservation are important tools, which we
are utilizing to help reduce U.S. dependence on oil and gas. Through
various domestic and international programs and mechanisms, the United
States is actively working to promote greater efficiencies throughout
the energy value chain and especially in the transportation and end-
user sectors.
For example, we are promoting higher energy efficiency standards
for new buildings and energy efficiency ratings for homes. The Energy
Policy Act of 2005 strengthens this effort by providing new tax
incentives for a number of solar and energy efficiency measures in
residences. It provides tax deductions for highly efficient commercial
and residential buildings. It also promotes installation of residential
and commercial fuel cell systems.
The Federal Government is also taking a role in promoting energy
conservation within the government. On September 26, the White House
directed the heads of executive departments and agencies to take
appropriate actions to conserve fuel and electricity through promotion
of carpooling, telecommuting, and use of public transportation. Federal
agencies also were directed to take action to conserve natural gas and
electricity during periods of peak consumption by shifting energy-
intensive activities to nonpeak periods wherever possible and by
procuring and using efficient Energy STAR-rated energy intensive
appliances and products.
On October 3, Secretary Bodman kicked off a comprehensive national
campaign to highlight how American families, businesses, and the
Federal Government can save energy in response to rising winter energy
costs. Entitled ``Easy Ways to Save Energy,'' the effort provides
consumers, industry, and Federal agencies with a variety of energy
saving ideas, which, if done properly, can yield significant savings.
With a view of a global energy market and economy, through
bilateral and multilateral arrangements, including ministerial
dialogues, we work with various partners, including China and India and
countries in this hemisphere and other regions to promote energy
efficiency and conservation and effective natural resource management
to help reduce energy demand and to enhance global energy security. We
recognize, and will be pursuing, other energy saving measures, which we
believe will directly or indirectly impact the U.S. energy security
equation.
CONCLUSION
While recognizing promising discoveries and production in other
regions, in a hydrocarbon-based economy, the Middle East is, and will
remain, a strategically vital region with respect to national and
global energy security. Yes, the United States and other countries
could reduce foreign oil dependence. However, true energy independence
in an increasingly global energy market appears to be difficult to
achieve in our hydrocarbon-based world.
Therefore, we will continue to forge stronger alliances around the
world, including in the Middle East, and to strengthen cooperation
based on shared goals and interests. We will continue to promote energy
security through diversification of supply and sources, through long-
term R&D in alternative energy technologies, and through greater energy
efficiency and conservation.
Both looking and working toward a long-term future, one with
increased energy options and stronger alliances, the possibilities are
very promising.
Thank you.
Senator Chafee. Thank you, Mr. Person.
Mr. Misenheimer, welcome.
STATEMENT OF ALAN GREELEY MISENHEIMER, DIRECTOR, OFFICE OF
ARABIAN PENINSULA AND IRAN AFFAIRS, BUREAU OF NEAR EASTERN
AFFAIRS, DEPARTMENT OF STATE, WASHINGTON, DC
Mr. Misenheimer. Thank you. Mr. Chairman, I do not have a
prepared statement. I will offer a couple of observations, if I
may.
Senator Chafee. Yes. You may have to lean closer to your
microphone or push the button.
Mr. Misenheimer. Push the button. That works.
Senator Chafee. I made the same mistake. [Laughter.]
Mr. Misenheimer. Thank you. It is certainly the case that
oil and energy sources have played a major role in U.S. foreign
policy in the Middle East going back many, many years. Our
relations with the countries of the region are different. Each
of the countries, even the very small ones, has a unique and
idiosyncratic history.
I will just say a couple of words about our relations with
Saudi Arabia, being the largest producer, and also the country
with which our government has had the longest and, I would
venture to say, the most successful partnership.
Our relations go back many years and continue, really, to
be based on a model worked out by President Roosevelt with the
founding king of Saudi Arabia, King Abdul Aziz. And the model
was fairly simple. The Saudis would ensure a consistent supply,
and the United States would provide security for Saudi
interests in the region. And that model served us fairly well.
After 9/11 things have certainly changed and I am happy to
go into that in ways that you might wish. But I would just say
that in the aftermath of 9/11, the relationship has become much
more complicated; and the need to combat terrorism originating
in the Middle East, originating in Saudi Arabia, as well as
other places in the Middle East, has become part of what both
divides and unites us with the Saudi Kingdom. And those efforts
are proceeding cooperatively and fruitfully in many areas, not
least in the area of terrorist financing.
We have, in a very sustained way, worked with the Saudis to
clarify the flow of funds and to rectify past inefficiencies
that made it possible for funds to flow relatively easily to
terrorist sources. And in the aftermath of 9/11, this has been
one of the successful areas of international intervention that
we have undertaken in that region.
With that, I will stop and be glad to respond to questions.
Senator Chafee. Thank you very much. I will start my first
question, we will go with Mr. Misenheimer, in the opposite
direction. Mr. Gallogly said in his statement that technology
will be the key to significantly improving our energy security.
And what a worthwhile goal. Energy security. And technology is
going to be the key.
Our next panel there is going to be a lot of talk about
that technology and that it is achievable, and that, indeed, it
is--just for the will, political will, it is present. Yet, none
of you three mentioned that technology in any specifics. And I
am sure the next panel we are going to hear about biomass and
about hybrid, and even plug-in hybrids, and switch grass, and
this type of technology.
Why was there no mention of that from you so much? And then
I will let the others speak for themselves.
Mr. Misenheimer. Mr. Chairman, I probably have the least to
say on that subject. I have to be frank with you and admit that
my purview is primarily the nonenergy aspects of our relations
with the Middle East.
It is simply the overriding reality that we have to face
that, as long as our economy is as it is, Middle East oil will
remain important. Certainly neither my bureau nor I would
venture to say the State Department has any opposition to new
technology. And certainly we do welcome alternative energy
development.
My responsibility, the responsibility of my bureau, is to
address the interests of the United States as we find them
today. And one of the key interests is the stability of oil
imports coming from the Persian Gulf region. And that is,
again, an aim that we pursue with a variety of policies--both
specifically in the energy field, and branching further afield
in many areas--to ensure the security of those relationships
and specifically of the infrastructure that produces and
exports the energy sources.
Senator Chafee. Would it make your job easier if there was
more effort put toward the development of this technology?
Mr. Misenheimer. Mr. Chairman, it is hard for me to go in a
hypothetical direction like that. Certainly, it would change
it, though.
Senator Chafee. Very good. I recognize you are a diplomat,
not a technocrat. [Laughter.]
Mr. Person, any efforts in your Department to push us
toward that, I am sure the second panel is going to be talking
about?
Mr. Person. Yes, Mr. Chairman. I should note that my formal
presentation, obviously, is a subset of my written testimony,
which does, at least, touch on those issues in greater detail.
As I mentioned, the DOE budget reflects an emphasis on
alternative energy sources and whatnot. We are actually
involved in many activities and programs through our Energy
Efficiency and Renewable Energy Office, through our Office of
Science, as well as some other offices, and then also our
international activities.
Through the International Energy Agency we have over 30
implemented agreements that seek to advance these various
technologies. We also have programs within the Department with
national laboratories, public/private sector relationships,
also, advancing many of these activities.
There is Freedom Car. There is geothermal. There is
hydrofuel cell technology. There is bioenergy. There are a host
of other things, also, that we are looking to do. Compressed
natural gas for the transportation sector. My office has been
involved in many of those programs in different parts of the
world, as well as the science and technology portfolio. So I
realize that we are putting quite a bit into that area as well.
When I briefly looked at the DOE budget, I saw nearly $7
billion going toward science and other areas that will advance
this important goal.
Senator Chafee. Well, thank you, Mr. Gallogly. You are the
Director of the Office of International Energy and Commodity
Policy in the Department of State. So I will expand on my
question a little bit.
Thirty years ago Brazil was heavily dependent on foreign
oil. It imported about 80 percent of its crude oil, and by
comparison, the United States imports about 60 percent.
Combining strong public policy, leadership, and a free market,
Brazil is now projected to be a few weak years away from self-
sufficiency. Nearly 40 percent of all fuel Brazilians put into
their cars is ethanol. In comparison, in the United States,
about 3 percent of fuel is ethanol.
What are the factors that lead to Brazil's success in this
effort? And are we making any effort to follow in the same
footsteps?
Mr. Gallogly. One of the--there is a difference--I am not
an expert in ethanol production, but Brazil is better suited
for more efficient and economic ethanol production than other
areas--than many other areas of the world. The climate and the
soil. So that was one angle. And they made a full national
commitment.
We have done in recent years, and over the last--this
administration and previous administrations increased
significantly, albeit from a very small base, the introduction
of ethanol and subsidies for ethanol to bring ethanol into the
market and increase ethanol production.
But the choices made over the last 30 years in terms of we
did not go to an ethanol-only approach as Brazil, and we can go
back and look back and maybe secondguess some of those choices
over the decade. But in a sense, when I talk about the future
being the technology, we need to work on this energy security
every day.
We did try--there were a lot of alternative fuel efforts
and a lot of technology efforts over the last 30 years. Some
bore better fruit than others. And we are continuing that.
This is a daily struggle that we have to continue every day
to move closer to improvement every day, incremental. And the
other policies that we are pursuing are in the meantime,
because this is not--these technologies are not completely
readily available today, but to the extent that we increase
their availability and use, we are improving our energy
security.
Senator Chafee. Brazil is doing it, but they are not
readily available? What is the difference? That they have more
sugar?
Mr. Gallogly. Brazil is able to produce ethanol at a lower
cost, is my understanding, than the United States. They have
more land available. Also, our gasoline consumption--I do not
have Brazil's numbers off the top of my head, but my guess is
that their consumption--our consumption is probably roughly 10
times their level of production, or in some factor thereof. And
it would take--ethanol is a lot more expensive.
It would take devoting a lot more agricultural land to
ethanol to match. There are questions of whether that would be
feasible or matchable in the United States at a reasonable
economic cost. Again, this is not a decision to be made by
someone from the State Department, but these economic factors
would have to come into hand in making that examination.
Senator Chafee. Just, to a layman, it would appear to me
that if we could help the farmers, maybe that is a good thing
to get us off some subsidies. Mr. Person, did you want to
respond?
Mr. Person. Yes. Thank you, Mr. Chairman. I would like to
emphasize that we actually have an energy-working group with
Brazil where we are looking at these types of activities, where
biodiesel--and we are looking at these different sources for
biofuels. So we are actually recognizing that Brazil could
bring something to a more global market in terms of its
production of ethanol and other, I would say, farm crops and
whatnot, for fuel purposes.
So again, with Brazil, through the IEA, we also have a
biofuels agreement involving many countries. So we are looking
to demonstrate that in the marketplace, expand the use of those
types of sources as well.
Senator Chafee. Is there any discussion in the Department
of Energy about when oil reaches a certain cost per barrel
where there is going to be more of an effort put into this?
Hypothetically, if it goes to $80 a barrel, I mean, are you
ready to push a new plan or just laissez-faire, we will
approach it as it comes?
Mr. Gallogly. Again, as I noted earlier, we believe in free
market principles, in terms of setting of price. If you were to
ask me a year ago would we be looking at $70 prices, I would
have told you, ``No.'' I would have told you that would have
been a trigger for displacement, or whatnot.
So we recognize that the global economy is rather
resilient, in terms of adjusting to some of these things. So
there is no particular price trigger. But we believe a
consistent sustained effort will eventually lead to a
displacement of fossil fuel by other energy sources. When that
will happen, how fast we can accelerate that, those are all
considerations that we are working to pursue.
Senator Chafee. Well, I would agree in general to let the
market work, but when you mix in our alliance in this crucial
volatile area of the Middle East, that is when I think
government should get involved and be pushing us in that
different direction.
Mr. Misenheimer, your Department deals with Iran from your
Office of Arabian Peninsula and Iran Affairs. Now Iran has,
according to Mr. Person's chart, the third highest reserves in
the world, behind Saudi Arabia and Canada, according to this
chart on page 11 of his testimony. What are our policies with
Iran, and considering their status in the world ranking of
reserves?
Mr. Misenheimer. Iran, of course, is benefiting from the
current high energy prices, as the other oil- and gas-exporting
countries are. Our policies, however, are not focused primarily
on Iran's status as an energy producer. I would say mainly
because the importation of oil is primarily a private sector
function, and the nature of the international oil and energy
market is that it is a private sector matter rather than a
government-to-government transaction, or typically conducted as
government-to-government transactions.
So, when we look at Iran, our focus has been on other
American interests in that region and other concerns. And, of
course, since 1979, the tenor of our relationship with Iran has
been very negative. It has, in fact, changed rather little
since that time. It is almost remarkable how static it has
been.
We do not have very much government-to-government contact.
We can have that when we need to. But the focus of our policies
has been primarily on urging Iran to improve its human rights
record at home. Recognizing that many Iranians are not
satisfied with the government that they have, and that there is
a large sentiment, widely held sentiment among younger
Iranians, in particular, that it is favorable to the United
States.
And we have tried to use that to spur democratic change and
to support the democratic aspirations of the Iranian people,
even as we work to counter their interference in other
countries in the region, the threat that they pose through
their support for terrorism in the Middle East, and most
recently, of course, their interference directly in Iraq.
And I finish with the one that has gotten by far the most
press coverage, and that is appropriate, and that is the
Iranian nuclear program, which over the last couple of years
has been found to be clearly in violation of Iran's commitments
under the Nonproliferation Treaty, and something that we
believe poses a serious threat to regional stability and
American interests. And we put a great deal of diplomatic
effort into building an international consensus to isolate and
pressure Iran to change its behavior in that regard.
Senator Chafee. Do we, in the United States, import any
Iranian oil either directly or indirectly through third and
fourth parties?
Mr. Gallogly. We do not import any Iranian oil. It is
against the law to import Iranian oil. Now if the product
were--if it came in a refined product, in mixed--I mean if it
can be identified as Iranian oil, it is illegal to import
Iranian oil to the United States.
Senator Chafee. Who are their consumers?
Mr. Gallogly. Western Europe and Japan. Asia. Japan and
Asia. India.
Senator Chafee. And do you, Department of Energy and
Department of State, get together on these issues often, our
dependence on foreign oil and the dangers associated with it,
and try and coordinate a national policy?
