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ANDERSON COOPER 360 DEGREES

We Were Warned: Tomorrow's Oil Crisis

Aired March 17, 2006 - 23:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEOTAPE)
FRANK SESNO, CNN SPECIAL CORRESPONDENT (voice-over): In Houston, Texas, it is a terrifying time. The streets are deserted. Businesses are closed. Entire neighborhoods are locked and lonely.

Just the day before, gridlock finally gave way to exodus ...

UNIDENTIFIED MALE: Out this door, to the right.

SESNO: ... as residents fled, one step ahead of this year's monster storm, Hurricane Steve. No one yet realizes how it will alter the landscape, starting right here in Houston, headquarters for much of big oil. The region is home to nearly two dozen major refineries. Together they process about a fourth of all the oil used in America. This is the calm before this storm.

UNIDENTIFIED MALE: The winds are just constant now, and it's like a thousand ...

SESNO: Category 5 Hurricane Steve slams ashore with winds of nearly 200 miles an hour. The death toll is modest, but the physical damage is breathtaking.

UNIDENTIFIED: There's a storage tank that tipped over here and torn apart.

SESNO: Especially oil refineries, storage facilities and hundreds of offshore platforms badly damaged. Experts predict it will be months, years in some cases before refineries are repaired. Gasoline prices shoot up across the country.

UNIDENTIFIED MALE: We have no gas, food -- nothing.

SESNO: Panic buying leads to long lines and fears of shortages.

UNIDENTIFIED MALE: Many pumps have run dry.

SESNO: Satellite television sends these pictures around the world. Watching closely, al Qaeda terrorists who have been waiting patiently for this moment, ever since they saw Hurricane Katrina in 2005. With oil supplies now strained and vulnerable, the terrorists make their move.

September 26, 2009. It's business as usual in the world's largest oil producer. Saudi Arabia is pumping ten million barrels a day. Much of the kingdom's oil passes through the sprawling Abqaiq processing facility near Ras Tanura.

At 12:45 p.m., air traffic controllers pick up a distress call from a passenger jet flying from Tehran to Riyadh. Before they can even respond, the channel goes quiet. The plane disappears from their screens.

At 1:04, an Arab satellite channel reports massive explosions at Abqaiq. Within minutes there are reports of a second attack on Saudi Arabia's two largest export terminals -- at Ras Tanura and at Yanbu on the Red Sea.

This looks like al Qaeda's big move. It's real encore to 9/11, an attack that shakes the world.

Some experts speculate up to seven million barrels of oil a day, 8 percent of total world consumption will be disrupted for six months or more. No one really knows.

Oil markets are in chaos. A barrel of crude quickly tops $150. Oil experts predict gasoline will hit $7 a gallon in the U.S.; $10 a gallon in Europe. Political and business leaders fear the worst.

(on camera): This program is built around a dramatic scenario. A scenario that could affect every one of us. We can hope it never happens, but it's entirely plausible.

In fact, we put it together with experts who study these very possibilities.

In the hour ahead, we'll also journey through the present, to look at what we're doing about these very things. You see, we have been warned.

(voice-over): Warned since the Arab oil embargoes of the 1970s and Jimmy Carter's call to conserve.

JIMMY CARTER, FORMER PRESIDENT OF THE UNITED STATES: The energy crisis is real.

SESNO: Warned again just recently when an oil man president told us...

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: America is addicted to oil.

SESNO: ... but we consume more than ever, and forecasts show the trend continuing.

So can we avoid tomorrow's oil crisis?

(on camera): I've come out to Maryland farm country to meet someone who used to worry a lot about America for a living.

JAMES WOOLSEY: Hey, Frank, good to see you.

SESNO: How are you? It's been a while, yes. WOOLSEY: Come on in. This is home. It's only about 20 miles outside the beltway.

SESNO: James Woolsey dealt with national security matters for 25 years. He was CIA director during Bill Clinton's first term. If there was a threat, chances are he knew about it.

(voice-over): In recent years, Woolsey's been worrying about what would happen to America's way of life if the oil we're addicted to suddenly wasn't there.

WOOLSEY: If you don't worry about oil interruptions, you're living in something of a fool's paradise.

SESNO: Woolsey's concerns have become a way of life. He and his wife, Sue, own what you might call an energy safe house.

WOOLSEY: You can see up here, we put photovoltaics.

