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Panel Detail:
Wednesday, April 29, 2009
9:30 AM - 10:45 AM
Oil and Energy Security
Speakers:
Robert Hahn,
Senior Fellow and Executive Director, Regulatory and Market Studies, American Enterprise Institute for Public Policy Research
Mikkal Herberg,
BP Foundation Senior Research Fellow for International Energy, Pacific Council on International Policy
Amory Lovins,
Co-Founder, Chairman and Chief Scientist, Rocky Mountain Institute
Scott Nyquist,
Director and Leader of Energy Practice, McKinsey & Company
Moderator:
Peter Passell, Senior Fellow, Milken Institute; Editor, The Milken Institute Review
In the next two to five years, oil prices are likely to revert back to levels seen during the 2007 oil shock, as global demand vastly outpaces supply, said Scott Nyquist of McKinsey & Company. Given the amnesia the U.S. typically has with regard to the pain felt in previous oil shocks, moderator Peter Passell of the Milken Institute asked panelists to weigh in on how consumers and decision-makers should plan rationally for the future.
Panelists Mikkal Herberg of the Pacific Council on Energy Policy and Amory Lovins of the Rocky Mountain Institute both stressed that developing countries (particularly India and China, where the process of motorization speeds along) are keenly aware of their role in driving up oil prices and also worried about their dependence on imported oil. But as Lovins pointed out, they are also moving to utilize leapfrog technology as an integrated part of their policies. "China's leaders are deathly afraid of falling into the oil trap we did," said Lovins, adding that because of this, many pundits who are simply extrapolating energy demand from past demand are probably overestimating the impact. Still, the impact is not minimal. Herberg pointed out that China is adding 11 million cars a year to its fleet.
Considering the likelihood of increasing demand, Passell asked panelists to comment on the viability of "brute force drilling" to supplement supply in the U.S. Robert Hahn of the American Enterprise Institute said that a cost-benefit analysis has suggested drilling in some areas (such as the outer continental shelf) might be worth opening up. But both he and the other panelists did not believe that increased drilling in the U.S. would help to lower oil prices.
Commenting on the plausibility of drilling in the Alaska National Wildlife Refuge (ANWR), Hahn said that there are certain expectations of the future that he believes could make that profitable, but Lovins countered that it is extremely expensive and risky to drill in ANWR due to the crumbling and indefensible infrastructure of the Trans Alaska Pipeline. If someone were to destroy part of that pipeline in the winter, he warned, "all that hot oil would congeal in a couple of weeks to the world’s biggest chapstick."
Concluding that there were few supply-side solutions that are going to make much of a difference, particularly given the resource nationalism and insecurity around many of the existing proven reserves, Hahn and others said that price effects and efficiency gains would be the best ways to change demand. Herberg maintained that the U.S. will continue to be the global delinquent until we raise the cost of oil. Nyquist chimed in that the main question is whether the U.S. can weather future oil shocks, and if the government decides we can, then we should "let the market do its thing"; otherwise there may be room for interventions or mandates.
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