Russia and the Future of U.S. Energy

Amy Myers Jaffe, research professor and managing director of the Climate Policy Lab at The Fletcher School of Law and Diplomacy, discusses economic sanctions on Russia and their implications for U.S. energy markets.

TRANSCRIPT

FASKIANOS: Thank you and welcome to the Council on Foreign Relations State and Local Officials Webinar. I’m Irina Faskianos, vice president of the National Program and Outreach at CFR.

We are delighted to have participants from forty-six U.S. states and territories with us for this conversation. So thank you for taking the time to join us.

Today’s discussion on “Russia and the Future of U.S. Energy” is on the record. CFR is an independent and nonpartisan membership organization, think tank, publisher, and educational institution focusing on U.S. foreign policy. CFR’s also the publisher of Foreign Affairs magazine. As always, CFR takes no institutional positions on matters of policy. Through our State and Local Officials Initiative CFR serves as a resource on international issues affecting the priorities and agendas of state and local governments by providing analysis on a wide range of policy topics.

We are pleased to have with us today Amy Myers Jaffe. She is a research professor and the managing director of the Climate Policy Lab at the Fletcher’s School of Law and Diplomacy at Tufts University. She served as executive director for energy and sustainability at the University of California, Davis, and as senior advisor to the Office of Chief Investment Officer of the University of California Regents. And she was formerly a senior fellow for energy and the environment and director of the program on energy security and climate change here at CFR.

So welcome, Amy. Thanks for being with us to talk about this issue. We are looking at—I think we are to the fifth week of Russia’s war on Ukraine. So I thought you could talk about the global energy market and the effect on U.S. oil and gas supply, and how this is affecting our U.S. energy policy.

JAFFE: Thank you very much, Irina. It’s really a pleasure to be here, and a pleasure to be here with your State and Local Official program, which I found to be one of the most productive and successful programs at CFR. So really great to be back.

I want to start out by saying something that will sound partisan, but I’m going to be actually saying that I think corrects dis- and misinformation. So we have in the oil market, and to a lesser extent in the natural gas market, a boom and bust cycle. If I have some local and state officials from my home state, Texas, you’ll know what I mean. But a lot of us, you know, read the paper. We know, you know, this is like the sixth or seventh time in my lifetimes, maybe more like three or four in some of your lifetimes, that we’ve had an oil price shock that’s affected Americans and American consumers.

And I want to describe what’s happened in a slightly different way. I know there’s a lot of narrative that somehow we passed the Green New Deal and it’s left us with an oil crisis. But of course, we didn’t pass the Green New Deal. None of that legislation that was proposed was actually passed. There still is not a climate bill that passed the Congress. And so you say, well, then what happened? Well, it was other policies. Like, no, it wasn’t other policies. This is exactly what happened: We had a—from an oil perspective—we had a huge bust in 2020, which you can all remember, because nobody needed any oil because we were all locked in our homes.

And so the price of oil, you might even recall—if you’re not inside baseball you might not remember this—but there was a day when the price of U.S. crude oil went to negative-$47. You’re hearing me correctly. It was not worth a dollar. It was not worth two dollars. People were literally having to pay to have the oil taken away because there was so much of it. And that caused—companies in the United States had to stop drilling because they’d run out of storage. Members of Congress from Texas and Louisiana had to call Saudi Arabia and tell them we’re going to cut their arms sales—our arms exports to them if they let their other new cargos that they didn’t have space for come to the United States, because it would have clogged up our system. We lent our Strategic Petroleum Reserve caverns to Australia because they needed some place to put their oil, right?

So we had just too much oil and not enough demand. And then, lucky for us, the vaccine worked, in the sense that people—it lowered hospitalizations. We had a stimulus package. People got back to work. Oil demand went way back up. It went up in other places too. You know, China got out of lockdown. They felt they had a good policy for getting people back to work. The economy was churning. Oil demand rose suddenly. But remember, in 2020 everybody stopped drilling. So now we get to 2021, and oil demand snaps back up. We have a shortage.

So price starts creeping up. And in the middle of that price creeping up, that would have been a good time—here in the United States companies started drilling again. That would have been a good time for OPEC to have put more oil on the market to prevent the market from getting overheated. And guess what they did? They did the opposite. They cut and restrained production. And then that gave Vladimir Putin a moment, where everybody was teetering on the brink of this very high oil and gas price, to take action. And I’m not even talking about the war yet. To just take action in markets.

So Russia just didn’t provide extra natural gas into the markets in Europe. They owned the Gazprom, the state natural gas monopoly, owned storage tanks in Europe. And they just didn’t fill them. So we got to—we’re in the fall, and you have extremely low inventory of natural gas in Germany because, of course, the Russians own the natural gas tanks and they didn’t fill them. And things got worse and worse over time. And indeed, things would be even worse but for the fact that, number one, the U.S. companies started drilling more and we were able to sell and ship more natural gas from our export terminals in the Gulf of Mexico. And then the president, in my opinion wisely, started releasing oil from the strategic petroleum reserve.