SESNO: He's put solar panels on his roof and a hybrid in his driveway.

(on camera): Famous Woolsey-mobile?

WOOLSEY: Bin Laden hates this car.

SESNO: It gets up to 50 miles to the gallon.

You've made your stand as a citizen on energy issues. That can't be just pure coincidence.

WOOLSEY: I think our problem really is our reliance on oil.

SESNO (voice-over): It's not just a backyard issue. Woolsey has written extensively and testified before Congress on the dangers to America's oil supplies.

What we need, he says, is leadership, conservation, and a genuine commitment to alternative fuels like ethanol and hybrid technology. For James Woolsey, our addiction to oil is a matter of national security.

WOOLSEY: This is a war and it's an odd kind of one because there hasn't been anything in this country by way of an attack for over four years and people have gotten to thinking that 9/11 was just some sort of an aberration. It wasn't.

SESNO: Woolsey isn't the only expert raising the alarm. And terrorism isn't the only thing that could send our world into an energy tailspin.

In his book, "Twilight in the Desert," Oil Analyst Matthew Simmons argues we're nearing the point when the world will use more oil than it can produce.

(on camera): Do you hear a ticking clock? MATTHEW SIMMONS, AUTHOR OF "TWILIGHT IN THE DESERT": I hear a gong. I heard a ticking clock during the '90s.

SESNO: And if we don't act? Something doesn't change?

SIMMONS: Well, our life could get a lot darker fast.

SESNO: What is your worse case scenario?

SIMMONS: My worst case scenario is so bad that you don't want to go there.

SESNO: Tell me.

SIMMONS: We basically end up having a series of energy wars over who gets oil. And they're wars between you and your neighbor. And the war is between one town and another, and ultimately one country and another.

SESNO: Chaos.

SIMMONS: It's just total chaos.

SESNO (voice-over): One day after terrorists hit Saudi oil installations, fires burn out of control. Al Qaeda, in a tape delivered to Arab television, claims responsibility and promises more.

At the White House, the president holds emergency meetings and deploys additional warships to the Persian Gulf to support the Saudis and protect shipping lanes.

UNIDENTIFIED MALE: We got knocked down to the ground and everybody started running.

SESNO: In Houston, destruction from the hurricane is overwhelming. Damage to refineries is estimated in the billions.

World oil markets are gyrating wildly and prices have more than doubled. The world is on edge.

(COMMERCIAL BREAK)

SESNO: The week after a Category five hurricane hits Houston's refineries and terrorists hit Saudi oil installations, world energy markets are reeling.

In California, some gas stations are charging more than $8 a gallon. The governor calls on residents to cut their driving in half.

The White House announces plans to tap America's strategic petroleum reserve.

UNIDENTIFIED MALE: The House will be in order.

SESNO: Nervous lawmakers want to know if the reserve runs low, where the oil will come from. (on camera): One hundred and twenty miles off the Louisiana coast, over some of the deepest waters in the Gulf of Mexico, I have come out to the middle of nowhere to see just how far we've got to go to get the energy we need.

After an hour and a half, my destination finally comes into view. The deep water millennium, a drill ship that can bore miles into the seabed below.

JOE GWYNN (ph), WORKS OFFSHORE DRILLING RIGS: This here is what we call a 20 inch underreamer.

SESNO (voice-over): Joe Gwynn is a straight-talking Louisiana native. He's been working offshore drilling rigs here for 33 years.

(on camera): Is this mud from...

GWYNN: No, that was all ...

(CROSSTALK)

SESNO: ... 10,000 feet under?

GWYNN: Right. That's 11,990 feet.

SESNO, (voice-over): Today, he's the man in charge.

(on camera): Now you've got how many guys aboard now?

GWYNN: They roughly keep about 140 people onboard.

SESNO: We walk the length of the ship, top to bottom. And marvel at what it can do.

How deep could you drill here?

GWYNN: Well, we've got 30,000 foot -- if we want to go 30 -- 32,000 foot, we can drill 33,000.

SESNO: Thirty-three thousand feet? That's six miles -- six miles down.

(voice-over): Remotely-operated vehicles, or ROVs, reveal what's happening on the seafloor.

Global positioning systems and thrusters underneath the ship keep it in place over the well head.

