US foreign policy needs to better recognize the impacts of a changing energy world, experts told the US Senate Energy and Natural Resources Committee on Jan. 10.
“We’re fighting in a post-9/11 environment with a pre-9/11 energy policy that’s not sufficient to deal with disruptions,” said Robert Hormats, vice-chairman of Goldman Sachs (International). “Look at what’s happening in Nigeria, where there are kidnappings; in Russia, which is trying to exercise more direct influence on oil and gas, and in Iran and Iraq, where political prospects are uncertain.”
Hormats was one of five witnesses discussing the geopolitics of oil in the committee’s first hearing of the 110th Congress. The others were Fatih Birol, chief economist at the International Energy Agency; Linda Stuntz, a former deputy US energy secretary and current partner in the law firm Stuntz, Davis & Staffier; retired US Air Force Gen. Charles Wald, who is active with the Energy Leadership Council, and Flynt Leverett, director of the geopolitics initiative at the New America Foundation.
While technically not yet the committee chairman because the Senate had not held its elections, Jeff Bingaman (D-NM) ran the hearing, which he intended to help establish a context for subsequent deliberations. “The idea is to begin the year with an overview of the geopolitics of oil. I hope that it’s useful,” he said.
Other committee members sought information about potential benefits of developing alternative fuels more aggressively or sharing technology with other countries. Witnesses essentially responded that there’s no single solution and every option needs to be pursued to reduce US dependence on crude imports from politically unstable foreign suppliers.
Supply, demand trends
Birol suggested that world oil markets are going through a profound change as demand becomes more widespread and supplies become more concentrated. “In the next 10 years, much of the world’s production will come to a peak and then decline. New production will need to come primarily from three countries-;Saudi Arabia, Iran and Iraq-;which have substantial reserves and can bring oil to market fairly easily,” he said.
US policymakers also should acknowledge the growing influence of national oil companies, others said. “The reality today is that [NOCs] control some three quarters of the world’s proven reserves. ExxonMobil ranks 14th among the world’s reserves holders,” said Stuntz.
She said while publicly traded oil companies are returning to areas still open to them, such as the Gulf of Mexico and the North Sea, because operating terms in many producing nations are turning unfavorable, an increasing amount of new exploration and development will involve NOCs.
“It concerns me that more people in this country don’t know about this. [NOCs] like Aramco have been around for years. They don’t need western capital as they did before. There’s also a myth that they won’t have access to technology if they don’t get it from the United States. But they are capable of making alliances with other countries,” Stuntz said.
Few people in the US also recognize the extent to which their country’s military forces protect critical oil trading routes, according to Wald. “There should be partners in this mission. The free flow of oil is crucial to many parts of the world. That is one reason why the US military is working with Caspian region governments in developing partnerships,” he said.
Leverett said resource nationalism is growing in countries such as Venezuela and Russia as resource mercantilism increases in consuming countries such as China and India. “In my view, during the next quarter century, the most profound challenges to America’s global leadership will flow from structural shifts in the global oil market,” he said.
Leverett suggested an alliance between China and Russia has been successfully rolling back US efforts to influence oil in new areas of the Middle East following the Sept. 11, 2001, terrorist attacks. “Russia and Iran control almost half of the world’s natural gas reserves. If they cooperate, they could be almost as influential with natural gas as Saudi Arabia is with oil,” he said.
Contradictory signals
Leverett said some NOCs have begun to act independently of their governments, which US policymakers should encourage. Noting the response by some US politicians to Chinese National Offshore Oil Corp.’s interest in buying Unocal Corp. a few years ago, he noted, “We encourage the Chinese to pursue market solutions on one hand and discourage their initiative on the other.”
Many witnesses and committee members agreed that US development of transportation fuel alternatives is vital. “I believe in the free market. But if it becomes a national security issue, I’m prepared to consider spending money to develop alternatives which would reduce our dependence on oil from countries whose interests are different from ours,” said Sen. Jeff Sessions (R-Ala.).
Hormats said incentives to develop alternatives need to last long enough to complete projects, particularly the tax credit for investing in renewable resources. “Certain kinds of institutional and other investors can’t put money into the business because the time spans aren’t long enough. We have the technological ability on the supply side, with this country’s entrepreneurial traditions and vitality, to use new sources as well as conventional sources,” he said.
Witnesses generally agreed that every option should be pursued. “None of these things are silver bullets. We have to do all of them. But if we were to do everything that was mentioned today before this panel, it would still take us 10-15 years during which we would still be vulnerable,” said Wald.
