U.S. Senate Committee on Energy
March 7, 2006
R. James Woolsey
Mr. Chairman and Members of the Committee. It’s a real pleasure to appear before this Committee today on this issue. I am appearing solely on my own behalf and represent no organization. By way of identification I served as Director of Central Intelligence, 1993-95, one of the four Presidential appointments I have held in two Republican and two Democratic administrations; these have been interspersed in a career that has been generally in the private practice of law and now in consulting. A major share of the points I will make today are drawn from an August 2005 paper by former Secretary of State, George P. Shultz, and myself, although I have updated some points due to more recent work; the two of us are Co-Chairmen of the Committee on the Present Danger and the full paper may be found at the Committee’s web site (www.fightingterror.org).
Energy security has many facets – including particularly the need for
improvements to the electrical grid to correct vulnerabilities in transformers and in the Supervisory Control and Data (SCADA) systems. But energy independence for the US is in my view preponderantly a problem related to oil and its dominant role in fueling vehicles for transportation. For other countries, e.g. in Europe, energy independence may be closely related to preventing Russia from using against them the leverage that proceeds from its control of the natural gas they need for heating and electricity. In the US, however, we generally have alternative methods of producing electricity and heat, albeit shifting fuels can take time. Some of these methods are superior to others with respect to costs, pollutants, global warning gas emissions, and other factors. Technological progress continues to lead to reassessments of the proper mix – for
example, there appears to be progress in affordably and reliably sequestering the carbon captured during the operation of integrated gasification combined cycle coal (IGCC) plants. And progress in battery technology to improve the storage of electricity may help us expand the use of renewables such as solar and wind, which are clean but intermittent. Change is not easy in generating electricity, but we are not locked in to a single source for it, for heating, or for most other uses of energy.
Powering vehicles is different.
Just over four years ago, on the eve of 9/11, the need to reduce radically our reliance on oil was not clear to many and in any case the path of doing so seemed a long and difficult one. Today both assumptions are being undermined by the risks of
the post-9/11 world, by oil prices, by increased awareness of the vulnerability of the oil infrastructure (as illustrated in the al Qaeda attacks ten days ago on the large Saudi oil facility at Abquaiq) and by technological progress in fuel efficiency and alternative fuels.
There are at least seven major reasons why dependence on petroleum and its products for the lion’s share of the world’s transportation fuel creates special dangers in our time. These dangers are all driven by rigidities and potential vulnerabilities that have become serious problems because of the geopolitical realities of the early 21st century. Those who reason about these issues solely on the basis of abstract economic models that are designed to ignore such geopolitical realities will find much to disagree with in what follows. Although such models have utility in assessing the importance of more or less purely economic factors in the long run, as Lord Keynes famously remarked: “In the long run, we are all dead.”
These dangers in turn give rise to two proposed directions for government policy in order to reduce our vulnerability rapidly. In both cases it is important that existing technology should be used, i.e. technology that is already in the market or can be so in the very near future and that is compatible with the existing transportation infrastructure. To this end government policies in the United States and other oil-importing countries should: (1) encourage a shift to substantially more fuel-efficient vehicles within the existing transportation infrastructure, including promoting both battery development and a market for existing battery types for plug-in hybrid vehicles; and (2) encourage biofuels and other alternative and renewable fuels that can be produced from inexpensive and widely-available feedstocks -- wherever possible from waste products.
PETROLEUM DEPENDENCE: THE DANGERS:
1. The current transportation infrastructure is committed to oil and oil-compatible products.
Petroleum and its products dominate the fuel market for vehicular
transportation. This dominance substantially increases the difficulty of responding to oil price increases or disruptions in supply by substituting other fuels. With the important exception, described below, of a plug-in version of the hybrid gasoline/electric vehicle, which will allow recharging hybrids from the electricity grid, substituting other fuels for petroleum in the vehicle fleet as a whole has generally required major, time-consuming, and expensive infrastructure changes. One exception has been some use of liquid natural gas (LNG) and other fuels for fleets of buses or delivery vehicles, although not substantially for privately-owned ones, and the use of corn-derived ethanol mixed with gasoline in proportions up to 10 per cent ethanol (“gasohol”) in some states. Neither
has appreciably affected petroleum’s dominance of the transportation fuel market.