Computerized lifts pull pipe 270 feet at a time, with nothing more than the flip of a wrist. Today they're down 11,000 feet, two miles below the ship.

GWYNN: Twenty years ago I would have told them they were full of crap. I don't -- we wasn't going to drill out here in that deep of water, but fortunately they made me a liar.

SESNO: All this, part of the great global race just to locate new deposits of oil and natural gas.

The millennium's working in the eastern Gulf of Mexico for Anadarko Petroleum. The ship and crew cost nearly $300,000 a day.

Each deepwater site, a huge gamble. Hundreds of millions for what could be a dry hole.

STEWART STREIF (ph), EXPLORATION MANAGER: Right now we plan on getting an additional 2,000 or 3,000 feet...

SESNO: In Houston, the drilling strategy is set by Exploration Manager Stewart Streif and his team of geologists and engineers.

STREIF: We'll penetrate as we drill this well.

SESNO: They pour over maps and charts deciding where to drill.

The stakes couldn't be higher. America now uses nearly 21 million barrels of oil a day, a quarter of total world consumption. It imports nearly 60 percent of it. Domestic production has been falling for 35 years. The Gulf waters are a bright spot.

STREIF: Well, out here we're looking for what we would call big fields. And we would say a big field is 100 million barrels of oil.

SESNO: That may sound like a lot, but it's small compared to the world's really big fields which contain billions of barrels. That's billion with a "B." But we need every drop we can get. And at today's prices, there's money to be made.

JOHN STEVENSON (ph), ANADARKO EMPLOYEE: And that's what helps us set up that three dimension...

SESNO: Which is why Anadarko employs Gee Whiz 3D software, to peer deep into the planet.

(on camera): You're literally touring inside the earth there?

STEVENSON: Yes, absolutely.

SESNO (voice-over): Anadarko's John Stevenson shows me a new way they're looking at the underwater geology.

STEVENSON: When you're in this room, you really are feeling like you're in the data.

SESNO (on camera): I feel like I'm underwater.

STEVENSON: And you are.

SESNO: Is there a lot of oil and gas down there?

STEVENSON: Right here, we don't know. The truth of the matter is it's going to get harder and harder to find it. There should be. There should be.

SESNO (voice-over): The only way to know for sure is to drill.

(on camera): How long has it taken you to drill this, where you are now?

UNIDENTIFIED MALE: Well, usually around about two weeks, we can drill a...

SESNO (voice-over): This site will soon be producing natural gas from a platform very much like this one, the Marco Polo.

All together, these deep waters account for nearly 18 percent of domestic oil production. It helps, but it won't be our salvation, says Oil Analyst Matthew Simmons.

SIMMONS: The production profile of each field goes like this. So they come on stream and they basically peak in about 12 to 18 months, and five years later they're down to 20 percent.

SESNO (on camera): That quick hits?

SIMMONS: Yes.

SESNO: And we don't need quick hits?

SIMMONS: No, no, no.

SESNO (voice-over): Or do we?

JIM HACKETT, CEO, ANADARKO: Well, the clock's ticking on America's competitiveness.

SESNO (on camera): How much can this produce?

(voice-over): Anadarko's CEO Jim Hackett believes it's critical that we open more of these waters to exploration.

HACKETT: You know, I agree with those who say that you can't drill your way to independence on energy. What I do think we can do though, is impact price we pay for that by developing our own resources to the maximum extent possible.

There's a lot of oil and gas available in the world, but it's not easy to get at anymore.

SESNO: And that's why our quest takes us to the edges of the earth, from the deep waters to the deep freeze. But can it do more than buy us some time?

(COMMERCIAL BREAK)

(END VIDEOTAPE)

VIRGINIA SHAW, CNN CORRESPONDENT: Hi there. I'm Virginia Shaw of "HEADLINE NEWS." More of "We were Warned," in a moment.

But first, some of the stories we're following tonight for you. The judge in the Zacarias Moussaoui death penalty trial partially retreated today from her ruling barring all aviation security witnesses and evidence. She agreed to a prosecution proposed compromise, allowing the government to call untainted witnesses and evidence not handled by Carla Martin. She's the TSA lawyer whose actions caused the trial to be suspended.

Two more women have died after using the so-called abortion pill RU-486. The FDA has cautioned doctors to watch for a rare, but deadly infection previously implicated in the deaths of four other women who had taken RU-486.

