The U.S. Energy Briefing: Policy Options and Recomendations

1. The U.S. Energy Briefing: Policy Options and Recomendations April 28th.2011

2. Presentation Roadmap • Where is Demand Going? • Constraints on Supply meeting Demand • Trends Requiring Clarification • Vulnerabilities • Energy Independence vs. Energy Security • National Interests • Objectives • Option 1: Domestic Drive • Option 2: SEGB • Implementation • Evaluation and Fallback

3. Where is demand going? Domestically: • Transportation • Increasing proportion and magnitude • Industry • Efficiency improvements reducing proportion Internationally: • China and India • Large population • Economic growth • Growth in demand around the world • OECD – 60% of demand today • And Non-OECD – 60% of demand in 2030

4. What are the constraints on supply meeting demand? Domestically: • Incomplete access – Alaska • Trade restrictions – Biofuels from Brazil • Environmental considerations – Nuclear meltdown, CO2 emissions • Reduced reserves – U.S. oil production has peaked Internationally: • Lack of spare capacity – OPEC production is 6% less than capacity • Lack of refineries – built for certain types of crude oil, in order to produce certain types of petroleum products • Lack of investment – should be overcome by higher oil prices?

5. What Trends Require Clarification? • Energy decisions are necessarily long-term • Efficiency vs. Conservation • Fossil fuels greatly more significant than renewables • Sufficient oil reserves for at least up to 2050 • One world energy market • Energy is more than oil, but …

6. Specific vulnerabilities that the U.S. should address Largest U.S. oil imports by country (2006) Domestically: • Where does US oil come from? • Infrastructure – awareness after Katrina Internationally: • Terrorism – increased reliance on insecure areas • Niger Delta, Russia, Middle East • Transportation routes • Lack of diversification • Locations and sources of energy • Information • Oil projections? • Lack of investment – failure of NOCs • Chinese mercantilism

7. Oil Transportation Chokepoints Strait of Hormuz 17 million b/d Bosporus Strait 2.4 million b/d Strait of Malacca 15 million b/d Suez Canal 4.5 million b/d Bab el-Mandab 3.3 million b/d

8. Energy Independence vs. Energy Security • Energy Independence: • Producing sufficient energy domestically to meet domestic demand (i.e. zero imports of energy) • Is it actually possible? • Maybe only with nuclear power, development of Canadian tar sands • Can we follow Brazil? • No – biofuels are inappropriate, little chance of more oil discoveries • Energy Security: • Availability, affordability, adequacy, reliability of energy resources • Moderating demand, expanding and diversifying supply (including alternatives), strengthening global energy trade and investment

9. National Interests Vital • Ensure the viability and stability of major global systems (trade, financial markets, supplies of energy) • Prevent, deter, and reduce the threat of the use of nuclear weapons anywhere Extremely Important • Support our strategic partners in the Middle East and around the world Important • Reduce detrimental effects of Climate Change on U.S. mainland

10. Objectives What are the main U.S. Energy Objectives? • Energy Security • Diversification of types and sources • Energy efficiency • Energy conservation • Increased energy investment • Open markets and increased access • Reduce the threat of nuclear weapons proliferation • Safe and secure nuclear facilities around the world • Climate change mitigation • Reduced CO2 emissions

11. Option 1: Domestic Drive • Assumptions: • U.S. is in a better position to control its destiny • International cooperation encounters too much bureaucracy • Likelihood of increased international turmoil in the future

12. Option 1: Domestic Drive Pros: • America’s demand as a global percentage is high, efficiency improvements will have an effect on global statistics • More likely to lead to long-term success • Could be used as a model for the international community • Protects U.S. industry • America will be more secured in the event of international turmoil Cons: • May be unpopular with American citizens and businesses • Ecological damage if Alaska is opened up to oil prospectors • Gasoline taxes may harm economic growth in the short-term

13. Option 2: Supranational Energy Governing Body (SEGB) Assumptions: • Meaningful action possible only through international cooperation • Sovereignty issues will restrict role to free market policy promotion, centers of research, and some international policing

14. Recommendation • Recommendation: Option Two: International Cooperation

15. Implementation • Initial summit meeting of SEGB: • Define specific goals • Decide initial membership criteria • Invite Heads of States of all nations • Identify contributors to the multinational maritime guard • Locate bases for coast-guard vessels, terms of engagement • Discussion of mandates between IEA, IAEA and SEGB • Ensure there is responsibility for all areas of energy security • Discussion of merger strategy between various bodies • Commence SEGB geological survey of existing oil fields • Commence discussion on cap-and-trade endowments

16. Evaluation and Fallback • Predetermined timetable of efficiency and supply improvements • Annual evaluation of whether targets are being reached • Focus on which states are not meeting targets – additional programs/subsidies/penalties • Resolution of international energy disputes and increased access Fallback: • If initially unpopular, SEGB could be restricted to G8+2 (China and India) and main energy exporters (including OPEC) • If SEGB ineffective, option one remains a fallback possibility