The Saudi-US Relations Information Service is pleased to provide its readers with a transcript of remarks from an April 27, 2004 conference hosted by the Center for Strategic and International Studies and the U.S.-Saudi Arabian Business Council.  The conference addressed U.S.-Saudi relations and global energy security with high-level speakers from the United States and Saudi Arabia.  The conference explored the link between affordable energy and economic growth. 

This discussion of relations and energy is especially timely.  Just last week Saudi Foreign Minister Saud al-Faisal, addressing a Foreign Policy Association and U.S. Saudi Business Council event, said he wanted to "sound the alert that the harmony of our long and fruitful relations is threatened."  Moreover, the rising cost of crude oil in the world market and of gasoline in the US while OPEC moves to cut production have raised even more questions about Saudi-US relations in this critical area of cooperation.  These questions recently consumed much of American media in the reaction to Bob Woodward's book "Plan of Action." They were also explored in an appearance on "Meet the Press" by Saudi Arabia's ambassador to the U.S., Prince Bandar. 

Therefore, we believe it is important to bring you the comments of leaders from Saudi Arabia and the United States on these important issues.  Transcripts from other presentations at the conference will be circulated in coming days.

The following are introductory remarks made by Brent Scowcroft, President, Forum for International Policy and Kyle McSlarrow, Deputy Secretary of Energy, U.S. Department of Energy. 

Part 1 - Ali Al-Naimi, Minister of Petroleum and Mineral Resources

Brent Scowcroft, President, Forum for International Policy and CSIS Trustee

Secretary McSlarrow is familiar to many of you from his successful career in the Congress, the Executive Branch and in political campaigns. In Congress, he served as Chief of Staff to the late Senator Paul Coverdale and as Deputy Chief of Staff and Chief Counsel to Senate Majority Leaders Bob Dole and Trent Lott.

President Bush appointed him Deputy Secretary of Energy in 2002. In that capacity, he serves as the Chief Operating Officer of a department responsible for 100,000 federal and contract employees, 17 national laboratories and a budget of $23 billion.

In addition to these responsibilities, he serves on the President's management council and as the American Chairman of the U.S. Energy Working Group established by presidents Bush and Putin.

It's been my pleasure to work with Deputy Secretary McSlarrow in several advisory capacities on issues relating to the Department of Energy's nuclear weapons responsibilities and non-proliferation.

Secretary McSlarrow, it is a great pleasure to welcome you to the podium.

[Applause]

Kyle McSlarrow, Deputy Secretary of Energy, U.S. Department of Energy: 
It's been the bane of my existence to have a name that starts off with four straight consonants, but General Scowcroft, thank you very much. It's a real pleasure to see you again. I've told my wife that apparently when you serve in a high enough capacity in government, when you leave government, you don't actually leave it. The only difference is you end up getting called back to do duty; they just don't pay you any more. But, we want to thank you for your continued service to our nation.

Mr. Al-Naimi, it's nice to see you again. Secretary Abraham does send his regrets. He's out West. He and I have a great personal respect for you and your team, and we've enjoyed working with you, and I look forward to continuing that relationship in the future.

Let me just say, I think the Minister spoke very well to the relationship that we have with Saudi Arabia. It's a deep and vibrant relationship. It really does transcend oil, although including today, that's often what we speak about. But, even in today's environment, where we are shoulder-to-shoulder in the war on terrorism, I think it's clear that even though there may be challenges in the relationship, and we may not always agree, there is much about which we do agree, and that's often lost.

In thinking about global energy security, it's obviously a fairly broad phrase, and both the United States and Saudi Arabia loom large in any global energy security structure. There are a couple of ways you can come at it. Obviously, my perspective as the Deputy Secretary of Energy is to think about it in terms of our policies and what we are pursuing, but I would submit that our policies, our agenda for the future, is one that we think is a win-win for producers and consumers. It's one where we think that both the United States and Saudi Arabia can agree. It's one that envisions continued cooperation and collaboration in the future. And, it may not necessarily be what people think it's going to be. I would say really two thoughts to encapsulate this. That is, in terms of what we are trying to achieve, first today, what we're trying to achieve I think can best be captured by the phrase "diversity of supply." And tomorrow, that is the long term, 20 years and out, I think can best be captured by the phrase "diversity of fuels."

In the 1970s when people talked about energy security, they really were talking about whether or not we were going to secure enough energy to meet our fundamental economic needs. Now, it tends to be whether or not we have enough supply in the free market at reasonable prices to support economic growth. The good news is that generally we don't have to worry about disruptions where people simply cannot supply enough oil or other energy commodities to meet demand but that doesn't mean that there aren't a lot of challenges.