Mr. Gallogly. We are literally in daily contact. There is
always someone from the State Department and someone from DOE
working, as we are at this moment. But there are people in
Paris at IEA meetings today from DOE and the State Department
working together on our policies, and people from the State
Department and DOE in South Korea now at an APEC ministerial
meeting finishing up there.
So we are constantly working together in Washington and
other capitals. George and I work closely on producer/consumer
issues, and we work regularly. So we are all looking at these
things. That is what we worry about and work together on.
Senator Chafee. Well, thank you very much. I am looking
forward to the second panel. They are going to probably say
that it is all right there, but for the asking. But we will see
on the second panel.
Thank you very much, gentlemen, for your testimony.
Mr. Person. Thank you very much.
Mr. Gallogly. Thank you.
Senator Chafee. Now we will welcome the second panel.
[Pause.]
Senator Chafee. Welcome, Dr. Luft, Mr. Ebel, and Mr.
Collina. The last panel was probably the defenders of the
status quo and you are the attackers of the status quo. Maybe I
am assuming too much. Let us start with Dr. Luft.
STATEMENT OF DR. GAL LUFT, CODIRECTOR, INSTITUTE FOR THE
ANALYSIS OF GLOBAL SECURITY, COCHAIR, SET AMERICA FREE
COALITION, WASHINGTON, DC
Dr. Luft. Thank you, Mr. Chairman, for convening this
hearing. Since 1945, the meeting--famous meeting between
President Roosevelt and King Ibn Saud, the United States
foreign policy has been subservient to the Nation's energy
needs, access to the Persian Gulf robust, and costly military
presence in the region and frequent intervention.
It also forced us to coddle some of the world's worst
despots just because we needed their oil. But in the wake of
the war on terrorism, the rise of developing Asia, and the
growing voices within the oil industry, the era of easy oil is
over. America is finally waking up to the reality that our oil
policy is unsustainable and that such policy subjects us to
grave risks. Those developments require that we take a sober
long-term look at the impact of our growing oil dependence on
our strategic posture and what that does mean for our future.
I would like to suggest to--give you three observations
about where we are and where we are heading. Observation number
one is that oil prices are not going down any time soon and our
economy is bleeding as a result. At the same time, oil-
producing nations increased their revenues dramatically. In the
past 4 years oil prices tripled and as a result we have been
seeing a transfer of wealth of historical proportions from
consumers to producers. This windfall benefits not only the
nondemocratic regimes in the Middle East, but also the
jihadists, who are committed to America's destruction as
petrodollars trickle down their way through charities and
government handouts to madrases and mosques.
In fact, we are locked in an odd situation in which we are
fighting a war on terrorism and we are paying for both sides of
the war. We finance the defense of the free world against its
enemies through our tax dollars and at the same time we support
unsavory regimes through the transfer of petrodollars. If we do
not change course, our power will be eroded and those who wish
us harm gather strength.
The second observation is that due to the rise of China and
India, the Middle East is gradually and slowly shifting from
being a unipolar system, in which the United States enjoys
uncontested hegemony, to a multipolar region. By 2015 the
Middle East will supply about 70 percent of Asia's oil. This
means that solidifying relations between Asian countries and
the Middle East, which could sometimes be to the detriment of
our security interests.
The prospect of a region scarred by decades of rivalries
turning once again into an arena of competition between
superpowers could be one of the most important geostrategic
developments of the 21st century, with profound implications
for U.S. national security.
The third observation is based on the first two, that
America's current oil policy is inconsistent with the hallmark
of the Bush administration's foreign policy that is bringing
democracy and political reform to areas where democracy is in
deficit. Oil revenues help dictators sustain an antidemocratic
system and resist change. Our dependence on oil prevents the
United States from expressing its true feelings about the
conducts and practices of oil-producing countries.
Only last month the administration waived sanctions against
Saudi Arabia and Kuwait, two of the world's worst offenders in
human trafficking. The explanation was that it is in U.S.
interest to continue democracy problems and security
cooperation in the war on terrorism. Now, I could only wonder
if these two countries would have received the same treatment
had they been major exporters of watermelons instead of oil.
Dictators who view democracy with suspicion do not like to
be pressured to reform, especially when U.S. pressure could
bring an end to their regimes. They prefer selling their oil to
the Chinese, who do not lecture them on democracy and human
rights, and who turn a blind eye on the way petrodollars are
used.
Mr. Chairman, based on these observations, it is essential
that we begin to view our political--view our political
situation in the context of our oil dependence, and realize
that it will be extremely difficult to win the war on terror
and spread democracy around the world as long as our energy
policy remains as it is.
It is in our national interest to do all we can to
extricate petroleum from our foreign policy calculus.
Unfortunately, as long as we rely on oil, there is no real
alternative to dependence on Middle East oil. But there are
clearly alternatives to oil, particularly in the transportation
sector, where two-thirds of our oil is being consumed.
I would like to submit for the record the blueprint for
energy security, drafted by the Set America Free Coalition,
which is a bipartisan alliance of foreign policy and national
security think tanks, environmental groups, religious groups,
labor unions, and prominent Nobel-winning scientists.
This out-of-the-barrel energy policy proposal suggests an
accelerated shift toward an economy based on indigenously
produced next-generation fuels, such as methanol, ethanol, and
biodiesel derived from abundant domestic energy resources, such
as coal, biomass, and municipal waste. You mentioned Brazil,
and Brazil is a very good case study that this can be achieved.
Flexible-fuel vehicles can run on any combination of
gasoline and alcohol, such as methanol and ethanol. Nearly 4
million of them are already on the road. American auto
companies know how to make them and they are very cheap to
make. They only cost about $150 extra per car. And there is no
reason in the world why every new car sold in the United States
should not be a flexible-fuel car.
Now where do we get the fuel? Without a doubt, as long as
corn is the main feedstock used to make ethanol, the domestic
ethanol industry will never be able to supply a significant
portion of the Nation's fuel needs. But if we are serious about
biofuels we must begin to import sugar-based ethanol from Latin
America. Sugarcane is by far the most efficient crop for
ethanol production and it is why Brazil succeeded.
But today stiff import tariffs imposed by Congress prevent
large-scale imports. Congress should remove those tariffs.
Simply, it just does not make sense to tax ethanol coming in
from our friendly neighbors in Latin America when we do not tax
oil imported from nearby Venezuela or from Saudi Arabia, which
would also work to electrify our transportation system.
Made-in-America electricity can be a substitute for oil.
The currently available hybrid technology can be taken one step
further, allowing consumers to tap into our electricity grade
by plugging in their car.
The Set America Free blueprint holds that if the plug-in
hybrid vehicle is also a flexible-fuel vehicle fueled with let
us say 80 percent alcohol and 20 percent gasoline, fuel economy
could reach 500 miles per gallon of gasoline. Set America Free
also holds that a massive deployment of such technologies could
reduce U.S. oil imports by as much as 12 million barrels a day
by 2025, which is more than we import today.
All of these technologies are either already in the market
or very close to commercialization. The American people will be
better served if instead of pouring billions of dollars into
pie-in-the-sky solutions like hydrogen fuel cells we use the
funds to promote hybrid technologies, which could address the
dependence on foreign oil sooner rather than later.
Thank you.
[The prepared statement of Dr. Luft follows:]
Prepared Statement of Dr. Gal Luft, Executive Director, Institute for
the Analysis of Global Security (IAGS), Cochair, Set America Free
Coalition, Washington, DC
Mr. Chairman, members of the committee, I would like to thank you
for inviting me to brief you on the implications of U.S. growing
dependence on Middle East oil for our foreign policy and national
security.
As consumer of a quarter of the world's oil supply and holder of a
mere 3 percent of global oil reserves the United States is heavily
dependent on foreign oil and a growing share of this oil comes from the
Persian Gulf. America's dependence on foreign oil has increased from 30
percent in 1973, when OPEC imposed its oil embargo, to 60 percent
today. According to the Department of Energy this dependence is
projected to reach 70 percent by 2025. In the wake of the war on
terrorism, the rise of China and India and growing voices within the
oil industry that ``the era of easy oil is over'' it has become
apparent to many that America's oil policy is unsustainable and that
such a policy subjects the nation to grave risks.
Since the 1945 meeting between President Franklin Roosevelt and
King Abdul Aziz ibn Saud, the founder of the Saudi monarchy, U.S.
foreign policy has been subservient to the nation's energy needs.
Access to the Persian Gulf oil required robust and costly military
presence in the region and frequent interventions. Worse, the United
States has been forced to coddle some of the world's worst despots just
because they held the key to our prosperity hence compromising American
values and principles.
Of the 11 million barrels per day (mbd) the United States imports,
today, close to 3 mbd come from the Middle East. But in the years to
come dependence on the Middle East is projected to increase by leaps
and bounds. The reason is that reserves outside of the Middle East are
being depleted at a much faster rate than those in the region. The
overall reserves-to-production ratio--an indicator of how long proven
reserves would last at current production rates--outside of the Middle
East is about 15 years comparing to roughly 80 years in the Middle
East. According to Exxon Corporation and PFC Energy, non-OPEC
production, including Russia and West Africa, will peak within a
decade.\1\ At that point the amount of oil found outside of the Middle
East will decline steeply, putting OPEC in the driver seat of the world
economy.
---------------------------------------------------------------------------
\1\ Exxon president predicts non-OPEC peak in 10 years, Oil and Gas
Journal, Dec. 13, 2004.
---------------------------------------------------------------------------
These projections require that we take a sober long-term look at
the impact of our growing dependence on our strategic posture in the
Middle East.
Oil prices are not going down any time soon. The rise in oil prices
will yield large financial surpluses to the Middle Eastern oil
producers. This petrodollar windfall will strengthen the jihadists
while undermining the strategic relationship the region's oil producers
have with the United States.
As President Bush said last April, U.S. dependence on overseas oil
is a ``foreign tax on the American people.'' Indeed, oil imports
constitute a quarter of the U.S. trade deficit and are a major
contributor to the loss of jobs and investment opportunities. According
to a study on the hidden cost of oil by the National Defense Council
Foundation, the periodic oil shocks the United States has experienced
since the 1973 Arab oil embargo cost the economy almost $2.5 trillion.
More importantly, while the U.S. economy is bleeding, oil-producing
nations increase their oil revenues dramatically to the detriment of
our national security. The numbers speak for themselves: In November
2001, a barrel of oil was selling for $18; in less than 4 years the
price jumped to $70. This means that Saudi Arabia, which exports about
10 mbd, receives an extra $\1/2\ billion every day from consuming
nations and Iran, which exports 2.5 mbd, an extra $125 million. This
windfall benefits the nondemocratic governments of the Middle East and
other producers and finds its way to the jihadists committed to
America's destruction as petrodollars trickle their way through
charities and government handouts to madrassas and mosques, as well as
outright support of terrorist groups.
It is widely accepted that Saudi Arabia's oil wealth has directly
enabled the spread of Wahhabism around the world. The Saudis use oil
funds to control most of the Arabic language media and are now moving
to gain growing control over Western media. Only last month Saudi
Prince Al-Waleed bin Talal, the world's fifth richest man, purchased
5.46 percent of Fox News corporation.
Petrodollars garnered from the United States and other countries
are also being used by Saudi Arabia systematically to provide social
services, build ``Islamic centers'' and schools, pay preachers'
salaries and, in some cases, fund terror organizations. In July 2005
Undersecretary of the Treasury, Stuart Levey, testifying before the
Senate Committee on Banking, Housing, and Urban Affairs noted ``Wealthy
Saudi financiers and charities have funded terrorist organizations and
causes that support terrorism and the ideology that fuels the
terrorists' agenda. Even today, we believe that Saudi donors may still
be a significant source of terrorist financing, including for the
insurgency in Iraq.''
The United States in an odd situation in which it is funding both
sides in the war on terrorism. We finance the defense of the Free World
against its sworn enemies through our tax dollars. And at the same time
we support hostile regimes through the transfer of petrodollars. If we
don't change course we will bleed more dollars each year as our enemies
gather strength. Steady increase in world demand for oil means further
enrichment of the corrupt and dictatorial regimes in the Persian Gulf
and continued access of terrorist groups to a viable financial network
which allows them to remain a lethal threat to the United States and
its allies.
The Middle East is gradually shifting from being a unipolar region
in which the United States enjoys uncontested hegemony to a multipolar
region. The United States will face more competition from China and
India over access to Middle East oil.
Throughout its history, the Middle East has been the center of an
imperial tug of war with major implications for the region's
inhabitants. This was the case during the cold war years. In the decade
after the fall of the Soviet Union the United States enjoyed
uncontested hegemony in a unipolar Middle East. The rise of China and
India is driving the Middle East back to multipolarity. In the coming
years the Middle East will turn increasingly to Asia to market its oil
and gas. By 2015 it will provide 70 percent of Asia's oil. By far the
most important growth market for countries like Iran and Saudi Arabia
is China. With 1.3 billion people and an economy growing at a
phenomenal rate, China is today the world's second largest oil consumer
and is becoming heavily dependent on imported oil. By 2030 China is
expected to import as much oil as America does today. To fuel its
growing economy China is following America's footsteps, subjugating its
foreign policy to its energy needs. China attempts to gain a foothold
in the Middle East and build up long-term strategic links with
countries with which the United States is at odds like Iran, Saudi
Arabia, and Sudan. Though some optimists think that China's pursuit of
energy could present an opportunity to enhance cooperation,
integration, and interdependence with the United States, there are
ample signs that China and the United States are already on a collision
course over oil. This will have profound implications for the future
and stability of the Middle East and for America's posture in the
region.
For China the biggest prize in the Middle East is Saudi Arabia,
home of a quarter of the world's reserves. Since 9/11, a deep tension
in United States-Saudi relations has provided the Chinese with an
opportunity to win the heart of the House of Saud. The Saudis fear that
if their citizens again perpetrate a terror attack in the United
States, there would be no alternative for the United States but to
terminate its long-standing commitment to the monarchy--and perhaps
even use military force against it. The Saudis realize that to
forestall such a scenario they can no longer rely solely on the United
States to defend the regime and must diversify their security
portfolio. In their search for a new patron, they might find China the
most fitting and willing candidate.