In Santa Fe, New Mexico, three people waiting to see doctors inside a medical clinic were killed and several others were injured when a pickup truck smashed through the clinic's facade, rolling up to 30 feet into the reception area.

And Slobodan Milosevic was not poisoned. Now that's according to an interim examination of the former Yugoslav leader's body. It was cited today by a judge as the U.N. war crimes tribunal in the Hague. The judge also said that in order to ensure full transparency in the case, there would be an audit of the detention unit in which Milosevic had been confined since 2001 and in which he was found dead last Saturday.

In a moment, back to "We Were Warned."

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

SESNO: Fort McMurray, Alberta, lies in the frigid remoteness of northern Canada.

UNIDENTIFIED MALE: Big piece of land.

SESNO: But it's quickly moving front and center on the world energy stage.

(on camera): These trucks are coming virtually all the time?

UNIDENTIFIED MALE: Yes.

SESNO (voice-over): It's been put on the map by these oil sands -- 58,000 square miles of them; 174 billion barrels worth of recoverable oil, giving Canada, America's quiet neighbor to the north, the second largest oil reserves in the world, right behind Saudi Arabia.

No pump jacks here, though. This is a mining operation. An enormous open pit whose deep, dark deposits are literally pay dirt (ph).

CHARLES RUIGROK, CEO, SYNCRUDE: And we take that oil sand and warm water to it and extract from it is very, very heavy oil. SESNO: They turn that into high quality synthetic crude, explains Charles Ruigrok. He's CEO of Syncrude, the largest producer in the region.

RUIGROK: The end of the day, this is what we're in business with -- we want to end up with this stuff.

SESNO (on camera): This is selling for how much a barrel?

RUIGROK: For $60 a barrel right now.

SESNO: That's the money maker.

RUIGROK: We produce 250,000 barrels a day of that stuff.

SESNO (voice-over): That means moving about one million tons of earth every day.

Nova Scotia Native Bob McGregor (ph) came to Fort McMurray three decades ago. He never left.

(on camera): Which is the surge pile?

BOB MCGREGOR, NOVA SCOTIA NATIVE: Surge pile is over by that Century 21.

SESNO (voice-over): McGregor knows every detail of this mine. No backyard sand box, but a massive hole in the ground which will only add to Canada's position as America's leading supplier of oil.

MCGREGOR: And that just turns into a milkshake of sand and oil into the pipeline into the plant.

SESNO (on camera): Basically, it's three scoops and you're out, right?

MCGREGOR: Pretty much, yes.

SESNO (voice-over): We're dwarfed by these gigantic trucks, the biggest in the world. They haul 400 tons at a time. The tires alone cost $40,000 each.

(on camera): Listen, I tell you if I had Tonka trucks like these when I was a little kid, my life might have taken a whole different course.

MCGREGOR: Yes, for sure.

SESNO (voice-over): And it never stops. The operation churns 24/7. It's an industry in overdrive. In 10 years production is expected to triple to 3 million barrels a day. Problem is, world demand is expected to increase by 20 million barrels a day. So in the event of a crisis, this is not the place to look.

(on camera): As impressive as this is, if there were a revolution in Saudi Arabia, for example, Canada can't bail out the world?

UNIDENTIFIED MALE: Canada could not bail out the world with oil sands production. At the same time, the oil sands production in Canada is critical to the long-term future of energy supply in North America.

SESNO (voice-over): There may be 100 years of oil here, but that big market just south of the border, the United States, may find that location isn't everything, that Canada has its own interests.

A proposed pipeline could take these resources to Canada's west coast for export elsewhere. Among the pipeline's backers, the People's Republic of China, anxious to get access to all the oil it can as fast as it can.

Two weeks after the attack on Saudi oil and the hurricane that destroyed many of Houston's refineries, there is still no definitive word on when oil production will return to normal.

World stock markets are down close to 20 percent. America's big retail stores are largely empty. Truckers are simply not driving.

China and Iran announce a deal. Iranian oil in exchange for more Chinese nuclear technology. Both countries insist it's for peaceful purposes. The scenes for this, some years ago.

China, with its 1.3 billion people and east of an economy, is shopping the world for oil. It's now the world's second largest consumer of oil behind the U.S., and its aspirations are as big as its population.

Lee and John are a tiny, but selling slice of that. The young couple live in a modest studio apartment in Beijing. They both work and they see themselves as the future.

