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Global Energy in the 21st Century

       KENNETH MEDLOCK, III, MODERATOR
ANDREW SLAUGHTER,ROBERT HARRISS, CORBIN J. ROBERTSON, JR.

          DR. MEDLOCK:Welcome. It's never an easy thing to follow Secretary Baker, but I will certainly do my best, and I'm sure the gentlemen up here with me will do their best as well. We are actually very pleased to have each one of these individuals with us. They're very knowledgeable about the issues they're going to discuss.

Secretary Baker mentioned the ideal of peak oil in his talk. And certainly it has been something, with increasing energy prices in general, that has been on the minds of many people in the energy business. Whether or not you adhere to its precepts is really not relevant; it is an issue that's on the table and it's constantly being addressed in the press, trade press more generally, and by energy executives around the world.

The question that arises when we think about dealing with peak oil is, what do we do? Where do we go from here? If we are indeed approaching a peak in global oil production, what does that mean in the context of global energy? What does it mean for achieving transportation services? Is there another technology that we might be able to switch to, that would allow us to continue the unprecedented levels of economic growth that we've seen over the past 100 years? So this is certainly a very important question, and it's something that I think in one way or another each one of the panelists today will address.

Our first presenter today is Andrew Slaughter. He holds the position of Senior North American Energy Advisor for Shell's Global Business Environment team, and Senior Economics Advisor to Shell's North American E&P business. He is responsible for strategic counseling and analysis of North American crude oil and natural gas markets, covering both short and long term fundamental issues. He works closely with other Shell businesses in North America to develop common regional views of energy markets, so he's very well versed in lots of things that are fundamental to energy markets, not just crude oil and natural gas but other things as well.

He currently serves on the Economics and Statistics Committee of the American Petroleum Institute, and was active in both of the recent National Petroleum Council studies, the one on North American natural gas markets that was released in '03, and "Facing the Hard Truths" which was just recently released. And the latter study is actually what he is going to speak to us about today.

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OIL AND GAS
ANDREW SLAUGHTER

         Thank you. Good morning everybody. It's a great pleasure and honor to be here in front of such a large and distinguished audience. I'm very pleased to be able to talk to you this morning. What I'm going to do is give you a very brief overview of the recent study completed by the National Petroleum Council and made available this year, this summer in fact.

For those of you who don't know, the National Petroleum Council was a body that was set up in the immediate post-World War II period, around 60 years or so ago. Its sole function is to act as an advisory body to the Secretary of Energy, in terms of medium and long term energy policy issues. It only does research and studies at the request of the Secretary of Energy, on topics which the Secretary thinks is important. So it's not an organization which is driven by an agenda, which is driven by a particular point of view; it brings together experts in the field, to do a serious, detailed, neutral analysis of important energy issues.

The most recent study, "Facing the Hard Truths About Energy," its genesis was in 2005 when the Secretary of Energy commissioned the study. I'm going to talk to you in one moment about the specific scope, but if you think back to that time, mid to end 2005, energy was a very important topic. It still is, but the signs of it were coming to the forefront of policy thinking. Crude oil prices had gone up in mid-2004, from the $30 range to the $50 range, gasoline prices in the United States were approaching $2.50 to $3, unprecedented levels for the consumer. We were seeing the rise of what we now know is resource nationalism, in countries like Venezuela and Russia. We were seeing the continuance, the ever-worsening continuance of tension in the Middle East, one of our key oil-supplying regions. We were seeing a surge in tensions in the Niger Delta region of Nigeria, with the armed militias. Again, a threat to oil supply.

There was a lot of concern about the long term position of whether oil is going to continue to flow against these constraints, and under what conditions. At the same time, as Ken mentioned and as Secretary Baker mentioned, the notion of peak oil was beginning to be discussed very widely. Is the actual sub-surface resource of oil robust, to supply our needs long-term. So against all these concerns, the Secretary asked us to look at some very specific long-term issues, related to energy, particularly oil and gas. And he sent a letter to the National Petroleum Council in October 2005, to kick off this study.

So the first question relates to the resource. What does the future hold for global oil and natural gas supply? And we interpreted that as: Is the subsurface resource sufficient to supply this country and the growing economies of the world for the foreseeing future?The second question related to deliverability. Can we translate that resource into crude oil and natural gas flowing through the supply chains to the consumer, to the economies at a reasonable price, without jeopardizing economic growth? Because anything can be done if you adjust economic growth downward, but that's not palatable for any society today.

The third question, more practically, having done this analysis, what are the implications for the United States in terms of the policy levers it can activate to ensure energy continues to flow, and therefore economic growth and prosperity can continue in the manner at which we're used to?

Now, these are fortunately very open-ended questions, and it allowed us to structure our study in a way that really addressed not just the oil and gas system, but the energy system in total. Because you can't talk about oil and gas without talking about other parts of the energy system. What is the potential for nuclear power? What is the potential for coal? What is the potential for renewables? What happens in these areas will all affect what happens to demand and supply for oil and gas. So we very quickly opened this out to a study of the global energy system in its greater complexity.Now, there are many, many aspects to this problem. We organized the study in four big teams, one looking at the supply side; one looking at the demand side; one looking at energy technologies in a lot of detail; and another one looking at geopolitics and policy issues, all of which come together to deal with energy security. And as I just mentioned, to assess oil and gas we have to look at the alternatives to oil and gas. So what is the real potential for biofuels, for nuclear, for coal, for other renewables?

Under all these considerations, you can look at it through three lenses. You can look at it through the economic lens; how can these energy supplies be developed at least cost, and therefore to provide lowest price, to support the economic growth? But then, you have to look at it through the security lens; can these oil and gas supplies, these energy supplies, continue to flow under a variety of security environments going forward? And finally, and not less importantly, the environmental issues associated with energy supply. We've lived with them for a long time, but now we have the overprint of the carbon concern, the global warming concern, and we felt we have to address this in the study as well.

Energy is a function of economic concerns, security concerns, and environmental concerns. What solutions can we find that will address all these three together? There are many, many other studies that have come out on energy and with energy themes. Why is this different? We think it's different because it's a very, very detailed, integrated look at all of the work that's been done so far.

We looked at over 100 existing studies, analyzed them, found out what they were predicting for the future, and in looking at such diversity of studies you can really identify what the differences are, therefore what the important issues are, and what choices you have to make to move this in one direction or the other. We had a great diversity of expertise. We had 350 people working more or less continuously on this piece of work, for about 18 months. We reached out to a lot more companies, individuals and sectors, but about 350 people from very diverse backgrounds, across the energy spectrum from energy suppliers to energy users, consumers, NGOs. And then finally, we did a very detailed assessment of the state of the art, on a suite of energy technologies, both current energy technologies and energy technologies which might come in over the next 25 years. So this fundamental, detailed analysis we think has a broad coverage which is unprecedented in any of the studies you see that are more narrow-focused. We were able to produce a very comprehensive, in-depth report on this basis.

Now, you might be surprised, 65 percent of the participants in the National Petroleum Council were not directly from the oil and gas industry. They were from the renewable industry, from the coal industry, from the NGO sector, from governments, from academics, from foreign governments, foreign sectors. We had contributions from India, from China, from Saudi Arabia, from Mexico, coming to our meetings and giving us their perspective; people from the International Energy Agency.

So basically we were fortune to have a lot of different, expert perspectives from many different points of view to add to our depth of coverage, and I think at the end of the day to our credibility as a product. Just to give you an idea of the impact of this, we announced the findings of the study on July 18, put it up on the Web, and we've had almost a million downloads. This is not the most recent number; I think this is by the end of October. We've had almost a million downloads of study material going to all types of different users and sectors, be it in government, industry, or overseas. So this has really made a huge impact, and I think it's informing the policy debate, and the company debate, and the international debate about energy now; and it will set an agenda for quite some years to come.