I know Guy Caruso, who's here somewhere will be on a panel later on today who's the head of our Energy Information Administration, so I'll let him run through numbers but just a couple that I think capture the point, which is that in the market today, we're producing say 80 million barrels a day, demand is forecasted to rise to 120 million barrels a day in 20 years. In the United States, whereas today we import say 55 percent of petroleum, that's forecasted in 20 years to rise to 70 percent. So, our policy in terms of oil in this Administration has been to support increased production, not just in OPEC but in non-OPEC countries as well. In order to do that, because we're talking massive amounts of investment and massive amounts of financing that is needed, we've been very supportive of an investment climate that would encourage exploration and production in the United States as well as other countries.  And, I personally and Secretary Abraham personally have spent a lot of time talking to our colleagues -- whether it's OPEC Ministers or other colleagues and energy ministries in other non-OPEC countries -- talking about the movement of capital, what it takes, what would meet their needs and our needs, and that's a long-term prospect, but there's clearly a lot going on in the world today in terms of increased investment and building out not just the production capacity but the infrastructure to deliver it. 

But, in addition to fundamentally raising supply here in the United States, we have to recognize that we need to do more on the demand side as well. So, part of our policies have been to push Congress to allow President Bush to raise fuel economy standards on light truck vehicles, including SUVs. We have supported tax credits, for example, for hybrid vehicles, which would be more fuel economical. So, we have to pursue both at once. In the United States, we often get caught in the trap of either you're for supply or you're for lower demand, but the truth is you need a balance and that pervades everything we do when it comes to energy policy. We need more supply; we also need to be more conscious of how we use energy in general.

When it comes to natural gas in recent years, and my guess is that Alan Greenspan will talk to this at lunch, but production has been flattening out in the United States and in Canada. There was a time when we supplied all of our needs in terms of natural gas production. That changed some years ago to the point now where most of the imports that we get are from Canada, about 15 percent, and in recent years, the four regassification facilities, all four of them, are now operational, so there's an increased amount of investment and activity, let alone imports of LNG [liquefied natural gas] into the United States.

But, gas is not yet a global commodity, at least not in the same sense that petroleum is, and so, there is a lot of activity to focus on how we can make LNG a bigger part of the energy security picture around the world and here too; although it's not often remarked in this country, Saudi Arabia has an important role to play. We were pleased that Minister Naimi came to a summit on LNG, I guess it was in the winter time. Saudi Arabia, in addition to having the largest reserves of oil obviously, also has I think the fifth largest reserves of natural gas. So, there is an important global commodity market that is emerging that will have I think a tremendous impact in the future.

As we seek the diversity of supplies around the world, we do so with no illusions. We all recognize the importance of the Middle East when it comes to supply, and we all recognize the leading role of Saudi Arabia. I think the Minister mentioned proved reserves of 261 billion barrels. Whatever the right amount is, it's a lot. The Kingdom and the United States have a shared view about stability and security in the marketplace. For example, the Kingdom has invested in a pipeline infrastructure and networks to reach both its coasts, and they've insured that they, as the Minister said, have adequate surge capacity to meet a case of disruption, so they can help mitigate disruption. And, as he said, they've delivered on that responsibility. I know very well over the winter of 2002 when we were dealing with the strike in Venezuela, where you literally had production shut down for a number of weeks and crippled for a longer period of time, and then obviously the strife in Nigeria as the Minister mentioned and the war in Iraq -- they stepped forward. We welcomed that, and we appreciate it.

So, we do share a common goal of stability, and it has been a relationship and a cooperative spirit that has been borne out in times of crisis.

We, in our turn, maintain a strategic petroleum reserve for precisely those kinds of circumstances, and as we've made clear in a case of significant supply disruptions, that's what it's there for. It's a national security asset. It's not there to manipulate the markets or to manipulate price.

This is not to say that we don't have some fundamental disagreements from time to time. I think we've made clear our views and our disappointment in the recent OPEC decisions, but we can talk to each other about those. We don't necessarily have to talk, as I like to say to my friends in the press who follow us around, don't necessarily have to talk through the press to each other. We can pick up the phone and talk about these things, and these conversations are often more mundane than you would think because there's only so long that you can go on talking about inventories before people's eyes glaze over, but these are pieces of information in a market that is fairly complex about which there is a broad diversity of opinion. And, if there weren't, somebody out there could make a lot of money. And, if I could ever figure it out, I could do the same thing.

