1. Biofuels, National Security and The Evolving US Energy Posture
Sixth Annual EBI Biofuels Law and Regulation Conference "Re-Imagining Policy Incentives for Biofuels”
Dr. Leo Goff, Captain USN (Ret.)
Program Manager CNA Military Advisory Board
President ACARYIS
Former Commanding Officer USS City of Corpus Christi SSN 705
Thanks for introduction and further self introduction if required.

2. Oil Dependence is a National Security Threat
BLUF
Oil Dependence is a National Security Threat
DOD can be a Driver for Oil Independence
Saying in the Navy – Bottom line up front

3. CNA’s Leadership on Energy & National Security
CNA -- Research organization providing in-depth analysis and solutions for government leaders
MAB Over 30 Members (Rotational)
General Gordon Sullivan, USA (Ret)
General James Conway, USMC (Ret)
Admiral “Skip” Bowman, USN (Ret)
General Paul Kern, USA (Ret)
General “Chuck”. Wald, USAF (Ret)
General Ron Keys, USAF (Ret)
Admiral Joseph Lopez, USN (Ret)
General Robert Magnus, USMC (Ret)
Admiral Steve Abbot, USN (Ret)
Vice Admiral Denny McGinn, USN (Ret)
Vice Admiral Lee Gunn, USN (Ret)
Sherri Goodman
I am here not only representing my views and 40 years experience directing sailors and ships in the USN, but also the collected wisdom of CNA’s Military Advisory Board (MAB for short)
MAB was establish in 2007 to look at pressing issues of the day.
Since that time we have had over 30 recently retire Generals and Admirals on the board, sharing their views and not tied to any administration. –
From this 1945 poster promoting efficiency, you can see that not much has changed to alter oil’s strategic hold on us. It is past time for us to do something about it.

4. CNA MAB National Security Framework National Security Is More Than DOD
Economic Strength
Geopolitical Stability
Military Capability
Environmental Sustainability
Four reports:
Look at National Security Holistically
Click --
At the MAB we see for critical components to National Security.
Economic security: the nation is able to provide sustenance for its population, and can provide a level of goods and services that is culturally consistent with what its population has come to expect. In national security discussions, the growth and health of the nation’s economy is key.
Geopolitical stability: Political stability involves ensuring internal order and governance, so that major institutions can function continuously and effectively, and that any incentives for radical societal changes are reduced. Geopolitical stability involves healthy relationships with the community of nations, so the nation can thrive in a global economy.
Military security: A nation’s military should be able to protect its borders and citizens (and its interests abroad) from physical threats. A contemporary view of this may also include protection from cyber threats.
Environmental security: A secure nation can have confidence that its land, water, air and natural resources will remain healthy and accessible. When ecological systems are degraded – negatively affecting water supplies, food production, and basic shelter requirements – the risks to security climb. This is not about hugging trees it is about ensuring a nation can access the natural resources it needs now and in the future
Click—
National security is more than just the military
National Security Is More Than DOD

5. MAB #1 Finding
America’s dependence on fossil fuels constitutes a significant national security threat
Economy
Completely reliant and vulnerable
Transportation system totally dependent (food, jobs, etc)
Price volatility stifles investment
Geopolitics
Limits our options on the world stage
Sizeable Mid-east presence
China will be competing for same oil– raise tensions
Militarily
High oil price limits investment in capability and capacity
Single source– increase vulnerability, long logistics tails
Environment
Pollution, oil spills, GHG
Grandkids need oil for things beside fuel
Not in my back yard – limits further US production
In 2011 we published a report about US over reliance on oil
We found America’s dependence on fossil fuels constitutes a significant national security threat
Oil is US Achilles Heel – we know and our enemies know it
Remember the four element of national security
Economy completely reliant and vulnerable
Transportation system totally dependent on oil (food, jobs, etc)
Price volatility stifles investment (don’t know how to budget)
Historically price spike are associated with recession
Global market, global price – no change w/ more US production
Geo-political
Limits our options
Iran nuclear example -- close strait and we’re in it
Sizeable Mid-east presence
China will be competing for same oil as us soon – raise tensions
Oil cause of WWII in Pacific
Troops required to serve in harms way
Militarily
High oil price is limiting investment in capability and capacity
Commandant USMC example
Single source make long supply lines – increase venerability
Fuel is limfac for airstrike, ship range, FOB distance
Environmental
Oil has a host of environmental problems including the bad things that is does to our atmosphere and oil spills
Need oil for other things beside fuel, lubricants, medicine, plastic
Not in my back yard – limits how much more US can produce