What I want to do now is take you very quickly through what we learned. We called these "The Hard Truths" because, quite honestly, the challenges in continuing to develop the energy sector over the next 25 years are getting more challenging and more complicated to address, particularly when you compare it to the last 50 years, when we seemed to have seamlessly been able to grow our energy supplies in sync with our economy and without too many disruptions.

The first hard truth is that global demand growth by 2030 will bring an energy market 50 to 60 percent greater than it is today. This is because the growing populations of what we used to consider as the Third World or developing economies, are reaching or have reached their economic takeoff phase, and they're consuming more and more energy. They want to consume more and more energy to lift their living standards towards what we would consider a more Western standard. Now, that's very legitimate and it's real, and if you go to China or India or Indonesia or Brazil or Russia, you'll see it happening. That level of growth over this time frame is unprecedented and unstoppable in the energy sector.

The second hard truth has to do with the role of coal, oil and natural gas, the traditional fossil fuels. These make up about 75 percent of our energy mix today in the world; they will continue to dominate over the next 25 years. The debate in the public place, as it were, seems to be dominated by how we can promote renewable energy, how we can promote low carbon energy, maybe how we can bring back nuclear energy. These are all very valuable parts of the energy mix. But the truth is, we're starting from a point where fossil fuels, the traditional backstop of the energy supply, will continue to dominate, at least over the next 25 to 30 years. We cannot neglect giving these industries the means to continue to supply; the world depends on fossil fuels, and will continue to do so for some time to come.

The third hard truth is about energy resources. We did not find evidence that the world is running out of energy resources in a geologic sense, at least in the time frame that we're looking at. What we did find evidenced of is that there are increasing, diversifying risks to developing the oil and gas supply, and the coal supply, from conventional resources. It's getting tougher, it's getting more complicated, there are more stakeholders, lead times are getting longer, investment is getting higher. It's getting tougher to deliver the incremental molecules of fossil fuels than it was ten years ago, 20 years ago, 30 years ago.

As you bring other things into the energy mix, those things also face tough challenges. New infrastructures, new value chains, new partners, new technologies. It is not a simple matter just to say that we're going to switch from petroleum-based fuel to a biofuel-based fuel. It is very, very complex and tough to do that. Therefore these risks create significant challenges to meeting that 50 to 60 percent demand growth of the next 25 years. It's a legitimate question: Will we be able to get there at an acceptable price and maintain economic prosperity?So despite the preponderant role of fossil fuels, because of the inherent risks, we absolutely must encourage other things in the energy mix. And that's working on the demand side through energy efficiency; there's a lot of low-hanging fruit in Western economies, particularly in North America, with regard to energy efficiency in buildings, vehicles, industry and power generation. We must seize those opportunities. They're relatively low cost; they're relatively un-dependent on new technology. There are many energy-efficiency technologies today which are available, but which are not deployed.

Secondly, we must encourage these other fuels to take their place, whether it be biofuels, solar, wind, nuclear, and the unconventional side, more of coal, oil, and natural gas. Everything has a challenge, and the challenges diversify as you diversify the energy mix. So this is why we say, meeting the energy challenge is going to be very tough, very hard over the next 25 to 30 years.

We look at energy globally, and we still see debate in policy circles about whether energy independence is a good thing or an achievable goal. Looking at the interdependence of energy in the world, energy independence is not a realistic goal, and it's not necessary for energy security.

All major demand countries whether it be in North America, Western Europe, or the growing demand countries of East Asia, their energy security will all come from promoting supply, moderating growth, and strengthening the global trade and investment schemes. Having supply chains be invested in on a level playing field across the world, this is how we get access to the most cost-effective, most efficient energy supplies. So energy security is a legitimate goal; energy independence we think is not a legitimate goal.

We looked then quite extensively at the capabilities of the industry. One of the worrying things we found, one of the main capabilities that we have are human capital, in engineering, in geoscience, in infrastructure engineering. That human capital is disappearing fast; we're an aging workforce. We need to replenish, retrain, restock our workforce with experience. And that's going to potentially add a new challenge to the next ten years in our time frame.

Then finally, I mentioned the environment as a concern. We don't take a position at the NPC about global warming; that's not our role. But certainly during the course of our study it became increasing obvious, whatever your views about that, governments are going to have to take a more proactive role in terms of carbon management, maybe some kind of carbon constraints, technically, maybe some kind of economic measures to curb carbon emissions. The carbon issue is not going to go away, and it needs to be dealt with. So we looked at how that could be done; we came to some conclusions about what are intelligent, coherent ways of addressing the carbon issue.

Now, this is a very quick overview. In the time we've got this morning I don't have time to go through everything in depth. But I just want to give you flavor of some of the key data that we looked at. This is the range of outlooks for global oil supply and demand over the next 25 years, out to 2030. These come from the EIA, a U.S. government agency, which shows global oil demand rising from about 85 million barrels a day today, to about 120 million barrels a day by 2030. Those dots you see on the right hand side of the chart, those come out of a range of different studies. You can see that the range is from about 130 million barrels a day down to about 80 million barrels a day. There's a 50-million-barrel-a-day window of uncertainty, potentially, about how much oil we're going to need. That is huge. That's two-thirds of our current global oil supply, a huge range of uncertainty. This comes from the fact that people look at the data in a different way. You see at the bottom there the outlook from the Association for the Study of Peak Oil. These are the people that think subsurface resources really are a constraint, and we'll no longer be able to build the oil supply. So they basically say, Well, oil is not going to be there, the world has to adjust to a lower oil supply environment. The message is that all these outlets are legitimate, but they're looking at the same data in a different way. And there's a huge amount of uncertainty around the base data.

We surveyed international oil companies to look at what they thought. And aggregating their survey, they came to 107 million barrels a day in 2030. We don't know if they thought their economic growth was lower, or the supply was harder; but basically that's 10 million barrels a day below the public agencies, which is the size of a Saudi Arabia supply today, so hugely important in terms of the range of uncertainty on this. Now, if you look at the resource side, this shows the plentiful oil resources, but the concentration is really in the Middle East and the Caspian region. If you add unconventional resources, what we call the heavy oils, there's a lot more of these in the Western hemisphere, in places like North America and Venezuela. So developing things like oil sands, bitumens, oil shale will be beneficial from a regional supply perspective, and just adds more diversity to the mix. So we think this is a positive set of options.

If you look at oil trade, it’s shifting. Here we see what it was is in 2000. If you look at 2030, given where the conventional supply is, there's a potentially much greater set of supply points from the Caspian and the Middle East. This basically opens up the possibility that we're subject to global choke points like the Strait of Hormuz, the Strait of Malacca. This looks at our exposure to risk and security and resource nationalism. It's a similar story on gas, where global LNG trade will increase in magnitude, but will also tend to migrate to the Middle East and Southeast Asia, therefore increasing our exposure to these choke points.

Here we have what I mentioned earlier, the human resources challenge. We've recruited in the '60s and '70s, stopped recruiting in the '80s and '90s, and so basically half the U.S. workforce is eligible to retire in the next ten years. If you look at it globally, many other regions are in this situation. The only surplus regions in terms of geo-science and engineering are the Indian subcontinent and Latin America. So Western Europe, Russia and North America pretty much have this problem. We absolutely must replenish the workforce, and it's going to take time.

So I want to turn very quickly to five key strategies which we can use to address these. First of all, we're talking about moderating demand by increasing energy efficiency; in the vehicle fleet, in the building fleet, in the residential-commercial sector. There are many technologies available to do this, and they're relatively economic today, and relatively available. So how do we deploy, that's the question.

Secondly, expand and diversify U.S. energy supply. By that I mean, energy supply which is available within this region, be it unconventional oil, unconventional gas, coal, biofuels, potentially nuclear. How can we make the most of what we've got, in those areas.

Thirdly, strengthen global and U.S. energy security by going out and promoting consumer-producer dialog, by promoting fair trade and investment regimes, by promoting open investment, by making sure that that's in everybody's interest.