Now, the president has an uphill battle releasing oil from the strategic petroleum reserve. I mean, this is what it’s for. We are not at war in military men, but we are facing other means to try to prevent Russia from winning and jeopardizing the stability of Europe. And some of those means are economic sanctions. And therefore, we’re trying to ameliorate that with different policies, including using strategic stocks. The problem that you’re seeing, or you’re going to see, number one, is that if I am an American driver, and we have, you know, 300 million to 350 million cars on the road in the United States, many of us are using our cars to visit family because we’re not taking the train or doing other things we used to do as frequently because of COVID.

And so normally everyone in the United States drives their car, on average, with half a tank. And figure, you know, the average car has, you know, an eighteen- or twenty-gallon tank. That means that for every car in America that’s driving full, you’re having an extra ten gallons. It’s forty-two gallons to a barrel of oil. So, you know, we could do the math in our head, but basically some of the oil the president has released from the Strategic Petroleum Reserve is sitting in the tanks of people whose cars are on full. And so when you ask, well, you know, how come it’s only brought down the price a little bit? How come it hasn’t done it more? Well, you know, that’s the explanation.

So the president and yourselves, as local officials, we do have some other tools. If it turns out that further sanctions need to be placed on Russia or there’s going to be a larger disruption—I can talk to you a little bit about how much Russian oil I think is off the market. For sure we’ve lost a million barrels a day, maybe a million and a half barrels a day, just because European countries don’t want to buy it and they can’t sell everything they want to sell. So that is—you know, we already have a bit of a disruption. But, you know, the disruption could get worse depending on how things progress.

And so we do have tools that we—you know, without being Jimmy Carter and putting a sweater on and saying Americans need to conserve energy—which is, I guess, and unpopular political statement, we’ve all learned that major employers in particular cities can allow employees to take a few days a week to telecommute and not drive into work. We know that because we can telecommute—I’m very productive in the morning when I don’t go to the office. So we could have people driving to work at different times of day. When we have everybody commute at the same time, believe it or not, we waste a half a million barrels a day of oil roughly, just from congestion in cities.

So we could eliminate that by staggering—either staggering commuting hours or, alternatively, we could have restrictions on delivery vans operating during rush hour. Now, you know, we have these things—I, you know, spent many years in New York City. We get times of day you can’t go a certain direction on a certain road, you can’t use the bus lane, you can’t make a right turn, right? So people are used to having certain restrictions during rush hour. We could have restrictions of deliveries to not be made in the hour or hour and a half of rush hour. And then also it would relieve congestion, which believe it or not would greatly reduce oil use.

So there are things we could actually do. I want to be sensitive to time because I really want to talk to you about what you are wondering about and what you are thinking about, so I just want to make an extra statement. Many of you might remember when Colonial Pipeline went down in the cyberattack. We’re on high alert for Russia to make cyberattacks on U.S. infrastructure. It’s not correct to ask me how come it hasn’t happened yet, because actually there have been extreme attempts to disrupt the operations of our largest natural gas producing companies and our big LNG export terminals that are competing with Russia. They’ve all had cyber intrusions since the invasion, or even just prior to the invasion.

So it’s just that we’ve been vigilant. But, you know, one can never be vigilant enough with these multiple attempts at hacking. So one of the things I wanted to mention to you was that around the time of Colonial Pipeline, there were cyberattacks on various cities in Oklahoma. I think Tulsa was one of them. And they were trying to get, I think, to billing programs or other kinds of assets, tax records or whatever, that would help them pierce a cyber pathway, a computerized pathway to a major storage terminal in Cushing, Oklahoma.

So different things around Cushing, Oklahoma, got hacked, but luckily the hackers never got to Cushing, Oklahoma. But all of you need to be thinking about the systems that you have in state government and local government that connect to the offices of energy facilities or interact with energy companies that pay their taxes—you know, maybe in the automated fashion or electronically. You want to be thinking about your electronic connections to energy infrastructure, because that was a big problem with the Colonial incident.

And then the other thing I’d just point out, which—you know, is that there were passwords for the VPN—names and passwords for the VPN system of Colonial Pipelines employees. I know that they said publicly that they were circulating a week before the attack. I can tell you, some of those names, from what I understand from talking to people from industry, were circulating for a year or more on the dark web. So I’m sure you all use cyber consultants. The question is have you—have you had them search the dark web for you to see if your names and passwords are circulating?

If you have them circulating, you obviously have to go to dual authentication to make sure that someone can’t just use those passwords. They have to then, you know, send a message to someone’s cellphone and the person has to respond before you can enter the network. But it would be a good time again to think about the security of different facilities, and then also the electronic connections electronically to any energy facilities. So let me stop there and let me hear what’s on your mind and what you’d like to hear about.

FASKIANOS: Fantastic. Thank you, Amy. And let’s go to all of you. We already have hands raised, so when I call on you please identify yourself. You can also write your question in the Q&A box. And if you do that, please identify yourself there so that we know who you are.