6. Oil - The Facts
U.S. uses ~ million barrels/day
About 40% is imported
About 40% of imported is from OPEC
Global commodity – price set by global supply (OPEC) and demand (ROW)
China is NOW world the largest importer and growing at 7% each year
China exceed US imports THIS Year (years earlier than predicted)
Why Oil is National Security threat
Landscape –
We use about 18M barrels/day ~ 40% imported, 40% that from OPEC
70% of oil used for transportation ~ 95% of transportation use oil (nearly all)
US used to be largest oil importer -- Now it is China second -- growing 7%/year)
-- India fifth (1/3 US level)
SUPPLY is limited – comes from volatile regions of world
75% of the oil we burn in this country is used by transportation.

8. Evolving Energy Posture -- US Oil Production
Although we came out with this findings just a year and half ago, the landscape of energy has changed.
Crude oil production, particularly from tight oil plays, rises sharply over the next decade
The advent and continuing improvement of advanced crude oil production technologies continue to lift projected domestic supply. Domestic production of crude oil increases sharply, with annual growth averaging 234 thousand barrels per day (bpd) through 2019, when production reaches 7.5 million bpd. The growth results largely from a significant increase in onshore crude oil production, particularly from shale and other tight formations. After about 2020, production begins declining gradually to 6.1 million bpd in 2040 as producers develop sweet spots first and then move to less productive or less profitable drilling areas.
Slide
U.S. Energy Information Administration | Annual Energy Outlook 2013 Early Release Overview

9. New Energy Posture: Five “Myths”?
1 North American can achieve oil independence
2 US can achieve energy independence
3 The new found oil/gas will allow us to reduce US presence in the Middle East
4 New found gas supplies solve the GHG problem
5 We can shift away from renewable/clean energy
I want to the security cover 5 areas
I call them myths.
1 North American energy independence
2 US energy Independence
3 The impact of the new posture on our presence in the Middle East
4 The impact of the new posture on climate
5 The new posture and the strategic importance of renewable clean energy
U.S. Energy Information Administration | Annual Energy Outlook 2013 Early Release Overview

10. New Posture: North American Oil Independence
Because of the new US energy posture there is a growing exuberance about North American oil Independence.
In fact, today nearly % of our oil imports are from Canada and Mexico. Were we to lower demand and or increase domestic production we could produce enough oil in the Northern Hemisphere to meet all of our needs.
There are some politically charged challenges such as the pipelines and the type of oil being processed, which I won’t get into. But from a National Security perspective it is not prudent or at least premature to consider Northern America as a block of Energy production.
The last time I checked both Canada and Mexico were sovereign nations able to make there own decision on energy like to whom to sell their gas and oil. It would be a mistake to change policy in the Middle East, Africa, or South America if the policy is tied to North American energy independence.
Unless we have some restricting Energy treaty with Canada and Mexico I predict that oil producers in those countries will sell their oil to the highest bidder. The advantage that the US has is that transportation cost are lower for us because of proximity, but we have already seen that China will exceed US demand in the very near term, and often the biggest buyer on the block has influence.

11. About 6 mmbpd by 2015
Tar sands – fracking ect it is possible.
But limited by refining

12. Non OCED Oil Demand Accelerates
Lets tease out oil from the last chart
From a national security perspective it is import to understand that the increasing rise of oil demand is all in the developing nations – and by this we mean China, India and South East Asia.
The red line represents the US, Japan and Western Europe. You can see for the last decade the demand for crude oil has gone down. But in the rest of the world the demand is consistently rising. From a strategic point of view the demand is almost insatiable.

