Analysis of Global Security | Gal Luft | Talks at Google

Hello everyone and thank you for coming. We have a very special guest with us today as part of the Authors at Google program. We're very pleased to have Dr. Gal Luft speak with us today. Dr. Luft is one of the foremost country's leading experts in energy security. He's also the executive director of the Institute for the Analysis of Global Security IAGS A Think to Inc. Focused on energy security. And he's also the co founder of the Set America Free Coalition, an alliance which seeks to promote ways to reduce America's his dependence on foreign oil. He has been called one of the most recognizable figures in modern energy and security issues and Esquire magazine included him in his 2007 list of America's Best and Brightest. In addition, Dr. Luff has published numerous studies and articles on security and energy issues in various newspapers such as the Wall Street Journal, Foreign affairs and the Washington Post. And just as a quick reminder, if you have any questions or comments, we'll Dr. Luff will be speaking for a few minutes for a brief amount of time and then take your questions at the end. So that being said, let's please welcome Dr. Luff to Google.

Thank you very much. Pleasure to be here. I think at $100 a barrel, nearly, it's an appropriate topic. And the thing that I talk about before I talk about oil is I always like to use another analogy, which is the history of salt. And salt, to those of you who don't know, has always been a strategic commodity throughout human history. Until the beginning of 20th century, it was the only way that you could preserve food, carry high protein food across continents, allowing militaries to march into Asia and across Europe. Really, if you had a salt mine, an endowment in your country, your country would be very well suited to be in the forefront of the world economy. And all this happened until the invention of refrigeration, until the invention of canned food. And then technology basically deemed salt just another commodity. It's no longer a commodity that we'd go to war over. It's no longer something that countries that have salt mines are not in control of the world, geopolitics, et cetera. So in a very odd way, we are facing a similar situation with oil. Oil today is a strategic commodity. Countries that have oil are very much calling the shots today in the world. Their revenues are increasing by the day. Just five or six years ago, a barrel of oil was selling for about $20 a barrel. Today it's almost 100. So if you have oil, you have more than quadrupled your wealth and your revenue. And with that comes a lot of other benefits. If your country has oil, you know you can get away with human rights violations, with defying the rest of the world when it comes to developing weapons of mass destruction, like we see in the case of Iran, when it comes to situations like we see today in Darfur, that we cannot. And the genocide in Darfur because the Chinese are not playing along because 7% of their oil imports come from Sudan. We saw a similar thing recently in Burma. China is dependent on oil and gas coming from Burma. And when we think about why didn't we get China to support Security Council measures? Again, energy effect foreign policy not only of our country, but also of every other country in the world. Energy, as Secretary Rice said last year, wraps our foreign policy. It undermines our foreign policy. It enables countries that otherwise would not have much power in the international arena to call the shots. We also see today that it begins to have severe impact on our world economy. When you have a transfer of wealth of historical proportion from economies of oil consumers to the economies of the producers. To the tune of just this year, well over $600 billion went to the coffers of OPEC countries. And this is only the beginning. What is this money doing? Well, we all know about the fact that some of this money is used to finance terrorism, to finance radical Islam, to finance the proliferation of an ideology that is extremely hostile to the West. But there are other issues at stake here. Our economy is bleeding. And we are beginning to see the first signs of this transfer of wealth with our currency, with our trade deficit. You know, for we borrow every day $2 billion as a country. One of those $2 billion, $1 billion is for oil imports. So this is something that affects our economy in a very, very profound way. I would also add that when you transfer your wealth to other countries, you want to ask yourself what kind of purchases they do with the money. And we are seeing that oil countries, oil countries that have oil, not only Middle Eastern countries, also Russia, Venezuela and others are, but primarily Middle Eastern countries are on a shopping spree. They buy everything that moves. In fact, they have so much money that they don't even know what to buy anymore. And they are buying telecommunication, investment houses, banks, they just recently bought 50% of the London Stock Exchange. Cultural institutions, media conglomerates. You know, just if you think about the amount of money that OPEC generates per day, at about $100 a barrel, they can buy GM within about a week. I don't know how many days we're going to take to buy blocking vote in Google. But I can tell you that if at current oil prices, if they decide to begin to purchase voting blocks in S and P companies, within about seven years, they're going to be able to buy blocking votes in every S and P company. So we're talking about major, major transfer of wealth. And I think that the consequences are quite profound. I would also add that what we're seeing today, there's a very good reason why oil prices are so high. Not only because demand is very strong, because China and India are growing very fast, as well as our own economies that are growing, and the demand for oil is very high. We also see that the supply is not there. And the reason supply is not there is for several reasons. One of them is because simply a lot of those oil countries are not stable. Countries like Nigeria, Iraq and others