China has also set its sights on Iran. Last year China and Iran
entered a $70 billion natural gas deal that Beijing sees as critical to
continued economic expansion. China has already announced that it will
block any effort to impose sanctions against Iran in the U.N. Security
Council. No doubt that as China's oil demand grows so will its
involvement in Middle East politics. China is likely to provide not
only a diplomatic support but also weapons, including assistance in the
development of WMD.
In sum, the prospect of a region, scarred by decades of rivalries,
turning once again into an arena of competition between two or more of
the major powers could well be one of the most important geostrategic
developments of the 21st century, with profound implications for U.S.
national security.
The sudden enrichment of OPEC members will undercut efforts to
promote democracy and political and economic reforms in the Middle
East.
It is a sad fact of life that most of the world's leading oil
producing countries are either politically unstable and/or at serious
odds with the United States. With the exception of Canada and Norway,
all major oil-exporting countries suffer from severe social illnesses
due to their failure to absorb the shock of an oil jackpot and
distribute the wealth on an equitable basis. This is not an accident.
Countries rich in easily extracted and highly lucrative natural
resources do not have to invest in education, productivity, or economic
diversification. In addition, the government does not feel obligated to
be accountable or transparent to its people and it denies them
representation. They also have no imperative to educate women and grant
them equal rights. While their oil wealth allows them to be the
strategic pivot of world politics and economy, these ``trust fund
states'' record on human rights, political stability, and compliance
with international law is abysmal. Only 3 of the world's 10 largest oil
producers are democracies and only 9 percent of the world's proven oil
reserves are in the hands of countries ranked free by Freedom House.
America's current oil policy is inconsistent with the hallmark of
the Bush administration's foreign policy: Bringing democracy and
political reform to areas where democracy is in deficit. Oil revenues
help despots sustain antidemocratic social and political systems giving
them disincentives to embrace social and economic reforms. Our
dependence on foreign oil often prevents the United States from
expressing its true feelings about some of the conducts and practices
of oil producing countries. Only last month the Bush administration
waived sanctions against Saudi Arabia, Kuwait, and Ecuador, three of
the world's worst offenders in human trafficking. In the case of Saudi
Arabia and Kuwait the administration's explanation was that it was ``in
U.S. interest to continue democracy programs and security cooperation
in the war on terrorism.'' One could only wonder if those two countries
would have received the same treatment had they been major exporters of
watermelons.
While in many cases the United States can turn a blind eye to human
rights violations by major energy producers, in some cases the
violations are so blunt and atrocious that a strong castigation is
unavoidable. But with China joining the great oil game such incidents
result in significant weakening of U.S. geopolitical posture. In the
most recent incident, when the United States had to choose between oil
and its values, the cost was high: The United States publicly expressed
dismay over the killing of hundreds of demonstrators in Uzbekistan only
to be asked to remove its military forces from there within 180 days. A
$600 million gas deal signed between Uzbekistan and China bolstered
Islam Karimov's confidence in China's diplomatic support to the degree
that he was willing to show the United States the door.
The Uzbek case is a harbinger of things to come. Unlike the United
States, which bars companies from doing business with some unsavory
regimes, China's state-owned companies turn a blind eye to the way
petrodollars are used by the local governments. In the global contest
for oil the United States loses ground as a result of its pressure for
government reform. Dictators who view democracy with suspicion don't
like to be pressured to reform, especially when U.S. pressure can bring
an end to their regimes. They much more prefer selling their oil to
countries which turn a blind eye to the way petrodollars are used and
who are willing to pay top dollars for oil and not lecture to them on
democracy and human rights.
The growing economic power of OPEC producers enables them to resist
U.S. pressure on a variety of issues from human rights to nuclear
proliferation. As the second largest oil producer and holder of 10
percent of the world's proven oil reserves Iran is fully aware of the
power of its oil. Its Supreme Leader, Ayatollah Ali Khamenei, warned in
2002: ``If the West did not receive oil, their factories would grind to
a halt. This will shake the world!'' The Iranians also know that oil is
their insurance policy and that the best way to forestall U.S. efforts
in the United Nations is by bedding themselves with energy hungry
powers such as Japan and the two fastest growing energy consumers--
China and India. After securing the support of a third of humanity the
Iranians are unfazed by the pressure coming from the United States and
the European Union. Last month Iran's President, Mahmoud Ahmadinejad,
warned that Iran could wield the oil weapon if Tehran's case was sent
to the Security Council for possible sanctions.
Mr. Chairman, 4 years after September 11 it is essential that we
view our geopolitical situation in the context of our oil dependence
and realize that it will be extremely difficult to win the war on
terror and spread democracy around the world as long as we continue to
send petrodollars to those who do not share our vision and values. As
long as the United States remains dependent on oil to the degree that
its does today, its dependence on the Middle East will grow. The United
States can no longer afford to postpone urgent action to strengthen its
energy security and it must begin a bold process toward reducing its
demand for oil.
In order to achieve this it is important to dispel two myths:
Myth 1: The United States can end its dependence on the Middle East by
diversifying its sources beyond the region
Since oil is a fungible commodity, it does not matter what
proportion of the oil the United States imports comes from the Middle
East, what matters is the share of Middle East producers in overall
supply. The oil market is like a huge pool: Producers pour in oil while
consumers draw it out. Prices and supply levels are determined in the
international markets. If all we do is shuffle around our sources of
oil supply, but demand for oil does not drop, the influx of
petrodollars to proliferators and apologists for radical Islam as well
as the vulnerability of the United States to international oil
terrorism would remain the same even if the United States did not
import a drop of oil from the Middle East.
Myth 2: The United States can drill its way out of its energy problem
Tapping our domestic reserves which, all included, amount to less
than 3 percent of the world's reserves, is no more than a stopgap
solution. Considering America's vast long-term needs our domestic
reserves are a drop in the bucket. Assuming that all the oil that is
claimed to be in Alaska is indeed there, the United States' share of
world oil would increase by less than half of a percent. No doubt
unconventional petroleum sources available in the Western Hemisphere
like Canadian tar sands and Venezuelan extra heavy crude could provide
some relief but by no means can they significantly reduce America's
dependence on the Middle East.
While there is no alternative to dependence on Middle Eastern oil,
there are clearly alternatives to oil, particularly in the
transportation sector, where two-thirds of U.S. oil is consumed.
America needs an out-of-the-barrel energy policy, one that will
gradually diminish the role of oil in world politics. The United States
should embark on an accelerated shift, enabled by modern technology,
toward an economy based on indigenously produced next-generation fuels,
meaning nonoil based transportation fuels such as methanol, ethanol,
biodiesel, electricity, and others derived from abundant domestic
energy resources such as coal, biomass, and municipal waste. In Brazil
ethanol made from sugarcane accounts for at least 25 percent of the
liquid fuel used in most cars. Many cars run on pure ethanol. As a
result sugarcane ethanol comprises 40 percent of Brazil's fuel needs
and the country is moving rapidly toward energy independence.
Flexible-fuel vehicles can run on any combination of gasoline and
alcohols such as ethanol and methanol. Nearly 4 million flexible-fuel
cars have been manufactured since 1996 and are already on the road,
though many of the people driving them don't even know their cars can
tolerate other fuels. The marginal additional cost associated with the
production of a flexible-fuel vehicle is currently under $150--less
than the cost of a typical CD player. That cost would be reduced
further as the volume of production of such cars increases. Since most
of the flexible-fuel cars sold in Brazil are made by American auto
manufacturers like Ford and GM there is no reason why every new car
sold in the United States should not have such fuel flexibility.
Without doubt, as long as corn is the main feedstock used to make
ethanol the domestic ethanol industry will never be able to supply the
needs of the U.S. transportation sector. In the coming years if the
production of ethanol from cellulosic material becomes commercially
feasible it could add a significant amount of ethanol into the
transportation fuel market. But until the technology is ready for
deployment the United States will have to rely on its sugargrowing
neighbors in Latin America. Sugarcane is by far the most efficient crop
for ethanol production but today stiff import tariffs imposed by
Congress prevent large-scale imports of sugarcane ethanol. To
strengthen energy security, Congress and free trade champions must open
the U.S. ethanol market to imports. It simply does not make sense to
tax ethanol coming in from our neighbors when we do not tax oil
imported from Saudi Arabia.
Methanol is another alcohol that can be used in flexible-fuel
vehicles. Today, this liquid fuel is produced mostly from natural gas.
Greatly expanded domestic production can be achieved, however, by
producing methanol from coal, a resource the United States has in
abundance. The commercial feasibility of coal-to-methanol technology
has been demonstrated as part of the Department of Energy's ``clean
coal'' technology effort. Currently, methanol is being cleanly produced
from coal at a commercial scale for around 50 cents a gallon. Methanol
can also be produced from agricultural waste.
Unlike in the 1970s when a significant portion of U.S. electricity
was generated from oil, today only about 2 percent of electricity is
generated from oil. Electricity produced from coal, nuclear power,
natural gas, solar, wind, and hydropower can also be a substitute to
oil. Hundreds of thousands of hybrid gasoline-electric cars which
improve fuel efficiency by 30-50 percent will be coming onto our roads
in the coming years.
Hybrid technology can be taken one step further allowing consumers
to tap into our electricity grid. Plug-in hybrid electric vehicles
(PHEVs) are souped-up hybrids that can optionally be plugged in. Like
regular hybrids, plug-ins have a liquid fuel tank and internal
combustion engine, so they have the same driving range as a standard
car. Although they look and perform much like regular hybrid cars, they
can, in addition, be plugged into a 120-volt outlet at home or a
parking garage and recharged, thus allowing cars to be fueled on Made-
in-America electricity.
The attached ``Blueprint for Energy Security: `Set America Free' ''
endorsed by a bipartisan coalition of foreign policy thinktanks,
environmental groups, religious groups, and prominent scientists holds
that if by 2025, all cars on the road are hybrids and half are plug-in
hybrid vehicles, and if all of these cars were also flexible-fuel
vehicles, U.S. oil imports would drop by as much as 12 mbd, which is
more than the United States imports today. The ``Set America Free''
blueprint also holds that vehicles can be powered by any blend of
alcohol fuels, gasoline, and electricity. If a plug-in vehicle is also
a flexible-fuel vehicle fueled with 80 percent alcohol and 20 percent
gasoline, fuel economy could reach 500 miles per gallon of gasoline
compared to 22 today.
Despite polls showing that over 90 percent of Americans view our
energy dependence as a serious issue that needs to be addressed with
urgency, congressional activity to advance such solutions has been
insufficient. The recent energy bill and the followup gasoline bill do
little to address America's growing dependence on foreign oil. In fact,
a provision in the Senate energy bill to do as little as reducing oil
dependence by 1 mbd by 2015 was shamefully rejected by the House. In
the wake of Hurricanes Katrina and Rita, when gas prices are
historically high, there is a new momentum and a renewed opportunity
for action. A new bipartisan Oil and National Security Caucus has been
announced in the House to advance new ideas to reduce the nation's
dependence on oil. On October 7, Senator Joseph Lieberman unveiled, in
a speech at Georgetown University, a package of legislative proposals
along the lines of ``Set America Free'' to help America break its
dangerous dependence on foreign oil. In his speech he mentioned his
collaboration on this bill with Senators Brownback, Bayh, and Sessions.
The proposal has been applauded by many energy experts including a
leading expert in the National Science Foundation who called it ``the
biggest really solid accomplishment coming from any part of the U.S.
Government in this area and the most sane proposal for legislation.''
On the grounds of national security it is imperative that such bold
bipartisan initiatives will be supported by lawmakers from both parties
with the strongest enthusiasm. We cannot afford to do less.
______
An Open Letter to the American People
For decades, the goal of reducing the Nation's dependence upon
foreign energy sources has been a matter on which virtually all
Americans could agree. Unfortunately, differences about how best to
accomplish that goal, with what means, how rapidly and at what cost to
taxpayers and consumers have, to date, precluded the sort of progress
that might have been expected before now.
Today, we can no longer afford to allow such differences to
postpone urgent action on national energy independence. After all, we
now confront what might be called a ``perfect storm'' of strategic,
economic and environmental conditions that, properly understood, demand
that we affect over the next 4 years a dramatic reduction in the
quantities of oil imported from unstable and hostile regions of the
world.
America consumes a quarter of the world's oil supply while holding
a mere 3 percent of global oil reserves. It is therefore forced to
import over 60 percent of its oil, and this dependency is growing.
Since most of the world's oil is controlled by countries that are
unstable or at odds with the United States this dependency is a matter
of national secutity.
At the strategic level, it is dangerous to be buying billions of
dollars worth of oil from nations that are sponsors of or allied with
radical Islamists who foment hatred against the United States. The
petrodollars we provide such nations contribute materially to the
terrorist threats we face. In time of war, it is imperative that our
national expenditures on energy be redirected away from those who use
them against us.
Even if the underwriting of terror were not such a concern, our
present dependency creates unacceptable vulnerabilities. In Iraq and
Saudi Arabia, America's enemies have demonstrated that they can advance
their strategic objective of inflicting damage on the United States,
its interests and economy simply by attacking critical overseas oil
infrastructures and personnel. These targets are readily found not only
in the Mideast but in other regions to which Islamists have ready
access (e.g., the Caspian Basin and Africa). To date, such attacks have
been relatively minor and their damage easily repaired. Over time, they
are sure to become more sophisticated and their destructive effects
will be far more difficult, costly and time consuming to undo.
Another strategic factor is China's burgeoning demand for oil. Last
year, China's oil imports were up 30 percent from the previous year,
making it the world's No. 2 petroleum user after the United States. The
bipartisan, congressionally mandated United States-China Economic and
Security Review Commission reported that: ``China's large and rapidly
growing demand for oil is putting pressure on global oil supplies. This
pressure is likely to increase in the future, with serious implications
for U.S. oil prices and supplies.''
Oil dependence has considerable economic implications. Shrinking
supply and rising demand translate into higher costs. Both American
consumers and the U.S. economy are already suffering from the
cumulative effect of recent increases in gas prices. Even now, fully
one-quarter of the U.S. trade deficit is associated with oil imports.
By some estimates, we lose 27,000 jobs for every billion dollars of
additional oil imports. Serious domestic and global economic
dislocation would almost certainly attend still higher costs for
imported petroleum and/or disruption of supply.