Let’s see. Ronald Cope has written a question but has also raised his hand. So why don’t you go ahead and ask it yourself? And please unmute yourself.

Q: So my question is, on the first day in office President Biden revoked thousands of oil permits. And the petroleum industry says they can produce much more oil. Can we be energy independent, as we were two years ago?

JAFFE: OK. Let’s take that one apart, Ronald. That’s a great question, on everybody’s mind.

First of all, the oil industry, which I—you know, I lived in Houston twenty-five years—which I know intimately from my twenty-five years in Houston, they’re a shrewd bunch of executives. And in 2020, because they weren’t sure what was going to happen, they stockpiled—especially in New Mexico, where their drilling was on federal lands—they stockpiled permits. And, you know, people like the chairman of Devon Energy and EOG, you know, reported to their shareholders at investor meetings that they had enough permits to last them through 2024. And if you don’t believe me, you can go to the Associated Press and they’ll give you the actual tallied information. If you follow me on Twitter it’s on my Twitter feed, right? So permits are not the problem.

Now, I have talked to the oil industry because it’s possible—and your question highlights a concern—which is we want to make sure that the Biden administration isn’t doing anything to prevent us from having the industry be able to gear up, especially if the United States were to wind up being in a much—more involved in Europe’s security. I don’t know how to put that in a tactful way. So right now, we’re supporting the Ukraine but, you know, there’s diesel fuel shortages in Europe. Takes a lot of oil to, you know, run a war. Hopefully, we will not become militarily engaged, but we have to plan as if it could happen because we don’t want to be caught out of turn.

So the question is, what can the industry do? And I’ve talked to the industry. And I’ve talked to people in the Biden administration. And I do believe that there is a solution. It’s a kind of a strange mix of things that happen in the global market. So if needed more oil and the oil companies have certain budgets that they’ve already planned we’re going to have an extra 900,000 barrels a day of oil being produced, mostly in Texas but around the country, from our onshore production this year. And I asked the industry, could you do more? And if you wanted to do more, what would you need?

And, you know, different companies say different things. You’ve probably seen the explanations in the press. Nobody said leases. Nobody needs leases. They said they needed the following things: They might need the U.S. government to prioritize access to steel to the oil industry. They might need the U.S. government to prioritize certain chemicals to the oil industry. They would need to have—gear up to have more skilled crews to do some of the work. That might be a little harder. And then they have—the constraint is that, you know, companies are commercial entities. They have budgets. They don’t necessarily have extra cash. They’re under pressure to provide dividend checks to their shareholders because that’s kind of the direction we’ve been going in, in the industry. A lot of times they, unfortunately, buy back their own stock instead of using the money to drill.

So but the point is, there’s a paradigm where governments—in this case it would be the U.S. government—in 2014 when Russia invaded Crimea, they needed money otherwise they were going to have to stop drilling. And so Chinese gave—China gave Russia the money in advance. They used that money to drill. And then they gave China the oil. Now, that sounds crazy, but we could actually do that here in the United States. The United States government could pay for oil that the oil industry would drill from the shale. The oil could be available in three to six months, right, depending on how much of an emergency we thought it was. The United States government would then own the oil, and they would have the opportunity to do different things with it.

We could put it back in the Strategic Petroleum Reserve to replace the barrels we’re using now. We could use it, if we—God forbid—the Pentagon needed fuel for its own operations. That oil could be processed at refineries and the products could go to the Pentagon. Or we could sell the oil to our allies. If Germany was short oil because they got cut off by the Russians, then this extra U.S. oil could be sent to Europe. So it’s a really interesting plan. I wish that everybody would stop saying their partisan soundbite and work on this plan, because I’ve been told by the chairmen of multiple oil companies from the United States that they’re on board with this plan, this plan could work.

And then when you get into the details everybody goes back down their favorite cable TV narrative show, and they’re not doing the hard work of figuring out exactly how you would structure the pricing. It’s been done all around the world. Angola’s done it, Nigeria’s done it, many countries have done it. It could be done well here by the U.S. Treasury Department, together with the oil—you know, major producing oil companies. We could use a tender system like we use for the strategic petroleum reserve. So it’s highly doable. And we now know from COVID that we really could, you know, target the materials that the oil industry needs to do more. We could allocate it to them, because we’ve done that for, you know, vaccination production. So we know how to do that. So, Ronald, there’s many things we could do. And I hope I’ve made you a convert.

FASKIANOS: Thank you. Let’s go next to Georgi Touchef (ph), who works for Representative Matthew Bradford in the Pennsylvania House of Representatives.

Q: Hi. Good afternoon. Can you hear me OK?

JAFFE: I can.

FASKIANOS: We can.

Q: My name is Georgi Touchef (ph). I’m your average budget analyst for Committee on Appropriations for the state of Pennsylvania.