Fourthly, reinforcing our capabilities on the workforce side; our skill sets. On the data side, let's have a much more comprehensive, updated, common view of the oil and gas resource, energy resources generally, and figure out how to develop it so that governments and policy makers around the world have a common view of what is possible.

And finally, address carbon constraints. We need to do that in a way which encourages technical solutions like carbon capture and sequestration, but also economic responses via carbon tax or a carbon cap on trade scheme, something that gives the right signals to the industry, to consumers, to make the right choices about carbon.

All of these strategies are essential, there's no easy solution; you can't cherry-pick. I just want to finish off by looking at how this might play out, and take the example of oil. This is the United States’ oil demand, business as usual rising to about 27 million barrels a day of demand by 2030, and the traditional liquid fuels basically flattening off, slightly declining there. If you add unconventional oil, you get a little bit of growth in that curve. But there's still a big gap between domestic supply of liquid fuels, and our demand. Traditionally, that's all been based on imports, and import growth has been inexorable. Imports are not bad, but they expose you to different challenges and risks. So what we're saying is that we can eliminate, mitigate that wedge by working on the demand side, moderating demand growth through efficiency. In the vehicle fleet alone, if you deployed the currently available technologies on vehicle efficiency, by 2030 you can bring 4 or 5 million barrels a day out of the system and slightly smaller amounts by working on the building sector and the residential sector.

And then at the bottom, expanding and diversifying domestic resources, for example bringing biofuels into the system, where it makes economic sense, and probably that's more promoting second generation biofuels, cellulosic biofuels, rather than relying on corn-based biofuels, which drive up the price of corn, and cause conflict with the food chain.

Doing those things on the supply side and demand side reduces your risks in terms of exposure to global markets and global trade, and allows you to better pick the risks and challenges you can most readily and effectively mitigate. And that's our outlook, and that's our recommendation going forward. All of the five strategies must be addressed together. It's not just a U.S. problem. Western Europe and other major economies are facing the same issues. We must do this together through early action and sustained action over 20 years or so.

You can find out more about the study, the report, summary materials at the website and you can actually submit questions to the NPC through the website This email address is being protected from spambots. You need JavaScript enabled to view it. , and they will be answered by the experts. Thank you.

DR. MEDLOCK: Thank you, Andrew. Let’s hold our questions until the end, because I think some of the questions that you may ask might be cross-cutting for the panelists. It might be interesting to have them all address the questions at once. Our next speaker is Robert Harriss. He's the president of the Houston Advanced Research Center, also known by many around here as HARC. Bob actually received his Ph.D. in geochemistry from Rice University so he too is a Rice grad. Welcome back again. I know you've been around more often than not. We're very pleased to have him here. He holds adjunct appointments as well, as professor at the Department of Marine Sciences at Texas A&M University Galveston, and the College of Architecture and Planning at University of Colorado in Boulder.

His current personal research interests, just by way of background, include the design of disaster-resistant and resilient communities, applications of information technologies, gaming and new media. It's a lifelong learning about disaster preparedness and recovery, and the design of technology pathways to a future bio-economy. Bob was an ISI highly cited scientific author in 2003, and he participates in a variety of professional service activities, including contributing editor to Environment. He's on the editorial board of the Journal of Earth Science, Earth System Science Education, the National Science Foundation, the Geosciences Advisory Committee, the National Science Foundation he served as chair, the Geosciences Advisory Subcommittee on Education and Diversity, and the National Science Foundation GPRA Advisory Committee.

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ALTERNATIVE/NUCLEAR ENERGY AND GLOBAL CLIMATE
ROBERT HARISS

          Thank you very much, ladies and gentlemen. I'm honored to be here today as the guest of the Society. Being a Texan myself, I think the institution is incredibly important to our State, and to thinking deeply about the issues our State faces. Senator Cornyn, thank you very much for being here on a Saturday and working hard on benefitting our State; we appreciate that very much.

I'm going to take a little different track in the sense that I'm not going to disagree with my colleagues who've spoken, but I'm going to stretch the time horizon a little bit. I certainly believe that if we use the technologies that are available to us (fossil fuels, renewable energy, nuclear energy) we're going to be able to hold our own for a while. But we're going to see that in the long term, and by that I mean on century time scales, problems such as climate change and perhaps more importantly, sustainability; the need to raise human well-being on this planet will overcome our capability to supply the necessary energy at a low cost in a way that is resilient to the threats that Secretary Baker discussed in terms of natural disasters and in terms of being socially acceptable.

Energy is not just a technology issue. We talk about it all the time, especially those of us in science and engineering; we talk about the technology pathways, the cost benefit of technologies. Frankly it's every bit as much a social issue, a philosophical issue, a risk management issue, which is certainly a human decision-making issue, as it is a science and engineering challenge.

I would like to use a few pictures to give a visual impression of the challenge ahead, especially the challenge of making the planet sustainable for all, both people and nature. There's a fleet of satellites that fly, looking down at the earth, taking pictures of the lights. Now, it's a defense meteorological satellite series originally developed for military applications to look at intermittent lights, especially flashing of explosions or rockets taking off. It's now being applied to problems like identifying energy use, energy efficiency, disasters and how they affect infrastructure, for example, both in terms of the immediate recovery and reconstruction.

This is a picture of the Earth taken in the late 1990s. The white areas are, as you can see, those areas that are highly urbanized, based on electrical grids. These night lights show up very nicely and give us a pattern, essentially a footprint of the human society as it exists today on Planet Earth. There are also a lot of dark areas there; we have a lot of nature left. It's very important to keep in mind that we need to keep watching that balance between the areas that are illuminated and those that are not.

Here's a simulation that was done by some colleagues of mine and they took the night lights and they assumed in a simulation that we could instantaneously raise the 6 billion people on this planet to a quality of life and a set of energy services that would make them all live an American lifestyle. You can see a very dramatic difference here, as you would expect, and we can highlight those areas where the change is most dramatic. It reinforces what several previous speakers have discussed which is that there's a global challenge to provide energy, but it's especially pronounced in South and East Asia, some parts of Africa, South America, Mexico, the rapidly industrializing and developing nations.

This is a visual picture of where we need to go, and we need to think about the pathway there in terms of time; it's going to take a hundred, maybe 200 years, because we'll certainly not get there very quickly.

The global warming issue has been raised several times. It is a challenge for us to manage this issue; it can be managed and it will take not only science and engineering, but it will take effective policy and organizational implementation of policies. This is the driving force, many of you have seen and heard about the growing CO2 concentrations. This is over the last thousand years, with data taken from ice cores in the Arctic and Antarctic and from direct monitoring, which is the red line, which was initiated by a student at the University of California San Diego; his name was Charles Keeling, and in 1950 he wanted to measure carbon dioxide, his professors and the federal government, for whom he has funding to set up a station on Hawaii, said, "Sounds like a boondoggle to me. Go to Hawaii? Why do we want to measure carbon dioxide in Hawaii? It doesn't react; it's not a pollutant."

Well, he was very, very determined, and thank goodness. He's put together the most quantitative, highly verified data set that exists on Planet Earth. It's become the flag that all the global warming community looks to for verification that the science is totally necessary to back up the challenge that we face. Keeling is honored in our community.

Just a few comments on what we mean about the accumulation of carbon dioxide. You can think of the atmosphere like you think of a bathtub: it has inputs, there is carbon coming into the atmosphere, and it has outputs, things that are drawing carbon out of the atmosphere. Over many millions and in fact billions of years, the Earth adjusts itself, it's an adaptable system, so that the carbon being released from plants decaying and from upwelling of the ocean where gas is exchanged between the ocean and the atmosphere comes into balance with newly growing plants; everything is in a nice sort of balance.

