On May 1 and 2, 2006 the Energy Program of the Center for Strategic and International Studies hosted an annual program titled, "The U.S.-Saudi Energy Dialogue: Meeting Future Energy Challenges." The capstone session included addresses from Saudi Arabia's Minister of Petroleum and Mineral Resources Ali Al-Naimi and US Energy Secretary Samuel Bodman. Yesterday we provided Minister Al-Naimi's presentation, the "Future of US-Saudi Energy Relations." Today we provide for your consideration Secretary Bodman's address to the US Saudi Energy Dialogue.

U.S.-Saudi Energy Dialogue 
Energy Secretary Samuel Bodman
Center for Strategic and International Studies, Washington, DC
May 2, 2006

It is good to be here with you this morning. 

Let me begin by thanking the Center for Strategic and International Studies for hosting this dialogue. I appreciated the opportunity to participate in this event for the first time last year, and I am pleased to do so again today.

In these times of tight oil markets and high energy prices, I think it is especially useful to maintain open lines of communication between Saudi Arabia and the U.S. -- the largest supplier and the largest consumer of oil. And I think it is also beneficial that the public sees and understands that we are working together to keep the oil market stable and well-supplied. So I appreciate the efforts of CSIS in hosting this forum.

In addition to these considerations, it is always a pleasure to meet with my friend, Minister Al-Naimi. For both personal and professional reasons, I am glad that we are able to talk often. My most recent trip to Saudi Arabia was last November, during which we had very constructive consultations, and I was able to visit Saudi Aramco�s newest facilities, and state-of-the-art technology -- which I must say, are very impressive. 

And just last week, we saw each other at the International Energy Forum meeting in Qatar. 

Some of what I would like to say here this morning will be similar to my statement at the IEF meeting. Before I do that, I want to say a word about the current high gasoline prices, and our Administration�s response, because any discussion of oil markets here in the United States must be viewed and understood in the context of these conditions.

Last week, the President announced a four-point plan to confront rapidly-rising gas prices, beginning with a commitment to ensure consumers are treated fairly. He has ordered the federal government, including the Energy Department, to investigate whether the price of gasoline has been unfairly manipulated in any way. 

The President also called on the oil companies to reinvest their records profits back into the process of refinery expansion and technological innovation; and asked Congress to repeal the tax breaks the companies receive for certain types of expenditures including drilling in ultra-deep water in the Gulf of Mexico. In fact, President Bush has called for the elimination of incentives for oil and gas exploration in the last two budget years.

We are also calling on Congress to allow everyone who purchases a hybrid or clean diesel vehicle this year to receive a tax credit for that purchase rather than leave the number of eligible purchases capped. We�re asking them to streamline the process for building new refineries and for expanding existing ones, so production can keep pace with demand. And we�ve asked Congress for the authority to reform the Corporate Average Fuel Economy standards for passenger vehicles, just as we have already done for light trucks and SUVs. The President also directed EPA Administrator Johnson to issue temporary waivers if local fuel mandates are creating chock points in the supply stream. 

And, through the Advanced Energy Initiative, we are seeking to increase investment in research that we believe holds great promise for transforming the way we produce and use energy, particularly in our transportation sector. The President has called on us to redouble our efforts to produce hydrogen-power cars and trucks, cellulosic ethanol, and better, more fuel-efficient hybrid vehicles. The President�s goal of increased research and investment in new technologies will not only help us to deploy new clean energy sources, it will also take pressure off traditional energy markets. 

In addition to these efforts to deal with the demand supply of the equation, we�re also working to increase supply. This includes encouraging Congress to authorize environmentally responsible exploration in ANWR here at home and working with our partners overseas to expand the international supply, which brings me back, then, to the theme of today�s discussion.

Let me take this opportunity, first of all, to say that the United States and Saudi Arabia are, and I believe will continue to remain, strong trading partners with a strong mutual interest in the free flow of oil through open markets around the world. I also want to congratulate Saudi Arabia on its accession to the WTO. Greater Saudi participation in the global trading system will be beneficial to global commerce. 

In addition, I am pleased to note that both our nations continue to be strategic allies in the war on terrorism.. ..a war which, as the most recent bombings in Egypt demonstrate, continues to demand our constant vigilance.