LEE, LIVE IN BEIJING (through translator): We saw people around us getting richer. So we feel the things that people have in other countries we can have them, too.

SESNO: To begin with, they want a car. Only about one household in 70 has one in China. And while a car costs more than what John and Lee earn combined, they're in luck because John's family has offered to chip in.

LEE (through translator): I'm really excited. I'm really looking forward to the moment of taking the picture of the car license.

SESNO: Today they get their piece of China's boom. The first in their families with their own wheels. It's a 10-hour ordeal -- an inspection, paperwork, the keys and finally, the license plate with an "8." A lucky number in China. It means, to get rich.

Repeat Lee and John's story maybe 75 million times over the next 15 years, and you get a picture of China's energy intensive economic explosion. See it here, too, on China's highways, jammed with trucks. They consume more than half the country's fuel. China may be forced into a more energy-efficient future, but its oil imports are projected to double in just 10 years.

So to fill its tanks, China has been striking deals wherever it can -- with Canada, in volatile places like Venezuela and Nigeria, with rogue regimes like Sudan and Iran. But principally with oil-rich countries in the Middle East -- Saudi Arabia, first among them.

Saudi Arabia is still the world's oil super power, producing nearly 10 million barrels a day. It's promised to increase production to keep up with global demand.

But Matthew Simmons' research leads him to believe the Saudis won't be able to deliver.

SIMMONS: We have been living on an illusion for half a century.

SESNO (on camera): What's the illusion?

SIMMONS: That the Middle East has unlimited amounts of oil.

SESNO: What's the reality?

SIMMONS: The reality is, is there is twilight in the unlimited amounts of oil. We're probably right on top of the highest oil that will ever come out of the Middle East.

SESNO (voice-over): The state oil company, Saudi Aramco, says there's plenty of oil in the ground.

ABDALLAH S. JUM'AH, PRESIDENT AND CEO, SAUDI ARAMCO: There is no one, I believe, with all due respect to my friends in the oil industry, who is able to bring large increments if needed by the world economy, cheaper or faster than we are.

SESNO: But for the Saudis, oil and everything about it is a state secret. No one really knows how much they have.

For China, for people like Lee and John, for the world, it's an enormous gamble.

SIMMONS: What we should be doing is helping China figure out how they basically create a society beyond oil.

SESNO (on camera): They're not building a society beyond oil. They're building a society on oil.

SIMMONS: Copied after us.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: There will be lots of repair work ahead; 90 percent of the Gulf's oil output is online. SESNO (voice-over): Three weeks after natural disaster in Houston and terrorism in Saudi Arabia, the staggering increase in the cost of energy is felt worldwide.

Food prices are way up just about everywhere. Tourism and business travel have nearly stopped. In the U.S., some SUVs now cost more than $200 to fill up. School districts cancel after school activities.

UNIDENTIFIED FEMALE: Working people struggle with high gas prices.

SESNO: Congress summons oil executives, demanding to know when prices will come down, when the oil will flow again. Why they weren't prepared.

The warnings and the ads have been around for years.

UNIDENTIFIED CHILDREN: Daddy!

UNIDENTIFIED MALE: What's the matter?

UNIDENTIFIED MALE: We're going too fast.

UNIDENTIFIED CHILDREN: Yes.

UNIDENTIFIED MALE: We're wasting gas.

SESNO: Good dads drive 55. It's an ad from the energy-shocked 1970s. A soft scolding from a surprising place -- an oil company.

UNIDENTIFIED MALE: That's a good daddy.

UNIDENTIFIED MALE: In the next 20 years the world will grow by one and a half billion people.

SESNO: Today's ads push conservation, too.

UNIDENTIFIED MALE: Feeding appetite for energy, will take innovation, collaboration and conservation.

SESNO: But against a tense new backdrop, surging demand, high oil prices and few new discoveries.

UNIDENTIFIED MALE: Some say that by 2020, we'll have used up half the world's oil. Some say we already have.

SESNO: Big oil's new message have become one company's new identity. BP used to stand for British Petroleum. Now it's Beyond Petroleum? For real?

JOHN BROWN, CEO, BP: Hello, Lord Brown. Frank Sesno, how are you?

SESNO (on camera): Very nice to see you.

BROWN: Nice to see you, too.