What our use of carbon has done is to put the system out of adjustment, out of balance, and our challenge is to get it back into equilibrium. I'm convinced we can do that. We need to know that about 50 percent of the carbon dioxide that is emitted is still taken up by nature, by the oceans and the forests of the planet. That is very important because it means that our challenge is less so. Now, we are worried that the capacity of the ocean and the forest may not be sustained over very long time scales, but right now, it's a very important factor that diminishes the magnitude of our challenge.

Once we get that extra carbon dioxide in the atmosphere, it's like a blanket. We're putting it in faster than the ocean and the forest can take it out, so it accumulates and it's a blanket and it traps additional gases as do other things in the atmosphere such as water vapor, methane gas, nitrous oxide. There are many of these greenhouse gases on Planet Earth; on Venus, on Mars, the atmospheric trapping of heat is common.

What is the challenge then? There's a lot of technical work that's been done. It's resulted in a Nobel Peace Prize for former Vice President Gore and the IPCC, and Academy Award for PowerPoint. These Power Point slides won't, but "An Inconvenient Truth" did.

This is a diagram which, on the vertical axis, shows you the billions of tons of carbon that are going into the atmosphere. In the year 2000, we were putting in about seven billion tons, almost a ton per person per year, going into the atmosphere. The orange line that is going straight up is what will happen if we just continue business as usual. The amount of carbon that's being put in will continue to escalate, because demand for energy is escalating as we continue to grow and prosper. That's one of the consequences: we need more energy.

Now, society faces a challenge of deciding what the trade-offs are between the current types of energy we use, and the amount of carbon dioxide we feel comfortable allowing to accumulate. So all of those other curves going from the blue one at the top, which would allow our atmosphere to more than double its carbon dioxide concentration, to the ones that show the dip down in the bottom where we would take dramatic actions, very expensive actions, and draw down the atmosphere to almost its current concentration, have costs associated with them.

We can move very aggressively and fast but it will cost more. We can move more slowly and it may cost less and provide more time for a lot of innovation, but there's a risk. Most climate scientists feel that it's very important, if we're to avoid dangerous impacts of global warming, to stay behind 450 and 550 parts per million. That's the yellow line, that's the one that kind of peaks and then flattens out So they're saying, to be careful we should stay in that mid-range there and not feel that we have to take dramatic action, but also it is an urgent problem.

If we use all of the energy technologies that have been discussed in terms of fossil fuels, energy efficiency, implementing the nuclear technologies that we have today and have on the drawing board today, wind, solar, so forth, that is very significantly important to diminishing the rate of accumulation, but it does not stop the increase in carbon dioxide in the atmosphere as we look out over the next century. Based on some modeling by the Pacific Northwest Laboratories and the University of Maryland, and many others, there's a need for some really radical innovation in technologies if we're going to achieve a future where we're comfortable, that we're going to avoid that dangerous threat of global warming, or if we're going to fail humanity in not providing adequate energy for sustainable development.

We simply have a big challenge ahead of us. It's a challenge that needs to be initiated now, because if you look historically, we've learned that it takes on the order of 50 years to turn over major technology, or to introduce an innovation into our technology stream in the energy business. This is for both technical reasons and economic and social reasons. So we have a big gap, and we need to be very imaginative. Now that's a good thing, I believe, because it will inspire students. They like to take on really big challenges; we're all very idealistic. When I was at Rice, Sputnik was the reason that I was inspired to go to Rice and to get into my career.

I want to bring this back to Texas, because we can somehow, I think, typically relate to our own State better. If we implement very aggressively our renewable portfolio standard, in terms of renewables, if we implement energy efficiency very aggressively and successfully, CHP has combined heat and power and other technology in the energy-efficient area. If we do all of those things as well as they can be done over the next 20 years or so, we'll hold our own.

Our CO2 emissions will be pretty level. Well, that means they're still high in terms of their contribution to the growth of CO2 in the atmosphere, because we've got that tap wide open; we're closing it down about halfway, but the output is staying the same.

So we're still increasing CO2, just more slowly than we were before. So the message is, the pathway that we've discussed so far today is a holding pattern and will not do anything rather, it will only delay the potential consequences of environmental change and the fact that human beings will not have adequate energy.

Here's the problem we face that I call the social problem. There's no one of these technologies, and Andrew made this point very well, that will work; there's almost not any technology we can put on the table today that someone doesn't object to. Whether you're in Maine or you're in Texas, or California, you can pick your technology and somebody's going to say, "I don't want it where I can see it. I don't want it on my property. I don't want it next door."

This is why I think that quite often the institutional issues, the policy issues, the social acceptance issues are every bit as or more important than the technology. And I have seen this happen over and over. In the energy-efficiency arena, it's social acceptance. There's a lot of ways you can reduce energy consumption, but it requires a change in the habits of people who build houses. It requires a change in the architects; it requires a change in so many different users, and change is difficult, difficult for all of us.

We'll have to make the best of the existing suite of technologies, use every single one of them. It's not an either-or. But we're going to have to find some way to be more innovative. And that's the real challenge. We've got to really push forward. First thing we need to do is to improve our capability on the management and policy side. We have too many tensions that exist, and everything that is new and different tends to get wrapped up in sort of an endless battle. And we're not very effective at carrying out a dialog which is productive and can get past some of these. It's just the politics of energy is certainly a very big challenge, as is the politics of many international issues. This is one where I would say the technology and the engineering has gotten out front of our ability to negotiate and manage what future we really prefer, in terms of these various elements that I list here.

Unfortunately innovation is one of those areas which we talk about a lot. We've had some wonderful examples of innovation in the information technology issue area, but we have not been able to do the same sort of innovation in many other areas. Part of that is because some of these energy technologies are so upstream that they simply cannot go out and be expected to be supported by markets in time periods less than decades. So there's a need for national security and for environmental reasons, to make funding available to support the development of these truly innovative technologies for a much longer period than we're currently doing.

I think biofuels is a good example where we're really on the edge of having a major market failure. There is so much speculation about what may be an outcome ten or 15 years from now that all of the potential feedstocks that people are looking at, with the exception of cellulosic ethanol, are about to collapse. Biodiesel is in trouble. Companies have built refineries and now the feedstocks are all too expensive; the Houston Chronicle had a nice article on that.

So again we have a social and a political set of issues which are not in keeping with stimulating innovation. We have organizations that are hierarchical. In doing government service, I experienced this in NASA, where everything is in a box, the boxes compete with each other vigorously and we end up not making much progress in an integrated sense.

We need to deploy all of these energies, these energy technologies and they need to be properly integrated. And if every program official who's responsible for wind or geothermal is going to say, "Mine is better than hers," well, then we end up in a real situation where we make progress in the wrong way much too slowly.

So there's going to be a different way. It's going to be collective, as we've learned from information technology; it's going to be collaborative. A lot of the technologies in the future may essentially be put on the market at very low or no cost, and the services will be the profit, which is what we've learned from this wonderful information technology world we live in.

Here's an example of integrative technologies at the household level, where no one is putting photovoltaic on the roof or putting a wind tower in the neighborhood. Now none of these alone are going to do much to help. They're intermittent technologies; they will not work if you keep doing them as individual technologies. What you can do is package them, bundle them together because their intermittency often can be overcome because they're complementary. I did some work on the Rosebud Reservation with a community there, the Lakota Tribe. In the Dakotas when you put up a wind tower, your main energy production is when you have storm fronts moving through. It's very windy; it's very cloudy. During the summertime, when the winds diminish there's day after day of sun. So you can get some complementary systems in place. Then you have to have backup, which is going to be fossil-fuel driven.

We shouldn't think just of the technologies that produce the energy, but the entire end-to-end system. Our transmission system, our infrastructure for managing how we get energy from its source to its user, is really in deep trouble along with many other infrastructures. They are antiquated and they need to be upgraded in many ways. We now have the control technologies, the smart technologies, that if we put in the infrastructure, we can really make some enormous progress in being more efficient and more effective with the smart use of an integrated future technology system for producing energy that's low cost, resilient, and will serve not only the United States but the world.