As Energy Ministers, we are aware that a major target for terrorists is the production and flow of oil. They seek to disrupt oil markets and cause financial havoc, because the terrorists know that, in the long run, their worst enemy is the spread of freedom, stability, and economic prosperity around the world.

That is why enhancing the physical security of the world�s energy infrastructure was the subject of considerable discussion at the recent IEF meeting. I strongly endorsed the calls for enhanced security that were made in Qatar. 

All the participants at that meeting understood--just as all of you in this room understand--that continued, robust global economic growth depends on secure, affordable supplies of energy. 

This means that both developed and developing nations--as well as oil producing and consuming nations -- must work together to ensure reliable supplies of affordably priced energy. 

The tight market is also revealing, perhaps more urgently than ever, the need to expand the global oil and gas infrastructure at all levels. I think this is necessary because one of the key factors currently supporting higher world oil prices is the market�s fear of a supply disruption. 

The market�s geopolitical concerns are framed in a context of limited excess global oil production capacity. Fearing for the continuity of supply, market participants try to protect themselves by seeking inventory, bidding up the prices for available supplies. While analysts debate the magnitude of the so-called �fear premium� in the price of oil, there is no doubt that it exists -- the role of market psychology in price formation grows as the market tightens and becomes more volatile.

As the holders of the world�s only substantive spare production capacity and the world�s largest strategic petroleum reserve, Saudi Arabia and the United States are in a unique position to provide the supply assurance the world oil market is seeking. 

The United States and Saudi Arabia should undertake collaborative efforts to ensure continuity in the flow of world oil supplies. In the wake of last summer's hurricanes, our two nations demonstrated our ability and willingness to cooperate in taking action to mitigate a serious supply disruption. Neither nation wishes to interfere in the efficient functioning of the world oil market. However, during times of supply loss, by working together, we can supplement the market�s own response by cooperating to add supply to make up for that which has been lost.

In addition to these kinds of coordinated efforts, I hope that the United States and Saudi Arabia will continue their long history of communication and cooperation on energy issues at the senior technical level.

As an example, U.S.-Saudi bilateral energy consultations at the senior technical level have typically taken place at least every two years. Our senior technical officials know each other, they respect each other, and they can be frank with each other. Our long relationship has encouraged a sharing of views on an ongoing basis, each side is comfortable picking up the phone and calling the other. 

The goal on both sides has been to ensure transparency in our relationship. 

We are also encouraging greater transparency and the free flow of information through the Joint Oil Data Initiative, or JODI -- a major effort of the International Energy Forum to promote greater transparency and integrity of hydrocarbon data. During my November visit to the Kingdom, I participated in the launch of the JODI database in Riyadh. The U.S. is eager to work with Saudi Arabia and the nearly 100 other countries participating in the JODI exercise to increase the availability of reliable data on which investors can base sound decisions. 

Let me conclude by touching on what I think is another important point--which places the question of oil market stability in the larger context of energy security. I believe it is in the mutual interest of all nations to diversify their energy portfolios to include more alternative and renewable sources. 

This is the foundation of President Bush�s Advanced Energy Initiative, announced earlier this year during the State of the Union. Diversity is good for both consuming and producing nations. It inherently improves energy security by reducing dependence on any one type of energy; it reduces pressure on traditional energy markets, and it�s good for the environment, by increasing the sustainability of the world�s natural resources and reducing emissions. 

Energy diversity strengthens energy markets across all sectors, because it recognizes that we consume energy in many ways, for many purposes, and that we are all best served by encouraging energy supplies from many sources. I believe this is an objective we all share, and can work together to achieve.

On that note, let me once again thank CSIS for hosting this event, and thank my colleague Minister Al-Naimi for traveling here to participate in this discussion today.

Thank you. 

Source: US Department of Energy

• The Future of US-Saudi Energy Relations - Ali I. Al-Naimi - SUSRIS IOI - May 3, 2006
• The U.S.-Saudi Energy Dialogue: Meeting Future Energy Challenges
• U.S. Energy Secretary Visits Saudi Arabia - DOE - Nov. 17, 2005
• CSIS Energy Program