Conclusion — finding the balance between energy security, environment and economic competitiveness. There has been a growing awareness in the past few years that the environment is a global responsibility. Water and air pollution, acid rain, “greenhouse gases" and nuclear radiation know no national borders and a consensus has emerged that the global nature of these problems dictates a global response. These arguments are equally compelling for energy security policy: interconnected world markets require an international approach. Efforts to "go it alone" and ignore the international process are not only inefficient from a market perspective, but can result in creating conflict among consuming nations that could damage overall bilateral relationships including security alliances, trading relationships, cultural exchanges etc. Finally, policymakers must strive to achieve a balance between three critical objectives: economic competitiveness, energy security, and environmental quality. While some policies may be consistent with all three goals, others may not. Together we must seek solutions including reconciliation of conflicting objectives of efficient energy consumption with the need for reliable energy sources and concern over public safety. The events of the past few weeks have demonstrated that we cannot forget the security aspect of energy policy, even during periods when oil is cheap and plentiful. If energy security is not achieved in the coming decade, other important objectives such as the successful transition of the communist world to market economies, economic growth in the Third World and in industrialized countries, and the integration of Europe may well be jeopardized. Now is the time to consider energy strategies consistent with broader economic and environmental objectives and to develop international policies that ensure our long-term energy future. -41 Senator BINGAMAN. Thank you very much. Our final witness on this panel is Henry Schuler, who is the holder of the Dewey F. Bartlett Chair in Energy Security Studies at the Center for Strategic and International Studies here in Washington. Before joining CSIS, Henry Schuler had extensive experience in the international oil industry, including the development and management of projects in the Middle East and the North Sea. Mr. Schuler, thank you for being here. STATEMENT OF G. HENRY M. SCHULER, DIRECTOR, ENERGY SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES Mr. SCHULER. Thank you, Mr. Chairman. Senator Ford, I hope you are not going to regret your advice to us to be blunt and candid because I am going to be precisely that. Senator FORD. I would like to, you know, you can speak in fourletter words. I am bilingual, bad English and Southern, and so understand that when you start talking to me. Mr. SCHULER. Well, we all learned to understand that southern English during the recent television series and to respect it very much. I intend to be candid to the point of being contrary, precisely because I think it is important to, if we are to maintain a long-term concern and perspective on this oil situation, we need to recognize the facts, the brutal facts as they exist in the Gulf today and for the foreseeable future. In my judgment, the administration's belated focus upon the risks to Middle Eastern oil places too much emphasis on who controls the valve and not enough on where the valves are located. This focus is not only invalid, but dangerous because it creates the impression that if we can only get rid of Saddam, if we can restore the al-Sabahs, if we can prop up the al-Sauds, then we do not need to worry about dependence upon Middle Eastern oil. I suggest that that is invalid as well as dangerous and the invalidity is proved by the situation that existed during the 1970's. Our oil price shocks in the 1970's did not come from a concentration of power in a single set of hostile hands, but rather from the problems endemic to the region. The first oil price explosion, which was a doubling of oil prices between September of 1969 and February of 1971, was due not to a consolidation of power in a single set of hands, but in fact to the fragmentation of oil production and pricing decisions. What happened was a set of leapfrogging that took place because each government felt compelled to build a higher price on the base, on the floor, that the neighboring government had gone through. This reached the point that the United States and the OECD countries, both as governments and as oil companies, deliberately sought a consolidation of power in the negotiations in Tehran in February of 1971. Those were abortive, but they demonstrate that this notion, that concentration of power is the only source of oil shocks is wrong. Secondly, with respect to the hostility in the hands that control those valves, I would remind you that the quadrupling of oil prices at the end of 1973 was not due to the fact that they were controlled by a hostile set of hands, but rather by our most staunch friend in the Middle East, King Faisal, who reduced output, Saudi output, by 25 percent in response to domestic pressures that emerged out of the Arab-Israeli war. I emphasize the "where" rather than the "who" because the Middle East is a very fragile area racked by innumerable disputes: Palestinians who have been thoroughly radicalized by Israel's right wing politicians; feudal governments and oppressive regimes that lack the stability of institutionalized popular mandate or even rudimentary political participation; an abundance of ethnic, cultural, religious, racial, sectarian, regional, and tribal strains throughout the region; enormous income disparities both at the national and the individual levels; millions