Russ: This is a BusinessMakers WebXtra, a continuation of our discussion with Dr. Michael Economides, energy expert. I love the conversation about China, because I think that that information needs to get out there more. I mean it's just incredible how that's gonna change the future. But there's also this pretty big country called Russia that you've written about. Share with us your perspectives on Russia and energy.

Michael: Generally, the way I start talking about Russia, the following, that Russia under Putin depends more on oil and gas than the Soviet Union depended on oil and gas during the Brezhnev era. What Brezhnev and Khrushchev were able to do with nuclear weapons, Putin has been able to do with oil and gas in what arguably can be called energy imperialism. Starting in 2004, there was a full attack on the Russian oil industry which had been privatized during the Yeltsin area. It was Putin's own adviser, Illarionov, called the "swindle of the Century." Putin took over. In fact, it's kind of interesting, two years earlier, you remember our then-President George W. Bush goes to Russia and he comes back and he says he looked Putin in the eye and he saw he was somebody you could do business with. I wrote that day – maybe shortly thereafter, that I looked Putin in the eye and I saw KGB. By the way, McCain repeated that in the last election without attribution, as usual. So the whole point is this, Putin has re-Sovietized Russia by any other name. Fifty-two percent of the Russian auto industry is owned by the state directly, but the rest of it is owned by Kremlin cronies. Russia has evolved into the most corrupt country – one of the most corrupt countries – of all the big countries of the world, it's the most corrupt country in the world. In transparency international rankings, Russia came – are you ready for this? Between Indonesia and Nigeria. That's how corrupt it is, okay? The whole thing's just beyond even my own very cynical belief, of how Russia has become. Of course, Russia dominates Europe. Twenty-five European countries depend on 75 percent of the oil and gas in Russia. You heard about the disputes with Ukraine, right?

Russ: Right.

Michael: Well it happened almost to the day three years apart. Ukraine draws small amount of gas through the pipelines – about three or five percent. They get into dispute with Russia, Russia shuts the pipeline and guess what? The Poles and the Greeks and the Slovaks and the Czechs and the Italians are freezing in the dark. So Russia likes to dominate, of course. Power is far more important that economics. Everybody knows if they break Gazprom down, it's the largest monopoly in the world, they totally can benefit many times over, but Russians prefer control over economics. And, of course, the Chinese have the other end. It gives Putin and Russia an enormous geo-political weapon, energy. And of course they have a new president, Medvedev, but he is really in my opinion a figure head, but really Putin and his ex-KGB buddies are what have been controlling the oil and the gas business in Russia.

Russ: And the whole thing with Gazprom was just totally a nationalistic takeover, right?

Michael: No doubt. I mean, Yukos is what we are talking about. Yukos was Russ Mikhail Khodorkovsky, he's rotting in a Siberian prison. The other guy, Abramovich, saw the light, plus $17 billion, he moved to England, he bought Chelsea Football Club, and the first Airbus380 that he converted into a private jet. Those huge new airplanes. That's Russia for you.

Russ: Okay, wow. Okay, so Russia and China, are they taking over the pull of the energy world beyond Saudi Arabia or is Saudi Arabia still important?

Michael: They are very different, by the way. China is a buyer. Russia is a seller. Saudi Arabia has emerged into a world regulator in the oil business. Two-and-a-half million barrels of excess capacity a day. That means – and this is emergent business – two-and-a-half million barrels is a lot of oil. It's more than what Venezuela produces. And this is not the first time the Saudis found themselves in this predicament. In the 1980's, when then-President Reagan encouraged Saudi Arabia to over produce, that collapsed the price of oil and brought about the collapse of the Soviet Union. The internal fractures of that regime made gaping holes and the rest is history. We have written about that also in the Color of Oil, again repeated many times, again with no attribution, but that's another story.

Russ: Alright.

