American Energy Challenges and Global Leadership in the Years Ahead

Apr 6, 2015

Thanks to new technologies for extracting oil and natural gas, such as hydraulic fracturing ("fracking"), the United States is now the biggest producer of energy in the world. What do plummeting energy prices mean for sellers and consumers around the world--and what will be the likely consequences for climate change?

Introduction

JOEL ROSENTHAL: Good evening. I'm Joel Rosenthal, president of the Carnegie Council. I have the easiest and most pleasant task of anybody in New York City this evening, which is to welcome you all to the friendly confines of the Carnegie Council. I see a lot of new friends and a lot of longtime friends—no such thing as old friends, just longtime friends. Thank you all for coming.

This program is a joint venture between the Center for a New American Security, CNAS, and the Carnegie Council. It's the second in our series on American leadership. We realized when we put this partnership together that there were at least three common elements, in terms of our missions, between the Center and the Council. The first was to put on educational programs in the public interest, the second issue was to focus on the ethical dimension of policy choices, and the third was to connect Washington, DC, and New York City in a vibrant way and in a way that would reach outside the Beltway, and also beyond just this venue, but also online to an audience who will be watching on webcasts, podcasts, and so on.

We have a lot of speakers tonight, a lot of talent in the room. Without any further introduction, I'm going to turn it over to Liz Rosenberg, who is a senior fellow for energy, economics, and security at the Center for a New American Security.

Thank you, Liz, for moderating this evening. Thank you all for coming.

ELIZABETH ROSENBERG: Thanks, Joel.

On behalf of CNAS, I would like to say it's a pleasure to work with the Carnegie Council and a delight to be here this evening with this group of distinguished panelists to talk about energy.

I'm going to begin by sketching a few framing thoughts to guide us in this conversation. I would like for us and our panelists to focus on some of the opportunities and challenges that the abundant new resources of U.S. energy present for the United States in terms of stewarding them at home and putting them to use in the service of U.S. strategic interests in the international arena.

We come together at a really interesting and dynamic time in the way that energy is extracted, produced, transported, and used, particularly in the United States. There are several key themes in the energy system globally that I will outline right now—four of them, in particular:

  • One is the massive, rapid expansion of non-OPEC [Organization of the Petroleum Exporting Countries] energy supplies, particularly in North America. I'm talking about shale energy.

  • Also, rising demand in the developing world, particularly in Asia and the Middle East, coupled with a pulling-back in demand in developed economies—specifically, in Europe as an OECD [Organisation for Economic Co-operation and Development] economy.

  • Third, historically high levels of conventional energy supply disruptions.

  • Fourthly, an increasing use of energy supply as a means of political coercion, by threat of cutting off energy or the imposition of sanctions. We can layer on top of this the low-oil-price environment that we have seen since the second half of last year and the expectation that there will be plenty of volatility in energy pricing over the next year or two.

In some senses, that's a great relief, this low-oil-price environment, for consumers, who see lower prices at the pump or lower home heating oil costs. But that will also stoke demand and increase the carbon footprint for those consumers who are able to then consume more. It's, of course, a concern for those petro states or those countries so heavily reliant on energy revenues for their budget priorities.

These dynamics I have just sketched out may be with us for some time. Amidst this rhetoric of breakthrough energy technology that surrounds us and that we hear discussed quite often in the media, there is still this business-as-usual mentality and a commercial outlook. Our energy dependence looks still quite heavily focused on conventional energy use, conventional hydrocarbon use, for the foreseeable future. Neither is there a groundswell of public policy interest in supporting massive energy-efficiency gains or in mandatory cutbacks on emissions.

We will look at, and I'm going to ask you to think about here, the major energy challenges and opportunities that the United States faces today and how we should frame our energy and climate policy choices in the years ahead to best promote our national interest. As I have said, we have distinguished panelists who will address these questions.

Let me start by introducing Dr. John Deutch, a distinguished scholar and public servant who has served as the director of central intelligence, deputy secretary of defense, and under secretary of energy. He also serves, and has served, in an advisory capacity on a number of presidential commissions and advisory boards concerned with issues such as nuclear safety, science and technology, intelligence, strategic forces, and WMD [weapons of mass destruction] proliferation.

To his immediate right we have Dr. David Gordon, president of International Capital Strategies, adjunct professor at the School for Foreign Service at Georgetown, as well as adjunct senior fellow at the Center for a New American Security. He has served as the State Department's director of policy and planning, as well as the head of the National Intelligence Council, and he helped to create the DNI, the Directorate of National Intelligence.

Dr. Helima Croft, next to him, is managing director and chief commodities strategist at RBC Capital Markets, formerly the managing director and head of North American commodities research at Barclays. Prior to that, she worked with Lehman's business intelligence group, the Council on Foreign Relations, and at the CIA [Central Intelligence Agency].

We have heavy representation from former intelligence here.

Last but not least—diversity on the panel—Marc Lipschultz, who is the head of energy and infrastructure at KKR, a global investment firm. He worked formerly with Goldman Sachs on mergers and acquisitions, and also on investment activities.

Discussion

ELIZABETH ROSENBERG: Marc, I'm going to start with you. Can you briefly sketch out for us some of the key changes that have occurred in the U.S. energy sector over the last 10 years? What are the key drivers that have caused the remarkable change we have seen, as well as some of the key drivers you think will be with us looking 10 years into the future?

MARC LIPSCHULTZ: Sure. Thank you for having me. I appreciate the opportunity to be here.

It is a remarkably interesting topic, a remarkably interesting time. The last 10 years, of course, have been a period of enormous change. The term "revolution" gets used—frankly, overused a lot in society today. Every product is revolutionary. Every new idea is revolutionary. But when we talk about the changes in the energy sector globally, but particularly in North America, over the last 10 years, the term "revolution" certainly does not overstate the case.

We have really gone in hydrocarbons from a period of scarcity and decline to abundance and increase. When we think of something as significant as traditional energy resources, that in itself is a pretty dramatic change. And the orders of magnitude are just truly spectacular. Just in the last five years, the United States has gone from producing about 5 million barrels of oil a day to 9 million barrels of oil a day. That has been otherwise in a state of decline for decades in the past. That's just in orders of magnitude, the change.