Moreover, in the 1970’s about 20 per cent of our electricity was made from oil –
so shifting electricity generation toward, say, renewables or nuclear power could save
oil. But since today only about three per cent of our electricity is oil-generated, a shift in the way we produce electricity would have almost no effect on the transportation or oil market. This could change over the long run, however, with the advent of plug-in hybrid vehicles, discussed below.
There are imaginative proposals for transitioning to other fuels for transportation, such as hydrogen to power automotive fuel cells, but this would require major infrastructure investment and restructuring. If privately-owned fuel cell vehicles were to be capable of being readily refueled, this would require reformers (equipment capable of reforming, say, natural gas into hydrogen) to be located at filling stations, and would also require natural gas to be available there as a hydrogen feed-stock. So not only would fuel cell development and technology for storing hydrogen on vehicles need to be further developed, but the automobile industry’s development and production of fuel cells also would need to be coordinated with the energy industry’s deployment of
reformers and the fuel for them.
Moving toward automotive fuel cells thus requires us to face a huge question of pace and coordination of large-scale changes by both the automotive and energy industries. This poses a sort of industrial Alphonse and Gaston dilemma: who goes through the door first? (If, instead, it were decided that existing fuels such as gasoline were to be reformed into hydrogen on board vehicles instead of at filling stations, this would require on-board reformers to be developed and added to the fuel cell vehicles themselves – a very substantial undertaking.)
It is because of such complications that the National Commission on Energy Policy concluded in its December, 2004, report “Ending The Energy
Stalemate” (“ETES”) that “hydrogen offers little to no potential to improve oil security and reduce climate change risks in the next twenty years.” (p. 72)
To have an impact on our vulnerabilities within the next decade or two, any competitor of oil-derived fuels will need to be compatible with the existing energy infrastructure and require only modest additions or amendments to it.
2. The Greater Middle East will continue to be the low-cost and dominant petroleum producer for the foreseeable future.
Home of around two-thirds of the world’s proven reserves of conventional oil --
45% of it in just Saudi Arabia, Iraq, and Iran -- the Greater Middle East will inevitably have to meet a growing percentage of world oil demand. This demand is expected to increase by more than 50 per cent in the next two decades, from 78 million barrels per day (“MBD”) in 2002 to 118 MBD in 2025, according to the federal Energy Information Administration. Much of this will come from expected demand growth in China and India. One need not argue that world oil production has peaked to see that this puts substantial strain on the global oil system. It will mean higher prices and potential supply disruptions and will put considerable leverage in the hands of governments in the Greater Middle East as well as in those of other oil-exporting states which have not
been marked recently by stability and certainty: Russia, Venezuela, and Nigeria, for example (ETES pp. 1-2). Deep-water drilling and other opportunities for increases in supply of conventional oil may provide important increases in supply but are unlikely to change this basic picture. If world production of conventional oil has peaked or is about to, this of course further deepens our dilemma and increases costs sooner.
Even if other production comes on line, e.g. from unconventional sources such as tar sands in Alberta or shale in the American West, their relatively high cost of production could permit low-cost producers of conventional oil, particularly Saudi Arabia, to increase production, drop prices for a time, and undermine the economic viability of the higher-cost competitors, as occurred in the mid-1980’s. If oil supplies have peaked
or are peaking in Saudi Arabia this tactic could be harder for the Saudis to utilize. But in any case, for the foreseeable future, as long as vehicular transportation is dominated by oil as it is today, the Greater Middle East, and especially Saudi Arabia, will remain in the driver’s seat.
