Oil Assurance: A National Security Dilemma

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Oil Assurance A National Security Dilemma
By Gen(r) Chuck Wald 6 Sept 2007
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Benefits of Past Cooperation
Arc of Stability

• NATO provided security and stability to Europe
• The Marshall Plan created the conditions for
  economic recovery in Europe
• Where do we go from here?

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Projecting Stability
Unclassified
Caucasus/Black Sea
Arc of Stability
Nagorno- Karabakh
Hydrocarbons
Beslan
Arc of Instability
Afghanistan
Middle East
Iran
Israel
Iraq
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Oil Trends

• Global oil trends
• Rising consumption
• Reduced spare capacity
• Instability in key oil-producing countries
• The energy debate suggests a profound
  misunderstanding of the dynamics.
• Oil is a fungible, global commodity.
• World price shocks are a function of the amount
  of oil consumed not the ratio of domestic to
  imported product.
• Two ways to reduce vulnerability to oil price
  volatility and source disruptions
• Decreasing demand and/or increasing supply
  (develop alternatives).
• Protecting/defending the global supply chain.

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Oil Facts
Largest Oil Reserves
Most are adversarial to the US.
US strategic interests are very much at risk.
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No Free Market For Oil Supply

• By some estimates 90 of all oil and gas reserves
  are held by national oil companies
• that are either partially or fully controlled by
  governments.
• Only one out of the Worlds top 10 oil and gas
  firms is privately owned Exxon Mobile at 9

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Geo-strategic Importance of Energy

• Oil is the lifeblood of the American economy
• 40 of all energy consumed in the U.S.
• 97 of the energy used for transportation.
• Oil dependence exposes Americans to risk
• Oil prices have risen from the 37/bbl to 78/bbl
  within two years. (60/bbl today)
• Oil prices could rise to 100/bbl to 200/bbl if
  major disruption occurs.
• Oil assurance is a national security issue
• Feeds Islamist terrorism.
• Provides vast amounts of money to unstable,
  undemocratic governments.
• Increases the likelihood of international
  conflict.
• Puts American troops in harms way.
• The world, needs a new energy security model
• Today, oil companies alone are expected to secure
  their assets unless under extreme duress when the
  US military often becomes involved.
• Tomorrow, oil assurance and security is the
  responsibility of industry, military, law
  enforcement and government officials worldwide.

Americas extreme dependence on oil is an
unacceptable threat to national security and
prosperity.
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Americas Dependence On Foreign Oil

• U.S. uses 25 of global daily demand,
  (approximately 22 million barrels per day).
• U.S. oil imports account for 58 of total
  domestic consumption.
• Transportation accounts for 68 of U.S. oil
  consumption.
• 97 of transportation in the U.S. is fueled by
  oil, with few or no substitutes.
• By 2025, U.S. demand is expected to grow 23
  (from 22 MBD to 27 MBD)
• World demand is projected to increase 25 (from
  88 MBD to 110 MBD).
• Demand in China and India will increase 92
  during this period.

2006
2006 - 1 million barrels per day spare production
capacityAny major disruption could be
catastrophic to the US economy and way of life.
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US Oil Suppliers

• 11 million barrels per day imported, half of
  daily consumption of 22 million bbl/day.
• 9 out of 15 of our major importers are
  unstable/hostile to the US.
• Experts predict that a 10-15 oil shortfall is
  enough to shatter an oil-dependent economy.
• The 1970s oil 5 production shortfall caused the
  price of oil to quadruple.
• Oil shortfalls impact virtually every area of the
  economy.