My question relates on the end sale in terms of gasoline. So I’ve done some tracking. It’s not only myself that’s done it. If we track crude oil prices to price at the pump, they normally move in a similar direction. That has not necessarily been the case through the beginning of the conflict—basically since Russia invaded Ukraine. My question is, is there a possibility that we would actually hold, whether it’s, you know, gas stations, whether it’s businesses that basically sell gas to the general public, responsible for lack of movement in those prices? Because it is—I’m of the opinion that there is a significant sort of efforts to gain profits rather than relieve the price at the pump. So those prices are almost artificially held above a certain level. So I was looking to get your opinion in terms of what can—I mean, you know, traditionally those should be market prices, with a number of variables that are included as how they’re set. But it doesn’t seem to be that way.

JAFFE: So, Georgi (sp), you will be interested to know that I sat for three years on a panel in California on this very topic. So the crude oil feedstock price to refineries is, like you say, a major determinant on what influences the price of gasoline. But, you know, you can have local variables. And as I mentioned, you know, the—when people tank up ahead of a hurricane, or whatever, you know, you get outages. And we’re seeing some outages in different places in the United States today because people are afraid so they’re running their tank high, and that holds the price up.

But that doesn’t mean that some particular set of station owners couldn’t be in a particular locale price gouging. And I think the best way to look at localized price gouging is to look at average gasoline prices statewide or in a particular part of the state. We spent a lot of time in California looking at it, and we concluded—(laughs)—that there was some problem in California—which policymakers decided not to take my advice for how to fix it, but that was their choice. And they still have the problem. But there are things that could be done. My opinion is, it's a matter for your local Justice Department, honestly. That’s, I think, where the investigation needs to go. And they probably need some people who would help them. That would—like, you’re doing, you know, look at a survey and see if there are particular owners that are overcharging. And then one would also look at whether those owners have ever met with each other because, of course, that would be against the law.

So I think there are things that can be done. I think it kind of belongs to the Justice Department. And I think the Biden administration has the Justice Department looking at it. The Justice Department in California decided not to prosecute the companies. But I can tell you, sitting on a panel for three years, there were some very dicey things that got done to keep that market up in California, where companies literally moved gasoline out of the state to hold the price up. So, you know, it takes a full investigation, but I think that the place that that investigation belongs is not in the political domain, but in our legal domain.

FASKIANOS: Thank you. I’m going to take a written question from Mayor Pro-Temp Carole Moore. Mayor in Laguna Woods, California.

We are down 30 percent in our reserves. Oil for vehicles is only one use, although largest. The oil products used in many products such as plastics, paint, et cetera. To end use dramatically is not a clear and sustainable policy. What can be done to make certain reduction is sensible?

JAFFE: Well, listen, you know, you’re in California. There’s no question the larger amount of vehicles we have that run on electricity the better off we’re going to be. And, you know, you can say, well, but we don’t have a lot of—we have to generate that electricity. And then people say, well, some of—we’re using coal, or we’re using this, we’re using that. The point is, we generate electricity in this country without using oil. We use nuclear. We use hydro. We use many different things to generate that electricity. And we have a lot of natural gas, and we have a lot of renewables that are untapped—renewable resource that’s untapped. California is pursuing that.

So clearly, we want to accelerate electrification of the vehicle fleet. And we also want to try to get fleet trucks and delivery trucks, electric. So, California, your ARB is doing the right thing. You know, having the ride hailing companies have to go to electric, that’s a good thing. Meaning that the delivery vehicles for Amazon or other e-commerce companies have to go electric, that’s a good idea, right? So you know, the challenge we have in today’s crisis with the war is it’s hard to do those things—as you know, from sitting in California—it’s hard to do those things quickly. So now we have a shortage of new cars because we don’t have enough chips, and then we’re not going to—same thing with electric cars.

So I actually—literally, my husband called our dealership last week, because we saw that the electric version of a car we wanted was coming out in 2022. They told us they would put us on the waiting list for 2024. So I may put myself on that waiting list or I might shop some other brand of car in hopes to find one, but I know from other friends of mine who are wealthier than I am that the waiting list for Tesla is also over a year. So, you know, there’s only so fast we can go. But it doesn’t mean we shouldn’t go that way, because the year will come around very, very fast. And it’ll turn out that we’re probably not out of the problem a year from now, even if hopefully the war is resolved a year from now. You know, this problem of the boom/bust cycle in oil we’re going to get out of quickly, and we need to try to transition as fast as possible to other technologies.

FASKIANOS: But to that point, Amy, how are we doing in setting up electrical charging stations across the U.S.?

JAFFE: Well, California’s better because the states put a lot of emphasis on that. You know, we’re lagging what I think makes people feel comfortable. If you were really going to drive electric across the entire United States, you might have some difficulty. I mean, Tesla claims if you have the app then you can make it, but it’s a little harder than it seems. And we haven’t solved one—I mean, we’re talking about, you know, the infrastructure bill had more charging—public charging stations. And you’re seeing some states being proactive. And even some of the oil companies are investing in charging station companies.

