[Senate Hearing 109-448]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-448
 
          U.S. FOREIGN POLICY, PETROLEUM, AND THE MIDDLE EAST

=======================================================================

                                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

                               __________

       Printed for the use of the Committee on Foreign Relations


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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

                                 ------                                

                      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

                              ----------                              
                                                                   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

                              ----------                              


                       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.]

                                  
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