Here's an example of some far out ideas. These are things that we'll see at the end of this century, but the one on top shows a bundling of some of these renewable energies: wind energy, photovoltaic arrays, and we're using that renewable to generate hydrogen; we're putting that hydrogen into various storage systems. Energy storage has got to be part of the package and it's got to be developed in an integrated way so that it moves along at the right pace to be there when we have the capability to generate a particular source that needs a storage system.

We also need to be able to have an efficient transmission system; the one we've got now is terribly inefficient. You lose far too much power along those lines, and Bucky Fuller suggested long ago a global electrical grid, a superconducting grid. That was one of the things that Rick Smalley, our wonderful Nobelist here at Rice University, thought was one of the most exciting ways to overcome the energy challenge and that nanotechnology might be the crucial component that we need to implement this superconducting electrical grid out over the next probably 50 to 100 years. In Bucky's imagination, and he was a very imaginative person in many ways, we could eventually connect the planet. That opens a lot of opportunities for using intermittent energies as the day and night occur.

Now, I hope we do those things. I hope we inspire our young people with enormous challenges, saying that we don't have the technology we need, you've got to innovate. We're going to provide the support for you to go to school and study policy and study institutions, organization and management, and technology, and how to put it all together. It's going to be very interdisciplinary. They will be excited by that. That's a whole new way of learning that most of the students coming into campuses today are ready for and they want to work in a collective and collaborative way. If it doesn't work, my colleagues in the field of global environmental change are looking at what they hope is not going to be necessary: climate engineering. The final frontier, I say, and I hope we don't get there. But there are a number of ways, with only preliminary studies, of modifying and protecting the Earth from moving outside of acceptable limits of climate change.

One of the things, this is one that is probably the most reasonable to explore further, is to be able to increase the amount of particulate material high up in the atmosphere which would either enhance cloud formation and reflect sunlight back, or would directly reflect the sunlight back from a highly reflective, very small particles that would stay in the atmosphere as volcanic dust does, for years at a time. Other people are talking about fertilizing the ocean and getting biology to pull the carbon out. There are many innovative ways of carbon capture and storage in addition to those that we'll be doing in the near term, which involve very deep injection of liquid carbon dioxide into the sea.

Now, all of these have consequences. The challenge now, so that we're properly prepared if unfortunately these are needed, is to start a serious investigation of these and truly understand not just the technical tradeoffs, but the risks that are associated with each of these, and what the appropriate processes are to have our political leaders get the information and take society's values and make judgments on whether these would ever be implemented. We should realize that this is something important, it is a major issue to be thinking about.

Finally, I wanted to summarize by saying I think there is an agenda. I don't think we can implement it well with the current structures we have in place. I think we need to consider the possibility of a whole new organizational framework for looking at the future of energy innovation. This is being studied in Congress. I hope there will be some action, because simply reorganizing departments or bringing departments together will not do the job. I'm confident of that, and I think we need to think of a whole new way.

DARPA is often mentioned, and in fact DARPA does have some aspects that would fit into this more innovative approach. But it's certainly not a one-on-one mapping. I'm not an expert on how you would design this, but I hope those who are experts in organizational design and management strategies will really work hard on this.

I think the thing to do is to obviously start with the things we know best, and I wanted to comment on carbon capture and storage. Scott Tinker, who's the director of the Bureau of Economic Geology at the University of Texas, was here at the Greater Houston Partnership talking about their carbon capture and storage program. He made the point that in the Gulf Coast, where we have taken out a lot of oil and gas out of the ground, there is the existing infrastructure and the layer of materials from which all of that oil and gas was taken out. That is a completely reasonable place to be putting CO2 back into the ground. The industry knows how to do it.

He told me that there is enough capacity in the Gulf Coast sediments off of Texas and Louisiana to take in the amount of carbon dioxide, the total amount of carbon dioxide that will be produced in the next 100 years in the United States of America. Now, that may be a little bit of an exaggeration. But even if it was half as much, that helps extending fossil fuels out by giving us time to make possible this innovation that we need to take care of.

I think carbon capture and storage is important, we should not delay much longer and we shouldn't overregulated it. We can learn by doing. That's our best way forward with something like carbon capture and storage, where we have vast expertise in this field.

Renewables. I've tried to make the point that we need to integrate them; let's quit putting individual wind turbines here and photovoltaics there. Let’s bundle them together and put them on a smart grid. That will totally eliminate the problem of intermittent production once we get all of that put together.

I haven't said much about nuclear; I'm not at all an expert in nuclear. Certainly there are next-generation nuclear plants on the drawing board that will deal with the most important problem of all, and that is the proliferation of nuclear weapons and the production of nuclear materials which is a hugely important challenge. We have to, if we're going to go forward with nuclear, make it less likely that those materials will get out to people who have diabolical reasons for wanting them.

I will finish by saying that this climate engineering, and perhaps other radical technologies that are a century or two away, solar power, satellites, are things that we should explore. We should open that door, but it should be a very inter-disciplinary discussion. Not just a science and technology discussion. It's very important to think about those in the context of our vision for what we want society to be like in the future.

We have a very serious situation with far too little funding for these sorts of endeavors. I know all scientists, and most people who are in academia, are always crying the blues about funding. I think this tells the story here, that we have seen declining and/or flat funding in the energy R&D area for a very long time in this country in real dollar terms. And yet it is fundamental to the future of our nation and Planet Earth. We get a wonderful benefit from the private industry in this sector, but again their investment in R&D also has been flat, and has not been increasing.

I think it's urgent that we find the resources to take care of the problem, which is the platform that everything we do depends on. The same is true in climate change science, we desperately need to put into effect a monitoring system so that we know what the feedbacks is and how things are operating, and that gives us a sense of how to pace this program of innovation.

DR. MEDLOCK: Our last speaker on the panel, last but not least, will address some issues that I think everybody has raised regarding coal as a fuel and its potential for the future. Corbin Robertson is the chairman of Quintana Minerals Corporation. He is a member of the board of directors. He also serves as the CEO and chairman of the board of GP Natural Resource Partners, which is the general partner of Natural Resource Partners, since October '02. The rest of his bio is actually available for you to look at, and with that, I'll turn the floor over to Corbin.

• • •
COAL
CORBIN J. ROBERTSON, JR

         Well, thank you. Let me first say that I'm here because of Isabel Wilson, and she and Wally have been my friends and neighbors for years. Whatever she's for, I'm for. Isabel is someone that I hold in the same regard as I hold my mother. That's the highest regard.

I'm honored to be on the panel. I'm not an academician; I'm an investor in the energy space, and have been very active in the oil and gas, and coal business throughout the generations. We have both public and private partnerships that own the coal. If you own Natural Resource Partners’ publicly traded stock, you are my partner. Some of you are partners in Quintana Energy Partners, which is a private equity partnership that has invested in energy and space. We've been active as investors for my entire life.

How did we become large coal owners? Back in 1969 my Dad decided that we ought to invest in the coal business because as chairman of the Texas Oil and Gas Association he recognized that the rising imports would be a threat. In 1973, when he went to the members of Congress that he had been talking to about our growing dependence upon foreign oil and reminded them of his warnings. They said, "Well, we're not going to blame this on us; we're going to blame this on you."

 

They've done a rather remarkable job of tainting the industry ever since; but it's been pointed out often, we are dependent on foreign oil. Our dependency grows. We are dependent now on foreign natural gas; our dependency grows. Our declining gas fields here in the United States have caused our foreign imports from Canada to have grown from 3 percent to 17 percent. Canadian imports have basically stabilized, and will probably decline as its growing need for using natural gas to process its tar sands increases; we will be further dependent upon LNG imports.