3. The petroleum infrastructure is highly vulnerable to terrorist and other attacks.
The radical Islamist movement, including but not exclusively al Qaeda, has on a number of occasions explicitly called for worldwide attacks on the petroleum infrastructure and has carried some out in the Greater Middle East. A more well-planned attack than the one that occurred ten days ago at Abquaiq -- such as that set out in the opening pages of Robert Baer’s recent book, Sleeping With the Devil,
(terrorists flying an aircraft into the unique sulfur-cleaning towers at the same facility) -- could take some six million barrels per day off the market for a year or more, sending petroleum prices sharply upward to well over $100/barrel and severely damaging much of the world’s economy. Domestic infrastructure in the West is not immune from such disruption. U.S. refineries, for example, are concentrated in a few places, principally the Gulf Coast.
Last summer’s accident in the Texas City refinery-- producing multiple fatalities--
points out potential infrastructure vulnerabilities, as of course does this past fall’s
hurricane damage in the Gulf. The Trans-Alaska Pipeline has been subject to several amateurish attacks that have taken it briefly out of commission; a seriously planned attack on it could be far more devastating.
In view of these overall infrastructure vulnerabilities policy should not focus exclusively on petroleum imports, although such infrastructure vulnerabilities are likely to be the most severe in the Greater Middle East. It is there that terrorists have the easiest access, and the largest proportion of proven oil reserves and low-cost production are also located there. But nothing particularly useful is accomplished by changing trade patterns. To a first approximation there is one worldwide oil market and it is not generally helpful for the U.S., for example, to import less from the Greater Middle East and for others then to import more from there. In effect, all of us oil-importing countries are in this together.
4. The possibility exists, both under some current regimes and among those
that could come to power in the Greater Middle East, of embargoes or other disruptions of supply.
It is often said that whoever governs the oil-rich nations of the Greater Middle East will need to sell their oil. This is not true, however, if the rulers choose to try to live, for most purposes, in the seventh century. Bin Laden has advocated, for example, major reductions in oil production and oil prices of $200/barrel or more. As a jihadist Web site has just stated in the last few days: “[t]he killing of 10 American soldiers is nothing compared to the impact of the rise in oil prices on America and the disruption that it causes in the international economy.”
Moreover, in the course of elaborating on Iranian President Ahmedinejad’s threat
to destroy Israel and the US, his chief of strategy, Hassan Abbassi, has recently bragged that Iran has already “spied out” the 29 sites “in America and the West” which they (presumably with help from Hezbollah, the world’s most professional terrorist
organization) are prepared to attack in order to “destroy Anglo-Saxon civilization.” One
can bet with reasonable confidence that some of these sites involve oil production and distribution.
In 1979 there was a serious attempted coup in Saudi Arabia. Much of what the outside world saw was the seizure by Islamist fanatics of the Great Mosque in Mecca, but the effort was more widespread.
Even if one is optimistic that democracy and the rule of law will spread in the Greater Middle East and that this will lead after a time to more peaceful and stable societies there, it is undeniable that there is substantial risk that for some time the region will be characterized by chaotic change and unpredictable governmental behavior. Reform, particularly if it is hesitant, has in a number of cases in history been trumped by radical takeovers (Jacobins, Bolsheviks). There is no reason to believe that the Greater Middle East is immune from these sorts of historic risks.
5. Wealth transfers from oil have been used, and continue to be used, to fund terrorism and Its ideological support.
Estimates of the amount spent by the Saudis in the last 30 years spreading Wahhabi beliefs throughout the world vary from $70 billion to $100 billion. Furthermore, some oil-rich families of the Greater Middle East fund terrorist groups directly. The spread of Wahhabi doctrine – fanatically hostile to Shi’ite and Suffi Muslims, Jews,
Christians, women, modernity, and much else – plays a major role with respect to
Islamist terrorist groups: a role similar to that played by angry German nationalism with respect to Nazism in the decades after World War I. Not all angry German nationalists became Nazis and not all those schooled in Wahhabi beliefs become terrorists, but in each case the broader doctrine of hatred has provided the soil in which the particular totalitarian movement has grown. Whether in lectures in the madrassas of Pakistan, in
textbooks printed by Wahhabis for Indonesian schoolchildren, or on bookshelves of mosques in the US, the hatred spread by Wahhabis and funded by oil is evident and influential.