are just not politically stable. And it's very difficult for oil companies to work in an unstable and inhospitable environment. But beyond that, what we see is that the governments that own the oil, after all, don't forget that 80% of the world's oil reserves are in the hands of governments. Not Exxon, not Chevron, not those international oil companies, but governments. They're not very open and transparent. They don't allow companies to come in and explore. They don't have any particular interest to ramp up oil production to the level that prices will go down to the level that we were used to. So what we see today is that part of the problem is that the oil governments are not helping us increase production and meet the very strong demand with supply. We have another problem that is creeping on us and that is the fact that we see a wave of politically motivated sabotage against oil. The jihadist movement has identified oil as the Achilles heel of the West. They're going after oil targets right and left. They are blowing up facilities, oil all over the world, but primarily in the Middle East. It's very easy for them to do it. After all, all you have to do is use a couple of pounds of explosives and you blow up a pipeline. But there is an impact here. The impact is that when you draw oil off the market, there is less availability of oil. Oil prices go up, more money flows from our economy to their economies. More money percolates into the coffers of the jihadi movement. So, and they see it as a way to break the economic backbone of the West. They see it as a way to defeat us economically. And that's why you see Bin Laden and Ayman El Zawahiri and other jihadist leaders saying openly that it's more important to blow up a pipeline in Iraq than kill 10American soldiers in Iraq, because they understand that this is a key part of their economic warfare strategy. Furthermore, they also have been able to quite successfully deploy suicide terrorists. And we see an increasing phenomena of people who are willing to sacrifice their lives in order to deny us oil. Imagine to what kind of level you need to reach when you are willing to blow yourself up in order to take oil off the market. It's quite another level than what we've seen with suicide bombers so far that going after our blood now we see suicide terrorists are more interested in going after our lifeblood. And that could be pretty dangerous. If you think about a scenario of a terrorist hijacking a plane, flying it into and crashing it into place like Rastanura or Abqaiq, one of the big processing facilities in the Persian Gulf, something like this can take from the oil market anywhere between four and five, six even million barrels a day. We're talking a major, major economic dislocation if something like this happens. So I think that when you really look at the combination of the strategic, the economic, to a large extent also the environmental issues associated with oil, we see that we have almost a perfect storm here. And none of the components of this problem is going to get better over time. China and India are going to continue to grow. Instability is very likely to continue. I don't see anything in the horizon tells me that if we stay with oil as our primary source of transportation energy, after all, 97% of our transportation energy is petroleum based. And without transportation, our economy cannot function. Particularly the American economy is so much designed around a car and mobility and goods moving back and forth. So if we're really in the business of transportation, we need to figure out a way how we're going to ensure the mobility of our society in the coming years. And I'm saying it particularly because we have a very unique situation. Because when you think about our fleet automobiles and when you talk about oil, it's primarily automobiles. Cars, trucks. The life cycle of the American car is about 17 years. That's how long it stays. So when you buy a car, you know it will be on the road for about 17 years. And what you want to ask yourself is, does it really make sense to me for us to put cars that can run only on gasoline or diesel, petroleum based diesel, if we're not certain that we're going to have a plentiful and cheap supply of liquid fuels in those next 17 years. Because if you ask this question, and the answer is, I'm not sure, you know, things don't look pretty good with regards to oil, then maybe we should put different cars on the road, cars that use something other than gasoline, and not only liquid fuels made from petroleum. So I think this is our departure point. When we started thinking about this issue, we said to ourselves that we don't think that we have 17 years. We don't think all the indicators show that things are going to get more complicated, more terrifying, frankly, in the years to come. And this is why we need to begin to think how we're going to break the dominance of petroleum in the transportation sector. Or in other words, how do we turn oil into salt? How do we just, like with salt, turn from a strategic commodity to just another commodity? How do we turn oil from a strategic commodity to something that is just like any other commodity, can be compatible with, can be, can compete with something else, and this without compromising our way of life, without compromising our mobility and of course, our safety. So what we did at the Set America Free coalition, which you can learn more about it@setamerica free.org which is basically an alliance of national security, environmentalists, green labor unions, religious groups, all kinds of constituencies that came together in support of the ideas of the coalition. Let me tell you, what is the vision here? First of all, we need to remember that we don't have a lot of oil in this country. We consume 25% of the world's oil. We only have 3% of the reserves. So if we stay with oil, we're not going to solve any of the problems. But we have a lot of other sources of energy. This country is blessed with many other sources of energy. We have 25% of the world's coal reserves. We have biomass, we have agricultural waste, we have