Michael: We documented that. Saudi Arabia today has the capacity that I gave you. When I'm in China, people they don't trust us as we don't trust them. They say, "What shenanigans are you guys doing in the West for the price of oil to go up to $150.00 again?" I said, "Listen, if there is any power that we have in the U.S., if there is any pull we have over Saudi Arabia, we can actually encourage them to overproduce that would collapse the price of oil or the way around and it will really pull in Chavez in Venezuela for example, bother us or not, we can really hurt them badly if the price of oil collapses to $10.00 or $20.00 a barrel, which it can do. On the other hand, I don't think the Saudis are ready to commit economic suicide. I don't think it's gonna happen, and that's why I believe the price of oil will probably hit $100.00 around next Christmas or shortly thereafter. I mean, the same reasons that got us to $150.00 oil are back in force today. China's economic growth, 10 percent. We are recovering from the recession. Geo-political pariahs like Chavez in Venezuela, Putin, are still in power. So I would say we are inexorably moving towards $100.00 oil again.

Russ: Okay. Back to Saudi Arabia, I thought Matt Simmons was saying that they were just about out.

Michael: Like anything else, even would-be knowledgeable people in this business are also falling for the alarmism. If I tell you middle is near, relax, you don't get impressed. But if I tell you the end is near, repent, you get very impressed and I sell a lot more books. Simmons was a good guy, by the way. He wrote a book called Twilight in the Desert suggesting that Saudi Arabia cannot produce any more oil. This is unadulterated nonsense again, okay? I mean, Saudi Arabia has increased its oil production capacity by two-and-a-half million barrels a day since Simmons said they cannot produce any more oil. So come on, this is – it's not even worth rebuttal sometimes.

Russ: Okay, now we've sort of shifted and we're just talking about fossil fuels. And you mentioned earlier that today we depend on them for 87 percent of our energy and well into the future. How far into the future?

Michael: I don't see significant changes by the year 2030.

Russ: 2030.

Michael: I think we are still gonna depend 85 to 87 percent, give or take, probably more than 87 percent, because of China and India. They're not gonna play along with any of this other stuff we're talking about. I think we're gonna use oil in commercial quantities for another two centuries. Natural gas, on the other hand, will emerge as the premier fuel of the world economy, but the transition is painful. Nothing happens overnight and it's excruciating. But natural gas, for example, for transportation in the form of CNG – compressed natural gas. I'm very big on that. I do believe that natural gas will take marketshare from oil within the next two decades in a very substantive way.

Russ: And that could be in the favor of the United States, right?

Michael: No doubt. I mean, we have gas. And also, even the environmentalists, they all do like that, okay? But one of the problems is the Sierra Club and Friends of the Earth have never seen an energy project they like anyway. Even if it is so obvious that natural gas is better than oil – it has lower carbon emissions, all of this stuff. It's cleaner, more efficient – they still talk about solar and wind.

Russ: Well, in fact, speaking of the environmentalists, don't they make a valid point when they talk about conservation?

Michael: Conservation is the mother lode of all slogans. First of all, let's talk about conservation. If we're talking about efficiency, we are far more efficient than we were before. Most people don't realize that the United States does not waste energy. I mean everyone in the world they want to say we are exploiting everybody. We are splurging these. But in reality, anybody who's wasteful will not survive in a financial system like ours. But the other thing is the following, something known as the energy intensity. Energy intensity is how much energy do you use to generate one unit of the Gross Domestic Product. It's normally measured in BTU's per dollar of GDP. That number, by the way today in the U.S., is less than 40 percent of what it was in 1973. So we use .4 BTU to generate a dollar of GDP compared to one that we used.

Russ: And that's good.

Michael: It's great for sure, but we use a lot more because we also manage to find new uses of energy. How many people realize that depending on how you count it, 10 to 20 percent of the power generated in the United States is used by computers and the Internet. It is not the SUV, for example, that is the culprit. What are you gonna do? Yank people who have not lived in a world without computers and the Internet? Those big servers, Amazon.com uses as much energy as a 10-story building. So we manage to find new uses of energy. So conservation has never played a role in reducing total energy demand. In fact, the opposite is true too. There is something known as the Jevons Paradox. Jevons was a British economist of the 19th Century and he wrote a landmark study called How Conservation Affects Total Energy Use. His conclusion? It leads to increase rather than decrease. This is why people associate the use of energy with a better life. There is no question about that there is a correlation between energy consumption and wealth and welfare. And as a result, let's say your house becomes more efficient, what do you do? You buy a bigger house. Your car becomes more efficient, you buy two cars. In other words, we have not really decided on frugality. It doesn't really matter even, we can become irrelevant in the West because you have the Chinese that have four cars per 100 people. We have 110 cars per 100 people, and you helped me a little on saying that they have increased their vehicle consumption by almost 70 percent from one year to the other. Imagine how much space they'd have to move in order to catch up with us.

