Deutch: U.S. Must Expand Oil, Gas Production While Researching Alternatives

The cochair of a new CFR Task Force on U.S. energy policy says the White House and Congress need to act now to bolster oil and gas supplies and boost research into alternative power sources.

October 11, 2006

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

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The United States faces the challenge of growing reliance on foreign oil and gas at a time when these resources appear more and more concentrated in the hands of unreliable or unfriendly regimes. President Bush began the year with a call for energy diversification in his State of the Union message, including a call for a 22 percent increase in clean energy research. Congress, meanwhile, tried and failed to boost offshore exploration of oil and gas resources.

A new Council on Foreign Relations Task Force report calls for a more focused U.S. energy policy that acknowledges the need to secure oil and gas supplies, from domestic and international sources, for the foreseeable future. Task Force cochair John M. Deutch, a former CIA director who has held high-level energy department positions, says the diverse group of experts who contributed to the report agreed on the need to curb dependency on foreign sources of oil, but also felt higher gas prices can help stimulate conservation and investment in new technologies.

The Task Force report calls for expanded oil and gas production while at the same time encouraging incentives for research and development on new energy technologies, etc. Does this send a mixed message to policymakers?

The context for that is the realization that we’re going to be dependent on oil and gas for a considerable period of time, even under the best of circumstances. When I say we, it’s not only the United States. It’s also our close colleagues like Japan, Europe, and the like. So we call for attention to maintaining oil production, indeed expanding it around the globe, either in the Persian Gulf, or in countries outside the Persian Gulf, possibly some place in the United States because the world is going to need that oil while it’s making this transition. The reality is the transition away from oil is going to take a very long period of time.

Now the second point is a very important point. There is unanimity about the fact that prices of petroleum should rise. They shouldn’t rise at times when the market is at an all-time high, but in general if you have an increase in the price of oil, that will induce conservation, it will induce a more efficient use of oil, but also will be an incentive for the private sector to bring in new technology. But that will take time. And that’s why you have both the statement that you need to maintain production, and you also have to start today taking steps which will bring in technology which will allow you to avoid a petroleum economy forever.

In the U.S. Congress there is a dispute over the degree of local exploitation of oil and gas resources, whether it’s [the Alaskan National Wildlife Refuge], which the report seems to be encouraging the development of, or offshoring. We have these two drastically different bills from the House and Senate on offshore exploration, so that poses a challenge to this type of approach.

The panel was actually quite careful not to choose a region [of energy development]. It’s trying to tell the informed American public it’s not possible to ask everybody else in the world to continue to produce oil. But to say the United States is not going to do some expansion of production, whether it’s inAlaska, whether it’s off the coasts, or whether it’s in the Gulf, that obviously is a complicated question which involves environmental judgments and political judgments. The panel is showing that sustaining some attention to production is needed as well as the accompanying call for higher prices for petroleum.

On that second point, the panel couldn’t come to a consensus on a specific proposal. One suggestion was a gas tax, again another area of political volatility. Is the country ready for debate on that type of issue?

We think so. I might say the panel was unanimous in its view for the need of one or more of these measures. There were differences in views about which was the most effective and which was the most politically credible. There is great room for differences on that but the important point is everybody says it’s a good thing for Americans in the long run if the price of petroleum goes up, not starting from its value of $70 [per barrel], which it was just a few weeks ago but maybe if it falls back to $50, because it will induce conservation, it will induce new technology, it will lead to a search for alternatives.

There is one point in the report that says “History has shown that since 1973 the call for policy recedes as prices fade.” Now the report is coming out at a time when prices are dropping sharply. Does that undercut your message for a more disciplined approach?

The thing which is very, very important about this study from my point of view is it’s a council study. It had people in it with widely different backgrounds, widely different experiences, and yet a surprising, surprising commonality of viewpoints about the nature of the problem and what needs to be done. This is one of the most, from my point of view, impressive task forces that has functioned [because of the] wide differences in background but common view of the nature of the problem. Solutions will not come rapidly, solutions will take time, but you must take the steps today so that the changes will occur to allow us to avoid petroleum dependence forever.

It mentions the importance of Chinaand getting some sort of common strategy on energy and the market approach to energy resources. But the report says Chinais making a lot of special political deals to help it secure supply. What is the incentive for Chinato move away from such deals?

It may seem to be benefiting them today, but I think there’s a recognition, going back to the 1970s, that the major consuming countries—which now includes India and China, several others—have a common interest in a transparent and open international oil market, a common interest in rules of the road which will help countries increase their production, and maintain their production with good governance. This is something we’ll all need together, a common interest in being able to deal with supply interruptions, a common interest I’m sure in sharing shortfall, all of this is something which can take place in the International Energy Agency to bring its purview to include big energy consuming countries like India and China. Right now, they’re not a part of that arrangement. They should be.

Seeing them as competitors in the marketplace is not inconsistent with saying two competitors in the marketplace have a common interest in the nature of how that marketplace functions. And right now we don’t have as robust a group, a forum where big consuming countries can discuss questions about supply interruptions, questions about world storage, questions about rules of the road for dealing with state-to-state agreements, and that should be the case. There should be such a place which brings together all the consuming countries.

The task force comes out critically to date on what the U.S. government’s research and development effort has been, calling it fragmented and unfocused and so forth. Is this saying that the Advanced Energy Initiative announced earlier this year is inadequate?

It’s not aimed at any single administration. You’re looking at people who have worked in many, many administrations and observed them for a long period of time. It also has a strong statement in there about what Congress’ role is. A lot of the reasons the Energy Department’s program goes up and down, right and left, is they’ve got these problems that have to do with congressional as well as executive branch issues. This report wasn’t about energy or a research development demonstration program for the country. It just points out that the present one is not up to the task which is out there.

But people really look to a president to lead on these types of issues. The president made the famous “addicted to oil” comment earlier this year and there were some who were disappointed it wasn’t followed up by maybe some more far-reaching measures.

Presidents have made comments in the past. I will point out to you that this is an area where congressional influence is very, very strong. Coal states, oil states—very, very strong.

So you’re in a room with key policymakers, maybe from the Hill and the White House. What do you lay out as your top issues, the steps they can take right now to start creating a more disciplined approach to energy?

There are three which jump out at me. The first would be working with the consuming nations, India and China, getting them much more involved in a common diplomatic foreign policy, [an] economic approach to the smart oil buyers. The second one is I would like serious thought given to discussions with Congress about different mechanisms for increasing the tax on gasoline, with its proceeds being used in a socially and economically sensible effort, or a CAFE [corporate average fuel economy standards], or a tradable voucher system, depending on how negotiations with Congress go. The third one, I would certainly push very strongly for a much more robust and comprehensive energy research, development, and demonstration program.

The issue of nuclear energy, I would have expected it would get a little more attention.

The group speaks with a single voice on this. They favor a responsible use of nuclear power today, and they note in the very long run it will take some time. Electricity could substitute for transportation fuels, if you go to plug in hybrids and things like that. The report does give an endorsement of nuclear energy. It points out the possibility of electricity in the long run, but I think the report was pretty clear on the fact that the task force favors greater use [of nuclear energy] if it is done in a responsible fashion.