Oil Assurance: A National Security

Dilemma

Oil Assurance: A National Security

Dilemma

By: Gen(r) Chuck Wald 6 Sept 2007

By: Gen(r) Chuck Wald 6 Sept 2007

Benefits of Past CooperationBenefits of Past CooperationBenefits of Past CooperationBenefits of Past Cooperation

• NATO provided security and NATO provided security and stability to Europestability to Europe

• The Marshall Plan created the The Marshall Plan created the conditions for economic conditions for economic recovery in Europerecovery in Europe

• Where do we go from here…?Where do we go from here…?

• NATO provided security and NATO provided security and stability to Europestability to Europe

• The Marshall Plan created the The Marshall Plan created the conditions for economic conditions for economic recovery in Europerecovery in Europe

• Where do we go from here…?Where do we go from here…?

Projecting StabilityProjecting StabilityProjecting StabilityProjecting Stability

Iraq

Afghanistan

Hydrocarbons

Israel IranMiddle EastMiddle EastMiddle EastMiddle East

BeslanNagorno-Karabakh

Caucasus/Black SeaCaucasus/Black SeaCaucasus/Black SeaCaucasus/Black Sea

HomelandSecurity

The WestThe WestThe WestThe West

Demographic decline

Madrid

Unclassified

AIDSLiberia

DarfurDarfur

AfricaAfrica

GulfOf

Guinea

AQNAAQNA

HIV/AIDS

Child Soldier

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.

Oil Facts

US strategic interests are very much at risk.

World Oil DemandProjections (EIA)

CurrentCapacity

87 Mbbl/day

2015 2030

98 Mbbl/day

118 Mbbl/day

Largest Oil Reserves

Most are adversarial to the US.

Crude Oil Prices 2004-2006

$37$37

+110%+110%NYMEX Light Sweet

Interruptions could increase costs greatly.

$78$78

Current 2020

71%83%

29%17%

MidEastN. Africa Rest of

World

Share of Global Reserves

Islamic States control oil.

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 World’s top 10 oil and gas firms is privately owned… Exxon Mobile at #9

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 harm’s 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.

America’s extreme dependence on oil is an unacceptable threatunacceptable threat to national security and prosperity.

America’s 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 - 1 million barrels per day spare production capacityAny major disruption could be catastrophic to the US economy and way of

life.

20062006

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.

Top 20 Oil & Gas Countries

*174 B bbls oil sands in development

Gas Proven Reserves (TCF)1 Russia 16802 Iran 9713 Qatar 9104 Saudi Arabia 2425 United Arab Emirates 2145 United States 1936 Nigeria 1847 Algeria 1618 Venezuela 1519 Iraq 112

10 Indonesia 9811 Norway 8412 Malaysa 7513 Turkmenistan 7114 Uzbekistan 6615 Kazakhstan 6516 Netherlands 6217 Egypt 5818 Kuwait 5619 Canada 5620 China 53

Oil & Gas Journal 1/1/06

Oil Proven Reserves (B bbls)1 Saudi Arabia 2672 Iran 1333 Iraq 1154 Kuwait 1045 United Arab Emirates 986 Venezuela 807 Russia 608 Libya 399 Nigeria 3610 United States 2111 China 1812 Qatar 1513 Mexico 1214 Brazil 1115 Kazakhstan 916 Norway 817 Azerbaijan 718 India 619 Canada* 520 Angola 5

Oil & Gas Journal 1/1/06

Politically and economically, Iran is an energy powerhouse.

Global Energy Security Risk Areas

Today's oil supply is vulnerable to disruption.

Key Choke Points

Strait Of HormuzStrait Of HormuzSuez CanalSuez Canal

Strait Of MalaccaStrait Of Malacca

Hormuz44%

Hormuz44%Malacca

32%Malacca

32%

Suez 4%

All Other20%

Share of Global Oil Trade

80% of the global oil trade routes flow through unstable countries, like Iran

% Muslim 100% to 50% 50% to 10% 10% to 5%

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.

Iran’s Maritime Military CapabilityCruise Missiles Fighter Aircraft

Fast Attack Boats Underwater Missiles

Mines Submarines

Iranian Weapons To CloseThe Straits Of Hormus

$200/barrel oil could devastate economies and change the balance of power.

VideotapeVideotape

Limburg Oil Tanker Attack – June 10, 2002

One supertanker can carry over two million barrels of oil.

French oil tanker in international waters.

Speed boat attack similar to the USS Cole attack Nov. 2000.

Al-Qaeda claimed responsibility.

Protecting Critical Assets

Vulnerable critical infrastructure includes more than just ships.