Looking at our resources here in the United States, coal is what we have. This is a very important resource to us. In 1969 I graduated from college and the first field trip I took was to go buy a coal resource called the Priest property near Louisa, Kentucky. Let me give you a little color of the coal fields; most of you are here from Texas and haven't had the good fun of tramping around Appalachia. We met an offset operator to the Priest property, a guy named Chuck Hovater, who mined the neighboring property. He was an absolute outlaw. If you had to say "reclamation," he wouldn't know what that was. But we went to him, and he was sitting there at his desk, with a double-barreled shotgun, and I looked at it ‑ I've been in several offices around Houston and some in West Texas as well, but I hadn't seen anybody with a shotgun immediately available to them.

So I asked him, "Well, sir is that loaded?" He said, "Why, yes. If it wasn't loaded it would need to be." So they operated up in Appalachia a little bit differently than what I'd experienced here in the oil patch, and so I took note of that, and we opened up our first coal mine. Now that was my first ex-brother-in-law that opened up the coal mine and unfortunately he opened it up in a place that had some Civil War works. We went back and we drilled it and found someplace that had been worked many, many years ago and we opened up the mine again, and we had a really lucky break.

The miners went out on strike after 90 days. Maybe you said, "Well, gee. Why was that a lucky break?" Well, we were mining the coal for $7 per ton and we were selling it for $5.80. We didn't think we could make it up by volume, so we took the equipment and we contributed to a venture that we had with Bill Mullen, who still remains as my partner in the coal business, called the Wolverine Venture; he was from Michigan so he named it after those mighty Wolverines.

We ended up making a great success out of that venture with equipment. And the Priest property that we owned, we leased it to Dick Hooper and Harry Hale Rainier. Dick knew how to sell coal; Harry Hale had the equipment to mine it. And they made a great success out of the Priest property, so we decided, being from Texas, it may be better to be the royalty owner than the operator.

That thought has stood us very well. In '86 when the whole world fell apart here in the energy sector, we went out and bought CSX Minerals, which was a very strong position in Eastern Coal. CSX was the amalgamation of 80 railroads. And each one of these railroads would buy a piece of coal, and they'd put in a tipple and a little spur to it. So across all those railroads, they accumulated a very important property and had a lot of good metallurgical coal, of course, in addition to the steam coal. And it gave us a very important place in the Eastern markets.

In '92 a friend named Ralph Bailey who still serves with me on the National Petroleum Council, was trying to put by the Western Coal reserves that had been a federal land grant for building the Great Northern Railroad. The company is now Burlington-Northern. They had spun the assets off to Burlington Resources. We were fortunate enough to make a deal with Ralph, and we went forward and bought that property. That's five million mineral acres that has about 21 billion tons of coal in five Western States.

We have coal properties in 14 states; it's about 22 billion tons of coal that we control. That's probably 8 percent of the coal in the United States. And we are checker-boarded in these Western properties with the federal government, the GNP coal reserves that you see on the map, represent ownership of every other section. Whatever coal we have, the Feds have coal in that same proportion.

These coal reserves for the 20 billion tons that are measured, are within 180 feet of the Earth's surface, so they can be easily strip-mined at a very low cost. Senator, it's the largest stranded asset, low-cost energy asset in America. The reason it's stranded is most of it is in lignite, and that lignite can't be shipped because it combusts. So we are looking at ways right now to utilize this important energy resource. We're working with the State of North Dakota. They've funded half the development cost of a project to gassify this coal and put it in the Northern Border pipeline, which is about 15 miles from our site in North Dakota.

And I'll get more into that later, but the resources that we have in the United States are really quite important. We are a significant player and an important participant in the industry. Great Northern Properties leases out coal; our Natural Resources Partner leases out coal to coal producers. The coal operators that mine on our property produce 6 percent of the coal in the United States from our property; these same operators produce 70 percent of the coal in the United States in total. So we have a very interesting place within the coal industry, and have a good understanding of what's going on across the board.

Why is coal important? What's our place in the energy profile for the U.S.? The U.S. fossil fuel reserves: 94 percent of our BTUs are coal, three percent oil, three percent natural gas. The U.S. has 270 billion tons of coal. Our annual production was 1.2 billion tons last year, so it is a very important stake, about 23 percent of our overall energy comes from coal, or about half of our electricity.

 Coal is used not only for making electricity but also for making steel, so it's a very important component to the steel industry. Oil at $60 a barrel is worth $10 on a BTU basis for natural gas, is worth $160 a ton of coal, on an equivalency BTU basis. Coal sells for $50 a ton versus oil now which is $100 a ton, or not quite, $90 probably today, a barrel. And natural gas is probably $7 or $8. So it is cheap BTUs relative to oil and gas, and it's domestic. So as you address Secretary Baker's concerns about domestic supplies, it is an asset that we need to work.

Coal mines have been around forever. What is the controversy? It is a major source of fuel, and it does pollute. The cost of electricity is very low if you would compare the cost of electricity in states that are very dependent on coal at five cents per kilowatt versus the non-coal states which are 19 cents per kilowatt. It's a significant savings.

So how can we use coal in a way that is going to be environmentally sensitive? Many of us are trying to address this issue. You may have seen the "Coal is filthy" ads, and what's wrong with coal's place within our energy mix. Aubrey McClendon at Chesapeake was the one that who was paying for the ads. Yes, there was some coalition that was against it, and of course many environmentalists like to bash coal. But the guy that was paying for the ads and has made a national campaign against coal is the founder and CEO of Chesapeake.

This is a gas versus coal competition. Now coal puts out CO2 when you burn it; it probably puts out anywhere between twice as much to four times as much CO2 as burning natural gas. So the idea that you're going to burn natural gas instead of coal and you're not going to have any CO2 is not very thoughtful.

But the truth confirmed by the study that has been discussed here by Mr. Slaughter, is that we need all of these resources to make our economy run. The facts are that oil produced about 40 percent of the CO2 emitted, 40 percent of the CO2 emitted gas and combustible renewables account for the other 20 percent of the CO2. So two-thirds of that comes from gas and then the other third comes from combustible renewables.

 Oil, gas and coal account for 91 percent of our overall energy. Nukes are 6.5 percent, hydros are 2.2 percent, and then the renewables are less than 1 percent, when you consider the whole energy complex. So the facts are that hydrocarbons are going to rule our economy.

The CO2 emissions also come from deforestation. The forest absorbs CO2. The deforestations in Brazil, Indonesia and other places in the world are 20 to 25 percent of the problem. Animals produce CO2 from cow manure, etc. CO2 emissions from animals are 10 percent of the problem. If you really want to do something about it, don't exhale.

CO2 comes from natural causes like volcanoes. Dr. Hugh Ross and Dr. Jeffry Zweerink studied these ice sediments that dated back 4½ million years. The Earth's been here for over four billion years so their studies are significant. They found that every hundred thousand years there would be a cycle: there would be cold for 90,000 of those years, and then for 10,000 it would warm up. And they speculated that the causes of those changes were tectonic activity, erosion, the change in the Earth's biomass, and sunspots.

We are currently putting a lot of CO2 in the atmosphere. Should we do something about it? Yes. I absolutely think it's something that we ought to be trying to address. As you would think about it, coal is being seriously consumed in places like China. Let's back up here and say, "Well, gee, what are we going to do about the Chinese building all these coal-fired plants?" They're building a coal-fired plant a week. And if you've been over there you recognize that people are walking around with masks on to protect themselves from the pollution.

Look at Pittsburgh 50 years ago. Just as polluted as Beijing. But China has a developing economy, and they're doing what they can afford. After they've brought their people up from a subsistence level, they may do more to clean up the environment, as has America.

 Wally, I don't know if you remember in the 1960s when the Ship Channel caught on fire. Houston's Ship Channel caught on fire in the '60s. We've done quite a bit to clean up America in the last 50 years, guys, and we can afford to. The worst pollution I've seen in the world is in places like Russia and China that have very poor economies and they can't afford it. Everybody wants to live in a better environment, including the Chinese and the Russians; but if they can't afford it, they're going to go for feeding themselves and raising their standard of living and having jobs first.