The change at its heart is—and, Liz, you used this term—technology. We all think about it as energy revolution, but it's really a technology revolution. It's really about horizontal drilling and hydraulic fracturing. That is really what has unlocked all of this oil, and there has been a comparable change in natural gas production as well. Over the last 10 years, we have really gone from a very nascent stage, where there were a handful of people in the country that even thought it mattered whether you could horizontally drill and fracture or not—whether it could be done—to now its being pervasive, of course, as the way and means of production. The majority of all growth in production comes from the use of this technology.

As we sit here today, we now have this incredible position where the United States is the largest producer of energy in the world. If we think ahead 10 years, to flash-forward on that question, that is not likely to change. That is to say, what we now have discovered is this pervasive presence of the shale rock. But that's the part we always sort of knew was there. That is to say, the rock—which is why I get back to this point about this being a technology revolution, not a geology revolution—the rock was always there. But how to go in and access it is what's new.

What we have in the United States and in Canada—and to a degree, evolving in Mexico, but not in many places elsewhere in the world yet—is this constellation of forces where you have the presence of the shale. We have this entrepreneurial oil and gas sector. That's a U.S. and Canadian comment; obviously it's a monopoly in Mexico today. We have, therefore, this mobility of capital, actual equipment, and skills. We have private ownership rights of minerals, so someone has a reason to want an oil or gas well in their backyard or on their ranch.

When you bring all of that together, you get this revolution. And it actually hasn't happened in most other parts of the world. Now, with low prices, it's less likely to happen in other parts of the world fast.

So over the next 10 years, this revolution, I think, is likely to remain centered here in North America. It is going to be impacted for sure by prices. I'm sure we will talk about that. But I think when we look out 10 years, that's a realistic timeframe to picture—a term that is often used—to think about North American energy independence. There's no such thing, really, because we live in a globally connected world, and these are all products that get moved around the world. But the notion that in North America we will produce as much energy, not in the exact forms that we need it, not in the exact compositions we need it, but as much as we consume—that is not, I think, a very improbable 10-year outlook.

ELIZABETH ROSENBERG: I appreciate the comment you just made about the interdependence of the global energy system, even if the United States can achieve a kind of net energy self-sufficiency.

Dr. Deutch, let me turn to you now. Given the landscape that has just been sketched out for us, can you talk a little bit about what this means for the United States in its position globally, and particularly in its relationships with the Middle East and Asia?

JOHN DEUTCH: This is a change which is completely unexpected. I spent 40 years of my life, from the day the Department of Energy opened its doors in 1973, thinking that we were going to be inevitably and always dependent on imported oil, and it looked like gas as well. Now here it is, with North America having this abundance, completely changing the expectations around the world about how much resources are about. It is completely and entirely good news for the United States and U.S. consumers.

What are the foreign policy implications of that? First of all, it means that the major resource holders, who thought that they had a lock on oil and gas prices and were able to have political influence only through the implicit threat of interruption of supply, more because there was an economic dependence on that oil supply—suddenly that balance has shifted. Let me take two or three different places around the world.

First and foremost is Russia. Russia is a major supplier of fuel, oil and gas, to Eastern Europe and Europe generally. They were having a market advantage with the expectation that they were the only source of gas for Europe. That influences the political balance there. Russia now faces a time of sharply reduced prices for what they need for their economy. That's one example.

What about our friends in Venezuela? Venezuela has been for a long time having political influence in a region which is more important to us than we actually pay attention to, Latin America, Central America, and the Caribbean, supplying subsidized oil to those places. Today we are in a position, both as a country and as individual companies, to have much greater presence in Latin America with Venezuela. That's another example.

Third, there is the Middle East, as you mentioned, where the situation is complicated. You have other people here who will speak to that, I'm sure, with great experience. The fact of the matter is, in the short run, the Saudis have made the decision not to cut back on production to try to get those oil prices back up. Then every country has to calculate, "How long can I last without having internal problems because of my lack of revenue and the need to do social support for countries?" That's a mixed picture. Iran has suffered a tremendous adverse wealth effect by the fact that natural gas, which they thought was worth $10 per 1,000 cubic feet is now worth $3, maybe $4 or less per 1,000 cubic feet.

The connection between energy and international affairs is enormously strong, and this particular change has, happily, put the United States in a position—if we use it wisely, if we follow up and manage it properly—into a completely positive effect in world energy markets for quite a period of time.

All good news. Let's hope that we use it responsibly.

ELIZABETH ROSENBERG: Absolutely.

Dr. Gordon, let me turn to you and ask you to respond to the same question. In particular, can you talk about Asia and the United States' relationship with Asian countries as trading counterparts and as competitors, if you will, in an economic arena?

DAVID GORDON: I think that the unconventional energy revolution was really critical in challenging the narrative, in China in particular, but also around Asia more generally, of the United States in decline and U.S. power in decline and U.S. ability to be a long-term active player and partner in the Western Pacific. You heard a lot of this in 2008, 2009, 2010.

Then you began to get a shift. A lot of recent strategic writings in China begin with the notion that the energy revolution is going to make U.S. power more resilient. It doesn't mean that they have chosen to accommodate that, but that the notion of the United States as a more resilient power that has dominated more recent Chinese thinking about the world, I think, derives substantially from the impact of the energy revolution on the balance of payments, on the strength of the dollar—all of these things that China really thought were going the other way.

Let me just make one brief additional point to Professor Deutch's comments that I completely agree with. I think this issue of scarcity versus abundance—we still haven't really come to terms with all that means. It's a source of a lot of mixed behavior there. But I think that the early phases of this for the United States were easy in policy terms, because I think the president found a good political narrative on this that appealed to both the environmentalists and carbon guys, with an all-of-the-above approach to energy production.

I think that as we now enter the phase where you are beginning to get to the end or nearing the end of the import substitution phase, the policy questions and the policy challenges become much harder. In effect, we are going to have to rethink some of our key policies, particularly what is essentially a ban that goes back to the OPEC oil embargo of 1973 on the export of crude oil here. Unless we get our arms around that, the kinds of market conditions that have given rise to this revolution are going to be almost impossible to sustain.

So I do think we are heading towards a big debate. This isn't on anybody's screen yet, except people who are really focusing on it. But it is coming, and not acting will have huge negative implications.

ELIZABETH ROSENBERG: This is to say the debate on crude exports. I'm glad you mentioned that, but I'm going to table it for a minute. We will come back to that.

First I want to dig in a little bit more on the low-oil-price environment. Dr. Croft, let me turn to you for this. As you are thinking about the drivers of this—commercial, geopolitical—that brought the market to less than half now of what it was at the high last summer, what are they, and how long are they with us for?