Finally, environmental considerations argue for action to reduce
imports of foreign oil. While experts and policymakers disagree about
the contribution the burning of fossil fuels is making to the planet's
temperatures, it is certainly desirable to find ways to obtain energy
while minimizing the production of greenhouse gases and other
pollutants.
The combined effects of this ``perfect storm'' require concerted
action, at last, aimed at reducing the Nation's reliance on imported
oil from hostile or unstable sources and the world's dependence on oil
at large. Fortunately, with appropriate vision and leadership, we can
make major strides in this direction by exploiting currently available
technologies and infrastructures to greatly diminish oil consumption in
the transportation sector, which accounts for two-thirds of our oil
consumption.
The attached ``Blueprint for Energy Security: `Set America Free' ''
spells out practical ways in which real progress on ``fuel choice'' can
be made over the next 4 years and beyond. To be sure, full market
transformation will take a longer time. In the case of the
transportation sector, it may require 15-20 years. That is why it is
imperative to begin the process without delay.
We call upon America's leaders to pledge to adopt this Blueprint,
and embark, along with our democratic allies, on a multilateral
initiative to encourage reduced dependence on petroleum. In so doing,
they can reasonably promise to: Deny adversaries the wherewithal they
use to harm us; protect our quality of life and economy against the
effects of cuts in foreign energy supplies and rising costs; and reduce
by as much as 50 percent emissions of undesirable pollutants. In light
of the ``perfect storm'' now at hand, we simply can afford to do no
less.
Signatories:
Gary L. Bauer, President, American Values
Milton Copulos, President, National Defense Council Foundation
Cong. Eliot Engel, Cochair, Oil and National Security Caucus
Frank Gaffney, President, Center for Security Policy
Bracken Hendricks, Executive Director, Apollo Alliance
Jack Hidary, Coalition for Smart Transportation
Bill Holmberg, American Council on Renewable Energy
Anne Korin, Co-Director, Institute for the Analysis of Global Security
(IAGS)
Deron Lovaas, Natural Resources Defense Council (NRDC)
Gal Luft, Co-Director, Institute for the Analysis of Global Security
(IAGS)
Cliff May, President, Foundation for the Defense of Democracies
Robert C. McFarlane, Former National Security Advisor
Daniel Pipes, Director, Middle East Forum
William K. Shireman, President and CEO, The Future 500
Professor Richard Smalley, Nobel Laureate Chemistry
James M. Strock, former California Secretary for Environmental
Protection
Admiral James D. Watkins, former Secretary of Energy
R. James Woolsey, Co-Chairman, Committee on the Present Danger
Meyrav Wurmser, Hudson Institute
______
``Set America Free''--A Blueprint for U.S. Energy Security
INTRODUCTION
Historically, the United States has pursued a three-pronged
strategy for minimizing the vulnerabilities associated with its
dependency on oil from unstable and/or hostile nations: Diversifying
sources of oil, managing inventory in a strategic petroleum reserve,
and increasing the efficiency of the transportation sector's energy
consumption. In recent years, the focus has been principally on finding
new and larger sources of petroleum globally.
Rapidly growing worldwide demand for oil, however, has had the
effect of largely neutralizing this initiative, depleting existing
reserves faster than new, economically exploitable deposits are being
brought on line. Under these circumstances, diversification among such
sources is but a stop-gap solution that can, at best, have a temporary
effect on oil supply and, hence, on national security. Conservation can
help, but with oil consumption expected to grow by 60 percent over the
next 25 years, conservation alone will not be a sufficient solution.
THE ``SET AMERICA FREE'' PROJECT
Long-term security and economic prosperity requires the creation of
a fourth pillar--technological transformation of the transportation
sector through what might be called ``fuel choice.'' By leading a
multinational effort rooted in the following principles, the United
States can immediately begin to introduce a global economy based on
next-generation fuels and vehicles that can utilize them:
Fuel diversification: Today, consumers can choose among
various octanes of gasoline, which accounts for 45 percent of
U.S. oil consumption, or diesel, which accounts for almost
another fifth. To these choices can and should promptly be
added other fuels that are domestically produced, where
possible from waste products, and that are clean and
affordable.
Real world solutions: We have no time to wait for
commercialization of immature technologies. The United States
should implement technologies that exist today and are ready
for widespread use.
Using existing infrastructure: The focus should be on
utilizing competitive technologies that do not require
prohibitive or, if possible, even significant investment in
changing our transportation sector's infrastructure. Instead,
``fuel choice'' should permit the maximum possible use of the
existing refueling and automotive infrastructure.
Domestic resource utilization: The United States is no
longer rich in oil or natural gas. It has, however, a wealth of
other energy sources from which transportation fuel can be
safely, affordably, and cleanly generated. Among them: Hundreds
of years worth of coal reserves, 25 percent of the world's
total (especially promising with Integrated Gasification and
Combined Cycle technologies); billions of tons a year of
biomass, and further billions of tons of agricultural and
municipal waste. Vehicles that meet consumer needs (e.g.,
``plug-in'' hybrids), can also tap America's electrical grid to
supply energy for transportation, making more efficient use of
such clean sources of electricity as solar, wind, geothermal,
hydroelectric, and nuclear power.
Environmentally sensible choices: The technologies adopted
should improve public safety and respond to the public's
environmental and health concerns.
KEY ELEMENTS OF THE ``SET AMERICA FREE'' PROJECT
Vehicles
Hybrid electric vehicles: There are already thousands of
vehicles on America's roads that combine hybrid engines powered
in an integrated fashion by liquid fuel-powered motors and
battery-powered ones. Such vehicles increase gas-consumption
efficiency by 30-40 percent.
Ultralight materials: At least two-thirds of fuel use by a
typical consumer vehicle is caused by its weight. Thanks to
advances in both metals and plastics, ultralight vehicles can
be affordably manufactured with today's technologies and can
roughly halve fuel consumption without compromising safety,
performance, or cost effectiveness.
``Plug-in'' hybrid electric vehicles: Plug-in hybrid
electric vehicles are also powered by a combination of
electricity and liquid fuel. Unlike standard hybrids, however,
plug-ins draw charge not only from the engine and captured
braking energy, but also directly from the electrical grid by
being plugged into standard electric outlets when not in use.
Plug-in hybrids have liquid fuel tanks and internal combustion
engines, so they do not face the range limitation posed by
electric-only cars. Since 50 percent of cars on the road in the
United States are driven 20 miles a day or less, a plug-in with
a 20-mile range battery would reduce fuel consumption by, on
average, 85 percent. Plug-in hybrid electric vehicles can reach
fuel economy levels of 100 miles per gallon of gasoline
consumed.
Flexible-fuel vehicles (FFVs): FFVs are designed to burn on
alcohol, gasoline, or any mixture of the two. About 4 million
FFV's have been manufactured since 1996. The only difference
between a conventional car and a flexible-fuel vehicle is that
the latter is equipped with a different control chip and some
different fittings in the fuel line to accommodate the
characteristics of alcohol. The marginal additional cost
associated with such FFV-associated changes is currently under
$100 per vehicle. That cost would be reduced further as volume
of FFVs increases, particularly if flexible-fuel designs were
to become the industry standard.
Flexible-fuel/plug-in hybrid electric vehicles: If the two
technologies are combined, such vehicles can be powered by
blends of alcohol fuels, gasoline, and electricity. If a plug-
in vehicle is also a FFV fueled with 80 percent alcohol and 20
percent gasoline, fuel economy could reach 500 miles per gallon
of gasoline.
If by 2025, all cars on the road are hybrids and half are plug-in
hybrid vehicles, U.S. oil imports would drop by 8 million barrels per
day (mbd). Today, the United States imports 10 mbd and it is projected
to import almost 20 mbd by 2025. If all of these cars were also
flexible-fuel vehicles, U.S. oil imports would drop by as much as 12
mbd.
Fuels
Fuel additives: Fuel additives can enhance combustion
efficiency by up to 25 percent. They can be blended into
gasoline, diesel, and bunker fuel.
Electricity as a fuel: Less than 2 percent of U.S.
electricity is generated from oil, so using electricity as a
transportation fuel would greatly reduce dependence on imported
petroleum. Plug-in hybrid vehicles would be charged at night in
home garages--a time-interval during which electric utilities
have significant excess capacity. The Electric Power Research
Institute estimates that up to 30 percent of market penetration
for plug-in hybrid electric vehicles with 20-mile electric
range can be achieved without a need to install additional
electricity-generating capacity.
Alcohol fuels: ethanol, methanol, and other blends:
Ethanol (also known as grain alcohol) is currently produced
in the United States from corn. The industry currently has a
capacity of 3.3 billion gallons a year and has increased on the
average of 25 percent per year over the past 3 years. Upping
production would be achieved by continuing to advance the corn-
based ethanol industry and by commercializing the production of
ethanol from biomass waste and dedicated energy crops. P-Series
fuel (approved by the Department of Energy in 1999) is a more
energy-efficient blend of ethanol, natural gas liquids and
ether made from biomass waste.
Methanol (also known as wood alcohol) is today, for the most
part, produced from natural gas. Expanding domestic production
can be achieved by producing methanol from coal, a resource
with which the United States is abundantly endowed. The
commercial feasibility of coal-to-methanol technology was
demonstrated as part of the DOE's ``clean coal'' technology
effort. Currently, methanol is being cleanly produced from coal
for under 50 cents a gallon.
It only costs about $60,000 to add a fuel pump that serves
one of the above fuels to an existing refueling station.
Nonoil based diesel: Biodiesel is commercially produced from
soybean and other vegetable oils. Diesel can also be made from
waste products such as tires and animal byproducts, and is
currently commercially produced from turkey offal. Diesel is
also commercially produced from coal.
Policy Recommendations
Provide incentives to auto manufacturers to produce and
consumers to purchase, hybrid vehicles, plug-in hybrid electric
vehicles and FFVs across all vehicle models.
Provide incentives for auto manufacturers to increase fuel
efficiency of existing, non-FFV auto models.
Conduct extensive testing of next-generation fuels across
the vehicle spectrum to meet auto warranty and EPA emission
standards.
Mandate substantial incorporation of plug-ins and FFVs into
federal, state, municipal, and covered fleets.
Provide investment tax incentives for corporate fleets and
taxi fleets to switch to plug-ins, hybrids, and FFVs.
Encourage gasoline distributors to blend combustion
enhancers into the fuel.
Provide incentives for existing fueling stations to install
pumps that serve all liquid fuels that can be used in the
existing transportation infrastructure, and mandate that all
new gas stations be so equipped.
Provide incentives to enable new players, such as utilities,
to enter the transportation fuel market, and for the
development of environmentally sound exploitation of
nontraditional petroleum deposits from stable areas (such as
Canadian tar sands).
Provide incentives for the construction of plants that
generate liquid transportation fuels from domestic energy
resources, particularly from waste, that can be used in the
existing infrastructure.
Allocate funds for commercial scale demonstration plants
that produce next-generation transportation fuels, particularly
from waste products.
Implement federal, state, and, local policies to encourage
mass transit and reduce vehicle-miles traveled.
Work with other oil-consuming countries toward distribution
of the above-mentioned technologies and overall reduction of
reliance on petroleum, particularly from hostile and
potentially unstable regions of the world.
A NEW NATIONAL PROJECT
In 1942, President Roosevelt launched the Manhattan Project to
build an atomic weapon to be ready by 1945 because of threats to
America and to explore the future of nuclear fission. The cost in
today's prices was $20 billion. The outcome was an end to the war with
Japan, and the beginning of a wide new array of nuclear-based
technologies in energy, medical treatment, and other fields.
In 1962, President Kennedy launched the Man to the Moon Project to
be achieved by 1969 because of mounting threats to U.S. and
international security posed by Soviet space-dominance and to explore
outer space. The cost of the Apollo program in today's prices would be
well over $100 billion. The outcome was an extraordinary strategic and
technological success for the United States. It engendered a wide array
of spinoffs that improved virtually every aspect of modern life,
including but not limited to transportation, communications, health
care, medical treatment, food production, and other fields.
The security of the United States, and the world, is no less
threatened by oil supply disruptions, price instabilities and
shortages. It is imperative that America provide needed leadership by
immediately beginning to dramatically reduce its dependence on imported
oil. This can be done by embracing the concepts outlined above with a
focus on fuel choice, combined with concerted efforts at improving
energy efficiency and the increased availability of energy from
renewable sources.
The estimated cost of the ``Set America Free'' plan over the next 4
years is $12 billion. This would be applied in the following way: $2
billion for automotive manufacturers to cover one-half the costs of
building FFV capability into their new production cars (i.e., roughly
40 million cars at $50 per unit); $1 billion to pay for at least one
out of every four existing gas stations to add at least one pump to
supply alcohol fuels (an estimated incentive of $20,000 per pump, new
pumps costing approximately $60,000 per unit); $2 billion in consumer
tax incentives to procure hybrid cars; $2 billion for automotive
manufacturers to commercialize plug-in hybrid electric vehicles; $3
billion to construct commercial-scale demonstration plants to produce
nonpetroleum based liquid fuels (utilizing public-private cost-sharing
partnerships to build roughly 25 plants in order to demonstrate the
feasibility of various approaches to perform efficiently at full-scale
production); and $2 billion to continue work on commercializing fuel
cell technology.
Since no major, new scientific advances are necessary to launch
this program, such funds can be applied toward increasing the
efficiencies of the involved processes. The resulting return on
investment--in terms of enhanced energy and national security, economic
growth, quality of life and environmental protection--should more than
pay for the seed money required.
Senator Chafee. Thank you, Dr. Luft.
Mr. Ebel.
STATEMENT OF ROBERT E. EBEL, CHAIRMAN, ENERGY PROGRAM, CENTER
FOR STRATEGIC AND INTERNATIONAL STUDIES, WASHINGTON, DC
Mr. Ebel. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before you today to discuss the extremely
timely, somewhat complex, and often misunderstood topic.
In your letter you identified three principal areas of
interest. How has U.S. foreign policy been shaped by our need
for affordable oil? What effect would greater energy efficiency
and alternative energy sources have on U.S. foreign policy? And
third, the interaction between the Departments of State and
Energy with respect to the handling of such issues.
I am going to skip this third issue. I think it was
adequately handled by the first panel and I will let my
discussion concentrate on the first two issues.
First, energy and foreign policy. Following a
characterization from Secretary Rumsfeld, let me begin the
discussion of the energy and foreign policy issue by listing
what I feel are some of the ``known knowns'' with respect to
this topic.