SESNO: I meet up with BP CEO John Brown, Lord Brown, as he's known in the U.K., At a solar plant BP operates in the U.S. Brown talks a lot about the environment and sustainable energy. He's something of a maverick in the business.

BROWN: People ask me often, well is wise to promote things that reduce demand for oil and gas? I say, not at all. Not at all.

This week we're launching a new business, BP Alternative Energy.

There will be different forms of energy. It's up to companies like BP to promote that.

SESNO (voice-over): Some other big oil companies are jumping on the bandwagon. Royal Dutch Shell is investing in bio fuels. Here, a promising new type of ethanol being made in Canada.

Chevron, an American company, has sunk millions into this hydrogen fueling station for prototype buses in Oakland, California.

A real shift or just PR for an industry with an image problem?

SENATOR PETE DOMENICI (R), NEW MEXICO: Are you rigging the price of oil?

SESNO: Following Hurricane Katrina oil executives were hauled before Congress.

DOMENICI: Please, somebody, describe in detail how the price of oil is set.

SESNO: To explain record profits...

JOHN HOFMEISTER, PRESIDENT AND U.S. COUNTRY CHAIRMAN, SHELL: The price of crude is set on world markets. We do not set or control the price of crude.

SESNO: Why they don't cut consumers a break...

LEE RAYMOND, RETIRED CHAIRMAN AND CEO, EXXON MOBIL: We have nothing to say about the price that's at the pump.

SESNO: And why with all this money, not one new refinery has been built in the United States in three decades...

RAYMOND: Building a new refinery from scratch takes years.

SENATOR DIANNE FEINSTEIN (D), CALIFORNIA: It would appear, if you look at the profit margins, that the industry is purposely keeping refining capacity low.

SESNO: To be fair, the industry has increased refining capacity somewhat by upgrading existing plants. It says overall, it's invested more than $300 billion in the past five years; and could do even more if political and environmental obstacles were removed, says Industry Economist John Fellomy (ph).

JOHN FELLOMY, INDUSTRY ECONOMIST: The fact of the matter is we could drill our way into oil independence. There's over 100 billion barrels of oil that we believe have not been found in the United States. But we're not allowed to go for it.

SESNO (on camera): Back at that BP solar plant, I'm struck by John Brown's careful balancing act. Defending big oil...

BROWN: There is plenty of oil and plenty of gas in the world. There is no crisis. There is no impending doom.

SESNO (voice-over): Even as he says government and industry should be far more aggressive on alternatives like BP.

BROWN: So we're going to invest about $8 billion in this business over 10 years.

SESNO (on camera): $8 billion?

BROWN: $8 billion over 10 years.

SESNO (voice-over): It's a big step, but still a fraction of what BP sinks into its main business every year.

BROWN: We're investing $15 billion in the oil and gas business because it's up and running.

SESNO (on camera): So alternatives are still a drop in the bucket?

BROWN: At the moment, of course they are.

SESNO (voice-over): So BP is not beyond petroleum yet.

And Brown knows how fragile the supply chain is.

An explosion at BP's Texas city refinery in March 2005 sent gasoline in the U.S. to what were then record prices. And that was just one refinery, producing only 3 percent of the gasoline used in the United States.

(COMMERCIAL BREAK)

SESNO: The great energy crisis of 2009 is now five weeks old. In the U.S., the postal service furloughs workers and suspends Saturday deliveries.

Around the world, manufacturers are shutting down. Several developing countries facing unrest, issue urgent appeals for aid. Few had planned for this.

This place has a rhythm all its own. But what brings me to Brazil is this -- sugar cane. Mile after mile of it. They make sugar with it, of course. But also something that makes brazil a world leader -- sugar cane ethanol, clean burning, high-octane. Ethanol now accounts for nearly 40 percent of Brazil's transportation fuel. In a dangerous world, this stuff is sweet in more ways than one.

(on camera): Eduardo, this stuff goes on forever.

EDUARDO JUNCARA (ph), RUNS SUGAR CANE ETHANOL MILL: Yes. It's a green ocean. Only sugar cane.

SESNO: I meet Eduardo Juncara in the fields near his mill, four hours south of Sao Paulo. It's one of the largest operations in the region.

JUNCARA: Well they unload the sugar cane here and with this sugar cane, we produce sugar and ethanol.