who are turning inward to Islam after decades of frustration in reaching outward for identity in inapplicable non-Moslem systems; and, finally, endless border disputes. Anybody who thinks that the Kuwait-Iraq border dispute is the only one in the area fails to recognize that countries throughout the region as a result of their colonial heritage have border disputes. Within the past 12 months we have had Qatar and Bahrain, for example, at swords' points over a border dispute. Now, until recently I thought or at least hoped that the exporters of the region could keep the lid on these problems. I am now convinced, however, that the massive deployment of the U.S. ground force and the possibility, and some days I think probability, that that ground force will be used will unleash hostile forces that we cannot now identify, much less control. I am convinced, therefore, more than ever that we must pursue a two-path approach. First, we must reduce our requirements for oil imports by encouraging energy efficiency investments, natural gas substitution, clean coal, research and development, nuclear power, frontier drilling, all of the options that we can fulfill in this country to reduce the need for imports. Beyond that, I believe that we can slow the growth in imports but I do not believe we can reverse it. So the second path that I would urge we pursue which has been alluded to by others here today is that we encourage development of oil exports outside of the Middle East, especially in the western hemisphere. While there are a number of western hemisphere prospects, I will focus my attention on Venezuela. I do so because Venezuela has an enormous resource base. Its proved reserves are, for example, 10 times the proved oil reserves of Canada. Secondly, it has a commercially motivated oil industry that seems to me more responsive to U.S. oil market opportunities than Mexico's national oil company. Venezuela, just to run through some of the situations and the opportunities and promise that Venezuela holds, I would note that Venezuela is currently the provider of 12 percent of U.S. oil imports during the first half of 1990. Its proved reserves are 59 billion barrels of conventional oil. That is light and medium oil. This is twice the reserves in the United States, as I say, 10 times those of Canada which are 6 billion, and slightly greater than the reported reserves of Mexico which are 56 billion. These already proved reserves are currently supporting 2.3 million barrels per day of Venezuelan production, and I would emphasize that 300,000 barrels per day of that has been added since August 2 and the Iraqi occupation of Kuwait. Venezuela plans to increase its crude production to 2.5 million barrels per day by the end of the year. As the destination of two-thirds of Venezuelan crude and product imports, the United States is the major recipient of Venezuela's base production and, of course, of its supplemental production. I would note in this regard that we become the beneficiary of Venezuelan investments during the lean recent years that maintained a production capacity in excess of what could be produced and marketed at the time. This is unlike the situation in Mexico, unlike the situation in all but two other Middle Eastern exporting countries, Saudi Arabia and the United Arab Emirates. Venezuela's oil links to the United States-and this, I think, is very important because I think it emphasizes the commercial nature of this Venezuelan industry-include investments in 0.5 million barrels per day of refining capacity in this country. That is refining capacity that they obviously have every intention of keeping supplied with crude oil at a bare minimum because the refinery investment is worthless if the crude oil is not provided. The potential for expanding the oil links is unrivaled in the western hemisphere. Venezuela expects to prove up an additional 62 billion barrels of light and medium crude oil, and this was an expectation prior to the current price explosion. So there is conventional crude oil resource base that is yet to be proved up, and there is a massive unconventional base of liquid hydrocarbons. It is estimated that the Orinoco Heavy Oil Belt contains 1.2 trillion barrels of oil in place. This is heavy oil 10 degrees gravity and lower. Using a conservative recovery factor of 25 percent, it is estimated that 267 billion barrels of that are now recoverable with current technology. This heavy oil is already being marketed in the United States as a direct boiler fuel. It is a process that they call emulsion where they mix it with water in an emulsifier and burn it directly in boilers. Even more important than that is the long-term potential for turning this heavy oil into the light products that we require for the transportation system, and that is possible, the Venezuelans feel, with additional research and a massive amount of investment in a process that they call HDH, which is a catalytic hydroconversion process for turning the heavy oil into a synthetic oil of 40 degrees gravity which can then be either blended into the other crude oil stream to lighten the stream or further processed into refined products. Now as we all have learned in the synthetic fuels effort in this country, these target numbers tend to be elusive; but on the basis of a 5-year operation of a pilot plant in Germany and engineering plans for a 15,000-barrel-per-day plant which can use conventional standard equipment, the Venezuelans estimate that at prices of $25 to $30 per barrel, world oil prices of $25 to $30 per barrel, they can convert this huge resource into transportation fuels. If so, the Orinoco Belt offers, as I say, an unrivaled opportunity for the world |