Caucasus Hydrocarbon Security InitiativeBaku-Tbilisi-Ceyhan Pipeline (2005) 25% world’s production growth 05-09 Estimated total income

• Azerbaijan: $30-65 Billion• Georgia & Turkey: $2.4 Billion

South Caucasus Pipeline (2006) Reduces Georgia’s dependency on

Russian gas Reduces Europe’s dependency on

Russian gas

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

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

CEN

TCO

M

CEN

TCO

M

EUC

OM

EUC

OM

CENTCOMCENTCOM

EUCOMEUCOM

Gas pipeline

CCFFEE

Caspian Guard Initiative $300M US government investment Capabilities

• Counter-proliferation

• Counter-terrorism

• Counter-narcotics

• Hydrocarbon securityProgram Elements

• Integrated airspace

• Maritime surveillance

• Command and control

• Reaction forces

• Border controlStatus

• Naval exercises conducted

•SOF training complete

•Familiarization visits to US

•Command centers in development

•Radars and network operational

Caspian Guard was a combined and joint force endeavor.

Kazakhstan

Azerbaijan

Gulf of Guinea Initiative

Concept:• Unhindered production

and transport of hydrocarbons.

• Protection of oil storage and distribution facilities and assets.

• Maritime surveillance to detect and deter illegal activities.

Africa and its oil resources are becoming increasingly important to the US.

Gulf of Guinea could supply 25-40% of US oil and gas imports by 2015.

US direct investment in Gulf of Guinea is projected at $10B/year for ten years.MEND MilitiaMEND Militia

Bonny, site of one of Shell's main oil facilities in Nigeria.

Stark contrast of poverty and wealth.

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.

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.

A MEND militant.

Painted in symbols the MEND believe shields them from bullets.

African Energy

African oil will become more critical to the US economy.

Oil GasBillion Barrels Trillion Cubic Feet

Middle East 743 2,565Africa 103 486

North America 39 265Central & South America 103 251

Western Europe 15 189Eastern Europe & Former FSU 79 1,965

Asia & Oceania 36 392

Region

The US imports more oil from the continent of Africa than any single importing country.

• Nigeria is the US’s 5th largest oil importer

• Algeria is the US’s 6th largest oil importer

• Angola is the US’s 7th largest oil importer

Libya and Nigeria, have as much oil as the US.

Chinese Engagement In Africa

China’s Premier Jiabao proposed China and Africa fully tap cooperation potential.

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.

Sino-Africa summit - Beijing November 2006 • Leaders from 48 Africa countries attended

A China-African action plan was developed – plan contained the following specifics:

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.

NCEP seeks to build on and distinguish itself from past energy policy efforts.

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.

www.energycommission.org

Securing America’s 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.

“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

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.

www.secureenergy.org

SAFE’s 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 InternationalGeneral (Ret.) John A. Gordon - former Homeland Security Advisor to the PresidentMaurice R. Greenberg - CEO, C.V. Starr & Co.Admiral (Ret.) Gregory G. Johnson - former Commander, U.S. Naval Forces, EuropeRobert D. Hormats - Vice Chairman, Goldman Sachs InternationalHerbert D. Kelleher - Chairman, Southwest AirlinesDr. John Lehman, Jr. - Chairman, J. F. Lehman & CompanyAndrew N. Liveris - CEO, Dow Chemical CompanyMichael E. Ryan - former Chief of Staff US Air ForceDavid 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.

SAFE Policy Proposals

Primary Recommendations

• Reduce oil consumption

• Provide alternatives

• Expand supply

• Manage risks

Steps advocated by ESLC

A comprehensive multifaceted approach to oil assuranceinvolving top government, military and industry officials must start now.

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.

Energy Security Leadership Council Goals

Primary goal is to advance a national energy strategy to reduce oil dependence.

Primary goal is to advance a national energy strategy to reduce oil dependence.

SAFE’s 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.

SAFE’s 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.

Alternative Fuel Sources

Alternative fuels development must be accelerated.

Fischer Tropsch technology can exploit existing petroleum infrastructure.

For example, by 2010 with USG support, Alchem’s micro-refineries (shown) should be able to produce 1.5 M bbl/day (8% of daily US consumption).

0123

Shale OilOil Sands Coal-to-Liquid

Millionbbl/day

Bio-to-Liquid

Gas-to-Liquid

Fischer Tropsch Technology

EIA: IEO2006

2005

2030

The US has several alternative energy technologies that are grossly underfunded.

?

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 Alberta’s good fortune.

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.

US’s rich harvests of soybeans, canola and corn can be turned into economically-feasible sources of ethanol.

US’s has the capacity to produce as much as 336+ million gallons of ethanol.

SAFE ESLC recommends 30B/gal per year.

Biomass-To-Liquid (BTL), Ethanol

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.

US’s coal resources make building GTL plants attractive.

Micro-units produce diesel fuel at the well-head.

There are 10’s of thousands of sequestered wells that can be tapped for liquid fuel.

Micro-units are ideal for small business operations.

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

Securing America’s Future Energy (SAFE)

Conclusion The United States security is vulnerable to energy

disruption. The majority of World’s 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.

Questions?