This is recognized by a range of officials ranging from
President Bush, to Alan Greenspan, to Prince Abdullah, to
President Chavez--energy is a strategic commodity. It is the
lifeblood of our economic well-being, and it provides us with
the quality and mobility of life that we have come to enjoy and
expect.
This is not a new phenomenon. But for the past 25 years or
so, global surplus conditions and producing capacity, global
refining capacity, and in this country, natural gas production
and power generation, have produced a sense of complacency, and
have masked the critical role that energy plays in our everyday
life. It is only now, when we are faced with conditions that
threaten its reliability, security, and affordability, that we
begin to fully appreciate its importance.
Energy policy formulation in this and other countries over
the past quarter century has been at best a tepid attempt at
balancing conflicting or competing economic, environmental, and
foreign policy objectives, rather than a serious attempt to
secure sustainable supplies on a forward-looking basis. And I
must say that that era may now be over.
Second, globally speaking, the largest hydrocarbon reserve
holders, at least in terms of conventional fuels, and that
includes both oil and gas, are found in the Middle East and
also in Russia. And this raises several important implications.
Until we achieve the technological breakthrough that might
make energy independence more than a political wish, we would
do well to adopt policies and strategies that encourage
interdependency and improve stability in various parts of the
world.
And as we move to increase our independence on LNG from
abroad as a means of satisfying our almost insatiable energy
demand, consider the risks inherent in making our electric
power grid as import-dependent as our transportation system.
In the past several decades U.S. energy security policy has
been based on four pillars: Encouraging the development of a
wide variety of energy supplies at home and abroad; promoting
improved efficiency, conservation, and the development of
alternative energy sources; establishing the strategic
petroleum reserve and the international sharing agreement
provided by the IEA; and relying on Saudi Arabia to act
responsibly as the swing producer to moderate price and supply.
Now we have from time to time been moved to call upon our
military to defend facilities, protect transit routes, and
secure inhospitable areas.
These policy tools have worked reasonably well over the
course of the past several decades. However, as the surplus
conditions that I referred to earlier have eroded and global
demand has accelerated, energy markets and infrastructure have
been greatly strained. And the present hurricanes in the gulf
have made that situation even more precarious.
Much has been written about the U.S. import reliance and
how undue reliance on foreign oil imports from unstable parts
of the world has undermined U.S. security. Canada is our number
one supplier of crude oil and petroleum products. And three of
our top suppliers, Canada, Mexico, and Venezuela, are in the
Western Hemisphere, and comprise 48 percent of total U.S.
petroleum imports.
Saudi Arabia currently supplies about 8 percent of total
U.S. demand, although by any measure they remain the most
prolific, reliable, and secure source of oil for global
consumers.
I would be remiss if I did not point out that the energy
calculus in play, with respect to security, foreign policy, and
economic policy choices made in other parts of the world
include such diverse players as Canada, Mexico, Venezuela,
Russia, China, Iran, Iraq, Nigeria, Sudan, and the Caspian.
One final note before moving on, and that relates to our
definition of instability and conditions that affect continuous
supplies. For all the hoopla surrounding the various centers of
political unrest, and there are many, total global energy
output in 2004 and the loss of that global energy output was
the result of Hurricane Ivan in the U.S. gulf which was the
single largest source lost of global energy. I suspect when we
look back on the year 2005 we will view the hurricanes in the
Gulf of Mexico as bringing about the largest loss of global
energy.
The IEA and EIA have both projected huge increases in oil
revenue for the major producing and exporting countries. EIA
estimates that the GCC as a group will realize in excess of
$300 billion this year in oil export revenues. Over the course
of the past 10 years, export revenues for all OPEC members have
at least doubled, and in the case of Qatar, have tripled.
I cannot comment on how this revenue will be spent, but I
would only suggest that given the enormous population,
demographics, and social challenges faced by many of these
countries, the question must be asked if this purchased wealth
can be more of a civilizing or destabilizing factor.
Let me conclude with some comments and opportunities for
improved efficiency and use of alternative energy products. It
presents the one area on which I would hope that this panel
would have the most consensus. As the energy market is global
in scope, with producers and consumers engaging in inter-
regional trade, increases by one nation, even the United States
as the largest energy consumer, might not be enough to tilt the
scale any time soon. In fact, to the extent the United States
opted for a more costly energy form, freeing up lesser
expensive conventional supplies to competitor nations, we will
find ourselves at a competitive disadvantage from an industrial
point of view.
Alternatively, the prospect of ramping up global production
to meet ever-increasing demand and pitting strategic consumers
against one another, competing for available and secure
supplies is equally unappealing.
While I am not a supporter of the current hype associated
with the increasingly pervasive peak oil theory, I recognize
that, as a world, we are consuming conventional energy
resources at a rate far in excess of our ability to replenish.
So we would welcome the addition of supplemental sources of
supply and encourage the adoption of conservation and
efficiency initiatives, and promote the deployment of promising
technology for a wide variety of economic, environmental,
health, trade, and security reasons.
That concludes my oral comments. And I ask that my written
remarks be included in the record.
Senator Chafee. Without objection, they will be.
[The prepared statement of Robert Ebel follows:]
Prepared Statement of Robert E. Ebel, Chairman, Energy Program, Center
for Strategic and International Studies, Washington, DC
Mr. Chairman, members of the subcommittee, I appreciate the
opportunity to appear before you today to discuss an extremely timely,
somewhat complex, and often misunderstood topic, dealing with ``U.S.
Foreign Policy, Petroleum and the Middle East.'' In your invitation to
testify, Mr. Chairman, you identified three principal areas of
interest:
How has U.S. foreign policy been shaped by our need for
affordable oil?
What effect would greater energy efficiency and alternative
energy sources have on U.S. foreign policy?
The interaction between the Departments of State and Energy
with respect to the handling of such issues.
As the State and Energy Departments are most ably represented here
today, I will focus my remarks on the first two topics and also provide
some general impressions and thoughts that are most relevant to this
discussion.
ENERGY AND FOREIGN POLICY
Borrowing a characterization from Secretary Rumsfeld, let me begin
a discussion of the energy and foreign policy issue by listing what I
feel are some of the ``known knowns'' with respect to this topic.
First, as recognized by a wide range of officials ranging from
President Bush and Alan Greenspan to Prince Abdullah and President
Chavez--energy is a strategic commodity. It is the lifeblood of our
economic well-being, fuels the troops that protect our homeland,
provides essential services in growing our crops, heating and lighting
our homes, transporting goods to market, moving local, regional,
national and international commerce, making information transfer via
the Internet possible, and providing us with the quality of life and
mobility that we have come to enjoy and expect.
This is not a new phenomenon. But for the past 25 years or so,
global surplus conditions (relative to demand)--in the case of spare
oil producing capacity, global refining capacity, and in this country,
natural gas production and power generation--have produced complacency
and masked the critical role which energy plays in our everyday lives.
It is only now when we are faced with conditions that threaten its
reliability, security, and affordability that we begin to more fully
appreciate its importance.
As a consequence, energy policy formulation, in this and other
countries over the last quarter century, has been, at best, a tepid
attempt at balancing conflicting or competing economic, environmental,
and foreign policy objectives--along with local political concerns--
rather than a serious attempt to secure sustainable supplies on a
forward-looking basis. That era may now be over.
Second, globally speaking, the largest hydrocarbon reserve holders,
at least in terms of conventional fuels sources--and this is true for
both oil and natural gas--are found in the Middle East, and also in
Russia. This fact has several important implications:
1. Until we achieve the technological breakthrough that might
make energy independence more than a political wish, we would
do well to adopt policies and strategies that encourage
interdependency and improve stability in various parts of the
world; and
2. As we move to increase our dependence on LNG supplies from
abroad as a means to satisfy our seemingly insatiable energy
demand, consider the risks inherent in making our electric grid
as import dependent as our transportation system.
For the past several decades, U.S. energy security policy, has been
based on four pillars--encouraging the development of a wide variety of
energy supplies at home and abroad; (periodically) promoting improved
efficiency, conservation and the development of alternative energy
sources; establishing the strategic petroleum reserve and the
international sharing arrangement provided by the IEA (International
Energy Agency); and relying on Saudi Arabia to act responsibly as the
swing producer to moderate price and supply volatility. In addition, we
have, at times, been moved to call on America's military to defend
facilities, protect transit routes, and secure inhospitable areas.
In combination, these policy tools have worked reasonably well over
the course of the past several decades. However, as the surplus
conditions, I referred to earlier, have eroded and global demand has
accelerated, energy markets and infrastructure have been greatly
strained. The recent hurricanes in the gulf have made that situation
even more precarious.
POLITICAL INSTABILITY IN CONTEXT
Much has been written about U.S. import reliance and how ``undue''
reliance on foreign oil imports from ``unstable'' parts of the world
has undermined U.S. security. In point of fact, while it is frequently
overlooked, Canada is the number one supplier of oil (crude and refined
products) to America. And three of our top four suppliers (Canada,
Mexico, and Venezuela) are in the Western Hemisphere--and comprise over
48 percent of total U.S. petroleum imports.
Saudi Arabia currently supplies about 8 percent of total U.S.
demand, although by any measure they remain the most prolific,
reliable, and secure source of oil for global consumers. With the
exception of the targeted oil embargo of 1973, Saudi Arabia has been
one of the very few highly reliable producer/exporters of the past 30
years. Their performance in providing the world with incremental supply
in time of need (e.g., in the lead up to the 1991 gulf war, during the
2002 Venezuelan strike, more recently in advance of the 2003 gulf
conflict and as prices spiked in the past 2 years) is unsurpassed.
While I recognize the focus of this hearing with respect to foreign
policy choices in the Middle East, I would be remiss if I did not point
out that the energy calculus is also in play with respect to security,
foreign and economic policy choices made in other parts of the world
and with global players as diverse as Canada, Mexico, Venezuela,
Russia, China, Iran, Iraq, Nigeria, Sudan, and the Caspian.
One final note on this topic before moving on--and that relates to
our definition of instability and conditions that affect continuous
supplies. For all the hoopla surrounding the various centers of
political unrest last year--and there were many--from concern about
supply continuity in Russia in the wake of Yukos, the referendum in
Venezuela, repeated sabotage in Iraq, strikes in Norway and Nigeria,
the threat of unrest in Saudi Arabia--the single largest loss of global
energy output in 2004 was the result of Hurricane Ivan in the U.S. Gulf
of Mexico. And I suspect that, barring any calamitous disaster
occurring over the next quarter, the largest loss of production for
2005 will again be the result of hurricanes in the Gulf of Mexico.
WEALTH TRANSFERS FROM OIL PRICE INCREASES
The IEA and EIA (U.S. Energy Information Agency) have both
projected huge increases in oil export revenues for all of the major
producing/exporting nations. As collectively significant reserve
holders, producers, and exporters, this is particularly true for OPEC
members and the GCC nations of the Middle East. Although it should be
noted that Venezuela, Nigeria, Norway, Canada, and Russia have also
benefited greatly from higher energy export prices. EIA estimates that
the GCC countries, as a group, will realize in excess of $300 billion
this year in oil export revenues. Over the course of that past 10
years, export revenues for all OPEC members have at least doubled, and
in the case of Qatar, have tripled.
While I cannot comment on how this revenue is used by the host
governments, I would only offer that given the enormous population,
demographic, and social challenges faced by many of those countries in
the coming years, one might well ask if this increased wealth can be
more of a stabilizing or destabilizing factor. In short, would their
plight and situations be improved if they were poorer?
OPPORTUNITIES FOR IMPROVED EFFICIENCY AND USE OF ALTERNATIVE ENERGY
FORMS
I have saved this last point until the end, because it represents
the one area on which I would hope that this panel would have the most
consensus. The question posed by the committee was whether, and to what
effect, would improvements in energy efficiency and the development and
use of alternative energy forms have on U.S. foreign policy.
As the energy market is global in scope, with producers and
consumers engaging inter-regional trade, increases by one nation, even
the United States as the largest energy consumer, might not be enough
to tilt the scale anytime soon. In fact, to the extent, the United
States opted for a more costly energy form, freeing up lesser expensive
conventional supplies to competitor nations, we could well find
ourselves at a competitive disadvantage from an industrial point of
view.
Alternatively, however, the prospect of increasingly ramping up
global production to meet ever-increasing demand and pitting strategic
consumers against one another, competing for available and secure
supplies is equally unappealing.
While not a supporter of the current hype associated with the
increasingly pervasive ``peak oil'' theory, I recognize that as a world
we are consuming conventional energy resources at a rate far in excess
of replenishment. Therefore, we should welcome the addition of
supplemental sources of supply, encourage the adoption of conservation
and efficiency initiatives and promote the deployment of promising
technologies for a wide variety of economic, environmental, health,
trade, and security reasons.
The Stone Age did not end because we ran out of rocks. The oil age
will likely be with us for decades to come. But we owe it to ourselves,
our children, and our children's children, to do better.
Senator Chafee. Mr. Collina, welcome.
STATEMENT OF TOM Z. COLLINA, EXECUTIVE DIRECTOR, 20/20 VISION,
SILVER SPRING, MD
Mr. Collina. Mr. Chairman, thank you very much. Mr.
Chairman, thank you for inviting me here today. It is an honor
to appear before you.
My name is Tom Collina. I am executive director at 20/20
Vision, which is a national nonpartisan organization promoting
increased citizen participation on global security and
environmental issues. We were founded in 1986 and our
membership of 30,000 covers all 50 States.
We recently launched a new campaign called,
itookthepledge.org, to raise awareness about ways to reduce
U.S. oil dependence. I will summarize my statement now and
request my full statement be put in the record.
Senator Chafee. It will be.
Mr. Collina. My message today is simple. America's
dependence on oil is fueling much more than our cars. It is
fueling conflict in the Persian Gulf and severe storms in the
Gulf of Mexico. It is fueling terrorism and sapping our
economy.
By reducing our dependence on oil, we can lower gas prices,
reduce the chance of further conflicts over oil, reduce our
exposure to terrorism, help tame severe storms like Hurricane
Katrina, and create jobs.
We have the technology to cut our oil use in half by 2025
while saving Americans money. We have to start now. The best
solutions will take years to implement. The sooner we start,
the easier this will be.
