PSTX Seal

Membership Discussion

KENNETH MEDLOCK, Moderator

MRS. WILSON: Hello. Thank you. Ken Medlock is going to give us a recap and entertain questions. We may get out a little earlier than we have on the schedule, I expect we can. But before I do that, I want to give my sincere thanks to Terry Killen, who is the new staff person for the Philosophical Society of Texas. She has been wonderful, and I want her to stand up so you will all know who this wonderful woman is. Without her, I couldn't have muddled through. And I deeply appreciate it. Thank you. Ken, would you?

DR. MEDLOCK: It is a pleasure to be here this morning. Yesterday was certainly full of very interesting and topical discussion. As you know, at the Baker Institute we do a lot of research that is geared towards energy markets. I am a Fellow in Energy Studies. I work very closely with Amy Jaffe, whom you all heard speak Friday evening. She is really a specialist in geopolitics, and how geopolitics affects what happens in global energy markets. I, on the other hand, I am an economist. I typically do a lot of the modeling that is in the background, that you don't necessarily see, all of the technical aspects of.

Having said that, I guess it is important for you to know what I actually model. So I will give you a little hint at that. It really has to do with how different fuel choices affect outcomes, ultimately. I have done a lot of modeling of natural gas markets. How events in natural gas markets will affect power markets. And of course, when you get into power markets, you have to think about nuclear and coal and solar and wind and things of that nature.

I’ve also done a bit of modeling of crude product markets. Looking at gasoline prices and what actually drives the price of gasoline in this country and elsewhere. What sort of long run and short run factors are important there. And of course, a critical element in understanding what drives prices ultimately is geopolitics. That is what makes our team so successful, I think, we really do feed off each other very nicely.

A common theme in the morning yesterday was that of diversification. I made the comment at the end of the panel yesterday that what we should have taken away from that was a lesson that we all learned in investment 101: diversification. A diversified portfolio is the key way to making sure that your investments are sound and successful. Over and over again, unfortunately, we learn the lesson that if we put all of our eggs in one basket, we really do expose ourselves to a great deal of risk. We can end up not only with our personal wealth, but in the aggregate, feeling a lot of pain if things go south in one particular area. So I hope that is what everybody took away from that.

There is a lot of movement in the country away from coal. I will just tell you up front, I think that is unfortunate because the issue with coal is a technical one. It is not an economic one. And unfortunately, politics is really muddying the picture. To give you an idea of why I think that, I guess it was Corbin at the end of the panel in the morning yesterday who actually made the comment that we use a lot of coal, because that is what we have. Well, if you go around the world, you will see that is the case in any country. If a country has a particular endowment of a particular fuel resource, that is what they use first, because it is close, it is cheap, and they develop an expertise in using it. Well, about 51 percent of our electricity generation comes from coal. And to give you an idea why, we hold in this country 27 percent of the world's coal reserves. That is an absolutely staggering figure.

To put it in perspective, Saudi Arabia holds about 12 percent of the world's crude oil reserves. So our presence in the coal market dwarfs that of Saudi Arabia's in the oil market. Twenty-seven percent of the world's coal reserves is a massive number. To put another number to that, China is actually third in the pecking order, and they have about 12 percent of the world's coal reserves.

We hear a lot about growth in coal consumption in China. We are certainly concerned about it because anybody who has been to Shanghai, or Beijing or really any of the cities on the east coast where there is a lot of very robust economic development knows that there are days when you look up, it is actually clear, but the sun looks like a hazy spot in the sky. Pollution is a very real concern.

Having said that, there are things that we can do to deal with it. I am sure all of you have seen in history books, the pictures of the Industrial Revolution and the big smokestacks blowing black smoke into the sky. Well, a lot of that was coal consumption for the production of steel and other heavy industry. As personal wealth grew, people began to change their priorities, a roof over your head, food on your table, clothes on your back, those were sort of givens at some point when we achieve a certain level of personal wealth. It is important to understand, all the way through that process of wealth, growth in personal wealth, caring about the air we breathe comes last. There are just other things that we care more about. And not until those things are achieved, do we begin to focus on those other aspects of our life.

Unfortunately in countries like China and India, those other aspects of our lives, like the air we breathe, are really farther down on the pecking order. So it is going to be very difficult to bring those developing economies, that are seeing a growth in personal wealth, it is going to be difficult to bring those countries into the fold when we think about things as broad and global as the Kyoto Protocol.

When the West in general went through our Industrial Revolution and growth in personal wealth, we didn't have anybody to learn from. There was nobody who had already gone through that process prior to us. But when you look at the case of China and India, they do have that. They have us. And whether or not they want to approach us to help with their pollution problems is really not the issue. There are certain things that we can bring to the table in policy discussions and in the political debate that can actually act as a bargaining chip. For example, the transfer of technology to help improve local pollution.

And that is really what we are talking about first and foremost, is local pollution. It is SOX and NOX and particulate matters. It is not CO2. Because that is the first thing we focus on. That is why there are scrubbers in these big industrial smokestacks that act to remove the sulfur dioxides and the nitrous oxides and the things that cause an immediate health issue. So when we think about global economic growth, and global economic progress, we really have to be thinking about the globe. Not what any one individual region does.

And something like global warming, which was discussed yesterday as well, really is a global problem. We have to come to the table when we want to deal with a problem that is global in nature like that, and be willing to use whatever means we have as long as they are peaceful of course, to promote a reduction in CO2 emissions, if that is indeed our goal. If that means when we go to the table with a country like China or India, and they have a lot of coal, they are going to use coal because that is what is cheapest. That is what is right there in their back yard. Then we should be willing to promote the sharing of technologies that enable them to use that fuel source, which is the cheapest fuel source they have at their disposal in a clean and an environmentally friendly manner.

We all benefit when a country like China grows. We all benefit when a country like India grows. Not only do we benefit economically, because they actually bring to the table a whole wealth of goods and services and expertise that just facilitates economic development globally, not just within those countries. But we also benefit because one of the key and probably most successful things that we have at our disposal when it comes to dealing with conflict, is economic development. If you look around the world, those regions of the world where terrorism is really a problem, where local conflict is really a problem, where there is really concern about local uprising, you don't hear about this in developed countries. Why is that?

Well, it is because in developed countries, there is a certain level of wealth that most people have achieved and there is a certain level of hope that is accompanying that wealth. When you strip away hope from an individual, you facilitate that individual to move into using very drastic means to try to get a point across. And that is ultimately what we are talking about.