municipal waste, we have sources of electricity like solar, wind, nuclear power, et cetera. So we have the energy endowment. We don't have the oil endowment, we have the energy endowment. So how do we basically change the playing field in the transportation sector? The first thing we need to embrace is a concept that we call fuel choice, which is a very, very simple and logical concept. And the concept basically says that we as Americans have the inherent right to decide what kind of energy we are using for our transportation, just like we have the ability to do it with the electricity sector. When we buy electricity, we can decide we want to buy wind electricity, solar, nuclear, call derived. There is choice there. When it comes to transportation, there is no Choice. And choice is very fundamental aspect of our lives. If you think about it. You go to the grocery store, they ask you do you want paper or plastic? When you go to a restaurant, they ask you, do you want red wine or white wine? Anything you buy, you go to Starbucks. I saw here in the refrigerator, you have maybe 50 different types of beverages here. And when you go to the gas station, you don't have this choice. It's gasoline, gasoline, gasoline made from oil, Oil, oil. So the first thing that needs to happen is that every new car must be a platform on which more than one fuel can compete. It should be a platform that can absorb other fuels that can compete with gasoline. Because today gasoline is king. We have a monopoly, basically, only oil companies. Only if you produce gasoline, you can play a role in the transportation sector. So there are many other fuels that can compete with gasoline without changing the platform, without necessarily changing the size of the car, the structure of the car. There are certain things that need to be changed, but they're all under the hood. They are a black box to the consumer. So you don't really need to know or think about it. It's out there, it's happening. But you're basically going to drive the same car that you drive today. The first thing that needs to be done is for us to decide that every new car sold in America should be a flex fuel car. Flex fuel cars, to those of you who don't know, are cars that can run on any combination of gasoline and alcohol at any ratio. Just like you can mix coffee and milk at any ratio, you can mix gasoline and alcohol at any ratio, and the car will combust this blend. 50, 50, 60, 40, 70, 30. You decide how much of which goes in, and the car will know how to adjust its engine accordingly. Now, since flex fuel cars are very cheap to make, it's only about $100 per car. And since all the automakers know how to make them, this is not fancy technology. The first flex fuel car was made by Henry Ford about 100 years ago. It's called the Model T. And so it's nothing new about it. Brazil went from 0 to 80% market penetration of flex fuel cars within three years. So things can happen pretty fast. We believe that if you mandate flex fuel feature, if it becomes a standard feature in every new automobile, just like seat belts and airbags, then that creates an ability for the market to follow suit and deliver the fuels. Nobody is going to produce fuel if we don't see that there are enough cars that can consume the fuel. Nobody is going to install a pump unless they know that there are enough cars out there that can come in, into the gas station and consume or buy the fuel. So, you know, in everything we do with energy, it's always a chicken and egg problem. So we think that flex fuel is the chicken. And once we, it's a low cost chicken that can really deliver us a very precious egg, which is the whole concept of fuel choice. Once you have, by the way, those cars, we're going to go way beyond ethanol. You know, when you think about alcohol, probably the first thing that comes to mind, ethanol and most of the ethanol made in the United States is corn ethanol, which is not that great if you think about it, because corn is not that rich in energy and it requires certain subsidies. But if we are really serious about ethanol, we need to move beyond corn. We need to develop ways to produce ethanol from the rest of the crop from cellulosic material. We need to also remove the 54 cent tariff, import tariff on imported ethanol so that sugar producing countries in Latin America, in South Asia, in Africa, poor countries that can produce sugar will be able to sell us fuel and we'll be able to use it in our automobiles. But they will also benefit because we're talking investment opportunities, we're talking jobs for these countries, we're talking about enriching countries that otherwise will fall on the side of Hugo Chavez. But if we sort of enrich them, it's a win win situation. But more importantly, I think if we are serious about alcohols, we need to move beyond ethanol altogether. I mean, ethanol is good, we need much more. And scalability is perhaps the most important issue here. I mean, people don't realize that our, you know, when we talk about those 22 million barrels of oil every day that our country consumes. I mean, 22 million barrels, when you think how much it is, think about a container at the size of twin Towers, all right? Those two buildings that are no longer with us. Think about a container this size, full of oil. This is how much oil our country uses every day. Okay? So we need to think scalability, what can scale. We're not interested in 1 or 2% solutions here. We are interested in something that can really make a difference. And if you are interested in making a difference, you need to move beyond ethanol and also develop other alcohols, other ethers. One of them is, for example, methanol. Methanol is another alcohol that can run in flex fuel cars. It's called wood alcohol. It can be made from everything that can make ethanol. But also it can be made from other carbon carrying substances. It can be made from coal very cheaply at about a dollar a gallon. It can be made from natural gas, it can be made from various streams of garbage. And it can also be made, believe it or not, from CO2, the very same stuff that we're all