The problem really becomes, frankly, for places where people live in apartment buildings. Because I can tell you, as an electric car owner, that if you’re plugging into your house—really, truly, people misunderstand how much they actually drive. You only drive probably thirty miles a week if you’re not commuting—like, if you’re just doing local driving and you’re not using your car to go back and forth to work. The average American commutes thirty miles each way. So that might be a little more of a hassle. But if you actually thought about it, thirty miles each way, that’s sixty miles. A good electric car has got two hundred miles to the charge. I mean, that’s good enough to go back and forth to work. Then you’re going to come home and plug it into your garage. When you get up in the morning, it’s fully charged. So you don’t even really need charging stations if you’re willing to charge at home.

And I lived that way. And I will tell you, my husband—I was the one with the electric car. He always took my car. He’s like, taking your car because it’s charged. And then we were like people with a cellphone, right? Neither of us would want to take the gasoline car, because that would mean that person would have to go to the gasoline station and pay for gasoline. (Laughs.) And even though it was in our electricity bill, so we’re obviously paying for the fuel, it had a different psychological feel. So we would game to stick the person with the gasoline car so they’d be the one who would have to stop at a gasoline station. So everybody used this electric car unless they were going way farther than the car’s range.

FASKIANOS: Great. I’m going to go next to Rich Mallory, who has a raised hand, from the Maryland Energy Administration. And unmute yourself. Hopefully, you can do—there we go.

Q: Thank you, Irina. And thank you, Amy, for taking my question.

If Colonial Pipeline had been a publicly traded company, if there had been a more diverse group of smart money involved, do you think they would have been hacked?

JAFFE: Yeah. I mean, they’re like the jugular. If you were a state actor—I’m not going to accuse any particular country—if you were a state actor and you wanted to make the point to the U.S. government that you could make the president very uncomfortable, right, for strategic negotiating—whatever your geopolitical reason—Colonial’s a great target. So, I mean, the different things that Colonial did wrong, I mentioned the thing about their VPN system. And, by the way, if you quit Colonial and left, they didn’t bother to shut down your VPN account. So that means that every former employer (sic; employee) was a risk to the company because all those accounts were just floating around unused.

But going beyond that, they had all kinds of firewall problems, because they actually automated the entire pipeline with all these sensors. And then it was really very high tech, because they could eliminate all their employees and save a lot of money and make more money for the management by, you know, eliminating all the people who did things clerically because they could do everything by computer. The sensors would tell you how much gasoline was delivered in a particular place. And then it would send that data back to the business office. And then that would automatically make an invoice that would go to the customer.

Do you know what the problem was with that, Rich? The problem with that was that if that hack had been worse, they could have gone—that same hack could have traveled into all the customers of Colonial Pipeline. That means it would have gone into military installations. It could have gone all through Washington, right? It could have hacked everybody’s distribution company. So, you know, it’s a very—airports. It was a very dangerous hack. And it really raised the question about whether or not it’s OK for private infrastructure to not be regulated in how it manages its cyber preparedness.

And we’re still fooling around with that topic on Capitol Hill. There have been more bills passed in the last week or two about the requirement of reporting. If you have a breach to your—say you just had a breach to your business office, and you were Colonial. You felt you didn’t have to report that to CISA, but, you know, actually that turned out to be a material thing for the U.S. military that you had that breach. So now we’re changing the rules and we’re making it much more tight that you have to report payments of ransomware. (Laughs.) And you have to report breaches.

And, you know, what’s tracked is what’s measured is fixed. So my feeling is if I have to report it, then it means I have to monitor it. And if I have to monitor it, I’m less apt to be hacked because I’m monitoring it. So I think those regulations are a good thing and hopefully will help.

FASKIANOS: So I’m going to go next to Brandon Bowser who wrote his question, but also raised his hand. And it’s on—I think it’s on cyberattacks. So, Brandon, why don’t you ask your question? And identify yourself, please.

Q: Sure. Thank you very much. Yeah, I also work with Rich at the Maryland Energy Administration. I’m our agency’s energy resilience program manager.

So I offer a few incentives that help grow microgrids throughout the state of Maryland. And so, yeah, sort of pulling on the theme that Rich started with, with the Colonial Pipeline. You mentioned early in the call that cyberattack threats are on the rise, obviously, with the geopolitical situation. That being the case, and with the increasing prevalence of distributed energy resources coming online on our grid, that makes more entry points for these bad actors, of course, to get in and start attacking things. I mean, I’m really thinking about those real critical infrastructures like hospitals, medical facilities, water treatment plants.

What is the federal government doing really to take a look at ramping up any security protocols, recommendations, or regulations that can really help prepare us for these types of threats? Because more entry points obviously increases the severity of attack that could be carried out.

JAFFE: Correct. So you have—I mean, there’s the flipside to that. There’s the more entry points, right? And Colonial was instructive on that. But there’s also the practice. So if you segment all your entry points, then you are less apt to have it go all the way through a system. So another thing Colonial did wrong was the way their IT worked was along the entire pipeline, through all those different states, they had no IT and firewall segments. It was just all one program, right? So that’s a problem, because they couldn’t shut down one section and analyze it, and they couldn’t find the hack in one place and only shut down that place. And also, they couldn’t operate anything manually, so that’s also a problem. So just mentioning all those problems.