But, the truth is it's very complex; it's much larger and more complex than any one individual or any one nation, and so we do need to talk. We've been very pleased to join Saudi Crown Prince Abdullah's call for enhancing the producer-consumer dialogues that have taken place over the last couple of years, and I think Minister, you're going to see Secretary Abraham at the IEF in Amsterdam where the continuation of that producer-consumer dialogue will take place. And, these are important to do in their own right, but they also help us understand each other in terms of the different perspectives, and sometimes, they are fundamentally different perspectives about what's actually happening in the market because fundamentally what we're talking about are decisions about the future; and the future is unknown, and sometimes you get it right and sometimes you get it wrong.

But, I also think there's a tendency to put too great a stress on our relationship with Saudi Arabia in terms of oil. It is in my view unfair to that relationship that we expect in the United States that all our problems will be solved by others. I think our relationship will be stronger the more we in American can engage in some self-help.

One of those things, and in fact it's often been remarked, that the United States could do it's own consumer-producer dialogue. I mean, we're one of the largest producers in the world as well as being clearly the largest consumer in the world. So, we have these debates from time to time about continued proposals that we've put forward to explore, for example in ANWR and Alaska, where on the one hand you're talking about 2,000 acres that would be affected in terms of exploration and production, potentially up to a million barrels a day. And, it's an interesting thing that the very same people who will argue that an OPEC production cut say of a million barrels a day is a significant thing, are also quick to say a million barrels a day from ANWR is insignificant. We can't have it both ways. We do need to work with our friends and our producers overseas, but we also need to get our own energy house in order because we do send our own signals when we don't pass a comprehensive energy bill, and they may not be the signals that we actually intend to send.

I mentioned at the outset that there are really two themes -- one in terms of diversity of supply, but tomorrow, that is the long term. In the short term, I think what we're going to end up moving to is a policy, an enactment of diversity of fuels. By that, I mean in just the brief time that I have left, I'm really talking about the move toward a hydrogen economy. I think it's clear, we need to understand what that means and what it does not mean.

President Bush, I think most of you know, established a vision announced in the State of the Union in 2003, a vision of a hydrogen-powered fuel cell vehicle, whose emission was only water, that could begin market penetration sometime in the next 20 years. And, it is clear the environmental benefits of that, but I think it's less clear what the energy security aspects are.

As I said earlier and as the Minister noted, there are some significant challenges in terms of capacity to produce oil, maybe not in the next 20 years but certainly the next 40 to 50 years. I agree entirely that the naysayers have been routed pretty well over the last 50 years, and nonetheless as he also noted, it will come to an end at some point. The question is what will replace it, and are we really going to wait until that point before we figure out what happens?

The President has made clear for America, but we're doing this in concert with a lot of countries around the world, that we need to start now in thinking through how we move to a hydrogen economy. And, in terms of energy security, what it really means is this. In America, if you just take sort of the two large energy accounts  --  electricity production on the one hand and transportation on the other -- they're very different. In electricity production, nuclear power counts for about 20 percent; coal accounts for about 50 percent of electricity production; natural gas is an increasing percentage, is now the fuel of choice in the future; and then, you have renewables, including hydropower which are 10 percent or lower.

If you look on the transportation side of the ledger, it's of course all petroleum, and increasingly a higher percentage of that will be imports into the United States. We are a great trading nation. We are not going to get to the day where we are "independent." But, it doesn't matter what country you are and who's supplying you, any time you're dependent for 70 percent of any one commodity that is not a desirable position to be in. What we're trying to do with the hydrogen economy is take a lot of domestic resources, that is coal, natural gas, nuclear and so forth, and use them for the production of hydrogen. Hydrogen is not an energy source itself; it's an energy carrier. It has to be produced, and it can be produced from natural gas, from coal, from nuclear, from renewable energies like solar and wind.

We're not sure what mix that would be in the future, but we know it will be some mix of all of those. And, that's not to say that as the Minister noted that we're getting to the end of the age of oil. We are not. It's a question, and one reason why I believe, and I'll let the Minister speak for himself, one reason I believe this is an activity and a vision that's embraced, which may be counterintuitive, is because we all recognize that we're not talking about replacing the economy of today, but we are talking about, again, providing balance. So, our estimates are that with the hydrogen economy that the President has put forth, that in 2040, we reduce our consumption of oil to 11 million barrels. That's not completely replacing our dependence on petroleum as a major feedstock to industries, and it's a major driver in transportation, but it's not insignificant either.

Just to close out here, and then I guess we're doing a little Q&A session. We may disagree on what's required for stability in the marketplace in some instances, but we do agree on promoting stability. The United States and Saudi Arabia agree on helping each other in crises and in promoting economic growth. To do this, we will continue to expand and strengthen our dialogue.

I'm delighted to be here. Thank you again.

[Applause]

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