Outcome of Secretary of Energy Bodman's Trip to Asia and the Five-Party Ministerial Talks

MODERATOR: Thank you, everyone, for joining us for our roundtable with Assistant Secretary Karen Harbert from the Department of Energy. The topic of today's roundtable which is on the record, is the outcome of Secretary Bodman's recent trip to Asia and the five-party ministerial talks. So I'll just turn it over to Ms. Karen Harbert and she'll be happy to answer your questions.

ASSISTANT SECRETARY HARBERT: Thank you. It's great to be here with you all today. I thought I would spend at least just a couple of minutes talking to you a little bit about China, since that was a major focus of the trip. We certainly were in -- the Secretary was in Japan and Korea prior to the trip. I was not on that portion of the trip, so I'm prepared to answer any questions to the best of my ability about those two countries, but I'll talk mainly about the strategic economic dialogue in China and the five-party ministerial in China.

Before I do that, and forgive me if I'm preaching to the choir here, but I think it's important to lay out a couple of facts about what's happening in China's energy sector which will shed some light on why we are placing the amount of effort and interest in furthering our discussion, our dialogue, our cooperation with China.

If you look at what is happening with energy consumption around the world and the forecasts that we have for energy consumption, to increase by about 50 percent between now and 2030, 70 percent of that growth is going to come from emerging economies, 30 percent of that growth is going to come from China alone. China right now has 9 million cars on the road. And by 2030, they will have a hundred million cars on the road. What type of fuel are those cars going to consume and what kind of cars will those be? That's a dramatic increase.

If you look around the world right now, there's 1.6 billion people that don't have access to electricity; 250 million of those people live in China. 250 million people is approximately the same population as the United States and they don't' have access to electricity. And with the type of economic growth that we have seen in China as a result of them opening up their economy increasingly to the international global markets, they're experiencing growth of 9 percent. Their 11th five-year plan anticipates or commits to 7.5 percent growth, so that middle class that has been developing will greatly increase over the next 25 years. Their consumption of appliances, cars, et cetera will grow and that 250 million people, at least a percentage of the population of China that does not have access to electricity will certainly shrink if they're able to achieve their objective.

Over the period that I indicated between now and 2030, the amount of investment that we see that is needed to meet energy demand around the world is $20 trillion, 4 trillion of that is expected to occur in China. So one-fifth of the investment needed around the world to meet increased energy demand will need to occur in China. Right now, China consumes about 7 percent of the world's oil. By 2030, they will consume 13 percent of the world's oil, so close to doubling their consumption of oil between now and 2030 and that will put them at approximately 15 million barrels of oil by 2030. As a comparison, we consume currently in the U.S. a little over 20. And our growth will certainly continue to expand, but their growth will be expanding much, much more rapidly than ours is.

If you look on the Department of Energy's website -- I might have one copy here -- there is a chart in the newly released World Energy Outlook which shows the U.S. and China's growth. I do have a copy here. This is total energy consumption in China and the U.S. And if you look at about 2040 -- the U.S. is the green line, China is the pink line -- at some point, we intersect and the China appetite and consumption of energy will outstrip that of the United States. So we want China's economy to continue to grow. That's good for the global economy. It's good for China. It's good for U.S. goods and services. It's a good market for us. But in order for that growth to continue, they have to have access to energy. And so that is sort of a backdrop of why we are having a lot of these discussions. It is in our interest that they be a more efficient user of energy, the less they use, the more there is for the whole world. And it is in our interest for them to be a cleaner consumer of energy.

They have a very robust industrial sector, which is fueling their economy. It is not the cleanest industrial sector. They are adding a coal-fired power plant, one a week -- and I'm saying power generation plant -- one a week, roughly, in China and they're not employing the cleanest of technologies. And that certainly is affecting their environment and that's affecting the world's environment. And so over the longer term, it is certainly in their interest and our interest for them to have access to cleaner energy technologies.

We discussed with China our approach to energy security and our definition of energy security really is having access to a supply of reliable, affordable secure energy. And China has a somewhat different definition of energy security and it is revolving around having and owning the reserves, not just having access to, but owning the access to the reserves, which has put them on a fairly aggressive buying spree around the world of energy assets, be they at a minority or a majority position. And our discussions have tried to bring to light the importance over their future. And when you look at the type of growth they're going to be experiencing of relying on the market to supply energy because they're never going to be able to own enough reserves to fuel that type of growth. They're going to have to rely on the markets to supply those types of energies. And if they do that, they will have access to a more -- a broader supply of energy, a more flexible supply of energy, since it can come from multiple sources and multiple types of fuels. And so we really talked about market principles and that fit in nicely with what the strategic economic dialogue is about. It is about the U.S. and China looking 30, 50 years down the road and how our economies will cooperate, rather than compete with one another. And I think our message, whether it was in the development sphere, the energy sphere, the health sphere, the financial market sphere, it's all about how we can cooperate with China, to be stronger, rather than seeing ourselves as competitors. We certainly don't see ourselves competing with China for energy resources. We do see an opportunity to work with them to help them be better consumers of energy, however.

