Anne Korin at Hudson Institute

Anne Korin, Director of Policy and Strategic Planning at the Institute for the Analysis of Global Security

Moderator:
Next we will hear from Anne Korin again director of Policy and Strategic Planning at the Institute for the Analysis of Global Security will speak to us about can alternative energy sources replace the Saudi share?

Anne Korin:
Thank you. The speaker's before me were excellent, let me just emphasize a few points here and harking back to the previous panel I want to touch on the military solution. Let's not forget we can conquer any part of the Persian Gulf that we wish but holding a part of the Gulf and extracting the oil is quite a different matter, if we look at Iraq we see over 130 attacks on pipelines since the end of hostilities. So thinking that a different end result in a extremely reduced production ability to export in Iraq, thinking we'll see anything different in Saudi Arabia or anyplace else is naive.

Second looking at oil as a terrorist target as Mr. Wihbey raised, I just want to sight a quote that really shows that this is the case if we look after the attack on the French tanker the Limburg off the coast of Yemen. Let's recall what al Qaeda said which is, “by hitting the oil tanker in Yemen we have hit the provision line and the feeding to the artery of the life of the crusader nation.” I don't think I need to elaborate more on the intent here.

Alright, talking about solutions, after 9/11 there's been a lot of talk about, well we're too dependent on the Middle East the Middle East is too volatile let's start looking outside the Middle East and this really recalls what Churchill said, moving the British Royal Navy from coal to oil which is as you can see over there (displayed chart) is that, “safety and certainly in oil lies in diversity of supply and that alone.” Well is that something that is really realistic today? There's been a lot of talk about Africa, Russian, the Caspian, what do the reserves tell us? First of all when we look at Africa lets remember not include North Africa, because Libya and Algeria should be rightfully considered part of the Middle East. Second, Middle East and North Africa contain almost 70% of world oil reserves and if we look at the reserves to production ratio which tells us how fast countries are producing, oil producers are producing as compared to the reserves what we see is that outside of Opec, the reserves to production ratio is much lower than in Opec for obvious reasons. Opec producers produce according to a quota, non-Opec produces as much as they can and so what we see is that if we continue at the current pace we're going to be creating a much worse problem down the line as we deplete non-Opec reserves much more quickly than Opec and we'll end up much more dependent on the Middle East down the line.

Second, lets look at Africa as a particular example. Africa has 4&1/2% of world oil reserves, West Africa that is, lets look at also, those are proven reserves, if we look at what the US Geological survey says about potential for discovery they give a 50% probability for discovering another 70 billion barrels of oil in Africa. If we add up the undiscovered and the proven reserves we come up with 6 years of consecutive total world consumption which is just not a lot and lets not forget that in Africa we face many of the same problems as the Middle East. Nigeria is half under Shekarau, many of the the most corrupt countries in the world are in this area and if you've been following the news you know that Total stopped production for a few days in Nigeria, there's ethnic strive, there's continuous disruption of oil supplies there, so they're not a stable region and I think we see that with other regions that we look at. Lets not end-up exporting the problems of the Middle East to other areas of the world.

Next thing Canada, now a lot has been said about tar sands and some questions were asked about it here. First of all Canada is a positive addition to our energy portfolio but lets look at the reality and the reality is that less than 20% of the tar sands, the heavy oil in Canada can be produced economically and that production requires a lot a natural gas and we're in the mist of a natural gas crisis right now which is not likely to get better anytime in the future. So lets not bank on Canada to much.

So, what can we do? I want to play on your point about Reagan. I think this is exactly right and lets focus in specifically on SDI, the Strategic Defense Initiative. Reagan, one of the components to winning the cold war was to looking at technology as a game changer and in this case too technology can be a game changer. Certainly in making Canadian oil cheaper to extract but also in other ways, as long as oil is a currency there is not doubt that cheap Middle Eastern oil will carry the day. So if we want to become economically more immune to disruptions we need to change the currency. We have choice in every aspect in our lives, we do not have choice when it comes to transportation fuel and why does transportation fuel matter? Because 2/3rd's of our consumption of oil in this country and the bulk of the growth in oil consumption from China, India overseas is coming from the transportation sector, 2/3rd's of that is coming from automobiles. So we need to look a how we can replace the fuel in those automobiles from petroleum based fuels to non-petroleum fuels, I'm not going to talk about any pie-in-the-sky technologies, they're very nice and they may be good for 20 or 30 years but we don't have that long. So what do we have available right now? Or what can be made available in the next few years?