With that, and we can branch off in discussions about ethanol, about coal. We can talk about gasoline. Anything you guys want to talk about that is on your mind, maybe even wasn't addressed in a lot of detail yesterday, please feel free to ask the question.

MRS. WILSON: You said that we hold 27 percent of the world's coal. How do we know that is so? There is a vast country like Russia. How do we know how much coal is in there or not in there?

DR. MEDLOCK: It obviously is based on reporting. Russia is actually the second in the pecking order. They hold about 16 percent of the world's coal reserves. That is just what they report. So we don't know for sure. It is the same with crude oil. It is the same with natural gas. There is a certain reporting standard that you have to adhere to when you report reserves. It is what is economically recoverable at that time. As we move into the future, if the price of coal were to triple, coal reserves around the world would go up, because what is economically recoverable at that time would be larger. So certainly that is an issue.

AUDIENCE: Thank you. I would like to respond, I am afraid not to your talk, but to Mr. Hofmeister’s comments last night. I agreed with a great deal that he said. But there were two points on which I feel compelled to disagree. One of them was his first point, which was that we should work harder and have the Government allow us more rapidly to extract oil that is within the control of the United States offshore, off the North Slope of Alaska and the Gulf of Mexico. That would be very beneficial in the short run. But I think a terrible policy for the long run. And I care about the long run, because I now have a young grandchild to worry about.

At the present, although there is a cartel, OPEC, which can to some extent control prices, there still is a large measure of competition in the world, which prevents any one group like OPEC from just deciding to charge whatever the market will bear. There is oil in Russia and in North America and in the North Sea and in the United States, outside the control of OPEC. If in fact the United States made all of its oil off the North Slope of Alaska and the Gulf of Mexico available, it wouldn't increase the competitiveness of the oil market that much. But looking into the future, when my granddaughter is grown up, just looking at the reserves, where the large reserves of easily recoverable oil are, we face a future in which almost all of the available oil, easily available oil will be in the hands of a few countries in the Middle East.

That is a horrifying prospect, both because they can set the price then, as they like, and because they can blackmail us as they tried to do in 1973. And at that point, it would be an inestimable value for us to have oil still in the control of the United States, still in the ground. So I think the idea of attaining energy independence by getting rid of American oil as rapidly as we can is a policy that might suit Shell Oil, and might suit many politicians, because it would help matters at present. But for my granddaughter's future, it is just a terrible idea.

If anyone wants to disagree, I would be very glad to hear where I am wrong, but I think we should perhaps explore American oil, but keep it in the ground, against the day when there is very little oil left in the world, except in the hands of a few countries in the Middle East. The other point on which I disagree with Mr. Hofmeister was the 13th point, which he didn't make. Tom Palama made it, and he then sidestepped it. And that is, that there is a way of improving the situation at present which takes some political courage. That is having a steep tax on the consumption of oil, a tax at the gas station for example, with some arrangement to mitigate the effects on people of low income.

It may not be forever politically impossible, if we started talking about it. If scholars and journalists; I see Tom Friedman does talk about it, would talk about it. If politicians, perhaps Senators at the beginning of a six-year term, when they don't have to face reelection, would start working toward this. And I am a little sorry that there hasn't been more discussion at this meeting, of the idea of a gasoline tax at the pump, as a means of mitigating many of the problems that the world faces, because of the fact that so much of the world's oil is in the hands of countries that are not very friendly to us.

DR. MEDLOCK: If I may respond just briefly, and then we will pass it along to you guys. I think I believe what John was referring to last night was probably the opening of not only the Arctic but the Outer Continental Shelf in the Atlantic and Pacific Basins, as well as the Eastern Gulf of Mexico. I agree with one part of what you said. Opening those potential reserves to exploration and development really only pushes the problems we face today into the future. But that is in general the case for any depletable resource, which is what we are talking about. We are talking about oil, there is a finite stock of oil in the ground.

As a resource economist, when we think about extracting and using a depletable resource, those are what we call transition fuels. What they do is bridge the gap between whatever we are doing today, and what we will be doing at some point in the future. They are by definition transition fuels, because we will run out. It is just the reality of the matter. Now what does run out mean? And this was sort of brought up in the peak oil discussions that were alluded to briefly yesterday. But depleteability, or peak, is really an economic concept.

That is what I think is lost on a lot of people when they think about peak oil. We don't begin to see declines in global oil production because we are physically running out of oil. We begin to see declines largely because the next barrel that we want to extract is expensive. And so we move to the next best alternative. When you think about what M. King Hubbard predicted to U.S. oil production, he predicted quite accurately that U.S. oil production would peak around between 1966 and 1971. It actually did peak in 1970.

A lot of people use the statistical analysis that he used and apply that to global oil production to make these very dire predictions about what is going to happen to global oil production. The trouble with that extrapolation, if you will, is that U.S. oil production had a very cheap, readily available substitute; imported oil. So we could move from that next barrel in West Texas that was much more expensive, to importing a barrel of oil that was a direct substitute for that barrel. Production could begin to decline indeed, and we wouldn't see necessarily an increase in price.

Now what happens globally, when we start to see the next barrel of oil become more expensive, price begin to rise. And that does all sorts of things: it encourages exploration and development, efficiency and conservation in use, development of alternative technologies. So there are lots of things that start to happen when we see oil prices start to approach the levels that are approaching today.

One thing that wasn't brought up and I think this is very important, when you start to think about why certain things aren't happening faster. The effect of the weakening U.S. dollar on the barrel price of oil was not really brought up yesterday. That is some stuff we have actually looked at, at the Baker Institute. If you hold the US/euro exchange rate fixed at what it was in the year 2000, on the average, it was about 92 cents per euro in the year 2000, if you hold that fixed and you look at what has happened to the euro value of a barrel of oil since 2000, and then you use that exchange rate to figure out what that means for the dollar price of a barrel of oil. A barrel of oil today only costs about $57. That is a staggering impact. And that is basically the result of the declining value of the U.S. dollar. So when we think about approaching a 90 to $100 world, it is not all of the issue is not growing demand and lack of supply.

There is indeed an issue of oil traded in dollar-denominated contracts, and the dollar is significantly weaker than it was just five to seven years ago. If you want to think about what a European consumer for example, is paying for a barrel of oil and what it means to the European consumer's pocketbook, it is nothing like what it means for our pocketbook.