Oil assurance is perhaps more critical than the
physical terrorist threat.
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Top 20 Oil Gas Countries
174 B bbls oil sands in development
Politically and economically, Iran is an energy
powerhouse.
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Global Energy Security Risk Areas
Today's oil supply is vulnerable to disruption.
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Key Choke Points
Suez Canal
Strait Of Hormuz
Strait Of Malacca
Muslim 100 to 50 50 to 10
10 to 5
80 of the global oil trade routes flow through
unstable countries, like Iran
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Implications Of Possible Extremist Control

• By 2020, 83 of all oil producers will be in
  Islamic countries.
• 25 of US imports are from the Middle East.
• Most of our closest allies are dependent on
  Middle East oil.
• Implications
• Oil as a weapon against the West.
• Oil revenues funding radical Islamic elements.
• Iran and others are using oil to place a wedge
  between US/China and US/Russia relations.
• Middle East regimes friendly to the US, are
  increasingly at risk from terrorists.

The DoD is needed to protect oil infrastructure
and our coalition partners.
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Irans Maritime Military Capability
Cruise Missiles
Fighter Aircraft
Mines
Submarines
Iranian Weapons To Close The Straits Of Hormus
Fast Attack Boats
Underwater Missiles
200/barrel oil could devastate economies and
change the balance of power.
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Limburg Oil Tanker Attack June 10, 2002

• French oil tanker in international waters.
• Speed boat attack similar to the USS Cole attack
  Nov. 2000.
• Al-Qaeda claimed responsibility.

One supertanker can carry over two million
barrels of oil.
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Protecting Critical Assets
Vulnerable critical infrastructure includes more
than just ships.
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Caucasus Hydrocarbon Security Initiative

• Baku-Tbilisi-Ceyhan Pipeline (2005)
• 25 worlds production growth 05-09
• Estimated total income
• Azerbaijan 30-65 Billion
• Georgia Turkey 2.4 Billion
• South Caucasus Pipeline (2006)
• Reduces Georgias dependency on Russian gas
• Reduces Europes dependency on Russian gas

• EUCOM Task
• To work with key Caucasus states to build their
  capabilities to secure Caspian oil and gas
  pipelines to the West.
• Program Elements
• Maritime security
• Support to civil authorities
• Communications
• Crisis response/consequence management
• Non-traditional security partners and enabling
  states

Goal is for DoD to protect critical petroleum
assets and infrastructure.
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Caspian Guard Initiative

• 300M US government investment
• Capabilities
• Counter-proliferation
• Counter-terrorism
• Counter-narcotics
• Hydrocarbon security
• Program Elements
• Integrated airspace
• Maritime surveillance
• Command and control
• Reaction forces
• Border control
• Status
• Naval exercises conducted
• SOF training complete
• Familiarization visits to US
• Command centers in development
• Radars and network operational

Kazakhstan
Azerbaijan
Caspian Guard was a combined and joint force
endeavor.
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Gulf of Guinea Initiative
Gulf of Guinea could supply 25-40 of US oil and
gas imports by 2015.

• Concept
• Unhindered production and transport of
  hydrocarbons.
• Protection of oil storage and distribution
  facilities and assets.
• Maritime surveillance to detect and deter
  illegal activities.

US direct investment in Gulf of Guinea is
projected at 10B/year for ten years.
MEND Militia
Africa and its oil resources are becoming
increasingly important to the US.
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Bonny, site of one of Shell's main oil facilities
in Nigeria.
Stark contrast of poverty and wealth.
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A trash-strewn community on the edge of Port
Harcourt in the Niger Delta.
Little of the area's billions in oil money has
found its way to the people of the region.
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The militant group MEND that has destroyed oil
facilities and kidnapped foreign oil workers.
In what MEND says is a fight to re-distribute
oil wealth.
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A MEND militant.
Painted in symbols the MEND believe shields them
from bullets.
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African Energy

• The US imports more oil from the continent of
  Africa than any single importing country.
• Nigeria is the USs 5th largest oil importer
• Algeria is the USs 6th largest oil importer
• Angola is the USs 7th largest oil importer
• Libya and Nigeria, have as much oil as the US.