What is most striking about the issue of American oil
dependence is that virtually everybody agrees that it is bad
for America. Nevertheless, our dependence continues to grow.
This is due in part to the fact that there is little agreement
on the best solutions, and that many solutions until now have
proven politically difficult to implement. Therefore, I will
spend the second half of my time on realistic solutions.
But first, some context. All solutions to our thirst for
oil will require some change. We must understand that the cost
of doing nothing is very high. If we do not seize this historic
opportunity to reduce our dependence on oil, we will bear the
following five serious consequences. And some of them I will
summarize very briefly.
First, more conflicts in the Middle East. As has been
discussed, America imports almost 60 percent of our oil today,
and at this rate we will import 70 percent by 2025. Where will
that oil come from? Two-thirds of the world's oil is in the
Middle East, primarily in Saudi Arabia, Iran, and Iraq. The
United States has less than 3 percent of global oil.
The Department of Energy predicts that North American oil
imports from the gulf will double by 2025. Other oil suppliers,
such as Venezuela, Russia, and West Africa, are also
politically unstable and hold no significant long-term oil
reserves compared to those in the Middle East.
Bottom line, our economy and security are increasingly
dependent on one of the most unstable regions on earth. Unless
we change our ways, we will find ourselves even more at the
mercy of Middle East oil, and thus more likely to get involved
in future conflicts.
Simply put, the greater our dependence on oil, the greater
the pressure to protect and control that oil. The growing
American dependence on imported oil is the primary driver of
U.S. foreign and military policy today, particularly in the
Middle East. This motivates an aggressive military policy now
on display in Iraq. To help avoid similar wars in the future
and to encourage a more cooperative, responsible, and
multilateral foreign policy, the United States must
significantly reduce its oil use.
Before the war started, Tony Cordesman, of the Center for
Strategic and International Studies, said, ``Regardless of
whether we say so publically, we will go to war, because Saddam
sits at the center of a region with more than 60 percent of the
world's oil reserves.'' Unfortunately, he was right.
In fact, the use of military power to protect the flow of
oil has been a central tenet of U.S. foreign policy since 1945.
As has been mentioned, it was that year that President
Roosevelt promised King Abdul Aziz of Saudi Arabia that the
United States would protect the kingdom in return for special
access to Saudi oil, a promise that governs United States
foreign policy today.
This policy was formalized by President Carter in 1980 when
he announced that the secure flow of oil from the Persian Gulf
was ``In the vital interest of the United States of America.''
This document was expanded by President Reagan in 1981, and was
used by the first President Bush to justify the first gulf war,
and provided a key, if unspoken, rationale for the second
President Bush's invasion of Iraq in 2003.
America has tried to address its oil vulnerability by using
our military to protect supply routes and prop up or install
friendly regimes. But as Iraq shows, the price is astronomical,
$200 billion, and counting.
Moreover, it does not work. Iraq is now producing less oil
than it did before the invasion. While the reasons behind the
Bush administration's decision to invade Iraq may be complex,
it is hard to imagine that we would be there today if Iraq
exported coffee instead of oil.
It is time for a new approach. Americans are no longer
willing to support United States misadventures in the Persian
Gulf. Recent polls show that almost two-thirds of Americans
think the Iraq war was not worth the price in terms of blood
and treasure. LTG William Odom, Director of the National
Security Agency, during President Reagan's second term, said
recently, ``The invasion of Iraq will turn out to be the
greatest strategic disaster in U.S. history.''
The Nation is understandably split about what to do now in
Iraq and about why we are there. Yet, there appears to be
widespread agreement that America should not make the same
mistake again. And we could take a giant step toward that goal
by reducing our dependence on oil.
Second, more terrorist attacks on Americans. Again, simply
said, the more dependent we are on foreign oil, the more troops
we will deploy abroad to protect that oil. This creates
resentment and invites terrorist attacks on our troops and our
oil supply routes. United States troop presence in Saudi Arabia
during the first gulf war was a major contributor to the rise
of Islamic terrorist groups like al-Qaeda. And United States
troops in Iraq now are a major justification for the insurgency
there. We must break our oil habit so we can reduce our
military footprint abroad.
Third, collision course with China. China currently imports
half its oil, and like the United States, China will become
increasingly dependent on oil from the Middle East. As a
result, access to Middle East oil over time will become a key
issue in relations between the two nations.
The more United States actions in the Middle East are
perceived as an effort to dominate oil resources, the more
China will consider the United States a threat to its
interests, and vice versa. In the context of stagnating supply,
this kind of demand competition is very destabilizing, and
defusing a potential United States-Chinese rivalry over global
oil is a key driver for reducing U.S. oil dependence.
Fourth, and this has not been mentioned yet, continued
global warming and more dangerous storms. Recent studies show
that global warming is increasing the intensity of storms like
Hurricane Katrina. An MIT study has shown for the first time
that major storms in both the Atlantic and Pacific Oceans,
since the 1970s, have increased in duration and intensity by 50
percent. This increase in storm intensity is closely related to
increases in average water temperature, which is linked to
increases in global atmospheric temperature. Simply put, warmer
air meets warmer water, and storms that are more severe.
This is a domestic as well as foreign policy problem.
Hurricanes Katrina and Rita displaced tens of thousands and
will cost the Federal Government $200 billion or more for
reconstruction. Refugee migrations and costs on this scale
could easily overwhelm smaller nations and lead to
international conflict.
Last, a weaker economy. And here I will simply quote
Federal Reserve Chairman, Alan Greenspan, who said this week
that global economic growth will be hurt by the rising energy
prices caused by the hurricanes: ``The recent surge in energy
prices will undoubtedly be a drag from now on.'' Energy prices
soared 12 percent in September, the fastest rate on record,
contributing to the highest monthly consumer inflation rate in
25 years.
As our dependence on foreign oil grows, so will our
vulnerability to supply shocks. According to Robert M. Gates,
former CIA director: ``The real lesson here is that it only
requires a relatively small amount of oil to be taken out of
the system to have huge economic and security implications.''
Mr. Chairman, rising gas prices are hurting the economy,
global warming is fueling extreme storms, and our soldiers are
dying to protect our access to oil in the Middle East. Reducing
our oil use will save jobs, save the environment, save lives,
and free us from the shackles of Middle East oil.
So how do we do it? First, we need to reject the Carter
Doctrine. America can no longer afford to use military force as
a substitute for a serious energy policy, which is what we have
been doing up until now. We must no longer agree to protect any
foreign state or regime as a condition to access to oil.
Clearly, any rejection of the Carter Doctrine must be
matched by a comprehensive plan to kick the foreign oil habit.
Our goal should be to reduce our use of foreign oil enough such
that our national and economic security is no longer tied to
the survival of the Saudi oil family or any other nondemocratic
oil producer. Only at that point can our foreign policy be
truly independent of our need for oil.
Number two, Congress should establish a national goal of
saving 2.5 million barrels of oil per day over the next decade,
and 10 million barrels of oil per day by 2025. Without national
agreement on a goal, we will not get there. We must commit to
investing the money we would otherwise send overseas to
modernizing our factories and farms here at home.
Number three, raise gas mileage in new passenger vehicles
through tax credits and standards. Here I will just quickly
quote a recent Washington Post story: ``U.S. carmakers have
watched consumers move away from gas-guzzling sport utility
vehicles in favor of more efficient models, a trend that has
become more pronounced as gas prices have soared.''
General Motors is a good example. GM lost $1.6 billion in
the third quarter of this year and has lost $3 billion so far
in 2005. GM, maker of the Hummer, is responding by shutting
factories, slashing 25,000 manufacturing jobs, freezing
bonuses, and cutting health benefits.
GM is now developing more fuel-efficient cars, including
hybrids. GM CEO, Richard Wagner, recently told employees, in
fact, this week, that the company has ``too much reliance'' on
trucks and SUVs.
Number four, invest in smart growth and better
transportation. And number five, encourage growth in biofuels
industry. Those have been touched on. I will leave those and
try to wrap up.
Mr. Chairman, imagine America with new automobile
production plants producing advanced vehicles, creating jobs
for American workers. Imagine American farmers growing ethanol
fuel to run our cars, and American citizens living in
communities designed around modern transit systems.
Imagine Americans driving cars that get 500 miles per
gallon of gasoline. Americans love their cars, and at 500 miles
per gallon, we can keep them.
Now imagine America free from the burden of protecting our
stake in Middle East oil, allowing us to reduce our military
footprint in the region and our exposure to terrorism. We could
then base our foreign policy on ideals that make this a great
nation, like global peace and security, freedom, and democracy.
Fifty years ago President Roosevelt could not have foreseen
the dangerous situation in which we now find ourselves as a
result of his promise to a Saudi King. But today the danger is
all too clear. Fortunately, we can now foresee a way out of the
oil trap that will revitalize our economy and liberate our
foreign policy.
Thank you very much.
[The prepared statement of Tom Collina follows:]
Prepared Statement of Tom Z. Collina, Executive Director, 20/20 Vision,
Silver Spring, MD
``I've often said one of the worst problems we have is that we're
dependent on foreign sources of crude oil, and we are . . . It is clear
that when you're dependent upon . . . hydrocarbons to fuel your economy
and that supply gets disrupted, we need alternative sources of
energy.''--President George Bush, September 26, 2005
``Our energy plan for a stronger America will invest in new
technologies and alternative fuels and the cars of the future--so that
no young American in uniform will ever be held hostage to our
dependence on oil from the Middle East.''--Senator John Kerry, July 29,
2004
______
Mr. Chairman, Senator Boxer and members of the committee, thank you
for inviting me here today. It is an honor to appear before you.
My name is Tom Collina and I am the executive director of 20/20
Vision. 20/20 Vision is a national, nonpartisan organization promoting
increased citizen participation on global security and environmental
issues. Founded in 1986, our membership of 30,000 covers all 50 States.
We recently launched a new campaign--called itookthepledge.org--to
raise awareness about ways to reduce U.S. oil dependence.
My message today is simple:
1. By reducing our dependence on oil, we can lower gas
prices, reduce the chance of future conflicts over oil in the
Middle East, reduce our exposure to terrorism, help tame severe
storms like Hurricane Katrina, and create jobs.
2. We have the technology to cut our oil use in half by 2025
while saving Americans money.
3. We have to start now. The best solutions will take years
to implement. The sooner we start the easier this will be.
Hurricanes Katrina and Rita sent gas prices soaring and opened our
eyes, to America's dangerous dependence on oil. Not since the oil
crisis in the 1970s has there been so much public attention on this
issue. And yet today we have a problem of a very different, more
dangerous nature: 30 years ago, OPEC chose to limit the oil supply.
Today, oil producers are pumping as fast as they can, but cannot keep
pace with demand. Even Saudi Arabia, atop the world's biggest oil
reserves, is pumping so fast that some experts fear it is jeopardizing
the long-term viability of its fields.
What is most striking about the issue of American oil dependency is
that virtually everyone agrees it is bad for America. It is hard to
find anyone who will tell you that oil dependency is good for us.
Nevertheless, our dependency continues to grow. This is due in part to
the fact that there is little agreement on the best solutions, and that
many solution--until now--have proven politically difficult to
implement. Therefore I will spend the second half of my time on
realistic solutions to U.S. oil dependency.
But first, some context. All solutions to our thirst for oil will
require some change. There is no silver bullet, no simple answer. But
we must understand that the cost of doing nothing is very high.
THE COSTS OF BUSINESS AS USUAL
If we do not seize this historic opportunity to reduce our
dependence on oil, we will bear the following serious consequences:
1. More conflicts in the Middle East
America imports almost 60 percent of its oil today and, at this
rate, we'll import 70 percent by 2025. Where will that oil come from?
Two-thirds of the world's oil is in the Middle East, primarily in Saudi
Arabia, Iran, and Iraq. The United States has less than 3 percent of
global oil. The Department of Energy predicts that North American oil
imports from the Persian Gulf will double from 2001 to 2025.\1\ Other
oil suppliers, such as Venezuela, Russia, and West Africa, are also
politically unstable and hold no significant long-term oil reserves
compared to those in the Middle East.
Bottom line: Our economy and security are increasingly dependent on
one of the most unstable regions on earth. Unless we change our ways,
we will find ourselves even more at the mercy of Middle East oil and
thus more likely to get involved in future conflicts.
The greater our dependence on oil, the greater the pressure to
protect and control that oil. The growing American dependence on
imported oil is the primary driver of U.S. foreign and military policy
today, particularly in the Middle East, and motivates an aggressive
military policy now on display in Iraq. To help avoid similar wars in
the future and to encourage a more cooperative, responsible, and
multilateral foreign policy the United States must significantly reduce
its oil use.
Before the Iraq war started, Anthony H. Cordesman of the Center for
Strategic and International Studies said: ``Regardless of whether we
say so publicly, we will go to war, because Saddam sits at the center
of a region with more than 60 percent of all the world's oil
reserves.'' Unfortunately, he was right.
In fact, the use of military power to protect the flow of oil has
been a central tenet of U.S. foreign policy since 1945. That was the
year that President Franklin D. Roosevelt promised King Abdul Aziz of
Saudi Arabia that the United States would protect the kingdom in return
for special access to Saudi oil--a promise that governs U.S. foreign
policy today.
This policy was formalized by President Jimmy Carter in 1980 when
he announced that the secure flow of oil from the Persian Gulf was in
``the vital interests of the United States of America'' and that
America would use ``any means necessary, including military force'' to
protect those interests from outside forces. This doctrine was expanded
by President Ronald Reagan in 1981 to cover internal threats, and was
used by the first President Bush to justify the gulf war of 1990-91;
and provided a key, if unspoken rationale, for the second President
Bush's invasion of Iraq in 2003.\2\
The Carter/Reagan Doctrine also led to the buildup of U.S. forces
in the Persian Gulf on a permanent basis and to the establishment of
the Rapid Deployment Force and the U.S. Central Command (CENTCOM). The
United States now spends over $50 billion per year (in peacetime) to
maintain our readiness to intervene in the gulf.\3\
America has tried to address its oil vulnerability by using our
military to protect supply routes and to prop up or install friendly
regimes. But as Iraq shows, the price is astronomical--$200 billion and
counting. Moreover, it doesn't work--Iraq is now producing less oil
than it did before the invasion. While the reasons behind the Bush
administration's decision to invade Iraq may be complex, can anyone
doubt that we would not be there today if Iraq exported coffee instead
of oil?