One other issue you raised was a gasoline tax. You will be hard pressed to find an economist who disagrees with you. The best way to alter consumer behavior is to alter the price of the goods that they buy. Quotas and other schemes that are really designed to try to alter behavior or limit consumption, ultimately, they don't send the right signal. If we had a gasoline tax, it would do a couple of things actually. It would not only raise the price of a gallon of gasoline, but most of that price would actually fall on the consumer. It would not fall on the producer. And that has to do with the fact that the demand for gasoline is relatively inelastic.

Gasoline demand doesn't move a lot when you increased the price. It will move some, but not a lot. When you have a relatively inelastic demand, that means the effect of the tax typically tends to fall on the consumer and not the producer. So the producer shouldn't be up in arms about this. In fact, there are a lot of producers who are not, hey would not be opposed to a gasoline tax.

But what it does on the consumption side is it begins to make us think internally about our own habits. Those of you who are from the Houston area, you go out on the highway in rush hour, and you know it is just a log jam. You can't get anywhere. You look around and there is one person in every car. And that just fundamentally doesn't make any sense. If the price of gasoline were double what it was today, maybe you might see an altering of behavior.

There was actually a study done, I think it was by the Government Accountability Office, to look at what level prices would have to reach to actually see a noticeable change in consumer behavior. We are talking today, $2.50 to $3.00 a gallon. We haven't really seen that significant a change in consumer behavior. What they estimate is that we have to see gasoline prices in the $7 to $8 range before we see a noticeable change in consumer behavior. So you are talking about a gasoline tax that is in the orde

Any politician that stands up and says, that is what we ought to have, you can guarantee, they will be voted out of office. And that is the problem. It takes a lot of courage to stand up and say something like that.

AUDIENCE: Well, I am glad that you seem to be agreeing with me on the second point. But on the first point, when you talk about the petroleum in the ground as a transitional fuel, there seems to be an implication that it is a transition to some future in which something else is going to take the place of this kind of easily recoverable petroleum. It is not clear what that is going to be.

In particular, if you imagine the future in which there is easily recoverable oil in the Middle East, and by the way, when I raised my question, I was careful. I understood the point you made. I was careful to say easily recoverable whenever I referred to gasoline. Because I know there is lots of gas. There is lots of petroleum in the world that is not easily recoverable. Like the tar sands in Alberta. But if you imagine a world in which all the easily recoverable oil is in a few countries in the Middle East, and then there is lots of oil in the tar sands, which costs twice or three times as much to extract, that is an unpleasant situation. That is a situation in which we can be blackmailed. We can be starved.

We can have our wealth extracted by the price that we have to pay for that oil in the Middle East. Which, high as it would be, would still lower than the price we would have to pay for the oil from the tar sands. It is that world that I am thinking of as a world in which it would be wonderful to still have some easily recoverable oil in the ground in the control of the United States.

DR. MEDLOCK: Sure, I understand your point. And that was my point about price sending a signal to consumers. Really, maybe it was lost in what I said. To give you an idea of the effect that efficiency and conservation can have, in 1978, the average fuel efficiency of a vehicle on the road in this country was about 12 miles to the gallon. By 1990, that number increased to 21 miles to the gallon. That was a 75 percent increase in fuel efficiency in about 12 years.

During that same period of time, we saw more cars on the road. We saw on average, individuals were driving their vehicles more miles per year. So you just think about those two things, and you would think, well, fuel consumption should have gone way up. Well in fact, if you draw a line from 1978 to 1990, it is flat. That is the impact that efficiency can have. It is in effect, a virtual source of supply. That is why things like proper price signals that encourage changes in consumer behavior, not only help conservation in the short run, but in the long run, thinking about the kind of car you purchase the next time you are purchasing a vehicle. Those sorts of things have very far reaching and potentially very large impacts.

Fuel efficiency is an incredible tool that we have at our disposal. We are one of the richest countries in the nation. We have the wherewithal to invest in new technologies that improve efficiency and encourage conservation. You just have to ask yourself, why don't we do it? It is really the first best weapon we have, when we think about competing or combating the potential threats that we face from oil producers globally.

AUDIENCE: Michael Granof from Austin. I would just like to say that I was taken aback by the talk last night. If I had just read that speech, and didn't know who gave it, I would have thought that it was written by a committed Socialist. His first comment was that the market is not working. And yet, the traditional explanation for high gasoline prices and high oil prices, by both oil companies and the Administration, is that it is due to traditional market forces.

The other comment that I want to make is that Shell, like all other companies today, is an international company. I think one has to be a bit suspect when an oil executive talks about the U.S. national interests. The fact of the matter is that oil companies today are beholden to their shareholders. And their shareholders are around the world. And therefore, they don't necessarily have national interests of the United States at heart. Related to that, we asked the Ambassador about the future of nation states and said that he doesn't see the nation state disappearing in the next 30 years or so. For sure, nation states are going to exist.

I think our legal system is going to change dramatically. Not just because of oil companies, but of all companies. I mean, Citicorp today is 8 percent owned by the Chinese. We need a different system of regulation, clearly. I am an accountant. We see this in the accounting area. Right now, we have U.S. Accounting Standards. Within five years, there will be no such thing as U.S. Accounting Standards. It will be International Accounting Standards.

AUDIENCE: I am Fred Pfeiffer. I am a professional engineer. I have been in the water business all of my life. But there are a lot of parallels. One of the things I thought was very important from last night's presentation was very simple: we need a short range, medium range, and long range planning and put into effect. When you think about energy, we have talked about oil, oil, oil, and coal. But nuclear power, power from the sun, General Motors is going to make a heck of a push to bring back the plug-in cars they tried in California a decade ago. The battery, the development of the proper batteries, or a process of batteries that will work is going to mean a big transformation in energy, and utilization.

What happens if this is successful? I hope it is. There is a lot of hope in this, because we are relying on technology that isn't available now. In the short range, we are still going to have to rely on petroleum. Medium range, let's say these things become successful. For every action, there is a reaction. How do we fund our highways? It is by the gasoline tax. What happens if there is no gasoline? What happens if we are plugging it in? So that is where all of this planning is so complex, and the whole infrastructure has to change also.

DR. MEDLOCK: One comment about the electric vehicle. The first generation electric vehicle really didn't gain a lot of traction, because they were really limited. As Americans, we like our freedom to be able to do whatever we want to do, whenever we want to do it. When you think about a plug-in vehicle, you have to plug it in. It has to have a full charge and then you maybe get 125-mile range. That means if you want to drive from Houston to Austin, you pretty much can't do it.