But, you know, you raise a very important question, which is that if you have all these different ways that, you know, hostile actors can enter the system. So a couple of things. You know, you are a resilience officer so maybe I’m preaching to the choir here, but the most important thing actually—I mean, you know, we want to do monitoring, and we want to do segmentation, and we want to do all these things to try to prevent an attack. But, you know, law of averages, some attacks are going to get through. So the other thing we want to concentrate on is restoration and recovery.

So one of the things again we learned by accident, is that the shipping—container ship company Moller Maersk, had a major attack on itself in 2017. And their entire—I forget the name of it—their entire software management system for the entire company—you know, hundreds of countries—you know, hundreds of locations in multiple countries—went down. Their whole system went down. And it happens that on the day that everything went down and they lost all their data, there was a unit that was operating in Nigeria. And Nigeria had a blackout that same day because they had bad power—(laughs)—you know, stability. And the systems in Nigeria for Maersk were shut off from the internet. And none of the data was compromised because it was turned off. It was disconnected from the internet. It was on devices that were literally off.

So that made people realize that one of the things that operators need to do is they need to have regularly updated data, real-time data for their operations, that is one a device or a storage platform that is not connected to the internet, so that the restoration process can be faster. And also, you don’t have to pay the ransomware. So that was a lesson which the oil industry now does. I know a lot of the people in the oil and gas industry now, they have separate mainframes that are off that store the data. And they turn them on briefly to load back up the data and then they turn it off again, right? (Laughs.) So that’s one process that one has to think about.

And, you know, I mean, the federal government unfortunately can’ be everywhere. And that does mean it falls to state and local agencies, like your own. And if you think about it, because I’m sure there’s someone in Maryland who’s done this and this has not been instituted at the federal level but it’s something we could think about—so I mentioned the strategic petroleum reserve. We do have an emergency fuel system where there’s a communication—like, the schematic, it’s been used in the past, where state officials make assessments about fuel shortages. I mean, I’ve seen that myself. When I lived in Texas, of course, we had all the hurricanes and suddenly there was no fuel and people couldn’t evacuate, right?

So we have these—and I was on a panel for the U.S. Department of Energy for a year where we studied the emergency fuel system, which is a combination of energy companies that provide the fuel—you know, distributors and refiners—these states agencies that would be assisting people if there was a fuel emergency, and the U.S. Department of Energy, where the director of the Energy Information Administration is the coordinator. And the idea is to, you know, like we did, you know, during COVID or other times, we look at the data nationally and for a particular state. We can move fuel from one state to another. We can have refiners address outages by inventory. We can move things by truck. There are all kinds of things we do when we’re in an emergency fuel situation.

And my feeling is we could have a similar system for cyber training and information. The way we do these drills for fuel emergencies, we could also have something like that set up for energy and cyber. And we do not have that yet. So that would be something, I think, that the states and the federal government could look at, which is how do we do training and coordination for emergency procedures?

FASKIANOS: Thank you. I’m going to take the next question from Erica Blyther, who is the petroleum administrator for L.A., city of Los Angeles in California.

There’s been a large focus on vehicles and fuel. Are there also plans for jets and air travel to reduce fuel demand?

JAFFE: So jets is very hard. You have some companies—United in particular has been very forward-looking in trying to come up with biofuel that would meet the unbelievably strict and tight and important specifications for jet engines, because, of course, they can’t be a molecule off-spec or, you know, we have all these people up in the air. So people are working on that. Companies are working on that. There’s R&D money from the federal level that looks at that. Some people have suggested that maybe we could get to the point where we could use hydrogen in planes. Some people experimenting with very small planes running on solar electricity. That seems a little harder to do at a large scale. But it’s a harder puzzle than doing on the ground vehicles. And that’s why it’s probably going to be the last place that we tackle.

And, you know, speaking from L.A., you know, I mean, I was out there. It would be great to have a high-speed rail between San Francisco and L.A., and then we wouldn’t need to use all those planes for people who just don’t have the time to drive or don’t have the health to drive. You know, for years—for years I frustratingly drove back and forth from Houston to Dallas, another fantastic route that could be easily serviced by high-speed rail. Obviously on the East Coast it would be fantastic if we had high-speed rail. And I just—you know, we don’t have the political will to spend the money on that because it would take all new rail. And we would have to actually build new tracks because, you know, the tracks we have between the East Coast, you know, just couldn’t do it. And, you know, you have entrenched players like Southwest Airlines, an important company in Texas, you know, tried to squash the high-speed rail. And you know, California’s story, as you know, I’m sure well from L.A., was a very complex story for why it got funded and then not built.

FASKIANOS: Thank you. I’m going to go next to Utah State Representative Ken Ivory who has raised his hand.