SESNO: You can smell the sugar, smell the molasses.

JUNCARA: Smells very good.

SESNO (voice-over): Here, nothing's wasted. The fiber from the cane is burned, which generates enough power for the entire mill.

(on camera): This is renewable energy in the real sense.

JUNCARA: Renewable energy in the real sense. And we are able to produce ethanol that's enough to fuel about 11,000 or more cars per day.

SESNO: 11,000 cars a day of ethanol?

JUNCARA: Yes.

SESNO: From these tanks?

JUNCARA: Exactly.

SESNO: Day after day?

JUNCARA: Day after day.

SESNO (voice-over): Brazil is experiencing a sugar boom. Three hundred mills produced 4 billion gallons of ethanol in 2005 -- 51 new mills are under construction and they'll need 130 more in the next seven years. Why? Because ethanol in Brazil is not an experiment, it's a way of life.

You see it at just about every gas station. Alcool, they call it, and it's cheaper than gasoline, though it doesn't deliver quite the mileage.

Here, even regular gas contains 25 percent ethanol.

Brazil's ethanol program has its roots in the 1970s oil shocks. Jose Goldenberg (ph), one of the early ethanol promoters remembers how the crisis nearly brought his country to its knees. JOSE GOLDENBERG, EARLY ETHANOL PROMOTER: The Brazilian economy was coming to a halt because you couldn't get fuel.

SESNO: In 1975 Brazil's government -- a military government -- decreed a national ethanol program, pouring billions into it.

But the big breakthrough didn't come for nearly 30 years. Flex fuel cars, introduced only in 2003, can run interchangeably on pure ethanol or a gas ethanol mix. An inexpensive sensor analyzes the fuel and instantly adjusts the engine. Three quarters of all new cars now sold in Brazil are flex.

Brazilians say the ethanol they make, together with the oil they pump, are about to make Brazil energy independent. They won't need oil imports.

(on camera): If there's a disruption in the Middle East, life will go on here as normal?

GOLDENBERG: Exactly. Exactly. And that was very clear in 1975. And that's the reason why we supported the ethanol program strongly.

SESNO (voice-over): Ethanol helped Brazil beat its oil addiction. And with sales and exports growing, it's profitable. No more government money.

GOLDENBERG: I think that we won. A good scientific idea was adopt by a large country in the world.

SESNO (on camera): I'm driving a Chevrolet in the middle of Brazil on ethanol, pure ethanol. Not a drop of oil, imported oil in this tank. And here's the stuff growing all around us that is the fuel. So I'm thinking why can't I do this in America?

SESNO (voice-over): So I went to Detroit to find out. I meet General Motors' Vice Chairman for Product Development Bob Lutz, straight talking former Marine, who spent 40 years in the car business.

(on camera): What's wrong with this? I mean, if Brazil -- Brazil is going to declare energy independence, they say, next year.

BOB LUTZ, VICE CHAIRMAN FOR PRODUCT DEVELOPMENT, GENERAL MOTORS: Yes. There is nothing wrong with it. There is nothing wrong with it. We support it fully. We think -- we think running the nation on E85 makes more sense than all the hybrids in the world.

SESNO: Why aren't we doing it?

LUTZ: Well, it's -- right now distribution is very limited.

SESNO (voice-over): E85, 85 percent corn ethanol, 15 percent gasoline, is made in America. But outside the Midwest, it's not widely available, and represents just three percent of the fuel we burn.

The federal government has moved to double that and GM is selling flex-fuel cars.

UNIDENTIFIED MALE: And here it is. The E85 compatible 2007 Chevrolet Avalanche.

SESNO: About 10 percent of its sales in 2005.

UNIDENTIFIED MALE: What if we can live green by going yellow?

SESNO: Now they're even starting to market them.

UNIDENTIFIED FEMALE: And one car company will lead us there.

SESNO: But the reason the U.S. doesn't have a big alternative energy market? Oil has been so cheap for so long. Even now, Americans practically consider it a birthright.

LUTZ: The only way to get people to save on a scarce resource is to raise the price of that resource. And as long as there is a heavy demand on the part of the American public for a full-size sport utilities, we will supply them.

SESNO: And they do. Insisting they make sense.

Transportation Expert Daniel Sperling says Detroit has lost a lot of time.