One of the next generation plug-in vehicles is a plug-in hybrid. You plug it in and get about 125-mile range on the electric battery. But then if you run out of charge, there is a gasoline internal combustion engine that you start to use. So you actually get tremendous benefit in terms of fuel efficiency. Most of us don't drive in a given day more than 125 miles, so most of the time, we wouldn't be consuming gasoline. Beyond that though, if you wanted to take that road trip with the family or something like that, we would still be able to do in the same vehicle that we drive around every day.

You bring up a good point though, about gasoline taxes and funding highway construction and maintenance. I would imagine that in a situation where we went more heavily to plug-in hybrids, the electric grid is going to have to change too. You would have to have a tax that was basically rolled in to the utility bills that you pay, in effect, to fund construction of roads and highways and things of that nature.

AUDIENCE: Tom Palaima from Austin, Texas. I want to touch upon matters that have been raised by almost everyone who has spoken this morning and also to your point. With Mr. Hofmeister's talk last night, I want you to comment on the actual end benefit, for let's call it the average American doing what he says we do, given that we are operating with transnational corporations, with prices set for gasoline and oil internationally, not nationally, with the level of indebtedness. The weak dollar is simply a sign of the poor state of the American economy. I asked that question of the Ambassador, and I asked it last night. No one wants to address the fact that we are something like seven trillion in debt.

So let's say we embark upon a plan where the Government says they will invest three trillion in research dedicated to this petroleum company. It takes these resources out. Is it going to charge a price for these barrels of oil that is less than the international rate, given that it is beholden to its shareholders? In other words, the end game of this, just as with the end game of our role in the international economy, is to spend. To me, it seems to be something very opposite from what is being put forward.

I have a second issue. I write columns for the Austin American Statesman. Therefore, I look into a lot of different things. I have been doing this for nine years. I have a 12-year-old son. We are trying to look to the future. And there are things that just need to be done. The point is that political leaders cannot propose things that need to be done, because the voters would, I mean, this is total denial of responsibility. I came of age during the Kennedy-Nixon debate. And I remember that speech: “ask not what your country can do for you, but what you can do for your country.”

So what happened to people, to elected leaders who would say, yes, this is going to be difficult, but maybe we can even do it incrementally. There is no need to jump up from $2.50 to $7 in gas tax. But we are going to put in motion 50 cents this year, 50 cents next year, 50 cents the next year. Also devise it in such a way that would give you time to see how it is playing out, what people in our society are being most harmed by this, and develop this now forbidden word, social programs. The whole idea of a social democracy, which is what they have in Europe. I just lived in Spain for six months, I would go back there tomorrow, both for the intellectual atmosphere, the sense of responsibility by governmental leaders, the attention paid to the average human being in a society. These are things that really concern me.

The third point I wanted to raise is this matter of our being an example to the world. The Ambassador raised it yesterday. If we have a Katrina, we are a third world country. So what are we doing, holding ourselves up to a high standard? Well, the same applies in the area of energy. Smebody living in Spain can look at the United States and say we have no appreciable mass transit. We have the technology for energy efficient vehicles, but Ford Motor Company and GM design the SUV.

There was no common American sitting around in his house saying, “Gee, I want to drive a gas-guzzling car of monstrous proportion that will give a tremendous tax break to the manufacturers and create a windfall of profit for their shareholders.” That was an appetite created by the industry. So if you are going to be a model, in terms of energy use, mass transit, railroads. Remember, we had the plan here about 15 years ago for a bullet train that was supposed to run from Dallas to Austin to San Antonio to Houston to College Station and back up to Dallas. It was a wonderful idea. If you have traveled in Europe on trains, you know what a wonderful thing this is. And you can have trunk lines going out from there. But why was this shot down? Who was against it? Southwest Airlines. American Airlines.

What kind of role model can we really be? What is the ultimate effect of Hofmeister's plan? Why can't elected officials say this is what is good for the future of our country? And this has to be done. It can be done in a reasonable and intelligent way over a six-year-term or over two presidential periods, an eight-year-term.

We are going to watch out and protect the people in our society who are now seriously being neglected because this so-called thriving economy, from my point of view is a thriving economy for shareholders. But is not a thriving economy for the former industrial workers in Cleveland and Youngstown and Detroit and Pittsburgh? The poverty level in Cleveland, Ohio is 40 percent. Forty percent. We are a third world country in what we do to people living in those conditions. And none of this makes sense to me. Maybe you can make some sense out of it.

DR. MEDLOCK: You actually raise a lot of issues in your questions.

AUDIENCE: Of the three named, Hofmeister's plan is really the one I want you to address.

DR. MEDLOCK: Right.

AUDIENCE: If you do this, what is the end result for the common American?

DR. MEDLOCK: Well, you have to remember, Hofmeister's principal interest within Shell is North America. So he is concerned about Shell North America. So what does he see, when he sees investment opportunities for Shell North America? He sees those dwindling. In the interest of his company, within Shell, he is concerned about investment opportunities. And one of the ways you enhance your investment opportunities and the profitability of Shell North America is by lobbying for access restrictions to be removed on drilling.

So there really is a very commercial slant to what he is saying. And quite frankly, I think if any one of us was in his shoes, and we were beholden to our own shareholders, we would probably be doing the same thing. Now whether or not that is necessarily in the best interests of society as a whole, that is another issue. But that quite frankly, is one of the beauties of market economies. You have a lot of different self-interests that compete. And that competition is what ends up in resulting a welfare-maximizing end game, if you will. He is not going to be successful in lobbying for the guy in Virginia. You can drill off the coast of Virginia, just because there might be some oil and gas out there. That is just not going to happen.

 The only way he will ever be successful in that, is if the price of oil goes up to $150 a barrel, and the price of natural gas is $14 an NCF. Then the guy starts to feel it in his heating and electricity bills, and when he fills up his car, and says, well, maybe that makes some sense. You know, there is a price for everything. But even then, we have to go through the political process in lifting those restrictions, et cetera. That can be problematic in the sense that ultimately, you are thinking about access restrictions as a short run goal. It can very quickly become a medium term goal. And really, that means that the only thing that you and I and anybody else has at their disposal that is truly a short run goal is conservation. So you have to look at your own habits. One of the ways that we are forced to look at our own habits is by looking at the price at the pump when we are filling up our tank. That sort of thing will make us adjust our behaviors.

 In terms of the comment that was made earlier, actually Wally made it to me earlier, too, about Hofmeister's message about a short term, a medium term and a long term policy. There is something in that, actually. Whether or not you agree with everything else he said. And it speaks to the issue of diversification. Yet again, when you design a policy, the policy has to be diverse. It has to recognize that there are goals that might not necessarily be consistent. But there are short term goals. There are medium term goals. And there are long term goals.