African oil will become more critical to the US
economy.
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Chinese Engagement In Africa

• Sino-Africa summit - Beijing November 2006
• Leaders from 48 Africa countries attended
• A China-African action plan was developed plan
  contained the following specifics

• Joint economic development and information
  sharing on energy and resources exploration and
  exploitation while promoting environmental
  protection.
• Cooperate on combating terrorism.
• Promoting a voluntary nuclear free zone in
  Africa.
• Supporting a major humanitarian de-mining
  operations, refugees, displaced persons, natural
  disasters, drug smuggling and communicable
  diseases.
• Build 100 schools and send 4,000 scholars to
  Chinese universities.
• Build 60 hospitals and medical centers in 3
  years.
• Create learning centers for Chinese culture and
  language.
• Expand Chinese tourism and donor assistance to
  Africa.

Chinas Premier Jiabao proposed China and Africa
fully tap cooperation potential.
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National Commission On Energy Policy

• National Commission On Energy Policy (NCEP) is
  bipartisan group of energy experts from the
  highest ranks of industry, government, academia,
  labor, consumer and environmental protection.

www.energycommission.org

• NCEP Addresses
• Changing landscape of energy needs,
  vulnerabilities, and opportunities
• Stability of the Middle Eastern energy supplies
• New energy technologies/alternative energy
  resources
• Global climate change
• Commission Focus
• Oil security
• Energy infrastructure adequacy and siting
• Climate change
• NCEP identifies and addresses political and
  analytical barriers to energy policy reform and
  conducts extensive outreach to government,
  business, NGO and other communities.

NCEP seeks to build on and distinguish itself
from past energy policy efforts.
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Securing Americas Future Energy (SAFE)

• SAFE - an action-oriented, nonpartisan
  organization
• Aims to reduce America's dependence on oil.
• Addresses business, technology, politics,
  advocacy, public education and media.

www.secureenergy.org

• Why Securing America's Future Energy will make an
  impact
• SAFE - is educating and uniting the business and
  technology communities on the economic and
  national security threat posed by supply
  interruption, and the benefits of increased use
  of alternatives energy sources.
• SAFE - is building strong alliances with
  politicians, policy makers, and political groups.
  
• SAFE - is raising public consciousness regarding
  the national security aspect of the issue and
  near term practical solutions towards oil
  independence.

Current events only serve to confirm the
unacceptable security risks created by our
extraordinary level of oil dependence. General
(ret.) P.X. Kelley, Co-Chairman
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SAFEs Energy Security Leadership Council
Frederick W. Smith - CEO, FedEx Corp.
(co-Chair) General (Ret.) P.X. Kelley - former
Marine Corps Commandant (co-Chair) Admiral (Ret.)
Dennis Blair - former Commander-in-Chief, United
States Pacific forces Adam M. Goldstein -
President, Royal Caribbean International General
(Ret.) John A. Gordon - former Homeland Security
Advisor to the President Maurice R. Greenberg -
CEO, C.V. Starr Co. Admiral (Ret.) Gregory G.
Johnson - former Commander, U.S. Naval Forces,
Europe Robert D. Hormats - Vice Chairman, Goldman
Sachs International Herbert D. Kelleher -
Chairman, Southwest Airlines Dr. John Lehman, Jr.
- Chairman, J. F. Lehman Company Andrew N.
Liveris - CEO, Dow Chemical Company Michael E.
Ryan - former Chief of Staff US Air Force David
P. Steiner - CEO, Waste Management, Inc. General
(Ret.) Charles F. Wald - former Deputy Commander,
U.S. European Command.
Council includes preeminent American business and
retired military leaders.
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SAFE Policy Proposals

• Primary Recommendations
• Reduce oil consumption
• Provide alternatives
• Expand supply
• Manage risks

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Steps advocated by ESLC

• Improve vehicle efficiency.
• Increase supply.
• Accelerate near term alternative energy (e.g.
  GTL).
• Conduct vulnerability analysis of supply chain
• Appoint a Senior DoD Energy Security Officer
• Pass appropriate legislation with timely and
  achievable milestones.
• Foster security arrangements on a multilateral,
  regional and bilateral basis.
• Reassess the multiple dimensions of the strategic
  reserve policy.

