Energy Security Summit “Old Problems: New Challenges” Linda G. Stuntz March 21, 2005

Oil Problem: Dependence on Unstable Suppliers New Challenges: –Is the Era of “Cheap” Oil at an End? –Burgeoning global demand –Dwindling Non-OPEC supplies mean ever greater reliance on, and competition for, supplies from unstable sources; profoundly more troubling in a post-9/11 world. –Refinery Adequacy

Global Petroleum Picture World petroleum demand growth for is projected to average about 2.2 percent per year (approx 2 million barrels a day).  That level exceeds expected growth in non-OPEC supply and global refinery capacity.  Demand Growth in 2004 was 3.4 percent, the biggest gain since What if 2004 growth continues? The IEA last week raised its forecasted world oil demand for this year for the third straight month, to 84.3 million BPD. Projected 2005 demand up more than half a million BPD since December. Crude oil prices have jumped more than 25% this year in New York, topping $57.50 per barrel, well above the October 2004 record of $55.67 per barrel, the highest in more than 2 decades.

US Petroleum Picture US petroleum demand in 2004 was up 2.4 percent from the previous year (20.5 million barrels per day). In 2002, Middle Eastern countries supplied about 20 percent of US oil needs. Canada was the largest exporter of oil to the US followed by Saudi Arabia, Mexico and then Venezuela. In 2004, the U.S. Merchandise Trade Deficit was $ billion. 25.5% of that deficit - $ billion – was from net imports of crude oil and petroleum products.

The World’s Growing Thirst for Oil In 15 years, the world will need 40 million more barrels of oil each day than it does now. China now 2 nd largest consumer of oil globally (demand up 16% in 2004 to 6.4 million BPD); imported 37% of its oil in 2003, up from 23% in India’s oil demand also rising with its expanding economy. China and India are looking to the same sources for oil as the U.S., including the U.S. (Unocal?) By 2015, China’s share of Middle East oil could be 70%. Little wonder that Saudi Arabia is increasing oil sales to China and setting up refining there to process Saudi crude.

A Fundamental Shift in Oil Markets? YES - Says ChevronTexaco CEO, Dave O’Reilly  China and India may outbid Western oil companies in securing access to a shrinking pool of oil reserves  Asian impact on demand as well as lack of easy US access to oil reserves means that oil prices will remain high NO - ExxonMobil maintains: There has been no fundamental shift in the energy paradigm and the oil business is simply one that is characterized by cycles

Much Depends on Technology Supply: Increases in prices will spur innovation and development of substitutes for oil (tar sands, oil shales, heavy crude)  But: Investment influenced by whether one subscribes to ExxonMobil or ChevronTexaco view of the future. Demand: Must reduce petroleum use in transportation through use of alternative fuels (biofuels) and more efficient fuel use (hybrids, CAFÉ)  Ethanol price up 40% over past two years  Hybrid vehicles selling well on the “Coasts”

Natural Gas Problem: Inadequate Supply/High Prices New Challenges  Is the Era of “Cheap” Natural Gas Over?  U.S. Production Has Peaked (at least lower- 48)?  Canadian Imports Have Peaked (currently 16% of total U.S. gas supplies and 88% of total U.S. imports of gas)  Fuel of Choice for Electric Generation for more than a Decade. Are we ready to build new coal, new nuclear?

Adequate Natural Gas Supply Depends Upon: Pipeline from Alaska to lower 48; New LNG terminals; Increased pipeline infrastructure and exploration in the Rocky mountains and other federal lands and waters;  At the end of 2002, the U.S. offshore supplied more than 25% of U.S. natural gas production and nearly a third of U.S. oil production. The majority of future oil and gas resources are estimated to be on the OCS. Coal Gasification (?)

LNG EIA predicts that natural gas imports will more than double over the next 20 years, nearly all from a 28-fold increase in LNG imports over 2002 levels. Increased LNG imports are necessary, but can terminals be sited where needed?  FERC and State of California currently involved in jurisdictional dispute over siting. FERC looking to Congress to clarify that FERC has jurisdiction over LNG facilities.  Public concerns re safety/terrorism risks  New Dependency on imported fuel

Coal Problem: Emissions; siting; transportation; and high plant capital costs New Challenges:  Soaring Global Demand  Global Climate Change Risks  Increasing Stringency of Environmental Regulation

IGCC – But use on western coal and at high altitudes uncertain. How do we get IGCC deployed when it is more expensive and complicated than pulverized coal?  Mercury Control – Need better answers, especially for lignite and subbituminous  Climate – Carbon Sequestration a reality(?) Technology Answers:

Renewables Problems:  High Cost  Low Capacity Factor  Small Scale New Challenges:  Transmission infrastructure/policy  Predictable public policy  On-again/off-again tax credits are killers  Time for a federal RPS?

Electricity Problem: Clean, Reliable, Affordable Supply, NIMBY New Challenges  Aging, Congested Grid Power blackouts cost the U.S. about $80 billion a year, according to DOE, with commercial and industrial customers suffering the most.  More Stringent Environmental Requirements  Roles and Responsibilities Scrambled by Electric Industry Restructuring

Conclusion Signs of strain/crises across energy landscape Biggest Challenge of all: Can we muster the will to move beyond partisan/regional differences to address the new challenges? Requires a new energy strategy that takes these into account. Forums like this, and Senators like Senator Conrad, can lead the way