If I told you we had a tax on gasoline and that was a short term goal to alter consumption behavior in the medium term, and encourage conservation. Well, if you have conservation, if you have improvements in efficiency that are realized because people start to demand more fuel efficient vehicles, well, that actually has ramifications for global oil prices.

To give you an idea of the way the global oil market moves, people look at China, and they look at India, and they see these emerging economies. You have all heard the talk in Washington about how Chinese growth is really driving what is happening with oil prices. Well, I am going to tell you that is just a load. To give you an idea why, of all the road transportation fuel in the world that is consumed on a daily basis, an annual basis, whatever time frame you want to put on it, we consume 33 percent of it in this country. That is a massive number for 300 million people to do. Really it is only 200 million people when you think about the people who are driving. Thirty-three percent of the world's road transportation fuel. China consumes five percent. So what we do drives the global oil markets.

 Our percentage of growth rate and demand is not as high as what it is in China. That is certainly true. But two percent growth on a massive base is a change in demand that is every bit as big as ten percent growth on a very small base. So you have to think about that, when you think about designing policy, and who you point a finger at.

Because I can promise you, no matter how much we want to point the finger across the Pacific Ocean, we are not going to change their behavior. Everybody in China wants to achieve the kind of wealth and the standards of living that we enjoy here. So we really need to think about how we can alter what we do to effect the changes that we want to effect.

AUDIENCE: Well, I just want to come back to some things that others have said. Because I was a little unsatisfied by some of your response, which seemed narrower than what they may have been talking about. I am Louise Weinberg of Austin, Texas.

 In particular, as far as government raising the price of gas through tax at the pump, I am not clear that that is the best way to raise the price. But suppose the government did that. It is not just a question of affecting consumer behavior. It is a question, as someone else has said, of funding alternatives, particularly right now in research. But I would raise the important alternative, not so much of bullet trains, but of restoring rail in a true sense; high speed rail.

My mommy and daddy remember a time when you could go from one major city in America to another major city in America. Each major city in America was surrounded by a network of tiny little railways, which would carry you out to every small town in America. And every small town had its railway station. The big cities had beautiful railway stations.

And longer travel was accompanied by sleeping cars, beautiful dining cars and other amenities. The railway stations had porters, and every facility you needed; newspaper stands, cafes, florist shops. This travel was elegant, secure and friendly and often attractive enough to be adequate for our needs. Now it was terribly slow by modern standards, but a high speed network of trains could do much to ameliorate that slowness. And the interesting thing is, European countries are way ahead of us on this. They are installing close high speed networks all over their lands; anticipating the oil crunch.

Nothing could be more civilized, or a more wonderful way to conduct one's transit. Particularly these days since air travel has become incredibly cumbersome and difficult. We would have to add security to the rail network, because of the problem of sabotage and terrorism, which would continue to plague us. That would be expensive.

It seems to me, it is not soon enough to get to work on our high speed network. If we are going to do this, we can't do it in America at large, but maybe we can start thinking about doing it in Texas. If we have to raise taxes, perhaps it is about time, our leaders started educating our people as to the value of public goods. It is not as useful to have a dollar in your pocket as for the Government to have enough to build a high speed network of rail. All you can buy with a dollar in your pocket is another tube of toothpaste. And that just won't get you to town.

 The second point I wanted to raise: it is a mistake to underestimate our enemies. You made the remark that it is the poor, sad, underdeveloped third world from which the terrorism is emerging. I don't think that is quite true. There are a lot of people in Saudi Arabia, no doubt, who are incredibly poor. But on the other hand, there is tremendous development in Saudi Arabia. Giant modern cities raised in the desert with luxurious malls, cars everywhere. People are living an elegant, luxurious life on our dime.

If you look at the terrorists that bombed the World Trade Center, they were upper class Saudis and Egyptians who had been to University. If you look at the terrorists who bombed London and Madrid, they were homegrown people. Our 9-11 terrorists came from was Hamburg, by way of Hamburg. They are educated jet setters. They were not underdeveloped people without the wherewithal. They were not in despair, and they were not hopeless. What they had is an ideology that is fundamentally opposed to American values. That somehow or other will have to be dealt with, as some of our speakers pointed out yesterday. So I do think it is a mistake.

 It is part of what Steve was saying that if we tax at the pump, a large part of the price of oil at the pump will come to us instead of being delivered over to the Middle East from which the terror is arising. In other words, that tax would be delivered it into the hands of our enemies. And that is an important feature of raising the tax at the pump now.

DR. MEDLOCK: I guess a couple of things, in response to what you said, I will start with the second one first. Yes, it is definitely true that in a lot of these terrorist organizations, terror cells, there are very well educated people at the very highest levels of these organizations. But they do not go to colleges and universities to recruit their following. As a matter of fact, if you want to just look no farther than the Israeli-Palestinian conflict, just a few years ago, you could have drawn a line in terms of economic wealth between the average Israeli and the average Palestinian, just based on their ethnicity. The average Israeli had an average income of about $31,000 per year; the average Palestinian about $2,000.

AUDIENCE: May I respond to that?

 DR. MEDLOCK: Yes. Absolutely.

AUDIENCE: What would happen if average Palestinian had identical income as the average Israeli; if they had built instead of terrorized? They went for war and terror while the Israelis were building cities, schools and farms, and that made an infrastructure. They had the civil society, with courts and the rule of law, while the Palestinians were importing arms, building tunnels, educating their babies to be suicide bombers, filling their books with hate literature, and their schools, funding Madras.

DR. MEDLOCK: Well, we are going to have to agree to disagree on this one, because there is lots of evidence otherwise.

AUDIENCE: Saudis have funded Madras all over the world, teaching hatred, and radicalized the Palestinians, preventing the Palestinians further from developing the infrastructure, the rule of law, the peaceful values which are required to have a high income in a developing state.

DR. MEDLOCK: We are going to have to agree to disagree on this.

AUDIENCE: I don't think so. I think these are facts.

DR. MEDLOCKk: You and I will have to on this issue.

AUDIENCE: I think these are facts well known to everyone.

DR. MEDLOCK: There is a lot of evidence with regard to the way the Israelis actually handled the potential development for Palestinian settlements.