We also spent some time on another part of the energy security question which is strategic oil reserves. We and the United States obviously have a significant strategic oil reserve. In China they have embarked upon establishing a strategic oil reserve. They consume less oil than we do, so obviously their oil reserve will be smaller. They have just -- they have completed the construction of the first phase of their oil reserve and are in the process of beginning to fill it in a manner which will not cause any price reaction in the market. They're doing it in a very rational, subtle way in order not to cause any volatility in the market.

We had some very detailed discussions about the governance of a strategic oil reserve. In the United States we use our oil reserve only in the event of a severe supply disruption. And the Chinese after much reflection in looking at different models around the world have concluded and stated in these meetings that it would not be in their interest to try and use their reserves to manipulate any type of domestic price, high prices, high price volatility that they would be using the strategic oil reserve in the same manner that we would, which is to mitigate a supply disruption. So that is good news for the market. It is good news in terms of their embracing market principles in not using any type of oil reserve, large or small, to mitigate high prices in a domestic market. First of all, they wouldn't have enough reserve to actually mitigate it over the long term and the effect might be quite small and they have recognized that.

Let me just turn to the five-party talks for just a minute and we'll open it up for questions. The five countries as you all probably well know were the U.S. and China, Japan, Korea and India. They represent close to 50 percent of the world's energy consumption. And the ministers at the invitation of the Chinese Government met to discuss other issues now that we can address more collectively to enhance our energy security. Are there policies that we should be looking at that one another are adopting that would increase our energy security? And what should be our approach towards producers and what should be our approach to other consuming nations, knowing that we are significant stakeholders in this market. There is a communiqué that was issued from the meeting. I don't know if we've brought it here today.

STAFF: No, but I'll forward it.

ASSISTANT SECRETARY HARBERT: We have it electronically, which we can get it to you right after this meeting. And you can see the conclusions that were drawn from it. But what I think is most important, rather than the details is the broad agreement amongst these countries on diversification is central to our energy security, both singularly and collectively. Diversification of the types of energy and the places where we get it from, our commitment to increased energy efficiency. We have to be more energy efficient users of energy. The commitment on how to use strategic oil reserves and the commitment to accelerate our research and development to find advanced technologies and to look for ways that we collectively can get these technologies out into the marketplace in a manner more quickly than what would happen without any government facilitation.

Now I think we were -- you know, people have asked, well, what were your points of differences. You've got very different governments, very different countries. And in the energy sector, I think you are finding broad agreement on the pursuit of policies that revolve around markets, open and transparent regimes. And lastly, we talked about investment.

As I mentioned early on in my comments, if you look around the world at $20 trillion of investment is needed to meet energy demand between now and 2030, what do we need to do to make sure that investment happens? The biggest energy security challenge facing consuming and producing nations is if that investment doesn't happen. The investment then won't -- I mean, the molecules won't come out of the ground and won't be fed into the global energy market and the revenue won't accrue in any of the countries that possess the reserves, so it's a lose-lose if the investment doesn't occur. And so we have collectively agreed to really work with countries that are blessed with resources to ensure that they have the type of investment regimes that will invite those funding -- that funding that will unlock those resources and be put into the global market. Ultimately, it benefits the resource rich countries because the revenues come back to actually benefit their countries and their citizens and also obviously it benefits the global energy market. So we did spend some time on how can we really encourage the continued adoption or enhanced adoption of market principals around the world. So that's a little bit about what we did. I hope that's helpful in terms of contacts and getting some of the generic questions out of the way.

Yes, sir.

QUESTION: Not that -- just that I am from India. But the moment you talk about China, immediately the other country that is often mentioned in support of the energy needs of India which is fast catching up with China. What are some of your thoughts, you know, on what it's going to take as far as India is concerned?

