1

RICE

UNIVERSITY Sustaining Energy and Mobility in the 21st

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 UniversitySummit on Energy Security

August 29, 2006

2

RICE

UNIVERSITYGeopolitics, not Geology, is driving the energy future

3

RICE

UNIVERSITY

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

RICE

UNIVERSITY

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

$61.97$40.16$26.65$23.00$21.09$22.25$18.64$16.45$18.91$18.91$17.49$18.67$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

WT

I Cu

shin

g S

po

t P

rice

, $/b

bl n

om

inal

5

RICE

UNIVERSITYCountryTotal Primary Energy Consumption Per Person

(2002) (Million BTU)

Brazil 48.7

China 33.3

Germany 173.1

India 13.3

Japan 172.3

United States

339.1

Source: BP

Source: EIA

6

RICE

UNIVERSITY N e t O i l T ra d e , 2 0 3 0N e t O i l T ra d e , 2 0 3 0

The M idd le E ast s trengthens its position as the w orld ’s largest o il exporter

M b/d

7

RICE

UNIVERSITYWorld Liquids Production

Outlook

0

20

40

60

80

100

120

140

1980 1990 2000 2010 2020 2030

Non-OPEC Crude + Condensate

NGLs, OPEC Condensate, Other

MBDMBD

Liquids Demand OPEC

2823

~30~41

~50

Canadian Oil SandsCanadian Oil Sands

8

RICE

UNIVERSITY

OPEC production capacity has fallen, not increased, since 1979

Opec can replace allIraqi/Kuwait oil in 1990

Asian economic crisis leaves extra capacity in 1998

Demand bumpsup against capacity

Member Country

1979

1983

1990

1997

1998

2000

2001

2003

2005

Saudi Arabia10.8

411.3

0 8.00 9.65 9.80 9.50 9.9010.1

510.3

0

Iran 7.00 3.00 3.10 3.70 3.70 3.75 3.80 3.80 4.00

Iraq 4.00 1.50 3.60 2.30 2.80 2.90 3.05 2.20 1.80

Kuwait 3.34 2.80 2.40 2.40 2.40 2.40 2.40 2.50 2.60

UAE 2.50 2.90 2.20 2.40 2.40 2.40 2.45 2.50 2.40

Qatar 0.65 0.65 0.40 0.71 0.72 0.73 0.75 0.75 0.82

Venezuela 2.40 2.50 2.60 3.45 3.30 2.98 3.10 2.50 2.50

Nigeria 2.50 2.40 1.80 2.00 2.05 2.10 2.30 2.30 2.30

Indonesia 1.80 1.60 1.25 1.40 1.35 1.35 1.30 1.15 0.90

Libya 2.50 2.00 1.50 1.45 1.45 1.45 1.45 1.45 1.60

Algeria 1.23 1.10 0.75 0.88 0.88 0.88 0.88 1.15 1.35

Total38.7

631.7

527.6

030.3

430.8

530.4

431.3

830.4

530.5

7

Call on OPEC

34.01

16.65

22.20

27.59

25.85

30.04

28.23

29.20

29.87

Spare Capacity 4.75

15.10 5.40 2.75 5.00 0.40 3.15 1.25 0.70

OPEC Production and Spare Capacity, 1979-2003 (mmb/d)

9

RICE

UNIVERSITY

National Oil Companies on the RiseThey Control the Resources

6%11%6%

77%

Oil Reserves Held by Russian Companies

69 Bill. BblFull 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

16%7% 13%

64%

Reserves Held by New Russian CompaniesFull IOC

Access

NOC Reserves (Equity Access)

NOC Reserves(No Equity Access)

Oil & Gas: 2,182 Bill. Bbl

10

RICE

UNIVERSITY 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 LadenIn December 2004, called on the faithful to attack oil facilities as part of the jihad against the West

11

RICE

UNIVERSITY

Hurricanes Rita, Katrina And Gulf Oil & Natural Gas Operations

KR

Rita landfallKatrina landfall

Sources: NOAA, EIA

LOUISIANA

TEXAS

MISSISSIPPI ALABAMA

Source: API

12

RICE

UNIVERSITY

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

RICE

UNIVERSITY

Spending on Energy Science has collapsed since 1973