13. New Posture: US Energy Independence
Perhaps from a production stand point, one day we may produce as much oil and gas as we use, but from a National Security perspective we will never be energy independent.
Conventional wisdom holds that if the U.S. produces all of the oil it consumes, it will be energy independent. This assumption ignores the fundamental dynamics of a world market. The price of oil is set on a world market, which means those who produce it continue to influence its price. As a result, the U.S. remains vulnerable to manipulations of the market cartels who do not share our interests.
The price of natural gas, however, has historically been set locally. The dramatic increase in U.S. natural gas supplies is changing that dynamic.
Price volatility has national security implications beyond vulnerability to those who manipulate the price. Economic security is critical to our nation’s security. Historically dramatic spikes in energy prices have preceded recession. When our nation’s economic power is weakened, so too is our military strength.
Oil and other sources of liquid fuel cannot be lumped together with natural gas; their end uses and transportability are significantly different. As such, they must be examined separately.
Liquid fuel
Liquid fuels, primarily generated by refining crude oil, provide 95% of the energy used by the U.S. transportation sector. Because of our reliance on transportation for everything from just in time supplies to day-to-day business commuting, liquid fuels will continue to be the Achilles heel of the United States. Considering new oil sources in the United States, now available through the expanded use of fracking, the EIA estimates that by 2035 the US will still need to import 30% of its liquid fuels, even as we are exporting oil.
Even if the United States could once again produce all of its liquid fuel needs, because of the relative ease of oils transportability and the fungible nature of oil and refined oil byproducts and the ability of oil producers to export liquid, in a free market system, the U.S. will remain subject to global liquid fuel prices and therefore price volatility. Today oil and refined oil products are easily transported through well-established infrastructure system both domestically and globally. As a result, oil is a fungible global commodity, traded around the world at prices determined by world markets. Without tariffs or other controls, oil and refined oil products flow to areas of the world where oil producers can make the most profit. This includes oil and refined oil products that are produced in the United States. For example, in 2011, despite record prices for refined oil products at U.S pumps, the U.S. was a net exporter of refined oil products. This means more U.S. refined products were exported where it was sold for higher prices around the globe rather than staying in the U.S. where it could have increased domestic supply and lowered domestic pump prices.
New sources of oil produced in the United States will also follow the money and, without government intervention, will flow to the highest price, globally. As a result, should a world event cause oil prices to spike, that spike will be directly reflected in a barrel of oil whether produced in shallow well in Saudi Arabia or a fracked well in Texas or North Dakota. Producing abundant oil in the U.S. does little to insulate the U.S. from oil prices set on a world market though more oil produced in the U.S. may moderate spot oil prices and volatility associated with commodity speculation.
Natural gas
On the other hand, natural gas does not yet have the same global transportation infrastructure as liquid fuels and accordingly the price of natural gas is determined much more by local supply and demand. However, as natural gas supplies grow, infrastructure to move it to other markets will also grow. As the transportability of natural gas grows, its price will become subject to larger, regional or even global markets. Accordingly, exports of liquid natural gas (LNG) from the U.S. are likely to grow and the LNG price will begin to reflect global supply and demand. On the positive side, LNG exports are likely to have a positive impact on global economic growth and the U.S. balance of trade.
Domestically, the price of natural gas has been extremely volatile, moving from highs of $14 per million BTU to $2 in the course of four years. As example of the prospect for continued volatility, currently no natural gas producer will commit to contracts of more than a couple of years while other fossil fuel and renewable energy producers lock into thirty-year contracts.
Finally, increasing global demand for energy, especially in Asia, will increase global demand for LNG. In a free market, where energy can flow freely to areas of highest demand, either supply must increase or demand will make every bit of oil and gas produced more valuable and accordingly more pricey.

16. New Posture: US and the Middle East
This chart is a little dated but graphically it makes the point.
Of the roughly 20 million barrels of oil a day the US used about half is from domestic sources and half is imported.
Half of the imported is from Canada and Mexico and the other half from OPEC, but only half of our OPEC oil is from the Middle East. We only get about 10% of our oil from the Middle east compared to Asia Pacific which gets 75% from Middle East or Europe which gets about 25% of its total oil from the Middle East.
The view graph clearly shows that the Middle East is the world’s oil producer. Any disruption of the flow of oil from the Middle East would have global impact. Since the economy is a critical part of our National security we have a great interest that the world gets its oil.
The US has other Strategic interests in the Middle East, Israel, quelling the spread of terrorist, promoting democracy and other It is not just about the oil.
I do not believe that even if the US achieve, so called oil independence that we would significantly reduce our footprint in the Middle East. 16

17. New Posture: Climate Stress
In the short term the new energy posture and especially the substitution of cleaner burning natural gas for coal reduces the Green house gases we are emitting. But the phenomena is short lived as the price of Natural gas is expected to rise with its transportability and increased global demand. By the end of this decade coal is again as cheap as Natural gas and without regulation which might shape decisions coal again becomes the fuel of choice for many power generation facilities and our GHG emission start to increase.
U.S. Energy Information Administration | Annual Energy Outlook 2013 Early Release Overview

18. New Posture: Climate Stress
CNA Military Advisory Board
National Security and the Threat of Climate Change (2007)
Projected climate change poses a serious threat to America’s national security
Climate change acts as a threat multiplier for instability in some of the most volatile regions of the world
Projected climate change will add to tensions even in stable regions of the world
Climate change, national security, and energy dependence are a related set of global challenges
U.S. should commit to stabilize climate changes to avoid significant disruption to global security and stability
Why am I concerned about Green house gases.
In 2007 the MAB studied climate change and found it a significant threat multiplier.
I want to draw your attention to the last two bullets
Climate change, national security, and energy dependence are a related set of global challenges
U.S. should commit to stabilize climate changes at levels that will avoid significant disruption to global security and stability
The more we can do to delay or slow climate change the better off we will be.
The report is widely cited by scholars and policy practitioners.