DANIEL SPERLING, TRANSPORTATION EXPERT: The automotive engineers have done a great job of making the engine more efficient, but all of that efficiency improvement was used to make the vehicles bigger and more powerful. In fact, today's vehicles on average have the same fuel economy has 20 years ago. So what we've done as a society is we've said, oil is not a problem.

SESNO: But now, maybe oil is a problem. SUV sales have tanked. So what would happen to GM and other U.S. automakers if oil were to get really expensive? Say, $100 a barrel or more.

LUTZ: That would basically bring the industry to a halt. Extremely expensive energy is going to impact every facet of American life.

(COMMERCIAL BREAK)

(END VIDEOTAPE)

SHAW: Hello, I'm Virginia Shaw of "HEADLINE NEWS". More of "We were Warned," in a moment.

But first, business headlines and some breaking news from the fashion world.

A man whose clothing made fashion history has died. This is according to the "Associated Press." Designer Oleg Cassini created the look that made Camelot, Camelot. He created the dresses and gowns and pillbox hats for Jackie Kennedy. Mr. Cassini said that when JFK was elected he, meaning Mr. Cassini, persuaded the first lady to use him -- not just as one of many designers, but for the entire look. And what a look it was. Oleg Cassini was 92 years old.

Well, stocks gained today, and even more for the week, pushing the Dow Industrials and S&P 500 to their highest level since May 2001. In fact, all three major indexes closed higher for the week.

Filing your taxes soon? Want to know if you'll be audited? Well, according to IRS data, the riskiest income brackets are the ones either under $25,000 or between $100,000 and $200,000. So, beware.

And that's it for us. Next, more of "We were Warned."

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

SESNO: Back in Maryland farm country, far from the oil sands of Canada, and the deep waters of the Gulf, the aspirations of the Chinese people. Here there's barely a hint of the precarious balance between supply and demand. Only the odd hybrid suggesting an alternative.

This one belongs to the man with whom we started this journey. The former CIA Director James Woolsey.

WOOLSEY: Whether it's a terrorist attack or a...

SESNO: We need to mobilize for war, he tells me. That's how serious it is.

UNIDENTIFIED MALE: We've got to be more resilient than we are now, or we suffer the danger of some sound of a knockout or near knockout blow. It's time now to get going.

UNIDENTIFIED MALE: The president of the United States.

SESNO: Late in his term, President Bush acknowledged the need to move beyond oil.

BUSH: By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past.

SESNO: The talent and technology is out there.

BURNS: Let's go look at the future.

SESNO: In Detroit, Larry Burns leads the General Motors team, trying to put a hydrogen car on the road. GM's billion dollar bet could finally replace the internal combustion engine.

BURNS: This will be the world's first fuel cell vehicle with a 300 mile range. It will accelerate from 0 to 60 miles per hour in less than 10 seconds.

SESNO: Pollution-free technology. But years, probably decades, before these cars are king of the road.

Other technologies are within closer reach, like making fuel from hay and other agricultural waste.

Though you still have to go to Canada to see cellulose ethanol, as it's called. Iogen, the company that makes it, says the U.S. could one day replace up to half the gasoline it consumes.

President Bush has talked this one up and put some new research money into it. He's also plugged the plug-in hybrid. It has an extra battery which can charge overnight in addition to its hybrid technology.

Make it a flex fuel car so it also burns ethanol, and you could get perhaps hundreds of miles to the gallon -- or use no gasoline at all. But for now...

BUSH: America is addicted to oil.

SESNO: Bush's critics say his initiative comes up short because it is late, under funded and fails to mandate significant improvements in fuel economy standards.

The new technologies will take billions to develop, years to make a difference.

Meantime, the clock is ticking and many of the hard decisions are still being debated and deferred.

So, we're still stuck with our addiction to oil and we're a lot more vulnerable than we really want to think about.

Terrorism and natural disaster have disrupted much more than just the flow of oil.

As winter looms, there are spot shortages of home heating oil and natural gas in America's Northeast and upper Midwest. Prices have nearly tripled.

World leaders are now preoccupied with the impact of global recession. The president of the United States signs the Emergency Energy Reconstruction and Freedom Act, mandating conservation, throwing billions at new technologies.

This Thanksgiving America will be staying home.

From California's freeways to the New Jersey turnpike, it is oddly quiet.

Things we took for granted are endangered, and we were warned.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

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