AUDIENCE: Palestinians are Arabs, Arabs are citizens of Israel. They go to Israeli universities and they prosper. Palestinians on the West Bank in Gaza do not prosper because they have been engaged in terror rather than state building. Israelis are wonderful people with American style values. It is demeaning to them to think that if they had the rule of law, that their attendance at the University would not have come to something. We have to respect them, and realize that they are capable of a civil society if they have taken the trouble to build one.

DR. MEDLOCK: Of course. Well, we are just going to have to agree to end there, with that. One comment I will say about gasoline taxes just briefly. If instituted, and this is largely what happens in Europe, with regard to public infrastructure, you could use it. Even if it is a phased in, you could use it to begin to fund the development of public infrastructure that would facilitate mass transportation. You could start in the low income areas, so that the gasoline tax wouldn't necessarily be perceived as regressive. There is a lot of opposition to doing something like that; it might be perceived as a regressive tax.

AUDIENCE: I am Boone Powell, and I have kind of an observation, maybe a little promotional bit for our next year's conference in San Antonio on architecture in Texas. As I understand the numbers, this is rough, transportation takes about 25 percent of our energy, and buildings take about 50 percent of our energy. I think most of our discussion typically centers on transportation.

We are working on programs, and talking about things with engineers, with code officials, in situations where we might, and it is not inconceivable at all, save 50 percent of the energy that we use in buildings. That would be equal to the entire energy budget for transportation. It seems to me that we haven't talked quite enough about other things aside from transportation and cars.

DR. MEDLOCK: I agree wholeheartedly. As a matter of fact, a lot of the energy savings that was achieved in the U.S. post oil shocks of the '70s came about because there were changes in commercial building standards and commercial building codes, improvements in insulation, things like that. There is lots that could still be done there. But I think we talk about transportation because it is sort of the lowest-hanging fruit, if you will, on the tree.

AUDIENCE: I am Bill Wright from Abilene. I would like to make a couple of observations, and ask two questions. The observation: I just got back from Vietnam and all I saw were bicycles. And very fit people. So there might be a blessing in all of this somewhere.

 Another observation, you mentioned the transfer of technology to support the cleansing of emissions and so forth and our ability to develop it and get it too far. You know, China has a vast reservoir of American dollars. So why don't they pay for it? The reason is, of course, because they are not committed to it. And they have other issues. But you can comment on that.

I want to pick up on what Boone said. Petroleum is a fuel that enables transportation. It’s hard to run a jet airliner on coal. But the most potent political lobby in this country with regard to petroleum products is the home-heating fuel industry in New England and on the East Coast. They have effectively, in my opinion, been the major instrument of control for political decisions regarding petroleum products in the United States, at least at the retail level.

The other question I have is as an economist, what is your view about the effect if the Saudis and the other OPEC countries decided to use the euro as the reserve currency instead of the dollar?

DR. MEDLOCK: That is a very good question. That last one. Let me start with your first observation about Vietnam. My wife is Dutch and we spend time in the Netherlands visiting family. There is no such thing as urban sprawl. There is a very well developed mass transit system, and everybody rides bicycles. But one of the things that we have here that really prevents people from riding bicycles is urban sprawl. You have to ask yourself, well, what caused urban sprawl. Well, one of the contributing factors, low fuel prices.

It didn't take much for you to run away from the high real estate values that were inside the loop so to speak in Houston, and move out to Katy or The Woodlands or Kingwood or something like that, because quite frankly, it is very cheap for you to get to work, because you have car. So that is one of the things that higher fuel prices do, is actually discourage urban sprawl, because it is expensive to get from Point A to Point B.

On the euro-dollar exchange rate, there has been a lot of discussion about denominating barrels in euros instead of dollars. And a lot of that discussion has really started to pop up because the dollar has been weakening in international exchange markets.

 So you have to think about it from the standpoint of the Saudis. They import over half of all the goods that they import from the European Union. So if they are getting dollars for the barrels that they sell, and the dollar is weakening, then their purchasing power is in effect, going down. They have every legitimate reason to start to want to sell, or nominate contracts in euros rather than dollars. This would in effect, lower the demand for the dollar in international markets, and any time you decrease demand for a given supply, unless somebody is out there soaking all these dollars up and putting them into their vaults, then the dollar would be valued quite substantially. So we are looking at a situation that wouldn't necessarily be in the best interest of the U.S. consumer.

However, it is not in the best interests of anybody else because the U.S. is still the largest consuming economy in the world. If the U.S. dollar goes in the tank, that affects lots of other countries export market. And then you have the issue of contagion that begins to crop up. You could have a global economic recession in that particular situation. So you have to be very careful, if you are the Saudis about abandoning the dollar as what you take your oil price to. For that reason, actually, I don't think it is going to happen any time soon. Because I think they know that, too.

AUDIENCE: Sam Moore, El Paso. I have two what-if questions for the Baker Institute. Has the Baker Institute conducted any what-if research projects on if we had gone into Afghanistan, and maintained and adequately supported operation there, and exercised restraint insofar as Saddam Hussein and Iraq were concerned, and let them be our proxy defense against Iran. That is number one what-if.

 What if we as a nation devoted more time in public and political discourse to a Manhattan Project for such things as coal, nuclear and so on. And devote the same time to that that we presently devote to abortion, school prayer, Creationism and other matters.

DR. MEDLOCK: That is a good question. We have not actually engaged in a lot of research on either one of those fronts. You are sort of venturing outside the energy program with the latter question. It is a very good question, though.

 You have to wonder, what is it we as Americans really care about? Why do we fight so vehemently about certain things when we ought to, at least in my view and it sounds like your view and most of the people in this room, be fighting about and for other things?

The question about Afghanistan and Iraq is actually a very interesting one. Because by some accounts, if we were currently in Iraq, Iraqi oil production could be higher than it is today, and you have a very different picture of global oil markets than you do right now. So people have asked the question, would we be better off if we had not gone into Iraq. It is a loaded question, because there are lots of and-thens that have to play out over the last several years. But we haven't actively looked at either one of those things.

AUDIENCE: Following a little bit on Stan's comment with regards to research. We haven't done enough research and development in the oil and gas industry, obviously. What technological inventions or discoveries, or additions to our oil and gas industry, do you want to see happen in the next two to three years? I would like three of four ideas, if you could come up with them.

DR. MEDLOCK: I will see what I can do. Technological innovation. I think the most recent, and probably the greatest innovation that came about in the last couple of decades was horizontal drilling. It allowed for much lower footprint. We didn't have to drill a bunch of vertical holes. We could actually go down and fish around and find the sweet spot just by drilling in one spot. So that is actually a very impressive cost-reducing innovation.