interested in getting rid of. We can convert CO2 into methanol fuel. The Chinese are very interested in methanol. In fact, they're more interested in methanol than ethanol. And eight of their provinces have already decided that methanol is their alternative fuel of choice. But all of these alcohols are only as good as if we develop another component of the fuel choice plan. And that is the use of electricity for transportation. Now, today we no longer produce electricity from oil. So sources of electricity like solar, wind, nuclear are not really relevant to the oil debate because again, we don't produce electricity from oil. However, if we begin to use electricity, use electricity as a fuel, as transportation fuel, then all of those renewable sources and nuclear become relevant to the transportation sector. They can displace oil, which is why it's so critical to use electricity for transportation. I know that Google is playing a very important role in trying to push plug in hybrid cars and get them to the marketplace. There's a lot of excitement and enthusiasm about the prospects of plug in hybrid car. Not only plug ins, but also electric, fully electric cars with more limited range. But for some people they may be a good enough solution. But once plug in hybrids come into the marketplace and allow you to drive a certain chunk of your daily driving on, off the grid electricity, which is very cheap, very clean, very reliable, and most importantly, it's not made from something we have to import because we don't import electricity other than a little bit of electricity from Canada. But that's not a big deal. So if we move from oil to electricity, we essentially move from an imported resource to a domestically produced resource, which is good, good for us. And there are many, many reasons why electricity is superior fuel to gasoline. But for this we really need to develop the batteries and the control systems and, and get the early adopters to buy the cars and get them used to the new behavior of plugging in your car every night, just like you plug your cell phone, laptop and other things that we use on a daily basis. But I think it's not a big deal because people don't like that much to go to a gas station anyway and they should not care. And frankly, if they don't plug in their car, they Use gasoline just like you use with a regular hybrid car. But the beauty of it is that when you take a plug in hybrid car and you Also add this $100 feature that makes it a flex fuel car, what you end up getting is a multi fuel platform. You get a platform on which many, many different types of fuel can compete, be it gasoline and ethanol and methanol and butanol and then electricity, with all the sources of energy that make our electricity. And when you look at the fuel efficiency of a car like this, if a regular plug in hybrid car gives you about 100 miles per gallon, and then you tap into a liquid fuel tank that has, let's say, 80% alcohol and only 20% gasoline, then you stretch every gallon of gasoline by a factor of five, which gives you roughly 500 miles per gallon of gasoline. Now this is a car that Bin Laden doesn't particularly like, because a car like this can essentially break the vertical monopoly of opec and it introduces new currency basically into the transportation sector. Today we have the petroleum currency, but if we bring the electricity currency and the alcohol currency to compete with electricity, then we make oil just another commodity. And we are in a situation nobody that has oil can shut us down. Nobody that has oil can tell us what to do or defy or violate human rights with impunity. We can move into a very, very different playing field here. And those technologies are with us. I mean, we're not talking science fiction here. We're talking about things that are completely doable with some role for government, and government needs to play a certain role. Incentivizing early adopters to get these technologies, incentivizing refueling stations, incentivizing the first, a few that will come up with good ways to produce alcohols and batteries. And of course, mandating, as I said, that every new car has this hundred dollar feature that allows it to be a flexible car. So there is a role for government, and I think we need to ask our government to do all these things. But today most of our interest in Capitol Hill is and how to get our cars to be more efficient. Now, there's nothing wrong with efficiency per se, but if you think, you look at the proposals that we see today of taking our current fleet of 25 miles per gallon and within 15 years or 20 years to move it to 35 miles per gallon. And you say, okay, 25 miles per gallon going to 35, and then we have 25 miles per gallon going to 500. You know, I'm not really that interested in 35 miles per gallon by 2020, if we can get 500 miles per gallon at around the same time frame. So, you know, I think that we need to think much more strategic, because the current set of problems that we are facing with regards to oil require us to think strategically and not incrementally, not those kind of piecemeal solutions that are not going to make a difference because our economy is growing and so are the other economies. So we're going to be like the Red Queen from Alice in Wonderland, running faster and faster just to stay where we are, unless we really adopt solutions that are much more strategic, much more comprehensive, much more bold, and are based on technology that are either with us or technologies that are very close to the marketplace. If we do all that, we can essentially, within 15, 20 years, really see a sea change in our transportation sector with all the geopolitical and economic benefits that you know about. And this sea change would enable us to fuel choice, would enable us the ability to decide which kind of transportation fuel we want to use. Do we want to buy our gasoline from Saudi Arabia? Do we want to buy our ethanol from the Midwest, or methanol from a coal state? Or do we want to use electricity from domestic electricity sources? It's up to us to decide. Nobody is forcing us to choose plastic over