On all points except allegiance to the Saudi state Wahhabi and al Qaeda beliefs are essentially the same. In this there is another rough parallel to the 1930’s -- between
Wahhabis’ attitudes toward al Qaeda and like-minded Salafist Jihadi groups today and
Stalinists’ attitude toward Trotskyites some sixty years ago (although there are of course important differences between Stalin’s Soviet Union and today’s Saudi Arabia). The only disagreement between Stalinists and Trotskyites was on the question whether allegiance to a single state was the proper course or whether free-lance killing of enemies was permitted. Stalinist hatred of Trotskyites and their free-lancing didn’t
signify disagreement about underlying objectives, only tactics, and Wahhabi/Saudi cooperation with us in the fight against al Qaeda doesn’t indicate fundamental disagreement between Wahhabis and al Qaeda on, e.g., their common genocidal fanaticism about Shia, Jews, and homosexuals. So Wahhabi teaching basically spreads al Qaeda ideology.
It is sometimes contended that we should not seek substitutes for oil because disruption of the flow of funds to the Greater Middle East could further radicalize the population of some states there. The solution, however, surely lies in helping these states diversify their economies over time, not in perpetually acquiescing to the economic rent they collect from oil exports and to the uses to which these revenues are put.
6. The current account deficits for the US and a number of other countries create risks ranging from major world economic disruption to deepening poverty, and could be substantially reduced by reducing oil imports.
The U.S. in borrows about $2 billion every calendar day from the world’s financial markets to finance the gap between what we produce and what we consume. The single largest category of imports is the approximately $1 billion per working day, or $250 billion a year, borrowed to import oil. The accumulating debt increases the risk of a flight from the dollar or major increases in interest rates. Any such development could have major negative economic consequences for both the U.S. and its trading partners. For every billion dollars of this $250 billion spent at home to produce alternative fuels, Senator Richard Lugar and I estimated (in a 1999 article in Foreign Affairs, “The New Petroleum”) that 10-20,000 American jobs would be created, principally in rural areas. This would mean that replacing $200 billion of the $250 billion that we borrow to import oil with alternative fuel production in the US would create something on the order of 3 million American jobs.
For developing nations, the service of debt is a major factor in their continued poverty. For many, debt is heavily driven by the need to import oil that at today’s oil prices cannot be paid for by sales of agricultural products, textiles, and other typical developing nation exports.
If such deficits are to be reduced, however, say by domestic production of substitutes for petroleum, this should be based on recognition of real economic value such as waste cleanup, soil replenishment, or other tangible benefits.
7. Global-warming gas emissions from man-made sources create at least the risk of climate change.
Although the point is not universally accepted, the weight of scientific opinion suggests that global warming gases (GWG) produced by human activity form one important component of potential climate change. Recently in the Wall Street Journal the Nobel-Prize winning economist, Thomas Schelling, surveyed the data and concluded that we should, if effect, buy “insurance” against climate change by reducing our emissions. Oil products used in transportation provide a major share of U.S. man-made global warming gas emissions. The substitutes discussed below would radically reduce these emissions.
THREE PROPOSED DIRECTIONS FOR POLICY:
The above considerations suggest that government policies with respect to the vehicular transportation market should point in the following directions:
1. Encourage improved vehicle mileage, using technology now in production.
The following three technologies are available to improve vehicle mileage substantially:
First, modern diesel vehicles are coming to be capable of meeting rigorous emission standards (such as Tier 2 standards, being introduced into the U.S., 2004-08). In this context it is possible without compromising environmental standards to take advantage of diesels’ substantial mileage advantage over gasoline-fueled internal
Heavy penetration of diesels into the private vehicle market in Europe is one major reason why the average fleet mileage of such new vehicles is 42 miles per gallon in Europe and only 24 mpg in the US. Although the U.S. has, since 1981, increased vehicle weight by 24 per cent and horsepower by 93 per cent, it has actually somewhat lost ground with respect to mileage over that near-quarter century. In the 12 years from 1975 to 1987, however, the US improved the mileage of new vehicles from 15 to 26 mpg.
