1. 1 R ICE U NIVERSITY Sustaining Energy and Mobility in the 21 st Century: Challenges and Opportunities for the U.S. Amy Myers Jaffe Wallace S. Wilson Fellow for Energy Studies, James A. Baker III Institute for Public Policy Rice University Richard Lugar/Purdue University Summit on Energy Security August 29, 2006

2. 2 R ICE U NIVERSITY Geopolitics, not Geology, is driving the energy future

3. 3 R ICE U NIVERSITY International Backdrop for Oil Terrorist attacks on Crude Processing Facilities in Iraq, Saudi Arabia U.S.-Iran—Risks to Strait of Hormuz Saudi Arabia –Political Uncertainties Middle East –Period of Great Political Transition Future of U.S. role in Iraq? Arab-Israeli Conflict Russia – Putin and the Statists Latin America: Populism and Hugo Chavez Africa: Localized unrest in Nigeria China: Demand Wildcard

4. 4 R ICE U NIVERSITY Current State: High Crude Prices Crude prices have more than doubled since late 1999  WTI largely traded in the $20 range throughout the 1990s  WTI’s price has since risen to more than $70 per barrel  2005 average = $56.64  January 2006 = $64.95

5. 5 R ICE U NIVERSITY Country Total Primary Energy Consumption Per Person (2002) (Million BTU) Brazil48.7 China33.3 Germany173.1 India13.3 Japan172.3 United States339.1 Source: BP Source: EIA

6. 6 R ICE U NIVERSITY

7. 7 World Liquids Production Outlook

8. 8 R ICE U NIVERSITY OPEC production capacity has fallen, not increased, since 1979 Opec can replace all Iraqi/Kuwait oil in 1990 Asian economic crisis leaves extra capacity in 1998 Demand bumps up against capacity Member Country197919831990199719982000200120032005 Saudi Arabia10.8411.308.009.659.809.509.9010.1510.30 Iran7.003.003.103.70 3.753.80 4.00 Iraq4.001.503.602.302.802.903.052.201.80 Kuwait3.342.802.40 2.502.60 UAE2.502.902.202.40 2.452.502.40 Qatar0.65 0.400.710.720.730.75 0.82 Venezuela2.402.502.603.453.302.983.102.50 Nigeria2.502.401.802.002.052.102.30 Indonesia1.801.601.251.401.35 1.301.150.90 Libya2.502.001.501.45 1.60 Algeria1.231.100.750.88 1.151.35 Total38.7631.7527.6030.3430.8530.4431.3830.4530.57 Call on OPEC 34.0116.6522.2027.5925.8530.0428.2329.2029.87 Spare Capacity4.7515.105.402.755.000.403.151.250.70 OPEC Production and Spare Capacity, 1979-2003 (mmb/d)

9. 9 R ICE U NIVERSITY National Oil Companies on the Rise They Control the Resources Oil Reserves Held by Russian Companies 69 Bill. Bbl Full IOC Access 70 Bill. Bbl NOC Oil Reserves (Equity Access) 123 Bill. Bbl NOC Oil Reserves (No Equity Access) 886 Bill. Bbl WW Proven Oil Reserves: 1,148 Bill. Bbl Source: PFC Energy Reserves Held by New Russian Companies Full IOC Access NOC Reserves (Equity Access) NOC Reserves (No Equity Access) Oil & Gas: 2,182 Bill. Bbl

10. 10 R ICE U NIVERSITY Saudi Arabia From Osama Bin Laden’s Letter to the American People: “You steal our wealth and oil at paltry prices because of your international influence and military threats. This theft is indeed the biggest theft ever witnessed by mankind in the history of the world.” --Osama Bin Laden In December 2004, called on the faithful to attack oil facilities as part of the jihad against the West

11. 11 R ICE U NIVERSITY Hurricanes Rita, Katrina And Gulf Oil & Natural Gas Operations K R Rita landfall Katrina landfall Sources: NOAA, EIA LOUISIANA TEXAS MISSISSIPPIALABAMA Source: API

12. 12 R ICE U NIVERSITY How to create viable alternatives? *It is desirable to have diversity of supply options in our automotive transportation system. *Several viable options exist. *New policy frameworks needed to remove obstacles and provide incentives.

13. 13 R ICE U NIVERSITY Spending on Energy Science has collapsed since 1973