 There is actually something that is being worked on at Rice University right now, in the Sciences and Engineering Department over in the nanotech lab. Nanotechnology was the brainchild of Rick Smalley who was the Nobel Laureate at Rice University who recently passed away. But he was a visionary. He had lots of ideas for what applications nanotechnology could actually be used, and one of them was energy.

 He really wanted to solve the world's energy problems. He envisioned more efficient solar panels through the use of nanotechnologies and more efficient means of transporting electricity through the development of a carbon nanotube wire that basically meant you didn't lose anything in terms of efficiency in transmission. So you could have very long wires, transmit power very long distances, and it would be almost as if you had the power plant in your backyard. That would be an incredible savings.

One of the other things that they have actually been experimenting with is downhole nanotechnology. Basically, the idea is, and forgive me if I don't give you all of the hard specifics, you could use nanofilaments to send down the wellbore, and enhance the frac procedures that are done inside the well, you could actually recover a greater amount of oil and gas from a particular reservoir. Right now we recover, by most accounts, between 35 and of 40 percent of the resource that is in the ground when we drill a well. What you are talking about, with this particular technology, increasing the amount of oil and gas you recover from the well from 35 to of 40 percent to upwards of 60 and 70 percent.

 That would obviously drive down the costs of producing a barrel of oil. But it would also mean that we could revisit reservoirs we have long since capped. I think that is probably the most promising technology that is on the horizon, aside from just refining and enhancing what we do, in terms of 3D and 4D seismic, which is stuff that is always going on. It is a gradual process, and it is always improving. Something that could actually enhance or improve the amount of oil that we get out of any particular development is what I would like to see happen. And I think it is something that will happen within the next decade or so. From what I understand, they are pretty close to trying some of this stuff.

AUDIENCE: Betty Sue Flowers, Austin, Texas. One of the things you alluded to was that flat line, the fuel efficiency of the car fleet, which was largely achieved by raising CAFE standards. That was public policy in the '70s. I read somewhere, I just want to ask if it is true, if you believe that if we raised our CAFE standards to the European level of a 44 - 45 MPG, is it true that we would no longer be dependent on importing any oil from OPEC? In other words, would that wipe out the OPEC part of our oil imports?

DR. MEDLOCK: Absolutely not.

AUDIENCE: Okay. I had read that, and it seemed incredible to me.

DR. MEDLOCK: I think what was alluded to in that statement is the amount of oil that we actually import from OPEC nations, if you exclude Venezuela because remember Venezuela is an OPEC nation, is not that big a number. You could eliminate all the Middle East imports. But having said that, it doesn't mean that Middle Eastern tankers would stop flowing into U.S. ports because what happens, if you reduce total demand, is you push at the margins everywhere.

That most expensive barrel that is coming from say, Nigeria, that last barrel that is coming from Nigeria doesn't necessarily come to the U.S. And one of the cargos that is very cheap oil, it is coming from somewhere in the Middle East still does. That is the idea of a balanced portfolio, of being in a world market. Everything competes on the same sort of stage, so to speak. To actually achieve not importing any OPEC oil, you would have to eliminate Venezuela, Saudi Arabia.

AUDIENCE: Well, what about the Middle East? Could we not be dependent on the Middle East if we raised CAFE standards to 44?

DR. MEDLOCK: We would still be dependent on the Middle East, even if no barrel of oil actually flowed from the Middle East to the U.S. The world market would still be dependent on the Middle East. If you had a disruption in the Middle East, all the cargos that are flowing into the U.S., people would start bidding on them. So the price of oil globally would go up regardless.

AUDIENCE: I am Michael White from Austin. My question is for the Baker Institute more generally. You have started doing some studies and position papers, white papers, regarding eventual planning for when, as you proposed, and I think it was Dr. Harris' paper yesterday, the competition among energy source developments is the worst thing we can be doing if our balance portfolio is the model for proper energy development and consumption for the future. The question I have is about economic modeling, or organizational modeling. What kind of new regulatory structures will we need to be thinking about, when in fact our energy consumption and utility organizations now are in some respects, in competition with one another, rather than being coordinated from one to the next?

And is there any kind of modeling or discussion that is taking place on that level? What do we need to be thinking about for the future in that regard, both nationally, I assume is the first question, but maybe internationally as well.

DR. MEDLOCK: Dr. Harris' talk yesterday, he alluded to bundling these potential energy technologies to provide electricity service. There is nothing regulatory or magic about that ultimately happening. In fact, if somebody deems that this is a marketable opportunity and something that could be done profitably, in today's landscape, the market would dictate that it would happen. So to use that as a sounding or a cry for some new regulation that requires these things to be bundled and then put into place, I don't think that needs to happen, quite frankly.

Now in terms of renewable portfolio standards, things like that are happening. Perhaps one of the ways that you allow that to be achieved, is you allow utilities and state regulatory agencies to bundle different forms of renewable power, rather than just go all wind or all something else, because a lot of this legislation, it calls for a particular portion of wind, or a particular portion of something. That really is limiting diversification to some extent, and could lead to a costly outcome.

In terms of new regulations, I guess it depends on who is making the investment in the alternative fuel. If it is the public utilities, and by most accounts, it probably ought to be; they are the ones who are guaranteed a rate of return on the investments they are making, so it is the safest bet for them, then nothing needs to change really. Unless you want to dig deeper into deregulation in general, and how different fuel commodities compete in a deregulated fuel and electricity environment. That is probably a bigger topic than we could address here. But in a deregulated environment, absent subsidies, a lot of these renewables simply don't win; they wouldn't get built.

As a matter of fact, in a deregulated environment, actually at a pretty significant cost, or up to a pretty significant level, natural gas is really the favorite fuel. It has a lot to do with the fact that you can build a natural gas plant between 18 and 24 months. You can have it dispatching power.

 You can utilize combined cycle technologies, which are about 30 percent more efficient than older technologies, or technologies that are still deploying in coal facilities and gas turbines and fuel oil facilities, and things like that. So gas really does have a very prominent place, at least today, in a deregulated power market.

AUDIENCE: I am Van Robinson, Fort Davis. I am a petroleum engineer. My career was with DeGolyer and MacNaughton and Exxon. People have been crying wolf about running out of oil since at least, since 1919 when the Director of the United States Geological Survey said we would run out by 1926. More recently, Campbell said peak oil would be 1989. King Hubbard, of the famous Hubbard Curve said that world oil would reach peak oil in 1995. Defize said we reached peak oil two years ago. Well, looking at all the public available data, I tend to agree with Exxon, saying that peak oil will not be before 2030.