The point is, from a geopolitical standpoint, the U.S. uses 28 barrels of oil per capita, per year; the Chinese are at 1.7 barrel of oil. So, sinners, it's going to be hard to poke them in the chest and say, "Hey, guys, you all go clean up your act." The Indians are less than a barrel of oil per capita. Frankly, both of these economies have got educated people and a very strong desire to grow their economies and live like we do. God bless the Internet. The worldwide economy is all linked together, and they all know what we have and want it.

Secretary Don Evans and I were over in China last June. We went out to see this family that lives in a little mud hut in a village outside Xian. After an hour and a half drive from Xian, we were in a small village where the Chinese are living down at the subsistence level. Don brought them a computer. He's been out to see the family four times. Their 2 sons are blind ‑ he's been trying to take care of them.

The first time he went to China, the Premier said, "Go west and see what China's all about." And he did that, and sort of adopted these two kids. Now he's given them computers, so they can study on these computers and do their work, because they're blind. It's a wonderful thing. But their computer are in this little mud hut in the middle of Nowhere, China. And the whole world is connected, and they see what we've got, and I do agree with the one of the speakers that said, "There's no stopping them." And so the demand for energy is going to continue to race, and the supplies are going to be competitive for the rest of the world.

Now, Senator, wind credits run out in 2008. You ought to renew them. The truth is you can't buy wind turbines for the generation of wind power. They're all taken between now and 2008. The tax credits for coal conversion are unfunded. So they've authorized in the energy bill a couple billion dollars' worth of tax credits. But so far, they're unfunded. The tax deductions that come with them are unfunded.

So as a developer of a billion-and-a-half dollar plant, we don't have any assurance that we get tax credits for it, even though there's a bill that was passed that said you would, and the DOE loans that may be available aren't funded, we’ve applied for one. And so if we're going to make these conversions, it's going to take a lot more will; it's going to take a lot more effort and funding.

Let me talk a little bit more about sequestering CO2 while we're on that subject. The Department of Energy gave me a study that said a thousand gigatons can be stored in deep saline formations, 900 gigatons can be stored in depleted oil and gas reserves. They're currently studying how much could be stored in coal seams that exist. They think it's going to be a place that they can store CO2. They're actually drilling and trying to do sequestration on some projects or some coal that we have in West Virginia. So that's being studied, but it hasn't been demonstrated.

Well, how big is CO2 sequestered storage? The CO2 that would be sequestered if you got all the CO2 that we're emitting here in the United States, would fill up Lake Erie by the year 2050. If you said, "What would you need between now and 2100," you'd need 5 percent of the land mass in the United States to be able to find the geological place to store it. So the size of the problem, how many tons of CO2 are coming from all sources, is a very daunting task.

What can we do about it? We can build plants. I'm going to tell you, I think investing in technology is going to be very important. The Dakota gasification plant was built in the Jimmy Carter era . He came out with an $88 billion subsidy back when oil was $40 in 1981. Some of you will remember that. One plant got built and is still operating out of that whole program. They quickly scrapped the Carter Program for Alternate Fuels when the price of oil went down and so nobody invested in it.

The Dakota Gasification plant basically is sequestering CO2 in the Weyburn Field in Canada. It is producing gas that's stuck in a pipeline, and its nominal cost is probably around $3.50 per MCF; probably what it costs to produce the gas out of the coal field.

This is a look-alike to what we would be undertaking. They're using the Lurgi technology; we would be using British Gas Lurgi technology. British Gas spent about $500 million on the bottoms so the plant actually slags, the difficult materials that are hazardous wastes come off the bottom of Lurgi. Lurgi is being used around the world, in 70 percent of the gasification that's being done today in the world. Lurgi is the most common technology that's being used.

In any case, this is the technology that's used here. British Gas basically has found a way to slag the bottoms of it so that you could even use it for road-building material. I went to Germany and saw where they actually have a plant of commercial scale being operated, and it's working fine.

So that's the technology that we would be using. It also works on lignite. Shell has a technology that we've studied that works on higher ranked coals. Probably as a sweet spot it would be the Powder River coals with their sub-bituminous coals. Conoco-Phillips has a process that probably works well with pet coke. GE's process works best with bituminous coal. Their process which was purchases from Texaco. They're actually in China; they still call it the Texaco process. China has three coal liquid plants that are being developed. One's almost ready for startup. And they must have another 20 of them on the drawing boards.

So we are talking about gasifying coal and liquefying coal in the United States. They are doing it in China, they are doing it in South Africa. They are doing it in Australia. So in terms of where is the leadership for this new development of technology, it's not here in the States; it's going on around the world. The world is moving forward on these initiatives and is going to be demonstrating the Shell technology in a couple places.

What we can do about our energy needs will depend upon technology. Senator John Dingell's bill to tax carbons would dampen consumption. I know politically it was like committing suicide, but the cap in trade system that they put in Kyoto has been totally ineffective. The CO2 emissions have gone up from all the countries that are in the cap and trade system. Seven billion worth of trades changed hands in 2007 but so far it's not had any impact upon how much carbon is being emitted.

When you look at the globe, cap and trade is not a big deal. Although politically cap and trade is probably what the U.S. is going to do about CO2 emissions, it's not going to have an impact on the Earth to do that. If you would actually just tax it and say, "It's going to cost you more to use energy," your constituents probably wouldn't like it, but it would dampen consumption.

The way to reduce CO2 emissions in the atmosphere is to dampen consumption. John Dingell is not my closest political ally, but I thought it was courageous coming from an automobile state, to recommend a simple tax on CO2 emissions. I respect John Dingell’s integrity. He’s honest and a good man. I don't know what the chances of that bill passing are; I'd say it's probably slim and none.

What is the industry doing? There are many different ideas that we're looking at. A technology that we are considering would blow some stuff in the smokestack and get the CO2 out of emissions. Taking CO2 out of existing smokestacks does not have economically viable technologies. But people are working on it. Blowing some stuff in the boiler; there are ways to take stuff out, mercury and some of the sox and nox. These haven't been commercially demonstrated but are being tested.

There's a lot of hope and promise. When is this hope and promise going to be real? I'm going to tell you; it's 50 years before you can commercially bring real solutions to the market that will be widely accepted. So the thought that we're going to do something the next legislative session is not very accurate in terms of what our hopes and dreams could be. Could we do this between now and 2030? Well, we can make a good dent in the effort. But in terms of actually turning around the whole world and economy that's based on burning hydrocarbons is going to be a daunting task.

Let me leave you with one thought for the future. Popular Mechanics came out with the cost to drive from New York to California. Using gasoline it was going to cost $212. Using E-85 it was going to cost $225. Using natural gas to make E-85 it was going to cost $619. Using biodiesel it was going to take $231. Using compressed natural gas where you just compress the natural gas its own self is $110. And using one ton of coal to make electricity and then run off electricity would be $60.

Now, with this gasification of coal, let me leave you with a thought. Three gas streams come off coal gasification. A syn-gas stream comes off, a CO2 stream comes off that you can sequester like they did in this picture in North Dakota and a hydrogen stream comes off. Gasifying coal is going to lead to a hydrogen economy. It's a cheap source of hydrogen if you've got a use for the CO2 like doing enhanced oil recovery, which we will do in the Williston Basin. And the use of the CO2 in the syn-gas, you can make electricity or you can convert it through a methanization process into natural gas, put it in a pipeline and use it for whatever purposes those are.

           And as you look towards the future, I think the hydrogen economy, and not burning hydrocarbons, is something that is a meaningful hope. But you're talking about 50 years before you can replace combustion engines and go to something of that magnitude; and hopefully my kids and grandkids will be around to see that sort of thing happen. Thank you.