19. New Posture: The Impact of Clean Energy
The final concern that I want to talk to you today is about clean or renewable energy.
Some have seen the oil and gas boom as a signal that we should abandon or quest to find clean renewable source of energy. “Why should we invest in expensive new technologies when we have more energy that Saudi Arabia?”
Several reasons.
1 Old systems are inefficient. Although we have a great deal of energy we will be paying world market prices, which are only going up.
2. From a tactical military point of view, long supply lines to get fuel for forward operating bases is a vulnerability. Widely publicized that 1 out of every 8 soldiers killed in Iraq was with a fuel convoy. But its not just the soldiers since many convoy were manned with contractors. In fact over 3000 American were killed in just 4 years ( ) in Iraq and Afghanistan in fuel convoys. We need better energy systems at the forward operating area of military operations.
3. The US should be fighting for the competitive edge in these new technologies. As the demand and price of fuel continues to rise there will be an increased GLOBAL demand for renewable or low cost energy solutions. If we take a hiatus from development we will loose all competitive advantage to China, India and the rest of the world for a growing lucrative market.
 Germany 32,509[65]  Italy 16,987  China 8,043  United States 7,665  Japan 6,704  Spain 4,214  France 3,843  Belgium 2,018  Czech Republic 1,960  Australia 2,291  United Kingdom 1,831  India 1,427 India will grow to 20,000 in three years.
4. We have already discussed the importance of reducing GHG and renewables can go a long way in that effort.
5. Finally, most of our current power generation system are highly dependent on cooling water (or water for refining or production)
SLIDE

20. New Posture and Renewables
The importance of renewables was made clear in the summer of 2011 in Texas. Suffering from sever drought reservoir levels had dropped so low that conventional power plants had to be taken off line because of insufficient cooling water.
The only thing that kept most of Texas from suffering blackouts was the vast wind farms in eastern Texas.
Wind and solar do not require water.
A similar water shortage occurred last summer in India. But they did not have wind power to rely on. 24 states in India and 600 million people were with out power. The country ground to a halt and riots ensued.

21. DOD as a Leader in Renewables
DOD consumes 145 million barrels annually
DOD alternative fuels policy:
Ensure operational military readiness
Improve battlespace and expeditionary effectiveness
Increase the ability to use multiple, reliable fuel sources
Increased resilience - supply disruptions- price volatility
Increased fuel options for operational commanders
“drop-in,” that is, requiring no modification to existing engines
cost-competitive with conventional petroleum fuels
available in sufficient quantities;
derived from a non-food crop feedstock; and
have lifecycle greenhouse gas emissions less than or equal to conventional petroleum
MAB presented four recommendations where action is required at the federal, state and local level.
1st Need Strategic Roadmap – Not only is it needed to plan, but it is needed to assure invests can be made
2 nd Need to Drive Reduced Consumption -
Efficiency is the fruit on the ground. Need to expand efficiency through every sector. This will translate directly to fewer convoys on the battle field.
3 rd Need to Facilitate Alternatives -- Government R&D; Infrastructure
Don’t pick winners or losers
Our international competition is breathing down our neck. The US needs more of a sense of urgency.
Government must send market signals to unleash America’s innovation
Many different ways from incentive to costs, but the sector needs help
4th as the largest government consumer of energy DOD needs to continue to drive to a new more secure energy posture
DOD should continue to be a leaded in advancing alternative fuels -- but must balance mission effectiveness with over all efficiency.
Nothing replaces speed and lethality on the battlefield.
DOD must move aggressively to reduce the number of convoys carrying oil
We have been at the forefront of energy transitions in the past and we can lead this one as well. Need help – like the ability to contract for fuel for more than 5 years. No energy producer is going to build an expensive new plant if he will only have five years of work.