And with improvements in technology, I wouldn't be surprised if it is not until 2050. So fortunately, we have some lead time in phasing in these other forms of energy. But the bad news is, we are going to look back at $3 gallon of gasoline as the good old days.

AUDIENCE: Tom Palaima. I just had a follow-up question, very brief, uncharacteristic of me. Very brief. Namely, if the market drives things, what incentive is there really to develop these alternatives that are going to prolong the oil. I mean, have you addressed that?

DR. MEDLOCK: I am not sure I understand your question.

AUDIENCE: If peak oil really isn't going to be until 2030, and if we kick in on saving measures, then it might not be until 2050. This gives us time to do this. But again, if what is driving everything is the profits being made by transnational corporations, oil companies, coal companies, what incentive is there to really develop a big replacement for them? Are the economics to their advantage?

DR. MEDLOCK: Yes. I do understand your question now. Tat is actually where government can play a very important role. The Department of Energy actually engages in some things that we might think of pie in the sky developments. But really, this is where their role is incredibly important. There is a lot of risk that will ever bear fruit. So no private enterprise is going to pick that up, because the risk simply is just too high. If the Department of Energy begins to develop that, and they get it to a point where it starts to look a little bit more promising, then that is where private enterprise can come in and basically take the ball.

So the DOE bears the up-front initial cost of the development of this technology, and then private enterprise companies like Shell, BP, Exxon-Mobil, they see something that looks promising that fits with their business model, something that could work in ten years. The will put some money into it. This actually happens now. A lot of the clean coal technology was initially worked on by the Department of Energy. It is a very good role actually that they fill.

AUDIENCE: I am Jack Blanton, Jr. from Houston. First, I wanted to make a comment. We have been talking about habits that have been created. It strikes me that we have to realize that Detroit has spent a lot of money convincing Americans that they need to drive big cars and big trucks. I am sure that you all have seen all these trucks going down the road pulling 9,000-pound trailers. We have to realize that it is going to take time for us to change our psyche, because so much money has been spent trying to tell us we need to drive big cars when we don't always need to.

My question is, as far as an economist, if we were to have a gas tax, let's say staged in at 50 cents a year, how much demand needs to be taken out of the marketplace through this to create the price of oil to drop? Because as we know, it is only the last two percent of oil has a big effect, two percent of demand has a big effect on oil. In other words, if two percent comes out of the market, what will that do to the price?

DR. MEDLOCK: Well, it depends on where we are in terms of supply. The current market is very tight. What that means is there is very little spare capacity to speak of. Any sort of minor fluctuation and available supply or any minor fluctuation in demand is going to result in very big changes in price. Think back to your Econ 101 days, you have a downward-sloping demand curve, and you have a supply curve that is typically upward sloping. Right now, the supply curve is so steep that you can think of it as being vertical. So any movement in demand or movement in supply is going to result in a big change in price. So that sort of describes the market we live in today.

If you go back to say, the mid-'80s, where Saudi Arabia had lots of spare capacity on hand, then you weren't in a situation when you were on a vertical supply curve. It was basically a flat supply curve, and the vertical piece was out there somewhere in the distance. So we couldn't really see it; we didn't feel it. Demand fluctuations didn't matter. Iraq invades Kuwait, Saudi has spare capacity. They can pick up the slack. You really see only a minor blip in terms of what happened in oil markets. So that is the advantage of spare capacity. It is insurance to the consumer, so to speak.

How do we get there again? Well, we can get there either through massive growth in exploration and development, which is probably the least likely path. We could get there through a global economic recession, which is an unsavory path. Or we could get there through simply conservation. This is why I brought up the point about the U.S. being the largest consuming market in the world earlier. We really can have a massive impact. We did some calculations looking at gasoline prices in the U.S. and what really drives them and how we, as American consumers, can affect them.

First of all, it is the price of crude oil. You can use the price of crude oil to explain about 95 percent of the variation in gasoline price. If you are wondering why gasoline prices are going up, then all you have to do is look at the crude oil price. That will pretty much explain the majority of it. There are seasonal factors that alter the shape of that function, such as when you move into the summer driving season. Demand increases and markets can get tight. We don't have a lot of spare refining capacity, so gasoline prices will typically rise. When you move out of the summer driving season, gasoline prices will typically fall for a given level of oil prices.

One of the things that we did, in all of these exercises, we figured out what is the effect of conservation on demand. One of the calculations we made was the following: this is a pie in the sky sort of thought, but if every individual could drive 35 miles a week less, so for most people, that is a daily commute to and from work, you could actually cut about 20 percent of road petroleum consumption in this country. That is every American that drives a car could do that. Obviously, not every American is going to do that. But if we could, what that means is, you basically put two million barrels a day of petroleum back onto the global market. That is spare capacity. That basically would have a massive impact on global petroleum product prices, global crude oil prices.

And you would be in a situation where the market simply wouldn't be tight. Conservation is a powerful weapon. It is a very powerful weapon and it is one that requires mass mobilization. So it is difficult to exercise that weapon, right. Or to use that weapon. But certainly, if every American consumer just adjusted their behavior accordingly, according to that sort of a magnitude, global oil prices would drop precipitously. Because you would have 2 million barrels a day of oil floating around there, without a home.

 Who do you think feels that the most? It is the guy who can shut in capacity. It is the least cost producer. Typically, it is Saudi Arabia. They are the ones who are going to start to reel in the reins. OPEC will adjust production because they are going to try to keep price up.

So conservation really is a very powerful tool. They key is keeping those changes permanent. If we are going to adjust our behavior, it has to last. Because if it is just going to happen for say, three months out of the year, markets will realize that, and the forward price will price the risk of demand increasing yet again, right back into the market. The price of oil would go back up. And you wouldn't have much of an impact. So it has to be something that is permanent, lasting and really is an alteration of behavior.

By the way, the calculations I referred to, all that is available online. There are three pieces, actually. One is just a policy piece. Just what you are thinking that I wrote, that is published on the Baker Institute website, about gasoline prices. There is another one that is a gasoline FAQ that Amy and I put together, that is also available online that looks at various questions and sort of attempts to address those questions in a way to sort of understand how we can influence the price of gasoline, and influence demand. Then there is a technical paper that is behind all of that, that is also on the website on the Baker Institute website.

MRS. WILSON: I am going to say thank you very much, Ken. You were a wonderful moderator.