paper. We can decide what we want to use. Right now, you don't have the choice. So at Set America Free, we would like to give you this choice. And it is up to you to decide if you want to exercise the choice and to do it. We need to really change the currency. This is the most important thing, changing the currency and making oil a commodity that other players can compete with. Utilities, okay, Utility companies can produce electric. Now there are players in the transportation fuel market. Farmers can grow and produce alcohols. Now they are going to become players in the transportation fuel market. If we can make the liquid fuels from alcohol from coal, which is a much more, much cleaner process than the coal to liquid technology that is very dirty and polluting, we can gasify the coal, and it's pretty clean to do, Then the mining community, the coal states, can become players in the transportation fuel market without compromising the environment. At that point, you have very healthy competition. At that point, you have exactly what we need, a market in which we have no monopoly. And then we can roll back our system and tell OPEC that they're no longer the only game in town. So this is the vision. I hope that the public will become more educated about this, that our presidential candidates will embrace this kind of vision and that in the years to come we'll see much more of this. We don't have time. I think that every day we like the frog in the hot water pot and the temperature is rising and we need to quickly jump out of this pot before it's getting too late. So I thank you for your ear. And for more information, Visit us at www.setamericafree.org. thank you. Questions? Very nice to hear. But what's stopping us from doing it right now? What is the major obstacle? The major obstacle is that Congress is more interested in solutions that are incremental and solutions that lump too many things together. So you end up getting nothing done. Because they always have this tendency to lump the oil issues with electricity issues, with the nuclear waste issues, royalties to oil companies. And when you try to solve all the problems in one shot, you end up getting nothing done. And that's not good. So I think that we need to slice the cake to narrower slices and deal with each problem separately. Let's have a bill, fuel choice bill, transportation fuels automobiles, deal with all the other energy related issues in separate pieces of legislation. The worst outcome that we have today is that we get nothing done. And then year after year things just get worse instead of getting better. So our philosophy is let's take the stuff that we can agree on, let's take the fuel choice, get the people right, left and all the others and push this forward while we are fighting for all the other issues that have been dominating the energy debate, like drilling in anwr, like fuel efficiency standards, things like that, that really bog us down. You had Set America Free hosted presidential candidate Bill Richardson a few weeks ago. Does he agree with some of the objectives of Set America Free? Well, presidential candidates always like to have very ambitious goals and he does too, quite frankly, most of the stuff that needs to be done without discounting the role of the President, the stuff that we are asking that we would like to see, things like flex fuel mandate, things like incentives, tax incentives, et cetera, these are all congressional powers. So I think that the main obstacle is Congress. The President can advise, the President can encourage, he can really use his bully poppy to lead, but by the end of the day it will be a congressional mandate to implement this kind of vision. So I think regardless of who the President is, he or she will have to work with Congress and make sure that they are on the same page. What kind of progress would there be for making local governments? So for example, if you just focus on California, you've got California to make a mandate the rest of the country will pretty much have to follow because of just. That's true. The local governments, not only at the state level, by the way, municipal level, they all have fleets. They all can become early adopters. They all can make purchasing orders and decide that they want to use their fleets as sort of to create demand for those new technologies and to enforce it on their employees. I think they have a very important role to play. And as you mentioned, California can also change the market in different ways because it's so big and it affects the, you know, the auto industry must heed when California says, we want a specific type of car. Right now, California is investing most of its effort in building hydrogen fuel cells in which you have more refueling stations than cars. I don't think that that will get us anywhere. I think we need to sort of move and focus on talk less about Manhattan projects in which you need to create all kind of things that don't exist and focus more on a deployment project in which we deploy the stuff that does already exist. You said that terrorists have an interest in keeping America. But on the other hand, you also said that they strategically sabotaged pipelines, which.

Can be suggested that would be opposed to the oil trade.

Well, they definitely. They do it because the short term benefit is to raise oil prices so that America and the rest of the west is weakened while they become richer and richer. So they want to expedite the transfer of wealth. It's in their interest to see this. I don't think that they think that strategically about one day we'll no longer need oil. They realize that the Muslim world has 75% of the world's oil reserves. And as the years go by, the share of the pie of those countries only increases. So over time, those countries outside of the Middle east will be, you know, the oil will be depleted. And they believe that at that time they'll be, you know, in the driver's seat of the world economy. The question is, are we going to preempt them and implement this transformation before they gain full dominance over the world economy? Thank you very much.