ASSISTANT SECRETARY HARBERT: Of the 22 area donors that I referenced, less than four was going to go to China, 120 of that needs to go to India. There's tremendous growth in India. And as you are well aware on Monday, the President signed the new legislation that will hopefully lead us to a place where we can enhance our nuclear cooperation with India. When we were in China, we also signed a memorandum of understanding with the Chinese Government that will lead to the expansion of nuclear power in China and Westinghouse AP1000 technology. And we've just signed also an agreement from my friend from Russia here to explain nuclear cooperation with Russia, so it almost seems like nuclear week here in the United States. But you know, these aren't ad hoc singular events. I think we strongly believe in order to meet the appetite and the growing appetite of the world and particularly in the developing world that nuclear power is a very key component to meeting the needs of the developing world and of the world for the future. We have improved greatly the technology that is available. It is increasingly proliferation-resistant. It is certainly emissions free technology which is important to an economy like India which has been blessed with coal just like China, just like the United States. But it has environmental concerns and the employment of very expensive clean coal technology is costing -- well, it's not as cost competitive yet.

And so China, India and the U.S. have also agreed to collaborate on a project called FutureGen which is -- if successful and we have every reason to believe it will be, the first emissions free coal-fired power plant. It will be built here in the United States. But the government of India, the government of China announced last week that it will join and we have joined in a public-private partnership to build this plant. And that will completely revolutionize the way that electricity is generated in countries that rely on coal. So we have -- you know, India, the U.S., China, I mean, we are all facing very similar challenges.

We're at different stages of our development and we have different resources bases, but those three countries have resources bases very much in common and I think we all seek similar solutions: access to clean coal technology; access -- improved access proliferation resistant nuclear power; better use of energy. And by that, I mean energy efficiency. And then also of course, we're all looking at the future of different types of transportation fuels where they'd be ethanol, hydrogen, et cetera and we're all partnering in different research efforts to try and find that longer term solution that we know that's out there.

Yes, sir.

QUESTION: Will the five countries continue their dialogue, will they be able to enter the mechanism and what are the major problems and challenges in the cooperation with China?

ASSISTANT SECRETARY HARBERT: We talked about whether the five countries should get together again, under what format, recognizing that we all have cooperation under the Asia Pacific partnership, APEC. There are a lot of different foras out there. So what we don't want to do is set up another institution to compete with other institutions. But there is value in having these five countries that are significant stakeholders in the energy markets continue to dialogue. So the energy ministers did agree that it would be in our interest to get together again and have another discussion.

But the emphasis from all of them was let's not get together to talk. Let's get together -- let's have our people do things. Let's have our technical experts do things together. There's not a lot of time, given the energy security challenges we all face to talk, but there is a tremendous call to doing something. Secretary Bodman invited all of the delegations to send technical representatives to our laboratory out in Colorado, which is the National Renewable Energy Laboratory to look at some of our research efforts in the biofuels area, principally, but also in wind and solar, so they can avail themselves of what we're doing, see if there are ways we can collaborate so that we wouldn't be duplicative. And that's a good start for us to look at ways that we could fashion our research efforts, our development efforts and ultimately our deployment efforts in ways that are mutually complementary.

In the challenges with China, I actually see them as opportunities rather than challenges. There are ample opportunities particularly in the energy efficiency area. As I mentioned, China's growth is principally from the industrial sector. And we have learned in our country from having the benefit of a tremendous growth in our industrial sector here over a number of years that there's tremendous energy savings that can be achieved in the industrial sector.

We have embarked upon a program of energy savings audits in our industrial sector that the Department of Energy conducts energy audits and we have committed to 200 of the most energy intensive industries here in the United States. We've complete 61 of those 200 audits and the companies themselves are very, very enthused about the amount of energy they're saving. We're very enthused about the emissions that are being avoided and we have made this offer to try to help them adopt a similar program that we would go and train some of their people on how they could actually conduct these audits themselves. It saves money, it saves emissions, it saves energy. So it really was an opportunity there.

We also have talked to him about appliance standards. A lot our appliances that we use in the United States have the Energy Star label on them which are some of the most energy efficient appliances, are actually made in China but they're not sold in China. And so how could we actually have the appliances that are being sold in China be of same or even better energy efficiency standards than here in the United States? So there's got to be some way that we could actually make that happen over the medium term because manufacturers have every incentive. They would have a bigger market. It would bring down the cost of building appliances and we would have China Have access to more energy efficient appliances. So I think there are a lot of areas of opportunity, rather than those challenges of being cooperative with China.

QUESTION: To follow up on that, did you discuss with the Chinese their joining the GNEP program, the GNEP?