HELIMA CROFT: It was almost like a confluence of events. I was in Saudi Arabia in January of 2014. What was fascinating was—and we met with a bunch of officials in government and the private sector—no one we talked to saw this coming. The idea that they had this sort of "we see this massive retrenchment in prices six months out"—they didn't see that on the horizon.

What they told us was that they were concerned about a situation three to five years from now if shale went global, if Chinese demand continued to be rather sluggish, and you had a situation where they said we have so accelerated our spending, if it becomes a global phenomenon to not just to North America, but developed successfully in Argentina, in Europe, even in China, they would be unable to defend a floor price for oil, and that would have very precarious political implications for them.

I think what they were saying was, "Look, as long as we have 3.5 million barrels off the market"—because if you go back to January 2014, you had almost an historic high in unplanned outages. If you added up the bulk of Libyan production being offline, what was offline because of Iran sanctions, problems in Nigeria, Yemen, South Sudan, they said, "Look, with 3.5 million barrels off the market, without North American production to plug that hole, we would get $130 and $140, and we would have to cap that upside. Right now we're happy with North American production, but we're scared about three to five years, if we get overwhelmed by this flood of unconventional crude."

I think what happened over the summer was that you had a confluence of events. You had a stronger dollar. You had a situation where you had Libyan barrels—I mean, you had Libya basically down to about 250,000 in March. Due to a particular political deal that was done with this guy who was holding off all these facilities, Ibrahim Jadhran, Libyan production climbed back up to 900,000 barrels a day in August. Nigeria, a producer that always is under stress, pushed out an additional 300,000. So you added in basically one month an additional million barrels on the market. So you declined that number that was off the market, you had a strong dollar, and then you had revisions in demand—the lowest demand numbers in five years. So there was a confluence of events.

But what struck people in the market, I think, was that there had been a belief post-Arab Spring, when Saudi Arabia and the other Gulf states—but Saudi Arabia in particular—ran up their spending to the point where they probably need—actually, we know they need—$100 Brent to balance their budget—there had been an expectation that Saudi would come into the market at a certain point, maybe not defend $100, but maybe defend $90, because they didn't want to run deficits. Their decision not to defend a floor, to take a pass cutting at OPEC, was the real accelerator, I would argue, for downward prices.

Now the whole debate is, do we go to $20? Where does this whole thing end?

But I do think for Saudi Arabia—and it's a larger discussion we can have—I would argue it's just not pain-free. There's a notion that because they have such substantial reserves, this is something that they can go on for forever.

The one thing I would say to everybody is that the most important report you could look at on Saudi Arabia is the report that the IMF [International Monetary Fund] put out over the summer, their Article IV. What they found was that if oil fell $25 below their benchmark, $100, $105—that's the number the IMF was working with last summer—at $75, $80, and if Saudi Arabia did not manage to retrench their spending, and the full spectrum of spending—because a lot of their spending is not on budgets, for things like the defense sector, aid to countries like Egypt—that if they did not retrench by basically 2018, all their reserves would be gone—gone.

So it is a very high burn rate. It's not Venezuela, obviously. But for Saudi Arabia, it's not cost-free either.

ELIZABETH ROSENBERG: Right, and concerning for Saudi Arabia to stick this out in a low-oil-price environment that's in a period of political transition. There are added constraints on their spending that will act on their willingness, presumably, to stick to this policy and keep flooding the market with their crude.

I want to talk about some of the consequences now of this low-price environment and return to, Dr. Deutch, what you were saying about our friends in Venezuela, as you just mentioned as well. Which are some of the countries that may be most dramatically affected by a low-oil-price environment? You mentioned Russia. You mentioned Venezuela. What will that look like? If this goes on for, say, a year and a half, two—people have a range of different estimates—what do you think the United States will see, and how will they need to respond to some of those effects?

JOHN DEUTCH: All of the principal major resource holders who are net exporters of oil are going to have to face this period of unexpected frugality, if you like. How they adjust to it depends on each one. Each one has to be looked at separately. I think Venezuela is a case where something is likely to break internally. That's for sure. Others will be able to withstand it for a longer period of time. I believe Saudi Arabia will be able to withstand it. Well, 2018 sounds to me like an awfully long time away from now, but eventually they are going to have to adjust, too.

Let's take Iraq. Iraq is not a great success story for the United States of America. Iraq's production is now up to, I think, 3.5 million barrels a day. Is it more? It's a lot.

HELIMA CROFT: It peaked out at 3.74 million. It's back down to about—

JOHN DEUTCH: I remember when it was zero. This really comes up very, very quickly. Iraq has to count on this for a lot. So every country is in a different circumstance. It is a huge deal in Russia as well.

I can't predict which ones of them will crack first, but all of them are going to have to adjust. And it is not going to change very quickly, because this unconventional oil and gas, while it will spread around the world slowly, is already happening in places like Argentina and Colombia, North Africa. There will be more supply on the market, a greater diversity of supply. That's going to mean that oil as a political weapon is becoming less important.

Again, the news is only good. Which nations have more pressure on them—the other side of it is that you are going to have low oil and gas prices in the United States. That means we are going to be using more fuel, and that brings us to an even more serious question, I believe, for the foreign policy of the United States, and that leads to climate change issues. This is a dampener on efforts to increase efficiency, lower use—although vehicle miles driven by the American people have taken an unpredicted drop, which is also helping a lot here.

So it does lead you to worry a little bit about climate change. Cheap natural gas has slowed down the introduction of renewable sources of electricity generation, for example, in this country.

These things are all interrelated and complicated, but dramatically interesting. Again, I come back and I stress that it is good news for the United States, which I welcome. It's rare that I feel that way.

ELIZABETH ROSENBERG: It's good to have a little good news for the panel.

However, a point you just mentioned, the impact on climate change and the low cost of natural gas delaying investments in renewable energies or alternative energy technology—Mr. Lipschultz, let me turn to you now. As you are thinking across your portfolio, across the market, and prospects for investments and renewable energies, alternative energy technologies, how are you thinking about this differently now than you were a couple of years ago? How far off will cheap natural gas push commercial-scale penetration into alternative energy technologies?

MARC LIPSCHULTZ: Dr. Deutch raises a great question. Of course, the implication of low prices means people will buy more of the product, in simple supply-and-demand terms. Low natural gas prices—sitting here today, it looks like they will—you can define low however you wish—it looks like they are going to be low in a fashion that makes power generated by gas quite efficient for a long time to come. And natural gas is really the relevant product here. We don't use oil in this country to generate electricity, so this is really a natural gas topic.