22. Service Initiatives Army
By 2025, at least 25% of energy used for tactical power derived from renewable.
By % of the fuel requirement in the training base for the tactical mobility met by alternative fuel blends
 Air Force
As of tested and certified all aircraft and systems on a 50:50 alternative fuel
By 2016 acquire 50% of the Air Force’s domestic aviation fuel requirements via an alternative fuel blend in which the alternative component is derived from domestic sources produced in a manner that is greener than fuels produced from conventional petroleum   
Navy
By 2016 deploy a “Great Green Fleet” strike group of ships and aircraft running entirely on alternative fuel blends by Demonstrated during the RIMPAC
By % of the Navy's total energy consumption from alternative sources

23. clean energy investments increased 300 %
Other Initiatives
2006 and 2009 DOD
clean energy investments increased 300 %
from $400 million to $1.2 billion
Starting in 2015 Pentagon will be spending $2.25 billion per year
By 2030 projected at $10 billion annually
The MOU argues that because of the current economic
environment, start-up risks, and competitive barriers posed by the established crude oil market, without
government investment, adequate domestic production capacity of advanced drop-in biofuels will not be
achieved in a timely manner.23

24. Other Initiatives
2011 Defense Production Act -- Departments of the Navy, Energy and Agriculture Memorandum of Understanding
"assist the development and support of a sustainable commercial biofuels industry.“
Support advanced drop-in biofuel plants and refineries to produce advanced biofuels that
meet military specifications;
• are price competitive with petroleum;
• are at geographically diverse locations with ready market access; • have no significant impact on the food supply.24
$510 million over a period of three years, with $170 million each from the Navy, the Department of Energy, and the
Department of Agriculture.
The MOU argues that because of the current economic
environment, start-up risks, and competitive barriers posed by the established crude oil market, without
government investment, adequate domestic production capacity of advanced drop-in biofuels will not be
achieved in a timely manner.23

25. Questions
From this 1945 poster promoting efficiency, you can see that not much has changed to alter oil’s strategic hold on us. It is past time for us to do something about it.

26. Back-up

27. CNA- Military Advisory Board
Ensuring America’s Freedom of Movement (2011)
America’s dependence on oil constitutes a significant national security threat
A 30 percent reduction in our use of petroleum would significantly improve our national security
We can achieve a significant portion of a 30 percent reduction through greater efficiency in oil use
There are many promising alternatives to oil as a transport… all of the most promising alternative fuels examined can lower overall national security risks rather than continuing our overreliance on oil
Our most recent report focused on fuel and transportation..

28. CNA Military Advisory Board (MAB)
CNA -- Research organization providing in-depth analysis and solutions for government leaders
MAB Over 30 Members (Rotational)
General Gordon Sullivan, USA (Ret) Chief of Staff, US Army
General James Conway, USMC (Ret) Commandant of Marine Corps
Admiral “Skip” Bowman, USN (Ret) Director, Navy Nuclear Power
General Paul Kern, USA (Ret) Commander, Army Materiel Command
General “Chuck” Wald, USAF (Ret) Deputy Commander, U.S. European CMD
General Ronald Keys, USAF (Ret) Commander, Air Combat Command
Admiral Joseph Lopez, USN (Ret) Commander, US Navy Europe
General Robert Magnus, USMC (Ret) Assistant Commandant, USMC
Admiral John Nathman, USN (Ret) Commander, Fleet Forces Command
Admiral Steve Abbot, USN (Ret) Deputy Commander, US European Command
Vice Admiral D. McGinn, USN (Ret) Commander, Third Fleet
Vice Admiral Lee Gunn, USN (Ret) Inspector General, Department of the Navy
General Paul Kern, USA (Ret) Commanding General, Army Material Command
CNA – not a acronym, but the name of the corporation is at heart a federally funded research and development organization that has expanded to include research for organizations outside the government …. Like the military advisory board’s work that I am here today to talk with you about on Energy.
The Military Advisory Board (or MAB) was establish by CNA in 2007 to look at pressing issues of the day.
Since that time we have had over 30 recently retire Generals and Admirals on the board, sharing their views and not tied to any administration. –

29. New Posture: US Oil Demand
U.S. dependence on imported liquid fuels continues to decline primarily as a result of increased domestic oil production. Imported liquid fuels as a share of total U.S. liquid fuel use reached 60 percent in 2005 before dipping below 50 percent in 2010 and falling further to 45 percent in The import share continues to decline to 34 percent in 2019 and then rises to about 37 percent in 2040, due to a decline in domestic production of tight oil that begins in about 2021.
Since we only import about 4% of our crude from the Middle East within the decade we will no long be dependent on Middle East Oil.