First of all this look at the domestic resources that we have and that other major consumers have. We don't have a lot of oil, we don't have a lot of natural gas, we have 3% of world reserves of both and we consume a quarters of the worlds supply of both, but we have a lot a coal we have a lot of bio-mass agriculture waste, we have nuclear energy, solar, wind, hydro, geothermal. But lets focus on the first 3 first of all. What can we do with these? How can use these to power our vehicles? The first think we can produce is electricity, why should we care about electricity? I'm sure many of you remember that electric cars that so spectacularly failed years ago. Well technologies advanced a lot since then. Battery technology but also other types of vehicle technology, control systems and so forth. Well first of all you're all familiar with the hybrid cars, hybrid cars improve your efficiency but they don't get charged from an external source. You're charging a hybrid car when you pressing on the brakes, the only fuel that you supply to a hybrid car is coming from petroleum, from gasoline. What's the next step, plug-in hybrid vehicles, these are vehicles that Daimler/Chrysler is starting to produce, these are vehicles that have a fuel tank and you can plug them in. What does this mean? They don't face the range limitation that electric cars faced. You can't offer the American consumer or any other consumer a product that's less good than what they already have but effectively a plug-in hybrid vehicle with a, lets say a plug-in hybrid Hummer. With 20 miles of battery range, this is a vehicle that you would plug-in at night in your garage in a standard outlet same way you come home plug-in your laptop or cell phone at work in your parking garage, these are times when electric utilities have excess capacity. That plug-in hybrid Hummer is going to consume less gasoline than a compact sedan, standard. That's a big deal.

Alright next, lets look at what other fuels, liquid fuels we have, so electricity is one transportation fuel, what are the other ones, and I want you to keep in mind just as in a computer you have USB plug, so you can plug-and-play, so you can alternate things, if we want a robust system we can't go from one thing to another thing. We need to have many many possibilities of fueling our vehicles so think of these as plug-and-play. I talked about plug-in-hybrids, lets talk about flexible fueled vehicles. These are internal combustion engine vehicles, they're vehicles just like your car, some of you may be driving them and not realize it even. These are cars that can run on any combination of gasoline and alcohol fuel, there other types of flexible fuels but these are the ones that I am concerned with right now. It cost an auto manufacture less than 100 bucks a car to make a vehicle a flexible fuel vehicle. If you drive a Mercedes C-320 or a Dodge Caravan you're driving a flexible fuel vehicle. There's 3 million of them on the road today, What are alcohol fuels? Well, I'm sure all of you are familiar with ethanol, ethanol is an alcohol you make by fermenting, corn, sugar cane, sugar beet, there's a lot of money and work being done on trying to produce ethanol from the rest of the crop, the waste so to speak but that's still in the R&D stage. There's another alcohol fuel called methanol, ethanol is grain alcohol you make it by fermenting crops, methanol is wood alcohol, you make it by a process called gasifying. You can gasify any carbon carrying substance be that oil natural gas, bio-mass waste or most interestingly coal, why most interestingly, because the US is the Saudi Arabia of coal. Montana in fact you can think of as the Kuwait of coal, China has a lot of coal, India has a lot of coal. The major oil consuming countries that don't have enough oil to supply their own needs have a great deal of coal. There's a plant in Kingsport, Tennessee that if you're interested in details you can find them on our web-site or the Department of Energy web-site that produces, it's a commercial scale plant, it's been around for over a decade, produces the alcohol fuel methanol from coal cleanly and under 50 cents a gallon. A very effective fuel, it's the fuel the Indy-500 race cars use because it's less flammable than gasoline.

Next, you know when we look at energy independence, first of all we're always going to need oil, there's no question. This has oil in it, I mean every thing you touch has or uses oil in some one way or another, but lets focus on trying to reduce our oil use in the transportation sector because there's so many other sectors that will always need oil and if we get that bulk out of the way then oil is going to become just another commodity the way pepper was once a strategic commodity and it no longer is, oil can become just another commodity and keep in mind 3, it's a stool with 3 legs and if you take out a leg they're all going to collapse. One is diversification, so I talked about Africa before, the Caspian, I'm not saying you know it's bad to go to Africa, I'm saying lets keep in mind that these are stop-gaps solutions, it buys us time and lets use that time wisely, lets use that time wisely to increase efficiency, efficiency is important and lets use that time wisely to create a transformation in the market. So, this is not going to be quick, you know any diffusion of technology in the market is not quick if you look at cell phones or the internet or things that you know do not have much infrastructure required for the transformation as the transportation fuel and vehicle industry. It's going to take 15 to 20 years in the best case but if we don't start now it's going to take 15 to 20 years from any point we start. I want to talk about one last thing which is what can we do if something really bad happens tomorrow and that's the strategic petroleum reserve and the strategic has I believe has 660 million barrels of oil today, it's capacity is 700 million barrels, we need to increase that reserve no matter what the political cry to which ever direction is. Europe, China they all need to have a similar reserve, I would say a billion barrels of oil each and this was mentioned already today but I believe you mentioned it. If we have enough of that reserve we do 2 things, one it's like a blood bank okay, so if something bad happens it helps us keep our head above water for a while until hopefully you know the blown terminal can be fixed, the refinery can be rebuilt or whatever but the other thing it can do, if we have more oil then we need for such a contingency is that it can replace the Saudi spare capacity. If we have enough oil in the strategic petroleum reserve and no question this is going to be really unpleasant to the market in the short term to create such a big reserve around the world. There's going to be a lot of screaming, there's going to a lot of pain in the market because of it but if we create such a reserve then what we do is we are no longer beholden to the Saudi's and their price games and lowering the supply and raising the supply to extract more money out of our economy, we simply respond with you know releasing oil from that reserve when they're playing games in the market but we can only do that, we can't do that now because we don't have enough of a reserve to tied us over in case of a catastrophe. We can only do that if we have enough oil in there to act as a secondary liquidity reserve.

Thank you very much.

Transcribed by David Meldrum