We have now had a number of years of low natural gas prices. We actually have more data to look at in terms of the implications. The first wave, of course, has been substitution of natural gas for coal. That, I think, is a very favorable substitution. There is debate to be had on that subject, but I think net/net, done properly—and this implicates some of these policy questions—natural gas substitution for coal is a clear environmental winner.

That being said, you asked, of course, the question about implications for renewables. There are a couple of thoughts I would share. First off, we actively invest in renewables, and we actively invest in hydrocarbon production. So we are sort of in the all-the-above category as a matter of investment. We quite like investing in the renewables business.

But renewables, by and large, work really under regulatory mandate. That is to say, it's difficult for renewables to be competitive, in large part because of the low cost of alternative supply, but also because of some of the intermittent issues associated with wind power. Wind tends to blow at night, which is the time we least need power. Solar, in many regards is more promising—and we have seen a rather rapid recent expansion in solar—it's a non-peak resource. It's available during the hottest part of the middle of the day when you most need it.

I think it's actually sort of an interesting question: If we are counting on the market, absent a price for carbon or absent a policy framework that requires a substitution, then the low natural gas prices are certainly pushing out the adoption of renewables, I think there's no question.

However—there is a "however" to it—the low cost of generating power using natural gas, in a low-gas-price environment, means that the consumer's electricity bill in total is coming down quite meaningfully. If we then think about it from a policymaker's point of view, should the policy directive be—take California, where you have very high renewable portfolio standards. If you actually want to mandate the use or if you want to price, if you will, other consequences of using carbon-based fuels, in an interesting way, there are more degrees of freedom for policymakers.

If the majority of a consumer's bill—and in every instance, the majority of the consumer's bill is coming from traditional fuel sources—if the majority of their bill is coming down because of this decline in the price of natural gas and coal, and the minority portion, even if growing, generated from renewable resources is going up—even if that is going up meaningfully—the relative share is such that the decline because of what I'm paying for what I have historically bought in gas and coal-fired generation will more than offset the increase by mandating the use of more renewables.

A long way of saying that there is actually an interesting trade to be made should policymakers want to make it, which is to basically say, "I'll make your bill lower, even though I'm going to actually increase the share that renewables are as a portion of what you buy."

ELIZABETH ROSENBERG: I think we have a response over here.

JOHN DEUTCH: I just wanted to ask Marc for his view about nuclear power. Low gas prices mean that nuclear power, as I like to say it, isn't going to happen in the United States for the next 10 years or the remainder of my life, whichever comes first. Nuclear power has absolutely got no prospects in the United States, even though it is carbon-free. On the other hand, it is a huge deal in China. So once again you have this interaction between North American domestic energy deals and what's going on in the rest of the world.

I assume you are not a heavy investor in new nuclear plants.

MARC LIPSCHULTZ: Agreed. Well said, and I apologize for not touching on nuclear. It's so off my frame of reference because, to the point you have raised, it's just impossible as a concept in the United States.

JOHN DEUTCH: But recall that just a couple years ago, climate proponents were saying, "Gee, maybe we should take another look at nuclear because it's low-carbon." Gone, gone, gone.

ELIZABETH ROSENBERG: David, do you want to respond? Then I'm going to ask a question of all of you.

DAVID GORDON: Yes. I think there is a downside here to the United States in that the energy revolution now is part of a series of forces that are driving the dollar up to a degree that is becoming problematic, I think. In Europe you have this huge loss of competitiveness due to the policy side of the equation. The only way the Europeans can restore a balance there is to weaken the euro. The market is now so enthusiastic about the U.S. and the U.S. energy story that you are creating a pretty serious disequilibrium here, even for U.S. corporates who are so dependent on foreign sales that now translate into fewer and fewer dollars. I think the exchange-rate issue is going to be the one really negative disequilibrium element in this whole story.

Helima, take me on on this.

HELIMA CROFT: Actually, I was just going to add that I think there is also another sort of negative story. We talk about, yes, we may be happy to see countries like Iran and Venezuela in tough financial straits, but there are countries that we care about significantly that are in tough financial straits and could really implode. Take a country like Nigeria, Africa's most populous country. They have basically had an excess crude account, standing at $20 billion several years ago. It's at zero. They have no ability to make payroll.

There are countries that, if they start to suffer significant internal strife because of the low-oil-price environment—they are countries that we see as regional anchors. So I don't think it's a net positive—even a case like Saudi Arabia. By the way, if $75, $80 is what burns you out by 2018, $15 burns you out faster.

One of the things that the Saudis were talking about was having to live within their means potentially of $75, $80. Can you cut checks to Egypt of such a large scale in this type of environment? Do they have to start pulling credit lines?

So I do start thinking about—yes, for the U.S. consumer, it's great, but just in terms of what the knock-on effects are of a country like Iraq not being able to make payroll themselves in this type of environment. I do think there is a destabilizing effect for petro states when they cannot make basic types of payments to keep their governments intact.

DAVID GORDON: Brazil.

ELIZABETH ROSENBERG: Brazil, a good example.

I was in Saudi Arabia about a month ago, and one of the things that I heard over and over again was frustration from Saudi officials with the role of energy-sector policymakers and other government policymakers, within other OPEC countries and elsewhere, about how poorly they had—this is coming from a Saudi—how poorly they may have shepherded their own economic resources such that they are in a position to be financially unstable and facing difficulty in a lower-oil-price environment.

You might expect to hear that from a country that is well positioned to ride out a tough market, a low commodity cycle, for a while, but one of the interesting things in what I have just said, to me, is the emphasis on what is responsible policymaking and what is responsible stewardship of your energy resources, be they conventional energy or renewable energy.

Most of you have had former professional positions in which you have advised policymakers. Marc, if you haven't, then I'm putting you on the spot right now—

MARC LIPSCHULTZ: We'll let the doctors answer this one.

ELIZABETH ROSENBERG: As you think about this question of responsible resource stewardship, responsible policymaking, environmental responsibility, ethical responsibility, I want to go down the line and ask you, what are the one or two pieces of policy guidance you would offer to policymakers today who are facing this resource abundance in the United States and the need to make sometimes difficult decisions about the way to best use that at home and abroad in a highly interconnected energy system?

Dr. Deutch, can I start with you?