Second, hybrid gasoline-electric vehicles now on the market generally show substantial fuel savings over their conventional counterparts. The National Commission on Energy Policy found that for the four hybrids on the market in December 2004 that had exact counterpart models with conventional gasoline engines, not only were mileage advantages quite significant (10-15 mpg) for the hybrids, but in each case the horsepower of the hybrid was higher than the horsepower of the conventional vehicle. (ETES p. 11)
Light-weight Carbon Composite Construction
Third, constructing vehicles with inexpensive versions of the carbon fiber composites that have been used for years for aircraft construction can substantially reduce vehicle weight and increase fuel efficiency while at the same time making the vehicle considerably safer than with current construction materials. This is set forth thoroughly in the 2004 report of the Rocky Mountain Institute’s Winning the Oil
Endgame (“WTOE”). Aerodynamic design can have major importance as well. Using such composites in construction breaks the traditional tie between size and safety. Much lighter vehicles, large or small, can be substantially more fuel-efficient and also safer. Such composites have already been used for automotive construction in Formula 1 race cars and are now being adopted in part by BMW and other automobile companies. The goal is mass-produced vehicles with 80% of the performance of hand-layup aerospace composites at 20% of the cost. Such construction is expected approximately to double the efficiency of a normal hybrid vehicle without increasing manufacturing cost. (WTOE 64-66).
2. Encourage the commercialization of alternative transportation fuels that can be available soon, are compatible with existing infrastructure, and can be derived from waste or otherwise produced cheaply.
Biomass (cellulosic) ethanol.
The use of ethanol produced from corn in the U.S. and sugar cane in Brazil has given birth to the commercialization of an alternative fuel that is coming to show substantial promise, particularly as new feedstocks are developed. Some six million vehicles in the U.S. and three-quarters of new vehicles in Brazil are capable of using ethanol in mixtures of up to 85 percent ethanol and 15 per cent gasoline (E-85); these are called Flexible Fuel Vehicles (“FFV”) and require, compared to conventional vehicles, only a somewhat different kind of material for the fuel line and a differently-programmed computer chip. The cost of incorporating this feature in new vehicles is trivial. Between 2003 and 2005 Brazil moved from five per cent of its new vehicles being FFVs to 75 per cent being such. Also, there are no large-scale changes in infrastructure required for ethanol use. It may be shipped in tank cars (and, in Brazil, in pipelines), and mixing it with gasoline is a simple matter.
Although human beings have been producing ethanol, grain alcohol, from sugar and starch for millennia, it is only in recent years that the genetic engineering of biocatalysts has made possible such production from the hemicellulose and cellulose that constitute the substantial majority of the material in most plants. The genetically-engineered material is in the biocatalyst only; there is no need for genetically modified plants.
These developments may be compared in importance to the invention of thermal and catalytic cracking of petroleum in the first decades of the 20th century – processes
which made it possible to use a very large share of petroleum to make gasoline rather than the tiny share that was available at the beginning of the century. For example, with such genetically-engineered biocatalysts it is not only grains of corn but corn cobs and most of the rest of the corn plant that may be used to make ethanol.
Such biomass, or cellulosic, ethanol is now seeing commercial production begin first in a facility of the Canadian company, Iogen, with backing from Shell Oil, at a cost of around $1.30/gallon. The National Renewable Energy Laboratory estimates costs will drop to around $1.07/gallon over the next five years, and the Energy Commission estimates a drop in costs to 67-77 cents/gallon when the process is fully mature (ETES p. 75). The most common feedstocks will likely be agricultural wastes, such as rice straw, or natural grasses such as switchgrass, a variety of prairie grass that is often planted on soil bank land to replenish the soil’s fertility. There will be a decided financial
advantages in using as feedstocks any wastes which carry a tipping fee (a negative cost) to finance disposal: e.g. waste paper, or rice straw, which cannot be left in the fields after harvest because of its silicon content.
