The U.S. Energy Briefing: Policy Options and Recomendations April 28th.2011

Presentation Roadmap Current Energy Assessment Inputs for Policy Decisions Options and Recommendations Where is Demand Going? Constraints on Supply meeting Demand Trends Requiring Clarification Vulnerabilities Energy Independence vs. Energy Security National Interests Objectives Option 1: Domestic Drive Option 2: SEGB Implementation Evaluation and Fallback

Where is demand going? Domestically: – Transportation Increasing proportion and magnitude – Industry Efficiency improvements reducing proportion Internationally: – China and India Large population Economic growth – Growth in demand around the world OECD – 60% of demand today And Non-OECD – 60% of demand in 2030

What are the constraints on supply meeting demand? Domestically: Incomplete access – Alaska Trade restrictions – Biofuels from Brazil Environmental considerations – Nuclear meltdown, CO 2 emissions Reduced reserves – U.S. oil production has peaked Internationally: Lack of spare capacity – OPEC production is 6% less than capacity Lack of refineries – built for certain types of crude oil, in order to produce certain types of petroleum products Lack of investment – should be overcome by higher oil prices?

What Trends Require Clarification? Energy decisions are necessarily long-term Efficiency vs. Conservation Fossil fuels greatly more significant than renewables Sufficient oil reserves for at least up to 2050 One world energy market Energy is more than oil, but …

Specific vulnerabilities that the U.S. should address Domestically : Where does US oil come from? Infrastructure – awareness after Katrina Internationally : Terrorism – increased reliance on insecure areas – Niger Delta, Russia, Middle East Transportation routes Lack of diversification – Locations and sources of energy Information – Oil projections? Lack of investment – failure of NOCs Chinese mercantilism Country000s barrels /day Canada1,944 Saudi Arabia1,479 Mexico1,198 Nigeria1,163 Venezuela1,135 Largest U.S. oil imports by country (2006)

Oil Transportation Chokepoints Strait of Malacca 15 million b/d Bab el-Mandab 3.3 million b/d Suez Canal 4.5 million b/d Strait of Hormuz 17 million b/d Bosporus Strait 2.4 million b/d

Energy Independence vs. Energy Security Energy Independence: – Producing sufficient energy domestically to meet domestic demand (i.e. zero imports of energy) – Is it actually possible? Maybe only with nuclear power, development of Canadian tar sands – Can we follow Brazil? No – biofuels are inappropriate, little chance of more oil discoveries Energy Security: – Availability, affordability, adequacy, reliability of energy resources Moderating demand, expanding and diversifying supply (including alternatives), strengthening global energy trade and investment

National Interests Vital Ensure the viability and stability of major global systems (trade, financial markets, supplies of energy) Prevent, deter, and reduce the threat of the use of nuclear weapons anywhere Extremely Important Support our strategic partners in the Middle East and around the world Important Reduce detrimental effects of Climate Change on U.S. mainland

Objectives What are the main U.S. Energy Objectives? Energy Security – Diversification of types and sources – Energy efficiency – Energy conservation – Increased energy investment – Open markets and increased access Reduce the threat of nuclear weapons proliferation – Safe and secure nuclear facilities around the world Climate change mitigation – Reduced CO 2 emissions

Option 1: Domestic Drive Assumptions: – U.S. is in a better position to control its destiny – International cooperation encounters too much bureaucracy – Likelihood of increased international turmoil in the future Domestic Energy Supply New energy types – increased nuclear power, renewables Infrastructural development – additional pipelines, reserves Improved access to reserves – opening up of ANWR Domestic Energy Demand Efficiency and conservation advances – Subsidies for efficiency improvements in homes and business – Stricter CAFE standards and tighter energy controls of industry, tighter building codes – Cap-and-trade system of CO 2 emissions for industry Increased public transportation, increased tax on gasoline Wider environment Federal support of R&D into new technologies (carbon sequestration and fusion) Increased sponsorship of geophysical programs at U.S. universities Development of renewable energy sources when at least marginally cost effective

Option 1: Domestic Drive Pros: – America’s demand as a global percentage is high, efficiency improvements will have an effect on global statistics – More likely to lead to long-term success – Could be used as a model for the international community – Protects U.S. industry – America will be more secured in the event of international turmoil Cons: – May be unpopular with American citizens and businesses – Ecological damage if Alaska is opened up to oil prospectors – Gasoline taxes may harm economic growth in the short-term

Option 2: Supranational Energy Governing Body (SEGB) Assumptions: – Meaningful action possible only through international cooperation – Sovereignty issues will restrict role to free market policy promotion, centers of research, and some international policing Organization Includes existing bodies (IEA, IAEA, and OPEC), all states will be invited to join States must be committed to basic tenets (efficiency, diversification, free trade) Free Market Policy Reduce energy trade barriers – ineffective and inefficient Encourage governments to sell oil above production cost Global cap-and-trade CO 2 emission system Global strategic petroleum reserves in case of supply shocks International Policing Multinational force will guard maritime transport chokepoints Global monitoring and surveillance of pipe-lines, other potential terrorist targets SEGB to mediate on energy-policy disputes (e.g. Ukraine-Russia) Research and Technology Body will fund multi-national research programs (CERN, other locations) Technology transfer of efficiency improvements to developing world SEGB will have access to all reserves for surveying purposes Output Improvements SEGB takes control of marginal field when oil companies want to pull out SEGB funds EOR projects (Enhanced Oil Recovery) when non-profitable for firms

Recommendation ObjectiveAmount of Change Option 1Option 2 Increased diversification of sources3/105/10 Improved energy efficiency4/105/10 Improved energy conservation3/108/10 Increased investment4/10 Opening up of markets3/108/10 Reduce threat of nuclear-weapons proliferation 2/107/10 Reduce CO 2 emissions and effects of climate change 4/108/10 Probability of Success80%40%  Recommendation: Option Two: International Cooperation

Implementation Initial summit meeting of SEGB: – Define specific goals – Decide initial membership criteria – Invite Heads of States of all nations Identify contributors to the multinational maritime guard – Locate bases for coast-guard vessels, terms of engagement Discussion of mandates between IEA, IAEA and SEGB – Ensure there is responsibility for all areas of energy security – Discussion of merger strategy between various bodies Commence SEGB geological survey of existing oil fields Commence discussion on cap-and-trade endowments

Evaluation and Fallback Predetermined timetable of efficiency and supply improvements – Annual evaluation of whether targets are being reached – Focus on which states are not meeting targets – additional programs/subsidies/penalties Resolution of international energy disputes and increased access Fallback: – If initially unpopular, SEGB could be restricted to G8+2 (China and India) and main energy exporters (including OPEC) – If SEGB ineffective, option one remains a fallback possibility