(Pause.)

And if you can unmute yourself—

Q: Here we go. Thanks.

FASKIANOS: There we go.

Q: Thank you.

Yeah, I wanted to follow up on the New York Times article from last week that talked about the Defense Production Act, mentioned forty-six-some-odd minerals that we import at least half, and wondering if you could comment on what the use of the Defense Production Act would do to get us to some level of independence on these forty-six different minerals.

Then the article also mentioned that the administration would look at further potential uses of the Defense Production Act in relation to the energy sector. I wonder if you could comment and flesh that out a little bit.

JAFFE: Well, we definitely need to be more independent on the metals that we need if we’re going to, you know, move forward on electric vehicles, if we’re going to move forward on some other kinds of technologies that we want to do, and also—just honestly—as a matter of U.S. defense. We have minerals—we either don’t have them—rare earth minerals where we don’t have them and they are needed for the U.S. military to operate; for example, night vision glasses. We don’t have the materials being produced here in the United States. We’re importing them actually from China, so that seems like a problem.

But we also don’t have the processing here, so we definitely need to hasten manufacturing. We’ve all learned with COVID that having one supplier country for something is unwise. Now we’re doubly learning that with the crisis with Russia, and it goes across so many different things because now we’re learning that the key ingredients to make fertilizer for food came from either Russia or the Ukraine, or Belarus, and now there are some parts of the world where people are concerned there might be food shortages. I don’t think we’ll see that here in the United States, but the farm community is going to have to pay a lot more for their inputs than in the past because of the crisis in Europe. And, I mean, the list of things we offshored is so large. It’s almost hard to like wrap one’s brain around it.

And we are—I think the reality is we’re not going to be able to be self-sufficient in everything. I think I’m not making an extreme statement when I say that whereas the previous administration might have pooh-poohed the fact that we don’t need these alliance systems, when you look at all the different material we need, both to conduct our own national security and to manufacture the things we need to make sure that Americans have the food they need safely, have the equipment to have automobiles, and so forth—now that we can see all that, then you can understand that we’re just not going to be able to manufacture all of that in the United States. We also need to tap our alliance system. And so I just think it’s important.

And then we also—corporations I think are learning the hard way that having risky places in your supply chain might be cheaper in the short run, but could be very damaging to their operations in the long run. So I think you will see the private sector make its own adjustments.

FASKIANOS: Thank you. I’m going to go next to Andrew Epstein who wrote his question, also raised hand, so why don’t you just ask it yourself?

Q: Hi. Sorry, can you hear me?

FASKIANOS: Yes.

JAFFE: Yes.

Q: Hi, good to be with you. Thank you for your expertise and knowledge.

I am Andrew Epstein. I’m chief of staff to Assemblymember Gallagher in New York State, and we’re gathered here today, a day after the IPCC, reflecting the overwhelming consensus of hundreds of scientists around the world, told us that we have 30 months, right—the distance between October 2019 and now—is the same distance that we have into the future to start turning around the trajectory of global emissions if we are going to have a prayer of having a livable planet for us, for our kids, for our grandkids. It’s dire, and it’s happening right now.

And I totally recognize the context of the Ukraine conflict and the very real pain Americans are feeling at the pump, but I just feel like I’d be remiss if I didn’t ask you to reflect a little bit on how releasing oil from the strategic reserve, facilitating increased domestic production—all of these things we’ve been discussing today—how that comports with the incredibly clear message that the global scientific community is telling us right now about the livability of our planet. So I would love to hear some thoughts on this.

JAFFE: OK, Andrew, can you tell me, how did you get to work today?

Q: I took a bus.

JAFFE: OK. And what did that bus use for fuel?

Q: Unfortunately, I believe they use, quote, “clean gas”—I’m in New York City, right? They advertise some form of—

JAFFE: They use—they use—they probably use natural gas, right?

Q: Right, right. So-called, yeah.

JAFFE: OK. So here’s the problem, right? First of all, the Biden administration is not producing extra oil and making extra emissions. We are replacing Russian oil and Russian emissions. And the Russian oil and gas is the most methane-intensive in the world. So to the extent that we replace a barrel produced in Russia with a barrel produced almost anywhere else in the world, we’re better off from a climate perspective.

Q: Is that what the IPCC has to say about it?

JAFFE: That is the—that is absolutely a scientific fact. If you do not believe what I am saying, you can email me. My email is—(inaudible)—

Q: Sure.

JAFFE: —and I will send you the data.

Q: Sure, I would love to see where the IPCC has said that a barrel of American gas is better than a barrel of—

JAFFE: It’s World—it’s World Bank—it’s World Bank data. It’s World Bank data, right? It’s World Bank and other data sources—International Energy Agency data—that shows that the Russian production is the most carbon-intensive in the world. That’s a fact. It’s just a fact.