ASSISTANT SECRETARY HARBERT: Yes, we have. They are very interested in GNEP in GNEP, as we call it, for a whole host of obvious reasons and probably some not so obvious reasons. The obvious reasons are that they strongly believe in the growth of nuclear power. They over the next 15 to 20 years are going to build 40 new nuclear plants in their country. They recognize that other countries have similar ambitions and that we need to look at this more globally rather than just as a domestic issue to ensure that if this growth is going to happen and they want to participate in probably some -- from not just a recipient standpoint, but what can they do in terms of being a full participant. We're looking at the whole fuel cycle. We wish China could be in that whole fuel cycle. And so we need to have a much more of a global conversation about this than rather just what's happening in certain places of the world.

QUESTION: OK. And if I may, since you mentioned it, there was this report. I understand that two secretaries presented the report to the President's (inaudible.) Can you talk about that a little bit?

ASSISTANT SECRETARY HARBERT: I could talk a little bit about it and I know that Dan is prepared to make the right people at the Department of Energy available. I am not the right person to talk about this. I don't know if you saw the press release we released on it. But it is and it comes out of the meetings the President had in St Petersburgh and it is another step forward in expanding our nuclear cooperation. I think that one of the important things that we have seen is the ability for both of our leadership, both Presidents to be able to articulate a very common vision for the future of nuclear power and to recognize that to participate in the expansion of this required some responsibility. And both the United States and Russia are willing to take on significant responsibilities in the expansion of nuclear power. It remains to be seen exactly the number of areas that we're going to cooperate in, the reports identified some of the initial areas. But I think what's important to know is this is a dynamic process, one that is not going to be we're only going to do these things and then move on. It will continue to evolve as our technology and our efforts continue to advance.

President Putin articulated a vision, you know, within you know, it's a very similar timeframe as President Bush outlined the Global Nuclear Energy Partnership. And I think we should take advantage of both of these significant leaders in nuclear energy, being able to come together and cooperate and achieving a very similar vision. So I don't know that I have -- there's significant areas in terms of what we we're going to be developing certain types of reactors for export. We're going to be looking at trying to actually demonstrate recycling, technical capabilities and some other areas. And this is a long-term partnership. It's nothing that can be achieved within the -- you know, the term of President Bush or President Putin. It's going to be a longer term relationship between our two countries.

QUESTION: My question is about the different understanding of energy security if the U.S. and China's different views remains, what will be the possible political and economic consequences because China's purchase of overseas oil that's increasing where it's always a fight anyway.

ASSISTANT SECRETARY HARBERT: Sure. You know, we have a very different situation than China in that we began participating in the global energy market much earlier than China did. Our industrial growth came much earlier than China did. And so we have made our investments -- if you want to say "our" I don't mean U.S. government, but you know, American companies which are now mainly multinational companies -- but made significant investments much earlier than China did. We are also geographically very blessed. Our number one and number two energy suppliers happen to be allies, neighbors, friendly countries, to our north and to our south, Canada and Mexico. So we recognize we're in a very different position than China and we know that reserves are limited out there and access to reserves are limited. So we don't fault China for its pursuit of reserves. It needs to invest in some reserves abroad, without a doubt. At the same time, we've tried to have the discussion, but it's not necessary to own all of this in order to have access to it. Take it from experience.

We don't own 20 million barrels of oil a day in the market. It comes from all sources, all countries and many different investments. And that's the type of discussion that helped them to have some confidence in the workings of the market and that over time, it's not necessary to put a DNA stamp on a barrel of oil and say that particular barrel of oil is coming back to China, that the market does function and it functions extremely well when there are some disruptions in the market. It reallocates supply according to demand, as we saw in the wakes of hurricanes Katrina and Rita.

Now we helped facilitate that by having an international response to those hurricanes. But the market was very efficient. They know where -- the market knew where supplies were needed and reallocated things and the market calmed down in coordination with our response. So those are the types of discussions. We don't see it as having a political or economic fallout between our two countries. Quite the contrary. This is a longer term discussion which is why we are having this in the context of the Strategic Economic Dialogue which looks long term. And when you look at 2030, what is -- where is China going to be getting its energy from? It can't own it all. So what type of market principles need to be put in place and introduced over time in order to ensure that the economic growth that it hopes to have can continued to be fueled by the type of energy that it needs.