JOHN DEUTCH: I may not be the best person to address those kinds of questions, but let me make the following remark. If unconventional oil and gas production in the United States goes forward as expected, you are talking about drilling hundreds of thousands of wells, a large-scale industrial process, with enormous amounts of water being used for the fracturing and enormous transportation costs.

I have chaired two committees for two different secretaries of energy on the environmental consequences of that hydraulic fracturing activity and its expansion. We're not talking about a few unimportant places in Oklahoma, Texas, and California. We're talking about places like New York and Pennsylvania, Ohio. It's a big deal throughout the country—for everyone.

If you do not pay attention to those environmental impacts in a serious way, there is a good chance that the public is going to say, "No, we don't want this." You could say, well, that's unlikely. However, I saw it happen with nuclear power. The public developed tremendous concerns, most of them demonstrably correct, about safety issues like that, waste management. But here you have a situation where it's just going up like this. If you spend time, as I have, in western Pennsylvania in some of these counties where it's really—the environmental impacts are serious and they are genuine and they have to be paid attention to. I'm not just talking about chemicals added to the food; I'm talking about all the water management, all the air quality effects, all the community impacts. They are enormous.

You have to get ahead of this if it's going to work. Again I'm taking it back to our country and what we do. I must say, we are going at it rather more slowly than I think is prudent from the point of view of public support for this great—in other countries, the issues are even more extreme. You speak about Nigeria.

DAVID GORDON: The water issue in China—

JOHN DEUTCH: China sees its water issue as being, for example, more important than CO2 emissions. But let me make a remark. China is planning to build 100 or so—100 is what they say—nuclear plants between now and 2025. Their regulatory structure for managing those is very, very slight. If they have trouble with one of those reactors, if one of those reactors sneezes, we are going to have pneumonia in our nuclear—like happened in Japan.

The interconnectedness of the whole public response to these energy issues relies on prudent and successful environmental management. That's where I really think—and it's not because I'm a hugely big environmentalist. But I'm saying to you, if you want this to go forward, you are going to have to pay serious attention to it, and in a way that the public can see you doing it and that is transparent and reported to the public.

DAVID GORDON: I think we have a strength here in the United States, that decision-making on this is going to be pushed downward, and that's where it should be taking place. There is not going to be a single solution. There may be some broad standard-setting role for the federal government, but I think that there are going to be very, very different decisions made about policy choices by states and other non-federal-level entities that, to my mind, will lead this issue to be played out differently, but in a way that reflects the different political balances in different parts of the country.

I think it's a good thing. I know that Dr. Deutch has some other views here. But I do think that this is the kind of issue that needs to take into account local factors, and the local decisions aren't going to be the same. They are going to be quite different, and that is appropriate.

HELIMA CROFT: One of the things I would say is, just in terms of what type of foreign policy choices you can make, I think you can perceive potentially a more enlightened foreign policy. We were just discussing this before we got on the stage. I have Nigeria on the mind because they just called their elections today. But I remember in 2003 being an analyst and working for David Gordon on the Nigerian elections. We took 10 percent of our imports from Nigeria, about 850,000 barrels. It was 40 percent of the feedstock for East Coast refineries. They had an election which was less than charming. There was a lot of discussion about, what do you do about this situation?

I think the fact that we saw them as an important energy partner, particularly post-9/11, when we were no domestic energy revolution, but we wanted to wean ourselves off of potentially Middle East oil, so we wanted other suppliers—we kind of made a decision to go lightly on them in terms of the election. There was a sense that we needed them maybe more than they needed us.

I fast-forward to this past election, and you had a very strong statement from John Kerry, Phil Hammond yesterday saying, "Look, we've got word that you are trying to rig this result. We're watching you. Don't do it." I think that had a real effect in terms of the government, the willingness of the electoral commission to call it fairly. I think that is something where the fact that we no longer take imports from Nigeria, we no longer believe that we need them more than they need us, allowed us to have a more enlightened policy in terms of dealing with these countries.

ELIZABETH ROSENBERG: Enlightened and perhaps a more muscular foreign policy.

HELIMA CROFT: Actually better for stability overall in terms of the country.

ELIZABETH ROSENBERG: Okay. Last but not least.

MARC LIPSCHULTZ: Last and least on this subject. I don't think I have a lot to add, but I might put it in this fashion. If the question is what advice I would offer, I think to policymakers my advice would be to fully embrace the potential of this revolution. It is good news for consumers. It is good news for this country's foreign policy options. It is good news for the economy. So I think from a policy point of view, it would be to embrace the continued development of this incredible resource.

From an operator point of view, I would say to fully embrace partnerships with NGOs and regulators to develop those practices and those local guidelines. The license to operate is at issue, there's no question. You poll this issue. We have actually seen it become less favorably viewed by the American public. Some of that is scare tactics and some of that is lack of understanding, but some of it is this prevalence. We are talking about thousands and thousands of wells in places where people aren't used to them.

I think, at the same time, the producers have an obligation to embrace this partnership of education, best practices—there are good practices that are very safe and there are bad practices that really ought not be allowed. I think at the end of the day, if you will, both sides of this—it ought not be viewed as "sides"—the policymakers ought to figure out a way to encourage the revolution; at the same time, the operators ought to be making sure that they are embracing partnerships to maintain the license to continue it.

ELIZABETH ROSENBERG: Social license to operate is certainly an issue that is a big one in New York State, and elsewhere in the United States, of course. But here it's close to many people's hearts.

Questions

QUESTION: My name is John O'Connor.

First of all, thank you all for very insightful and provocative remarks. If I could turn a question to Director Deutch, one of the things that we have learned is that our ability to forecast future events is limited, partially because we tend to use static models and linear extrapolation. There are parties who are clear losers in this who have means, motive, and opportunity to respond.

I recently participated in an exercise to play one of those roles and to say, okay, how do we restore equilibrium to this market? By mobilization of advances in small wars and cyber—so looking at the Saudi Aramco experience, looking at the Russian successes in Georgia and Ukraine in employing unrestricted and full-spectrum warfare. We now have combined arms attacks involving both cyber and small-scale military activity. If you were to overlay that against the production base and, for example, look at Iraq or Libya or Nigeria or Venezuela, could you estimate for us the difficulty, based on your experience, of turning off the tap in any of those jurisdictions?