DR. MEDLOCK:We have about ten minutes to field some questions from the audience.

DISCUSSION:

AUDIENCE:I have a question for Mr. Slaughter. I'm Van Robinson, retired from a career in petroleum. In 2003, Shell estimated peak oil wouldn't occur until 2025 or later. But in contrast to that we have a cottage industry of retired geologists like Campbell; people like Boone Pickens and Mr. Matthew Simmons all saying that peak oil has already occurred. So in light of all of these studies that you've referenced in your talk, what's your own estimate of when peak oil will occur?

MR. SLAUGHTER: Well, the problem is, the underlying data is quite uncertain. The world relies on resource estimates, mainly produced by organizations like the U.S. Geological Survey. Their latest world estimate was published in the year 2000, based on 1995 data. And they categorized this as a P-50 resource, which is a mean expected resource; a P-90 resource, which is pessimistic; 90 percent chance that the resource would be greater than that; or a P-10 resource, a 10 percent chance the resource would be greater. We're looking at aging data, and people can sample into that data different levels according to their degree of confidence.

What we assessed in the study was that the degree of uncertainty around that data was very wide, and governments, companies, industry actors need a more up to date, better assessment of energy resources. Basically we don't know when peak oil is going to occur; we don't know the impact of it, we don't know if it's really a meaningful concept. What we said is that we need to update on a more inclusive, more systematic, more timely basis, the underlying data assessments.

AUDIENCE:I'm Tom Barrow from Houston, and I have a multiple set of questions. Is anybody else concerned about the Russians' attempt to get all of the Arctic Ocean? My second question, has anybody really thought through the economics of enforcing or causing the private sector to use solar panels to reduce the amount of electricity needs that the private sector currently is using? Thank you.

PANELIST: Well, there is certainly a lot of interest in the future of the Arctic, and the Canadians are positioning themselves to be very aggressive about territory in the Arctic, as are many Scandinavian countries. I think the Russians will have plenty to deal with when we come to an ice-free Arctic, which will be part of the global warming that we see. This past summer was the first time there's been a clear pathway through, and people are certainly preparing to take advantage of that.

That raises a point about global warming that is important to keep in mind. There will be winners and losers. There will be some people who will have benefits, and there will be some people who will be severely impacted. So it's not a clear cut issue where the risks are equally distributed.

And the Arctic is a good example of that. One other thing about the Arctic is that it may be one of the major reservoirs for what are called methane clathrates; it's a form of natural gas that is in an ice form. That could be a very important way of moving towards a hydrogen economy if we can figure out a way to harvest without damaging the environment, the methane hydrate deposits.

AUDIENCE:Will McCorkindale. I have a rather tough question for Mr. Robertson, being someone who produces and looks for energy. In an ideal world, a complex question: What should the United States government do to address some of the problems that you've brought up, and some of the other panelists. Is there a simplified formula for what you might recommend?

MR. ROBERTSON:Well, as I said, John Dingle has a bill to tax consumption. I honestly think that would make a difference. In Europe and Asia, the price of gasoline is taxed very heavily. And I do think that we ought to have CAFÉ standards, and I think that is something that is going to happen, and it should apply to suburban areas as well.

But I think that as government policy, those taxes could be used to help balance the budget but they also could invest in some of these new technologies in a significant way. It shouldn't all come from government subsidy, though. The government ought to be asking free enterprise to make the right decisions, in terms of demonstrating some of these plans; each of these technologies should be demonstrated. Weather the Shell technology is demonstrated in China, or in the United States, after it's been demonstrated, I think you can understand the commercial application of it.

So the government doesn't have to incent all plants everywhere, but should certainly give significant tax breaks. We've had a foreign company, I won't say who, come to us about investing in building an 80,000 barrel a day coal to liquids plant in Montana. That's about $10 billion. So it's a serious undertaking; a billion and a half dollars for the gasification effort we're doing in North Dakota is a serious undertaking. What do you do to encourage the capital markets, and what kind of price support could you have on a coal to liquids plant? At $42 the plant would be marginally economic. At $100, it's wildly economic.

But of course in South Africa, where they didn't have the ability to import oil to meet their gasoline demand, they've switched to that technology 25 or 30 years ago and it's actually driven their economy. If we pretended like we were South Africa and said, "What do we have to do to defend ourselves?" There is a huge coal resource in the United States that's available for further development.

Look at the impact that would have in North Dakota, Montana and some of these other places; serious money would need to be invested in infrastructures and communities and schools and the things that would happen.

Just as a side note, we studied wind power out there on the Great Plains, and if you asked how much wind power can you mix into the electrical generation grid and still maintain some economics you can only take about 8 percent because the wind blows intermittently, and you can't justify the billions of dollars of investment in transmission on 20 percent utilization of that resource. It has to be underlain with some sort of coal-fired or gas-fired or nuclear-fired or some other fired kind of capacity. There's an enormous resource there of BTUs. What do the coal resources we have add up into BTUs? It's 150 percent of the whole U.S. natural gas reserve.

So there are some very significant resources that the United States has not tapped that it could tap, in terms of government policy encouraging private enterprise to develop those in a thoughtful way. Conjunction with the states and the local governments, I think is one of those initiatives. It's not the only one, as has been pointed out by Andrew's studies, everything is needed.

AUDIENCE:I'm John Gullet from Abilene, and my question is that earlier we heard from Professor Jaffe that we're staring in the face of a need, worldwide, for massive amounts of energy. My question is, to what source, carbon or non-carbon, probably not taking into account the cost of extraction, because they would be technologically bound and probably in evolution, but to what source of energy, carbon or non-carbon, should we be looking to supply that much energy?

DR. HARISS:Well, I'll take a first shot at that. I think what we've all been pretty consistent in saying is that we need the whole array of technologies we're aware of today. But that's not sufficient, so my proposal was o explore other opportunities that are going to be 50 to 100 years out, and that it's not just the individual technologies; it's being much smarter about putting them together and integrating them. There is an initiative that EPRI, the Electric Power Research Institute, is leading on behalf of the utility industry, to develop these smart tools that will help with some of the intermittency problems in terms of finding complementary ways of having them turn into a reliable source.

So it's two things: it's pushing the frontier of technology, bringing the best and brightest in to work on that, both in the science area and in the policy area, and it's also integrating, end-to-end integration and thinking holistically. But we have a whole society that has been really thinking about individual components, not how you put them together, but how you make the most from your particular endeavor, whether it be coal, oil or wind. They don't talk to each other enough, and everybody's very busy, so how do we make that leap where we begin to become more integrative and smart about using the whole suite?

We can achieve that energy level within this century; I'm convinced of that, if we have best use of what we've got and some dramatic innovation.

Audience: But I don't think you can overlook the political resistance to some of these forms of energy. I mean, there is political resistance to nuclear energy. Whether it's rational or not, is beside the point, the system reacts to it.

There's political resistance to coal; there's also a lot of political pressure for coal. But I just don't think you can take politics out of the mix on any of these issues. There's political resistance to oil, to drilling off the coast of Florida or off the East Coast of the United States. There is just political resistance to those things. Energy touches everybody, and anything that touches everybody touches politics.

Panelist: Just to wrap up, I think that in the long term, broadening the portfolio of energy choices we have makes sense, and that means working in a sustained way on maintaining the current energy choices, making them environmentally viable over the long term, but then bringing in new choices as we go forward with advances in technology, social acceptance and ease of deliverability.

The economics will follow as you get to scale, but I think broadening the choices we have, given the increasing needs of energy in the world just makes a lot of sense. But it's very hard work and very tough. No easy answers immediately.

DR. MEDLOCK:With that, I'll leave you with one final note. We're thinking about investments in the future, thinking about securing our future, not only economically but our energy future, because it's vital for that security. One of the lessons we all learned in Investment 101 is that a diversified portfolio is the best way forward. So diversification is key and I think each one of the speakers today has really hit on that point.