It is time for a new approach. Americans are no longer willing to
support U.S. misadventures in the Persian Gulf. Recent polls show that
almost two-thirds of Americans think the Iraq war was not worth the
price in terms of blood and treasure. LTG William Odom, director of the
National Security Agency during President Reagan's second term,
recently said: ``The invasion of Iraq will turn out to be the greatest
strategic disaster in U.S. history.''
The nation is understandably split about what to do now in Iraq,
but there appears to be widespread agreement that America should not
make the same mistake again--and we can take a giant step toward that
goal by reducing our dependence on oil.
2. More terrorist attacks on Americans
The more dependent we are on foreign oil, the more troops we will
deploy abroad to protect that oil. This creates resentment and invites
terrorist attacks on our troops--and on oil supply routes. The U.S.
troop presence in Saudi Arabia during the first gulf war was a major
contributor to the rise of Islamic terrorist groups like al-Qaeda, and
U.S. troops in Iraq are now a main justification for the insurgency
there. We must break our oil habit so we can reduce our military
footprint abroad.
Moreover, much of the money we pay for our imported oil goes to
countries or groups that support terrorism. It is no accident that 15
of the 19 September 11 hijackers came from Saudi Arabia, as does Osama
bin Laden. It is time we stop funneling money to our own enemies.
According to a 2003 article in Foreign Affairs: ``It is . . .
increasingly clear that the riches from oil trickle down to those who
would do harm to America and its friends. If this situation remains
unchanged, the United States will find itself sending soldiers into
battle again and again, adding the lives of American men and women in
uniform to the already high cost of oil.'' \4\
3. Collision course with China
With over 1 billion people, China is second only to the United
States in oil consumption--and gaining fast. China has one of the
fastest growing economies in the world and an energy demand that is
projected to grow by 150 percent by 2020. China's oil demand is
increasing seven times faster than America's.\5\
China currently imports half of its oil, and like the United
States, China will become increasingly dependent on oil from the Middle
East.
As a result, access to Middle East oil will over time become a key
issue in relations between the two nations. The more U.S. actions in
the Middle East are perceived as an effort to dominate oil resources
there, the more China will consider the United States a threat to its
interests, and vice versa. In the current context of stagnating supply,
this kind of demand competition is very destabilizing. Defusing a
potential United States-Chinese rivalry over global oil supplies is a
key driver for reducing U.S. oil dependency.
While China's oil demand is growing rapidly, U.S. demand in
absolute terms is much larger, accounting for a quarter of the world's
oil consumption. To its credit, China is taking steps to protect itself
from the increasingly tight, volatile global oil market by controlling
its oil demand. Last year China set fuel economy standards that are
higher than those here in the United States.\6\
4. Continued global warming and more dangerous storms
Recent studies show that global warming is increasing the intensity
of storms like Hurricane Katrina.\7\ An MIT study has shown for the
first time that major storms in both the Atlantic and Pacific oceans
since the 1970s have increased in duration and intensity by 50 percent.
This increase in storm intensity is closely linked to increases in the
average water temperature, which is linked to increases in global
atmospheric temperature. Simply put, warmer air means warmer water and
storms that are more severe.
Global warming is caused by the buildup of carbon dioxide in the
atmosphere, and burning oil produces carbon dioxide. So, cutting our
oil use can help reduce the intensity of severe storms like Hurricane
Katrina--both here and abroad. According to MIT climatologist Kerry
Emanuel: ``The damage and casualties produced by more intense storms
could increase considerably in the future.'' \8\
This is a domestic as well as foreign policy problem. Hurricanes
Katrina and Rita killed thousands, displaced tens of thousands, and
will cost the Federal Government $200 billion or more for
reconstruction. Refugee migrations and costs on this scale could easily
overwhelm smaller nations and lead to international conflict.
5. Weaker economy
High oil prices get passed on to the consumer through higher costs
at the pump, more expensive goods and services, a weaker job market,
and lower stock prices. At much lower oil prices, the total economic
cost of our oil dependence had been estimated to be about $300 billion
per year. At today's prices of $60 per barrel, the economic costs of
exporting dollars for oil is much greater. As the price of oil
continues to climb due to supply disruptions, this cost to the American
economy and jobs will rise.\9\
Federal Reserve Chairman, Alan Greenspan, said this week that
global economic growth will be hurt by the rise in energy prices caused
by the hurricanes. ``. . . The recent surge in energy prices will
undoubtedly be a drag from now on,'' he said in his first public
comments about the storms' economic effects. Energy prices soared 12
percent in September, the fastest rate on record, contributing to the
highest monthly consumer inflation rate in 25 years.\10\
The current gasoline crisis was set off by the closure of
refineries on the gulf coast, revealing our longstanding vulnerability
to supply disruptions. In this case, the disruption was domestic. But
our oil supply chain is global, and disruption can happen anywhere from
when the crude oil is pumped from the ground to when it is pumped as
refined gas into your car.
A recent crisis simulation run by the National Commission on Energy
Policy and Securing America's Future Energy found that if, for example,
there was ethnic unrest in oil-rich Nigeria and terrorist attacks in
Alaska and Saudi Arabia; the reduced oil supply would drive gas prices
here to $5.74 a gallon and the economy into recession.\11\ And now we
can add major hurricanes to the list of possibilities.
The point is, as our dependence on foreign oil grows, so does our
vulnerability to supply shocks. According to Robert M. Gates, former
CIA director, ``The real lesson here [is that] it only requires a
relatively small amount of oil to be taken out of the system to have
huge economic and security implications.'' \12\
A PROGRAM OF ACTION
Rising gas prices are hurting the economy, global warming is
fueling extreme storms, and our soldiers are dying to protect our
access to oil in the Middle East. Reducing our oil use will save jobs,
save the environment, save lives and free us from the shackles of
Middle East oil. So, how do we do it?
First, here is what we should not do: Some would like to drill
their way out of this mess, squeezing every last drop of oil from the
Alaskan National Wildlife Refuge (ANWR) and other untapped American
sources. But even if we did, with only 3 percent of global reserves we
would soon be back begging at the Saudi's spigot. It would be wiser to
hold onto our untapped domestic reserves rather than exhaust them now
and be completely dependent on the Middle East later. Nor is nuclear
power the answer. Nuclear plants produce electricity--but electricity
today accounts for only 3 percent of U.S. oil demand.
Instead, we must take realistic, effective steps toward reducing
our thirst for oil.
1. Reject the Carter/Reagan Doctrine
America can no longer afford to use military force as a substitute
for a serious energy policy. We must no longer agree to protect any
foreign state or regime as a condition for access to oil. According to
Hampshire College Professor Michael Flare, ``Any attempt to reconstruct
American foreign policy on a more rational and ethical basis must . . .
begin with the repudiation of the use of force in procuring foreign oil
and the adoption of a forward looking energy strategy based on
increased conservation and the rapid development of alternative
fuels.'' \13\
Rejecting the Carter Doctrine does not mean we would abandon
alliances and security agreements with friendly, democratic states for
defense against mutual threats. But it does mean we would no longer arm
and protect undemocratic, repressive regimes for the sole purpose of
making sure their oil continues to flow our way.
Clearly, any rejection of the Carter Doctrine must be matched with
a comprehensive plan to kick the foreign oil habit. We endorse the
recommendations of the March 2005 report by the Natural Resources
Defense Council and the Institute for the Analysis of Global Security,
outlined below.\14\
Our goal should be to reduce our use of foreign oil enough such
that our national and economic security is no longer tied to the
survival of the Saudi royal family or any other nondemocratic oil
producer. Only at that point can our foreign policy be truly
independent from our need for oil.
2. Congress should establish a national goal of saving 2.5 million
barrels of oil per day over the next decade and 10 million
barrels of oil per day by 2025
Without national agreement on a goal, we will not get there. We
must commit to investing the money we would otherwise send oversees to
modernize and harness the technology potential of our factories and
farms here at home.
3. Raise gas mileage in new passenger vehicles through tax credits and
standards
Passenger cars, minivans, SUVs, and light trucks account for almost
50 percent of U.S. oil demand. This is why we must boost efficient use
of oil by increasing the fuel economy performance of our vehicles.
Consumers understand this and have responded to the recent price
increases by buying more fuel-efficient cars, such as hybrids, and
demanding a greater variety of gas-sipping choices. U.S. automakers are
starting to respond by producing hybrids, but are far behind their
Japanese competition, and putting American jobs at risk. A recent study
by the University of Michigan found that thousands of American jobs may
be lost unless U.S. automakers move faster to build hybrids.\15\
According to the Washington Post, ``U.S. carmakers have watched
consumers move away from gas-guzzling sports utility vehicles in favor
of more efficient models--a trend that has become more pronounced as
gas prices have soared.'' General Motors is a good example. GM lost
$1.6 billion in the third quarter of this year and has lost $3 billion
so far in 2005. GM--maker of the Hummer is responding by shutting
factories, slashing 25,000 manufacturing jobs, freezing bonuses, and
cutting health benefits. GM is now developing more fuel-efficient cars,
including hybrids. GM CEO, G. Richard Wagoner, told employees this week
that the company has ``too much reliance'' on trucks and SUVs.\16\
We must make our economy less vulnerable to high oil prices by
reducing oil dependency. This is a national priority that merits public
investment and commitment. Financial incentives to build more fuel-
efficient vehicles would help save oil and increase U.S. automaker
competitiveness. The States most vulnerable to factory closings and job
loss--Michigan, Ohio, and Indiana--must lead efforts to retool the U.S.
auto industry.\17\
Automakers and suppliers will need to retool their factories to
produce advanced technology vehicles. Consumers will need to buy these
more fuel efficient cars, which will cost more than conventional
vehicles. Both groups would benefit from tax credits. We endorse the
bipartisan proposal from the National Commission on Energy Policy
(NCEP) to spend $3 billion over the next 5 to 10 years on consumer and
manufacturer tax credits.\18\ These tax credits will help reduce U.S.
oil dependence and pay for themselves through increased tax revenue,
including new jobs in the production of advanced vehicles.
To make sure that tax credits translate into oil savings, NCEP also
recommends that federal fuel economy standards be raised, as they were
in the 1970s and 1980s. The fuel economy standards enacted in 1975 were
a key factor in the rise in gas mileage between 1978 and 1988.
Other helpful programs include requiring replacement tires to be as
fuel efficient as the original tires on new cars, and requiring
efficiency improvements and idling reductions for heavy-duty trucks.
4. Invest in smart growth and better public transportation
In addition to providing consumers with more fuel-efficient cars,
we also need to give them more alternatives to driving and to design
our communities so we can drive less. The potential oil savings from
better land use, transit oriented development, telecommuting and
improved public transportation are huge. Over 10 years, smart growth
developments could save about 50 billion gallons of gasoline, over 1
billion barrels of oil, and 595 million metric tons of CO2
emissions.\19\
5. Encourage growth of biofuels industry
Increasing auto fuel efficiency just is the first step to reducing
our oil use. The next crucial step is to develop alternative fuels that
do not use petroleum. These new fuels can be grown by American farmers.
Cellulosic biomass--made from agricultural leftovers (leaves, stems,
stalks), crops grown for energy use (such as switchgrass), and
garbage--can be made into ethanol and methanol as fuel for our cars.
Today's cars can run on 10 percent ethanol fuel. But to really make
a dent on oil demand, we need a new generation of cars--called
flexible-fuel vehicles (FFVs)--that can run on fuel that is 15 percent
gasoline and 85 percent ethanol. High ethanol fuels not only displace
oil but also decrease harmful particulate air pollution.
Congress needs to require all new cars and trucks to be capable of
running on biofuels by 2012. There is great potential for biofuels to
replace oil in our cars and trucks. By 2050, biofuels coupled with
efficiency and smart growth could reduce our oil demand by almost 8
million barrels of oil per day.\20\
If hybrids are made to use ethanol and can be plugged in at night,
such vehicles can be powered by blends of ethanol, gasoline, and
electricity and could achieve 500 miles per gallon of gasoline.
According to Set America Free, if, by 2025, all cars on the road are
plug-in, flexible-fuel hybrids, U.S. oil demand would drop by as much
as 12 million barrels per day.\21\
A VISION FOR THE FUTURE
Imagine America with new automobile production plants producing
advanced high-efficiency vehicles, creating jobs for American workers.
Imagine American farmers growing ethanol fuel to run our cars, and
American citizens living in communities designed around modern transit
systems.
Imagine Americans driving cars that get 500 miles per gallon of
gasoline. Americans love their cars, and at 500 miles per gallon, they
can keep them.
Now imagine America free from the burden of protecting our stake in
Middle East oil, allowing us to reduce our military footprint in the
region and our exposure to terrorism. We could then base our foreign
policy on the ideals that make this a great nation, like global peace
and security, freedom and democracy.
According to Amory Lovins, CEO of the Rocky Mountain Institute:
``As our nation stops needing oil, think of the possibilities of being
able to treat oil-rich countries the same as nations that don't own a
drop. Imagine, too, our moral clarity if other countries no longer
assume everything the United States does is about oil.\22\
Fifty years ago, President Roosevelt could not have foreseen the
dangerous situation in which we now find ourselves as a result of his
promise to a Saudi King. But today the danger is all too clear.
Fortunately, we can now foresee a way out of the oil trap that will
revitalize our economy and liberate our foreign policy.
Katrina and Rita have opened our eyes to the oil crisis. Let's not
blink.
Thank you.
------------
Endnotes:
\1\ International Energy Outlook 2004, Energy Information Agency,
Department of Energy.
\2\ For more on this, see Michael T. Klare, ``Blood and Oil: The
Dangers and Consequences of America's Growing Dependency on Imported
Petroleum,'' Metropolitan Books, 2004.
\3\ ``Winning the Oil Endgame Fact Sheet,'' Rocky Mountain
Institute, September 20, 2004.
\4\ Timothy Wirth, C. Boyden Gray, John Podesta, ``The Future of
Energy Policy,'' Foreign Affairs, July/August 2003.
\5\ Gal Luft, Institute for the Analysis of Global Security,
``Fueling the Dragon: China's Race Into the Oil Market,'' http://
www.iags.org/china.htm.