JOHN DEUTCH: You're quite right, the potential here for a disruptive-activity conflict is enormous, just enormous. Indeed, it has always been a surprise to me how little it has been. It's a mark of the people who have spent their careers in the intelligence and national security world in the United States that we have had fewer problems. But it's a global issue. The issue of the vulnerability of our energy infrastructure, whether you are talking about oil and gas or power or any of these things, in Europe or elsewhere, is really quite, quite extreme. They are all very soft targets, and they have the advantage of being targets which would desperately hurt an economy and wouldn't kill a lot of people. I might say that, for a non-governmental actor, the issue is really achieving political motives or hurting you in some economic way, not necessarily killing people haphazardly.

So you are quite right. I think there is going to be greater emphasis by the government on making the energy infrastructure more robust, more resilient to interruptions, both, as we say, natural and—we say man-made, but they could be woman-made as well—disasters. That's a big, big question.

The trouble is, when the government talks this way—and I have talked about it when in the government—they don't basically tell you what to do to avoid it and, more importantly, who pays. It's very, very expensive. As we talk about grid modernization and all that, these issues come right to the front.

I think that it is unhelpful for you to have made this comment, but it is completely true. [Laughter]

DAVID GORDON: One of the implications of shifting from scarcity to abundance is, in a world of scarcity, the big question is who gets the right to consume; in a world of abundance, the big question is who gets to sell. It really does lead to potentials for very competitive behaviors between producers.

QUESTION: My name is Zach Iscol.

Marc, in the beginning you made a point—and I'm not even sure if I'm going to be able to ask this question correctly—in your opening remarks, you made the point that even if we are producing more energy than we need, we are not necessarily producing the right type of energy that we are currently consuming. Can you talk a little bit about what those deficiencies are in the types of energy we need?

MARC LIPSCHULTZ: Sure. It's an excellent question, and perfectly appropriate. A couple of things.

First off, there was obviously a reference made to the whole existence of an export ban on crude oil, which itself is a major impediment to the global flow of this product, which is part of why prices in the United States are, in fact, lower than international Brent crude prices. You might intuitively think that is actually good for consumers. It's not. In point of fact, that is largely captured by refiners in this disequilibrium that is created by having artificially, if you will, low WTI, West Texas Intermediate crude versus Brent. Gasoline is priced off of Brent, but what the feedstock people are buying is based off West Texas Intermediate. We would be better if we brought all those prices into equilibrium, and then it would actually net-benefit the consumer.

An export ban is an example of something that just impedes the market.

But to go one step beyond that—and then I'll stop—the thing is that there are many, many kinds of crude, as we all know, from heavy, sour to light, sweet—terms we are all familiar with. Refineries are designed to use different versions of them. One of the things we have happening in the United States right now is that a lot of this oil that we are producing is really good oil—light, sweet crude, or even condensate, which is almost gasoline itself—and we are running out of capacity to actually process that because we built our refineries to take the Venezuelan crude and to take Mexican crude and to take Saudi heavy crude. So we don't actually have the physical capacity to use the better oil that we, in fact, produce in this country.

To make the system work—and I think this is the fulcrum you were talking about, Dr. Gordon—we need to be able to export the stuff, some of the light, sweet varieties that other people have refineries to refine and, in essence, swap it for some of the heavier things that we have refineries to utilize.

That's why I say that even if we produced everything we've got, we actually don't have the infrastructure matched to the new kinds of oil that we are producing today.

QUESTION: My name is David Roberts. I was the ambassador's science advisor in Japan post-Fukushima.

I'm curious about this crude export ban we keep going around. The discussion in the United States hasn't really gotten going yet, but when we were discussing with the Japanese supposedly about nuclear issues, all they wanted to discuss was this export ban. I'm really curious to hear all of your views on how this is going to play out in the next couple of years.

DAVID GORDON: My view on this is that the biggest benefit of lifting the export ban in foreign policy terms is with U.S. friends and others in Asia. For many countries, both in Europe and in Asia, lifting the crude oil export ban is right at the top of their economic agenda with the United States. Most of these countries are friendly countries, but even the ones that aren't so friendly—i.e., China—would be a big beneficiary of this.

To my mind, if you open this up, you get a lot more Chinese interest in balancing their overdependence on the Middle East, their wariness about the credibility of Russia over time. They want to see this supply come onto the market.

Anything, I think, that the three powers in Northeast Asia—China, Japan, and Korea—share an interest in is good for regional stability in that part of the world, where there are underlying a lot of competitive nationalisms at play. It's an added benefit if the provider of this shared public good can be the United States.

I think the main foreign policy challenge we have now is between the short-term interests of our trade negotiators, who want to hold this as a carrot, and the longer-term interests of the United States, which are in opening up and developing these new trade patterns that are win-win-win situations.

JOHN DEUTCH: I want to make just two remarks about exports of oil. The first is, we do have a disadvantage in this country that we ought to recognize, and that's called Congress. [Laughter] Congress has really been dead-set against this since 1973. It's actually quite bipartisan, I might say. There may be regional differences.

That's the first point. This is really a Congressional political issue rather than policymakers at the White House under any Republican or Democratic administration.

But I do want to tell you that there is a slight advantage here that we ought to keep in mind: Those pipes run in two directions. We have to think about this as a North American export issue. I do think that you will see over time, especially if we don't liberalize ourselves, a lot more exports going out of Mexico and Canada on crude oil. It's not going to be as good—not as good for the American people either.

Also Marc made the beginnings of a deal. In Congress you could say, "Look, we'll take more heavy and we'll send out more crude, but we won't be net exporters of oil," whatever that makes them feel good about. So I think there is an element there of a complicated deal.

But this really is a Congressional political problem, not a policy issue.

HELIMA CROFT: And this is the question I always sort of go to, because it goes to the heart of your question. At what point is there action on this? You hear that within the administration they know that the ban is outdated and it doesn't sit well with our free trade policies. But will it take a situation literally like filling up storage? What is that sort of catalyst for action in terms of actually getting the ban lifted? It seems like even within Congress the national security argument for the ban is starting to recede. But what is going to be that moment, actually, when they decide to have a serious debate about that? That is one of the things I'm trying to get my head around.

ELIZABETH ROSENBERG: Let me follow up on the comment you just made. If Congress decided to advance the ball and to lift the crude export ban, to amend the 1973 and 1975 legislation that really enshrines this in policy, what would be the effect on the market? What would that look like for the United States as an exporter and as an importer?

HELIMA CROFT: Again we come to the question, are you balancing the market? It's a 92-million-barrel-a-day market. Clearly if we are pushing out millions of new barrels that are just going to sit in storage, that would add to a supply overhang story.