A comprehensive multifaceted approach to oil
assurance involving top government, military and
industry officials must start now.
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Energy Security Leadership Council Goals

• SAFEs Energy Security Leadership Council is
  developing bipartisan support for a comprehensive
  energy security policy proposal.
• Comprehensive policy will propose dramatic
  reductions in demand, increased natural gas and
  oil supply, alternative energy sources, and
  define measurable national goals.

• SAFEs Council members are
• Speaking out publicly
• Educating lawmakers about the real-world
  business implications
• Taking a leading role in adopting solutions to
  reduce oil dependence.

Primary goal is to advance a national energy
strategy to reduce oil dependence.
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Alternative Fuel Sources
2030
EIA IEO2006
3
?
2
Million bbl/day
2005
1
0
Coal-to- Liquid
Bio-to- Liquid
Gas-to- Liquid
Fischer Tropsch Technology

• Alternative fuels development must be
  accelerated.
• Fischer Tropsch technology can exploit existing
  petroleum infrastructure.
• For example, by 2010 with USG support, Alchems
  micro-refineries (shown) should be able to
  produce 1.5 M bbl/day (8 of daily US
  consumption).

The US has several alternative energy
technologies that are grossly underfunded.
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Oil Sands (Canada)

• Alberta oils sands fields are about as large as
  Saudi oil reserves.
• Oil production is estimated to grow to 4.5M/bpd
  by 2015.
• The new black gold rush will have a dramatic
  impact on the entire northwest.
• Investments are approaching 100 billion.

U.S. will benefit from Albertas good fortune.
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Coal-to-Natural Gas

• US abundant lignite is a great source for
  synthetic fuel.
• The Great Plains Synfuel plants produce more than
  54 billion cubic feet of natural gas per year.
• US Synthetic Natural Gas supply thousands of
  homes and businesses in the eastern US.
• The plant also produces fertilizers, solvents,
  phenol, carbon dioxide, and other chemicals.

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Biomass-To-Liquid (BTL), Ethanol

• USs rich harvests of soybeans, canola and corn
  can be turned into economically-feasible sources
  of ethanol.
• USs has the capacity to produce as much as 336
  million gallons of ethanol.
• SAFE ESLC recommends 30B/gal per year.

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Natural Gas-to-Liquid (GTL)

• Natural gas can be easily converted to liquid
  fuel at a Plant or Micro-unit.
• Liquid natural gas can be derived from coal,
  natural gas, and biomass products.
• USs coal resources make building GTL plants
  attractive.
• Micro-units produce diesel fuel at the well-head.
  
• There are 10s of thousands of sequestered wells
  that can be tapped for liquid fuel.

Micro-units are ideal for small business
operations.
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Securing Americas Future Energy (SAFE)

• Current status
• Presented findings to National Security Council
  and National Economic Council.
• Presented study and recommendations to President
  George W. Bush Jan. 2007
• Treasury Secretary Paulson and Energy Secretary
  Bodman endorsed the findings of the study Jan.
  2007
• President Bush endorsed recommendations in the
  State of the Union speech Feb. 2007
• Majority and Minority leadership in the House and
  Senate support initiatives Feb. 2007
• Sen. Dorgan (ND-D) Sen. Craig (ID-R) introduced
  legislation Mar. 2007

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Conclusion

• The United States security is vulnerable to
  energy disruption.
• The majority of Worlds energy supply is in
  unstable/unfriendly regions.
• Global energy demand will continue to increase
  dramatically.
• Conventional energy supply is finite.
• The time has come for

America to develop a comprehensive energy plan to
reduce oil dependence.
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Questions?