\6\ Keith Bradsher, ``China Sets its First Fuel Economy Rules,''
the New York Times, September 23, 2004.
\7\ Juliet Eilperin, ``Severe Hurricanes Increasing, Study Finds,''
the Washington Post, October 3, 2005.
\8\ ``Study: Global Warming Making Hurricanes Stronger,''
Associated Press, July 31, 2005.
\9\ National Defense Council Foundation, ``The Hidden Cost of
Imported Oil,'' September 2003.
\10\ Nell Henderson, ``Greenspan Assesses Storms' Impact,'' the
Washington Post, October 18, 2005.
\11\ Information on the simulation can be found at
www.secureenergy.org.
\12\ ``Oil Shockwave, Simulation Report and Summary of Findings,''
National Commission on Energy Policy and Securing America's Energy
Future, www.secureenergy.org.
\13\ Michael Klare, ``More Blood, Less Oil,'' September 20, 2005,
TomDispatch.org.
\14\ Natural Resources Defense Council and the Institute for the
Analysis of Global Security, ``Securing America: Solving Our Oil
Dependence Through Innovation,'' March 2005.
\15\ ``Fuel-Saving Technologies and Facility Conversion: Costs,
Benefits and Incentives,'' University of Michigan Transportation
Research Institute, November 2004.
\16\ ShoInn Freeman and Amy Joyce, ``For GM, New Deal and Big
Loss,'' the Washington Post, October 18, 2005.
\17\ ``In The Tank: How Oil Prices Threaten Auotmakers' Profits and
Jobs,'' Natural Resources Defense Council and the University of
Michigan Transportation Research Institute's Office for the Study of
Automotive Transportation, July 2005.
\18\ National Commission on Energy Policy, ``Ending the Energy
Stalemate: A Bipartisan Strategy to Meet America's Energy Challenges,''
December 2004.
\19\ ``Location Efficiency as the Missing Piece of The Energy
Puzzle: How Smart Growth Can Unlock Trillion Dollar Consumer Cost
Savings,'' Natural Resources Defense Council and the Sierra Club, 2004.
\20\ ``Growing Energy: How Biofuels Can Help End America's Oil
Dependence,'' Natural Resources Defense Council, December 2004.
\21\ ``A Blueprint for U.S. Energy Security,'' Set America Free.
\22\ ``U.S. Can Eliminate Oil Use in a Few Decades,'' Rocky
Mountain Institute Press Release, September 20, 2004.
Senator Chafee. Thank you, gentlemen. I suppose the key
question is left over from the first panel. And that is just
let the market work. Dr. Luft, that seems to be what they were
advocating. When the market dictates higher oil, we will move
to more fuel-efficient cars and let it work. How would you
respond to that? And other energy conservation measures for
those cars, or powerplants, whatever it might be? When the
price goes up, we will change.
Dr. Luft. And indeed, we will change. I am a great fan of
the free market, Mr. Chairman. However, the energy market is
not a free market. And unless we free the market, we cannot
expect the free market principles to operate here.
As I indicated in my oral statement, when you tax fuel that
comes from one country and you do not tax fuel that comes from
another country, this is not a free market. There are multiple
lobbies and interests who are manipulating the market, and
government intervention is all over the place.
Now, we also need to remember that consumers are not
exposed to the true cost of the fuel that they are using. We
are paying at the gas station only a fraction of what it really
costs our economy to bring in the oil. According to the
National Defense Counsel Foundation, which is one of the most
conservative think tanks in this city, they did a study on the
true cost of gas. They calculated the national security costs,
and the military spending related directly to foreign imports
of oil, and they came up with a figure of way over $5 per
gallon. That was a time when gasoline was selling for $1.50. So
unless we reflect the true cost of gasoline to the consumers,
the free market will not be able to work here.
The last comment I would say is that we need to be very
careful. We, all the time, will have to tell ourselves that
government is not supposed to pick winners. Well, this is very
true. But this is exactly what the government is doing now.
If you look at the current energy bill, the one that was
just passed, for example, there is an entire section dedicated
to hydrogen fuel cell cars. And there is no similar title
allocated to plug-in hybrid cars at a time that almost every
person who understands something about science will tell you
that plug-in hybrid cars are far more feasible than hydrogen
fuel cell cars.
In essence, it does not make sense to take electricity from
the grid, use it to split water in order to create electricity,
in order to put in a fuel cell, in order to create electricity
again to power the car, when you can take the same electricity
and power the car directly from the grid. And yet, our
government is spending billions of dollars on this program, and
then we tell ourselves we do not like to pick winners.
Well, we are picking winners, and if we just let the market
work here, it will pick the right winners. And I think that it
is clear that there should be a government role here. I think
that if it was up--if it was left up to Detroit, for example,
we would still be driving cars without seat belts or air bags.
There was a government mandate to equip every new car in
the United States with a seat belt and an air bag, despite the
kicking and objections. And today it is a standard feature. I
think that flexible-fuel capability, which is very cheap,
should be a standard feature in every car sold in the United
States.
Senator Chafee. For our audience and listeners that might
be out there, could you explain exactly what a plug-in hybrid
car is and mixed fuel, just briefly?
Dr. Luft. A plug-in hybrid car is a car that has--it is
better described as souped-up hybrid. It is a car that has a
battery that gives you a very limited range of anywhere between
20 or 30 or 40 miles of driving on electricity, up to which the
internal combustion engine kicks in. That essentially means
that the first chunk of your daily driving will always be on
made-in-America electricity, made from nuclear or coal or wind
or solar; whatever makes sense.
Since most Americans do not drive more than 20 miles per
day, assuming that they plug in their car every night, they
will be able to drive most of the time on electricity, but they
will not face the range limitations associated with all-
electric cars that we used to have in the 1980s, and actually
failed.
Another thing that is interesting about plug-in hybrid cars
is that they are--the only car that I am familiar with, they
get cleaner and cleaner as they get older, because our
electricity grid is getting cleaner. And that is something that
we also need to remember, in addition to the fact that
electricity costs about a third of the price of gasoline on a
per-mile basis.
And I think that the most important thing is that it is a
vehicle that allows us to bring into the energy and
transportation sector, the utility companies. It allows them to
enter this sector and produce fuel, transportation fuel, and
compete with oil companies. Because frankly, today, we have a
monopoly. Ninety-six percent of our transportation energy is
supplied by petroleum. And that allows oil companies to dictate
the terms in the market. You need to bring the utilities in to
provide the very necessary competition in order to break the
monopoly of the oil companies.
Senator Chafee. Is anybody making the plug-in hybrid?
Dr. Luft. Daimler Chrysler has a program, experimental
program, for a hundred Sprinter vans that already operate in
this country, all over the country. And the technology works.
There are a number of modification and improvements need to be
done on the battery. But if you compare this to fuel cell cars,
if you look at the technological viability of plug-in hybrid
cars versus fuel cells, we are talking about a huge gap in
favor of plug-in hybrid cars.
There are already private individuals and small businesses
who are working, particularly in California, to sell kits that
actually you can upgrade your Prius, your regular hybrid and
convert it to a plug-in hybrid car. But this is not something
that has entered the market in large quantities. I think we are
not very far from this point.
Senator Chafee. I will invite the other two panelists to
make any comments on this discussion.
Mr. Ebel. Thank you, Mr. Chairman. Let me make several
points. One, the American consumer is a funny individual. He
just has two concerns when it comes to energy, and particularly
to oil. One, he does not care where his oil comes from. And
second, he wants it to be as cheap as possible.
I have in my office all energy reports going back to 1974.
They are sitting in my office gathering dust. And they gather
dust because the political will of the American people is not
pressing on Congress to do something. Unless we have that
political will, nothing is going to happen.
I think most people think that we will get back to cheaper
gasoline, that the hurricanes are just a one-time event, and
that things will quiet down. And some oil companies are
thinking along the same lines. I am not so sure about that.
On plug-in vehicles, I wonder if we introduced such a
number of vehicles into our automotive market to make a real
impact, what would they take on a daily basis of our generation
of electricity? And where would that additional requirement
come from? Would it come from nuclear? Would it come from
hydro? No. Would it come from oil? Today, oil provides 2 to 3
percent of the electricity that we consume. Would it come from
coal? Fifty percent. Natural gas, 15, 16 percent.
What we have been talking about today is great, but let us
look at it in terms of reality. The American people's vision is
no longer than tomorrow. What are you doing for me so I will be
better off tomorrow? And I have to say that some people up on
the Hill, their vision is no greater than the next election
cycle. What can I do, or not do, that will help me get elected?
Thank you.
Mr. Collina. If I could add, I think that is exactly what
we should not expect, consumers to pay more for a hybrid car,
for example, just because it makes them feel better about
themselves. I think this is the appropriate role for government
subsidy. To make hybrids the same price or cheaper than
conventional cars, because in the short term they are going to
be more expensive. And to help producers retool their factories
to make hybrid cars, when probably up to now they were somewhat
skittish about it. Certainly, the American automakers are way
behind the Japanese and others. So this is where government can
play a role to prime the pump, if you will, to help us be
competitive, because, otherwise, we simply will not be.
And again, it is a national interest for us to be using
less oil. So if it costs the government some money to make that
happen, it will save us in the long run.
Senator Chafee. I will just comment. Yes; politicians
naturally look ahead to the next election, but we are also
fathers, and I think we are also trying to look ahead to 2025,
or whenever, some of the dates that were put out there that are
much further down the road, and grandfathers, whatever, here in
Congress.
It is still a long way, from what I understand, between a
plug-in hybrid that gets, what, 50 miles a gallon and the 20
miles that are free on electricity taken off the grid, to 500
miles a gallon. Can you help me bridge that gap?
Dr. Luft. Sure. First of all, let me address the question
that Mr. Ebel raised about the grid. One of the things we need
to remember about the grid is that we have off-peak hours and
peak hours. And there is a lot of spare capacity during off-
peak hours that is not being utilized.
Utilities can address this. If people, of course, plug in
their cars at night, and that is, I assume, when most people
will plug in their cars, they will be able to utilize this
capacity and help utilities to generate more revenue that we
can, in turn, help them upgrade the grid and improve it.
According to the Electric Power Research Institute, up to
30 percent market penetration can be achieved using the
existing grid capacity, assuming that we utilize off-peak hour
electricity.
Now, when I am talking about the--the various calculations,
and it is not really important when they talk about 200, 300,
500 miles per gallon. I am talking here about miles per gallon
of gas. We are not talking BTUs here. We are talking about how
to stretch a gallon of gasoline. Because our problem is not
with BTUs, from a national security standpoint. Not with BTUs
but with gasoline.
If you replace the gasoline with something else, could be
methanol made from coal. There is a lot of talk about ethanol
in this country. But methanol is just as viable. It is even
cheaper. Unlike ethanol, it cannot be made from agricultural
products. Methanol can also be made from wood and from coal,
and from agricultural product.
It can be cogenerated by utilities. So, if we combine the
methanol production, ethanol production, if we open the market
for ethanol, we import ethanol, cheap ethanol from Latin
America, and we can have a lot of extra energy that can use--
can be used in the transportation sector as replacement for
gasoline.
It is also very important to realize that implementation of
ethanol will help us reach a part of the world--perhaps the
only part of the world in which we are not being hated, which
is Latin America. I think we have a very strong interest in
making sure that in this part of the world we have a strong and
positive footprint by creating economic interdependency with
the Caribbean nations, with Brazil, with other sugar-producing
countries.
We cannot be a major sugar-producing country. We do not
have the climate. They can. And they should. And they can help
us. And I do not see any problem of us becoming dependent on
the farmers in the Caribbean and Brazil.
Senator Chafee. After the Monroe Doctrine, we got our
hemisphere, and it is going to be our neighborhood. North and
South.
My question was on the effects on the weather. And you
gentlemen also conclude that this is a factor. Dr. Luft talked
about that.
Dr. Luft. I did not talk about it.
Mr. Collina. It was my point about climate change.
Senator Chafee. I am sorry.
Mr. Collina. And I would just say that when we look at
cutting oil, there are two perspectives. One is the global
security implications, which primarily are attributed to
imported oil. But then from the environmental perspective, it
is oil use in general. Wherever the oil is from.
And, I would say, in the case of using coal to make
methanol, we are still burning coal and we are still creating
carbon. So from the perspective of global warming, and,
therefore, its relation to extreme storms, we have to be
worried about that.
As well as, I would guess, I have not looked into this, but
growing--in Brazil, growing sugarcane, whether that involves
cutting down rain forests that would otherwise be a place where
carbon would be getting absorbed.
So I think we have to look at both sides of this. But
certainly I would say the effect of carbon on storms and
through global warming is one of the areas which we should look
at very closely. Not just from an environmental perspective,
but again, from a security perspective. The crises, the natural
disasters that this will create. Not only here, but in other
countries. And how countries deal with that. Again, tens of
thousands of people migrating from one place to another, huge
bills for reconstruction can have dramatic impacts on nations.
Senator Chafee. And my last question is with regard to the
Western Hemisphere. President Chavez recently said that oil
finally is running out. With India and China coming on, and
China, 1.3 billion people living there, I think we are the
third most populous country, 285 million, and we are way, way
down from those two colossals. Is he remotely right?
Mr. Ebel. Well----
Senator Chafee. Did you see that quote?
Mr. Collina. Yes.
Mr. Ebel. Mr. Chairman, I think from the very beginning,
when we began to use oil, we were hearing voices saying, ``We
are running out. We are running out of oil.'' I have a textbook
on my desk, and it says in 1934, ``I do not know what we are
going to do in the future. We are running out of oil.''
We moved out of the stone age, because we did not run out
of stones. We moved out of the coal age, because we did not run
out of coal. And we will move out of the oil age, not because
we run out of oil, but we found something better. And whether
that better is a plug-in vehicle or a fuel cell vehicle, I do
not know. It is too early to tell. But we will find something
better.
Mr. Collina. At the same time, I will just add that we do
know that oil is a finite resource. It is going to run out at
some point. It is not a question of if, but when. Obviously,
there are a lot of different opinions about when that is going
to be, but planning for it now makes great sense.
Senator Chafee. Well, thank you very much, gentlemen, for
your time. And I will keep the record open for any additional
statements until the close of business tomorrow.
The hearing is adjourned.
[Whereupon, at 4:10 p.m., the hearing was adjourned.]