But I think what's interesting is who is a loser in this type of situation as well, because it's a light, sweet barrel. One of the problems that we have seen, for example, back to poor Nigeria, because they can't access the U.S. market anymore—their light, sweet barrels have not been in particular demand. You have a situation where China isn't that eager to take on these light, sweet barrels. So you have a situation where you might be just adding to a global glut in light, sweet barrels. The country that would be most affected in terms of being a competitor product would be a Nigeria, would be a Libya. Those are the two that I think, from a market standpoint, would be the biggest net losers, because you would be releasing essentially a competitive product into a market that is going to be very, very crowded for a light, sweet barrel.

QUESTION: Richard Fontaine, with the Center for a New American Security. Thanks to all of you for being here.

Going back at least to the Carter Doctrine and probably before that, it has been a chestnut of American foreign policy that the United States would act, including militarily, to protect the stable supply of energy from the Middle East. As the United States imports less and less from the Middle East, is it conceivable that the Carter Doctrine goes away, that the United States does not have that at least implicit commitment? Or does the interrelated nature of the international system and the one-world price of oil simply make this irrelevant?

DAVID GORDON: I think there is not going to be a quick movement here. The United States has stated and military planners are working on the assumption that this remains a key role for the U.S. military services.

Now, I do think that Helima's point that at the tactical level, you have freed up a lot—I think the big trade here, the big trade over time, would be how you create more burden-sharing on this. I think the burden-sharing would actually be indirect burden-sharing. That is, if you start to have this trade with China—China has had extraordinary angst about its resources generally, but its energy resources specifically. If you read the Chinese writings about this, it's very parallel to Japanese writings in the 1930s.

Again, that's one of the advantages in a world of abundance. If that begins to go away, you have the ability to seek trades here. The ultimate trade is, we stay in the Middle East and protect the sea lines of communication if you act a little nicer in the Western Pacific. That's the ultimate trade. Will it ever happen? I don't know. But it's the kind of thing that you can begin to think about a bit, because China will remain dependent upon Middle Eastern oil for a long time. It does not have the capability to project power that far westward and won't for a very long time.

QUESTION: Bob James.

We are talking energy here, and that means crude oil usually, and gas, and coal to some extent. That is what is sold around the world. Crude oil is neither abundant nor scarce. It's all determined by price. Price is determined by supply and demand. It happens to be very free in the world for the last 100 years. I have sort of been able to watch that for the last 65 years. As far as I can tell, everybody could have all the gas and oil or coal they wanted if they could pay for it.

Given that, I would like to know the nature of the challenge you are talking about. It seems as though there is no real challenge. Oil, gas, and coal sort of look like rice and wheat and so on. The prices of coal and oil have not changed much more than wheat, rice, cocoa, and so on. So what's the problem?

But I have one other question. You have global leadership here, and it reads "American." What is the nature of American global leadership? I just can't see that, unless you look at America and say we're damned good at finding oil and showing the world how to do it and everybody copies us. They are free to copy it. It is sold.

Is that the leadership you are talking about or we are supposed to talk about? Or is it what the Naval War College will say, that we have to have the Navy all over the world, everyplace, because we have to see—and they say, "Oil has to go freely everyplace, and we're going to see to it"? Is that what you mean by leadership?

ELIZABETH ROSENBERG: Thank you for your questions. You asked two really good ones. The first one is one that people who analyze markets really love, because it allows you to say, yes, supply is really a function of a price.

MARC LIPSCHULTZ: I think it's an excellent point and, if you will, a bit of a truism that there is no cure for low prices like low prices and no cure for high prices like high prices. Of course, we have just experienced one side of that equation over the last six months.

It's mostly true. However, there were a lot of people for many years that actually were believers in this notion of peak oil—that, in point of fact, we had found as much of it as we were going to find and be able to, at any reasonable cost, extract. That paradigm has changed with the shale revolution.

That all said, I think there is—what's the other one? History maybe doesn't repeat itself, but it sort of rhymes. The reality is that, looking back over the last 30 years, there have been five other periods of time with this kind of dislocation in oil prices, where oil prices fell by, on average, about 50 percent, the same amount that we have seen in this recent decline. This particular statistic is an oil statistic, but I'm sure it bears true for other commodities, too.

That has happened five other times. On average, it has taken two and a half years in previous cycles; this time, a half a year. That is kind of an interesting fact about the speed of markets maybe. But it's the same result. The corollary has been that on the other side of these periods of time, usually one year later, we have seen a rapid increase in the price of the commodity, exactly as your question would imply.

So I guess it's a long way of saying that it is different this time in so much as the shale revolution has unlocked previously not-understood supplies, but markets work. What is happening right now is that demand is weak and supply is strong. Supply is falling fast.

Another statistic—and I'll end on it—rig count in this country, the number of rigs drilling for oil and gas, has in the last 12 weeks now, just over 12 weeks, fallen by 50 percent.

So markets do work. Eventually we will find a new equilibrium that allows supply and demand in the global economy to function.

ELIZABETH ROSENBERG: Let's press on. Just a brief comment from this end of the panel on the nature of U.S. energy leadership. What, in your mind, should that optimally represent?

DAVID GORDON: I actually do think there is a U.S. leadership role here. Technology is lumpy. Technology is the intervening variable here. It's lumpy. We are at a period where technology is really changing assumptions. The United States, for lots of good reasons and some lucky reasons, has been at the forefront of developing this technology.

If you look at the relationship between global security and insecurity and markets, I think what we have seen in the last year is this remarkable shift, where literally, for most of the period of time since the early 1970s, global geopolitical tensions were transmitted into the global economy primarily via price increases in the cost of oil—that has gone away in the last year, year and a half. That's a huge plus for the United States, and it's a global public good. It's a huge plus for the world economy, that when there is serious tension even in significant oil-producing regions, there is enough slack that that doesn't translate into big price increases that can lead to global recessions.

That's where there is a U.S. leadership role, in ensuring the resilience of that system.

QUESTION: Joel Smith. I'm a student at Columbia University.

I want to ask about how this growth in unconventional—the effect it has had on OPEC, following up on your points, and future market trends. There has been an op-ed about every week for the past six months saying how this has changed everything and OPEC is now defunct and the United States is the new swing producer. That's the one I want to touch on. You just mentioned slack supply.

If Saudi Arabia is now pedal-to-the-metal and they are pumping out all the oil they have, there is no—the swing producer has, in a sense, gone away. The unconventional production here in the United States—it's amazing in that you can bring it up to speed and you can pump oil from a new well more quickly than you can from a conventional well, but it's not the same as turning on a tap.