Now I understand how you feel. I feel the same way. I mean, I was just telling Irina before I came on the call I actually changed jobs so that I could work a hundred percent of my time on the climate crisis. You heard my title. I am the managing director of the Climate Policy Lab. My lab spends every minute of every day trying to help countries develop decarbonization strategies that will work without putting people out of work. That’s what we do, right? Reindustrialization is what we call it, right?

But that said, with all due respect, are you going to not—I mean, there are just people who have to go to work. They can’t work from home, and they have a car or a vehicle that runs on fuel. And, I mean, they can’t afford an electric car, and even if they could, there isn’t one available to buy. And by the way, New York State, right? Why don’t you call up Maine and ask them why they won’t let there be a wire to bring clean hydroelectric power to New York City so that you don’t have to use natural gas for your bus, right?

Everybody has an ax to grind. Maine doesn’t want a wire in their forest land. Other people don’t like hydro because, you know, it affected some other ecological system, right? You know, energy requires infrastructure. Infrastructure disrupts somebody’s backyard, disrupts some animal, disrupts something. So we have to make decisions, and I agree with you, right? Climate change should be the top priority. I do that, made that commitment in my own daily life. It’s all I work on a hundred percent of the time except when people call me up because I know a lot about oil and gas, and say, we’re in a national emergency.

I mean, honestly, if we were at war, right? I mean, I hate to speak like this because I only have five minutes left. I watch the international news with great intensity because even though I try to work 99 percent on climate change, you know, I have a background in looking at security, and last time I looked, Vladimir Putin made a speech that explained to our country that he’s got nuclear submarines off the East Coast of the United States pointing at us. And right now, in this ten minutes, every piece of military equipment that operates in the world, from the United States military to everybody else, operates on liquid fuel; i.e. some form of oil. That’s just the reality of the way it is. Maybe there’s a drone out there that operates on electricity, you know, or hydrogen. Everything else is oil. And we cannot be caught in a situation where we can’t defend ourselves as a nation because there is not enough oil.

And it happened. Part of the reason that we just stopped having electric cars in 1910, Andrew—literally—is because we had to move all that metal into weaponry, and then Europe didn’t have railroads, and the Germans did. Germany controlled all the railroads, so we had to get Ford Motor Company and other companies to make trucks that could run on liquid fuel so that we could move men and people around so that we didn’t lose the war.

And that’s just the reality of where we are. We’re in a horribly dangerous time, not only because of climate change, but because there is this small percentage chance that we could have a nuclear war. And the president has to deal with that every morning he wakes up. He has—his best and top goal, I’m afraid, is to make sure we don’t have a nuclear exchange with Russia. That’s the first thing on his mind. And maybe the second thing on his mind is climate change, but the first thing on his mind is to make sure we don’t have nuclear war.

FASKIANOS: All right. So we have three minutes left. I’m going to take the last question from Matthew—I’m not going to be able to pronounce his name properly—Kazmierczak—who is government and legislative affairs in San Jose.

What should local government agencies be doing to ensure stability and resilience for its residents given the uncertainty of energy supplies, and that this isn’t an issue that local government have any control over? So what about ensuring stability for local budgets at the micro and macro level?

JAFFE: Oh my God, I would hate to be a city official doing the fuel budget today. You are definitely going to have to allocate more money for fuel, and that’s very depressing because my daughter used to work for the city of San Jose, and I know you have a lot of really worthwhile services for people. That would be horrible if you had to cut them just because fuel costs are going to go up.

So, you know, unfortunately, I mean, there’s not much I can tell you. To the extent that you have urban—you know, city vehicles and you can move those to alternative energy, I think—I still think you are going to do better with electricity than you are going to do with oil over time. You know, I mean, it just is what it is. I mean, your best bet is efficiency. So if there’s money that you could spend to replace equipment, to make the current equipment—whether that’s your vehicle fleet, or your power generation fleet, or your buildings—more energy efficient, that’s going to be money well spent. It not only lowers emissions, but it means that over time your energy bill will go down. And maybe that’s an investment to make because there’s really—it’s going to be hard to avoid.

FASKIANOS: Well, with that, Amy Myers Jaffe, thank you very much. I apologize for not being able to get to all the questions and comments in the Q&A box. We obviously have run out of time, but we do appreciate your being with us and for your good questions.

We will send out a link to this video in the transcript, and we’ll circle back to you, Amy, for anything else you want us to include—some of the reports you mentioned and some of the work that you are doing at your lab.

And you can follow Amy on Twitter at @AmyJaffeenergy. You might need to change your Twitter handle to climate change. (Laughs.)

JAFFE: Yeah, right. Well, energy, you know, transitioning our energy system is a climate change activity, so—

FASKIANOS: There you go. And you can also follow State and Local Officials at @CFR_local so we hope that you will do that.

Please email us with any suggestions to state and local at cfr.org, and as always, go to CFR.org, ForeignAffairs.com, and ThinkGlobalHealth.org for more expertise.

So again, Amy Myers Jaffe, thank you very much. And to all of you, we hope you stay safe and well, and we look forward to continuing our conversations.

JAFFE: Thank you for having me.

(END)