QUESTION: Is there any real downside to China trying to own its reserves? I mean, they might not need to, but if they do as you say, the market is very efficient and because of the fungibility of oil, you know, it's just kind of -- there's still going to be a global price and anything that they get that they own instead of buying it off the market is just going to be that much demand supplied. I mean is --

ASSISTANT SECRETARY HARBERT: As long as the investments are made according to opening market principles and there is a level playing field. Investment is investment. I don't disagree with you. What is disturbing to markets is if investments are made that are not based on market pricing, that are above market pricing and they will either drive out competition or drive out prices. Neither one is good for the global energy market. So as long as any investor is willing to play in the open and competitive market and invest purely on the asset and be able to be -- and be willing to pay market prices or above it, all is equal.

MODERATOR: We have time for one last question.

QUESTION: I've already had one, go ahead.

ASSISTANT SECRETARY HARBERT: How about we make it two? (Laughter.)

QUESTION: No, my thing it goes back to -- you were talking about nuclear power, being their nuclear weakest (inaudible) a nice way of putting it. But there is a criticism in many quarters that what nuclear power is going to give to a country like India a, miniscule fraction, not even 3 percent of electricity is going to be generated by all this hoopla that people have been making over this nuclear power. Have you discussed with the Indians about this and what's your own take on this?

ASSISTANT SECRETARY HARBERT: Well, you bring up a very important point which is there's not one single silver bullet here. We can't just say, okay, now the world's going to have nuclear and so we don't need solar. We don't need wind, we don't need hydrocarbons. We need it all. And all of it will have a contribution, but there is no single -- singular solution. So we need solar, we need wind, we need nuclear. We need clean coal technology. On the transportation side, we need ethanol or we're going to need hydrogen. We need plug-in hybrids. So your point's a good one.

It may only be a fraction, but all of these fractions are adding up and that's really what the important thing to keep in mind is. And over time our energy sector is going to shift and there will be less hydrocarbons and more renewables. But it's not going to happen overnight. But we have to make these investments now, because energy projects are long term, they're very complex and they take time to bring on line. So while it may be a small fraction now, that fraction will grow overtime. And it's important that we look at those resources that are emissions free and nuclear, of course, is emissions free and environmentally friendly. So it has a big appeal. And if we're able to find ways to actually recycle and reprocess nuclear fuel, I suspect we'll see the growth of nuclear over the long, long term be much more significant than the smaller percentage that we anticipate now.

QUESTION: Just a quick follow-up. You said about $1 trillion of the investment between now and 2030 in the whole energy. Of that 1 trillion, do you have any idea as to how much the nuclear component is going to be?

ASSISTANT SECRETARY HARBERT: I don't have it broken down that way. I can tell you that worldwide of that 20 trillion that I mentioned, it splits about 60-40 between oil and gas and electricity. And interestingly, electricity is the 60 and oil and gas is the 40. So the investment really is needed and increasingly will be needed in the provision of electricity around the world.

QUESTION: And --

ASSISTANT SECRETARY HARBERT: We can't forget about the infrastructure. People always just think that the investment that is needed, drilling of the stuff, getting it out and shipping it somewhere, while it doesn't make any sense if it gets to Baltimore and we can't convert that into something that's usable someplace else in the country, so there's going to be a tremendous amount of investment worldwide that's needed in the energy infrastructure.

QUESTION: And that's what I wanted to ask you about. When the Russians say that they want to invest in the down stream assets and in Europe, for instance and they're regarded as a part of their own security and energy security, what do you say to your European partners who basically resist that? You say investment is needed anywhere.

ASSISTANT SECRETARY HARBERT: Investment is needed everywhere. And as I go back to what I said to Mr. Conrad here is that as long as things are done in an open and competitive basis and that there is multiparty access to investments, then all is fair.

MODERATOR: Mr. Kang, do you have a question?

QUESTION: North Korea's nuclear development -- nuclear arms development. The U.S. has been saying that in exchange for North Korean denuclearization, U.S. is willing to support some energy. So if North Korea complies with that demand then which energy can you or U.S. provide or plan to provide?

ASSISTANT SECRETARY HARBERT: I would be remiss, I think, if I answered that question for the simple reason is that the ongoing negotiations are ongoing. And in any negotiations demands and answers to those demands change. They're negotiating right now in Beijing, unless they concluded either successful or unsuccessful, I don't know. It's very late there. And so I know that it's a very dynamic process. And a lot of things have been considered and lotof things have been accepted and some things have been rejected. And so I'd rather let those that are actually involved in the negotiations comment on what's actually being contemplated because I know it is changing on a minute-by-minute basis. I'm not trying to dodge your question, but that is the real answer. And we won't know until we know, I think, or at least I won't.

MODERATOR: Well, thank you, everyone.