I want to ask, from an economic security perspective, future markets, is this actually a good thing for market volatility moving forward, if we don't have the same supply issue going back and forth, if there is no more slack?

HELIMA CROFT: I'll take the first part of it. Is OPEC defunct? I think there have been so many conspiracy theories about why the Saudis did this. But actually, if you listen to the CEO of Aramco or Ali Naimi in some of his more recent statements, I don't think it's necessarily them taking a pass. They looked at it and basically said, "We have a choice. We can go into an OPEC meeting"—where we don't have individual quotas anymore—"and we're going to have to be so they carry this cut on our backs."

In 1986 and 1998, there were coordinated cuts with OPEC and non-OPEC members like Russia, Mexico. When Russia said no to cutting—Igor Sechin showed up in Vienna and said, "We're not doing it"—the Saudis could be like, "Are we going to do this ourselves, push prices back up to $85, $90, and keep incentivizing this North American production?"

The Saudis basically—I think the economic, technocratic argument was that somebody is going to have to cut. Should it be the low-cost producer or should it be the high-cost producer?

I'm not sure I see that as taking a pass. I think of that as basically saying, "Somebody is going to balance the market. If we do this now, we'll maybe have to cut again in six months, because this thing will keep going, whereas if we can basically say to let the market work and there is no cure for low prices but low prices, essentially the story that you are talking about, with rig counts coming down, will play out."

So I don't think it's necessarily them just taking a pass. I see them basically saying, "Look, we have a choice. Let the market work, and the market will essentially cause it to balance, because high-cost producers will bear the burden of the cuts themselves."

ELIZABETH ROSENBERG: One quick word, if I can ask you to provide this also, on the volatility. The bigger segment of producers coming from the shale production in the United States—the implication of that for global market volatility.

MARC LIPSCHULTZ: I think it will dampen volatility, to the point you have raised.

First of all, this point about global shocks becomes less likely, because we are dealing with a less volatile part of the world here in North America than we are in the Middle East. But also it is true that you can drill and produce a shale well measurably quicker than what we thought were going to be future sources of supply. Ultra-deepwater takes years and years to plan and drill, and that's what people thought. Offshore Brazil was all the talk five years ago; deepwater West Africa, all the talk. Today they still may be relevant, but their significance in the presence of shale oil is far diminished. And the shale—you can reduce rigs by 50 percent in 12 weeks. Quite frankly, you could—although I think the system has now been disrupted enough—increase them 100 percent back to where they were 12 weeks later. This capacity exists to much more quickly move supply up and down.

QUESTION: Tyler Beebe. Thank you very much for a very interesting commentary.

You mentioned that the rig count is down 50 percent. We do know that. But as you do know, ironically production domestically is continuing to increase. Again, there are a lot of reasons for that, but I find it interesting. You wonder how long that is going to continue to be the case.

But my real question is—and it's a very simple one—if oil and gas prices remain roughly where they are now, doesn't that significantly reduce the future economic incentive to go renewable?

ELIZABETH ROSENBERG: Further to our conversation about low prices pushing out and pushing further away the penetration of renewables into the fuel mix, if you want to make a quick comment from here.

MARC LIPSCHULTZ: Quick answer: Yes. The quick answer is that low natural gas prices, as we were talking about a little bit earlier, do make renewables—if you are talking about a competitive price for power, absent a price of carbon—less competitive and are going to push out some of that development. But there is, as I said earlier, too, a policy opportunity to take advantage of a low-price environment to implement policy changes, if one wants to go down this path, to require more renewables in the fuel mix.

QUESTION: James Starkman.

Just a technology question. Accessing shale, oil, and gas obviously is much faster than deepwater, etc. What is the average life of a fracked oil or gas well compared to conventional oil and gas? What are the implications of that for our long-term supply situation?

QUESTION: Dale Ponikvar.

The benefit to the United States: We have talked about it generally. Can you break it down? Obviously the consumer, but Google doesn't care, Facebook doesn't care. Who is benefiting besides the consumer in industry and elsewhere in the society?

QUESTION: Thanks for a great discussion. James Brown, from the Foreign Policy Think Tank in Sydney, Australia—probably the ally least excited about U.S. energy leadership in Asia. [Laughter]

Could you speak a little bit to the potential for U.S. gas, particularly, to displace Australia's exports into the region, and how we might try and calibrate that a little bit, if possible?

JOHN DEUTCH: Depletion curves: The shape of the depletion curve for an unconventional oil and gas well compared to a conventional one is entirely different.

Secondly, I should say to you that there is much, much diversity within the categories even in regions and types of well. But in general, the depletion is much sharper with an unconventional oil and gas well, but it goes on for a very long time at a very low rate. So the fact of the matter is that it's a curiously quite different depletion replacement pattern than we have seen in traditional oil and gas. People say they deplete so quickly. That's true. People make their money. But they don't go away. They keep on getting that very, very long tail.

The question is, who are the other people who benefit in the United States? I would say that an important part, which is hard, I think, to be precise and reliable on, is jobs. There really are a lot of jobs here. There are also a lot of industries coming back to the United States because of oil feedstock prices. I think the people who benefit from low prices of oil and gas in the United States economy are very, very substantial indeed.

Let me talk to you about Australia. They are underwater. These investments which were made both in oil and gas and coal-bed methane were based on selling oil and gas into Shanghai and Tokyo at oil-denominated prices. The gas was oil-denominated, and they expected—whatever they call it—the Japan cocktail price, or $100 oil and gas. That looks very bad indeed. So I think that they are very, very seriously under—and a very important question is, will the gap in prices that traditionally existed, especially for gas, between the Asian markets and the U.S. market come down? In which case it will make the problems of our friends in Australia even worse. My answer to that is yes.

My final point is, you should always correct somebody who talks about U.S. oil and gas production. It is a North American phenomenon. When you say, "Who is producing more, the Saudis, the Russians, or the United States?" that's not the way to say it. Who is producing more, the Saudis, the Russians, or North America? Frankly, Canada is in our ballpark. They are more reliable than California. So you really have to add Canada and the United States together. That does make the North American production much stronger indeed.

ELIZABETH ROSENBERG: I think that may have been our last word, actually. Please join me in thanking our panel.

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Venezuela: An Ethical Foreign Policy?

Some observers see Venezuela's foreign policy as promoting international solidarity with the oppressed, combating poverty, and pushing for a just world order free of uni-polar ...

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