Geopolitics and the US Energy Security Outlook Guy Caruso October 10, 2011

| US Energy Snapshot 70% Energy Self Sufficient 2 nd largest natural gas producer 3 rd largest oil producer Largest global reserves of coal, but…. Action on Climate Change High Priority for Administration Transport sector tied to petroleum based fuels Oil imports problematic & domestic supply issues under review Shale Gas a major positive new development Need to improve efficiency and promote cleaner alternatives but transformation will take time, technology and dollars

|3 US Energy: Confronting a Precarious Landscape  Continued but uneven demand growth driven by population, GDP growth, and living standards, particularly in emerging economies  Concentration of conventional resources, reliability of delivery systems threatened by chokepoints  “Peak Oil” concerns more a function of “Above Ground” issues than resource endowment, but technologically challenging resources now being questioned; system is unsustainable long term  New Players Emerging new agendas, business models, leverage and alliances – New Rules/Institutions?  Impact of the Economic Crisis, Volatility & Regulatory Uncertainty

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7 Energy trade flows will expand, placing additional strain on an already massive and vulnerable system of infrastructure. 7 Source: NPC Global Oil and Gas Study 2008

Middle East and North Africa (MENA) accounted for more than 1/3 of global production of oil and other liquids

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Energy Security Implications: Dependency vs. Vulnerability --US oil import dependence lessens but.. Global Market Transmits Disruption to All Redundant Capacity vs. Cost US Force Exposure Likely to Remain High 10

|11 Recognized Challenges – How to Respond?  Must transform the way we produce and consume energy  Energy efficiency is a key component but investments often have short term payoff, so focus on information and incentives  Renewables are increasingly competitive intermittency and grid connection problems remain – pursue smart grid and incentives  Preservation of role for coal requires solution on carbon capture and storage, but CCS not demonstrated on commercial scale & requires new infrastructure, so proceed with RD&D investments  Nuclear energy requires large capital investment and faces safety, waste and proliferation concerns – jury still out on precise role especially in the aftermath of Fukushima  Evolving acceptance of conventional fuels viability must be ensured even as we move to transformation – but message is mixed and relegated to back pages

| Security & Foreign Policy Objectives Promotes/Supports Sustainable Environment Defensible Natural Gas Oil Energy Efficiency Nuclear Renewable Energy Coal Economic Objectives Environmental Objectives Policy Model Affordable/Accessible Supports Economic Growth & Employment Environmentally Benign Low/no emissions Reliable and Secure Carbon Capture and Storage