Russ: But is there, perhaps, a silver bullet in nuclear energy?

Michael: Nuclear can play a big role, especially if my notions of electrifying the transportation – and I'm not talking about battery-operated cars, I'm talking about technology. We have vehicles taking electricity from the guide ways of the future. And you become independent when you get off and you become dependent or relinquish control when you get on the future highways. It can be computerized with technologies that are available. We can travel about 200 kilometers an hour and so on. Nuclear in that environment can play a huge role. Don't forget that nuclear was the first poster child of environmental objection. Even to this day, by the way, with global climate change and CO2 fears, most of the mainstream – if you can use that word – environmental organizations, they will not embrace nuclear. And for the whole society, nuclear has yet to live down the bum rap from Three Mile Island and the Chernobyl disasters. We haven't had a new nuclear power plant in this country in 30 years. It takes 800 permits to even begin to do think about building a nuclear power plant. I'm sure somebody thought of doing it, but came back to his sense very quickly.

Russ: Couldn't there be a movement to change and reduce what the requirements are?

Michael: Look at what's happening. It has to be consensus. It has to have political wheeling power and push, and I mean, when we have an administration who's consumed by saving the planet from emissions and they are not interested about energy supply, I mean how far off are we?

Russ: Way off. All right. Before I let you go, Dr. Economides, one last question. Let's imagine that the leaders of all the governments around the world got together and said, "Man, Dr. Economides is pretty smart. Let's just make him the energy czar of the world."

Michael: Actually, people have proposed that.

Russ: All right. Good. What would you do?

Michael: Some very simple things. First of all, what I say needs to be said by the President of the United States, and no President has said that – Republican or Democrat. In fact, I have said years and years ago that the same way as rabid anti-communist Nixon went to China, and populist politician Bill Clinton tried to reform the welfare system in this country, it may take a democrat to explain to the American people the importance of energy in the life we live. I am one of those people who believe – and here's why it's consistent with me being a Democrat socially and ideologically in many ways – energy should be the most populist of all issues. It should be no different than the air we breathe and the water we drink and the food we eat. It should not have been delegated to the right-wing fringes of the Republican Party. It becomes, in other words, such a big oil bum rap.

Russ: I know what you're saying.

Michael: Right. So the first thing you need to do is articulate that reality. What's real and what's a fantasy. Now we are blending the two. The Obama administration lives in the Never Neverland of fantasy in the energy war. They have adopted this outrageous, ridiculous fantasy as you can imagine in the energy business. So that's the first thing. The second thing is the energy supply becomes important. Proactively we should develop nuclear power plants – proactively. Instead of having 800 permits, it should be a pull rather than a push from the government. Governments must understand the importance of energy supply in the world we live in. And then we can start talking about nuances. Which of these energy supply sources should be first, second and third. One other thing that is very important, by the way again, that governments should work on, is energy diversity. What that means is the following, and this is very critical, by the way. Remember the debate we had about energy independence? You know, we don't use any gas, any natural gas, for what we use oil for today and vice versa. Oil is not used for power generation. Oil is use almost exclusively for transportation. There is nothing else than oil for transportation. So unless you can have this idea that energy sources can be pulled together, and the critical catalyst is electrifying practically everything because you can produce electricity from too many source, and then have the end use to be electric. If you can do that, then that is a giant leap forward for the future of the world. That's the kind of thing that I would be pushing for.

Russ: All right. Dr. Economides, I really appreciate you spending time with us and sharing this important message.

Michael: Thank you very much. That was great.

Russ: That's right. That's Dr. Michael Economides, the energy expert on the planet in my opinion. And you've been listening to a BusinessMakers WebXtra. This is the BusinessMakers Show, heard here and online at thebusinessmakers.com.