Old or misstated data, frequently dealing with corn ethanol, are sometimes cited for the proposition that huge amounts of land would have to be introduced into cultivation or taken away from food production in order to have enough biomass available for cellulosic ethanol production. This is incorrect. The National Commission on Energy Policy reported in December that, if fleet mileage in the U.S. rises to 40 mpg -- somewhat below the current European Union fleet average for new vehicles of 42 mpg and well below the current Japanese average of 47 mpg – then as switchgrass
yields improve modestly to around 10 tons/acre it would take only 30 million acres of land to produce sufficient cellulosic ethanol to fuel half the U.S. passenger fleet. (ETES pp. 76-77). By way of calibration, this would essentially eliminate the need for oil imports for passenger vehicle fuel and would require only the amount of land now in the soil bank (the Conservation Reserve Program (“CRP”) on which such soil-restoring
crops as switchgrass are already being grown. Practically speaking, one would probably use for ethanol production only a little over half of the soil bank lands and add to this some portion of the plants now grown as animal feed crops (for example, on the 70 million acres that now grow soybeans for animal feed). In short, the U.S .and many other countries should easily find sufficient land available for enough energy crop cultivation to make a substantial dent in oil use. (Id.)
Some also have an erroneous impression that ethanol generally requires as much fossil fuel energy to produce it as one obtains from it and that its use does not substantially reduce global warming gas emissions. This is also incorrect. The production and use of ethanol merely recycles in a different way the CO2 that has been fixed by plants in the photosynthesis process. It does not release carbon that would otherwise stay stored underground, as occurs with fossil fuel use.
But when starch, such as corn, is used for ethanol production much fossil-fuel energy is consumed in the process of fertilizing, plowing, and harvesting. Much of this is the natural gas required to produce fertilizer. But corn ethanol still normally produces a very large (over 90 per cent) reduction in the use of oil compared to gasoline. Starch-based ethanol reduces greenhouse gas emissions to some degree, by around 30 per cent.
But because so little energy is required to cultivate crops such as switchgrass for cellulosic ethanol production, and because electricity can be co-produced using the residues of such cellulosic fuel production, the energy requirements for converting switchgrass and other cellulosics to ethanol is very small. Indeed, with the right techniques reductions in greenhouse gas emissions for celluslosic ethanol when compared to gasoline are greater than 100 per cent. The production and use of cellulosic ethanol can be, in other words, a carbon sink. (ETES p. 73)
Biodiesel and Renewable Diesel
The National Commission on Energy Policy pointed out some of the problems with most current biodiesel “produced from rapeseed, soybean, and other vegetable oils – as well as . . . used cooking oils.” It said that these are “unlikely to become economic
on a large scale” and that they could “cause problems when used in blends higher than 20 percent in older diesel engines”. It added that “waste oil is likely to contain impurities that give rise of undesirable emissions.” (ETES p. 75)
The Commission notes, however, that biodiesel is generally “compatible with
existing distribution infrastructure” and outlines the potential of a newer process (“thermal depolymerization”) that produces renewable diesel without the above disadvantages, from “animal offal, agricultural residues, municipal solid waste, sewage,
and old tires”. (This was designated “Renewable Diesel” in the Energy Act of this past summer.) The Commission points to the current use of this process at a Conagra turkey processing facility in Carthage, Missouri, where a “20 million commercial-scale
facility” is beginning to convert turkey offal into “a variety of useful products, from fertilizer to low-sulfur diesel fuel” at a potential average cost of “about 72 cents per gallon.” (ETES p. 77)
There have also been promising reports of the potential for producing renewable diesel from algae.