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Issue Number One

Oil in the Sands; Curse of the Black Gold; Oil Sands Boomtown; Oil Sands: The Environment; The Oil Crisis; Quick Vote Results

Aired July 11, 2008 - 12:00   ET


ALI VELSHI, CNN ANCHOR: It is a wild Friday. Oil hits record levels, and gas prices are sure to follow.
Two critical components to the U.S. housing market take a serious tumble as the stock market slides.

Why the new iPhone could change the cell phone game forever.

And an ISSUE #1 special report: "Energy Hunt," the worldwide search for the future of your energy.

Issue #1 is the economy. ISSUE #1 starts right now.

Well, from the ISSUE #1 headquarters to what you're looking at, the newsroom, we are all over stories that matter to you. And there are lots of them today.

Hello, everyone, and welcome to ISSUE #1. I'm Ali Velshi. Gerri Willis has the day off.

Oil is soaring. The price of a barrel of oil is about $145 right now after hitting a record high of $147, higher than $147 this morning.

The reason for the price spike, possible renewed violence in Nigeria, a planned labor strike in Brazil, and tensions with Iran in the Middle East. Kind of a perfect storm for oil prices.

We're going to keep you updated on the price of oil. What will that mean to your gas prices?

And we'll have look at the future of your energy in our ISSUE #1 special report in this show.

But one of the biggest stories all week, Fannie Mae and Freddie Mac in deep, deep trouble. Their stocks have plunged nearly 50 percent. Now there's talk of a government takeover.

CNN Senior Correspondent Allan Chernoff joins us now to break it down for us.

A complicated story, but you've been looking into it.

ALLAN CHERNOFF, CNN SR. CORRESPONDENT: And it really affects all of us, Ali. When investors are tossing shares of Fannie Mae and Freddie Mac out of the window, it shows a loss of confidence that really could affect the nation. Why? Because Fannie Mae and Freddie Mac are private companies that were created by the federal government, but they are the two most important players in the mortgage business.

Together, they own half of all the mortgages in the country, $5 trillion worth. They buy mortgages from the banks that lend us the money to buy our homes. That system generates new money for bankers to make more loans.

But, if Fannie Mae or Freddie Mac stumble, the system is at risk. And of course, with the housing market in such deep trouble, it's important that bankers be able to keep on lending. So important, in fact, that according to "The New York Times" this morning, the Bush administration is considering taking over Fannie Mae or Freddie Mac, or even both of them.

Now, the Treasury secretary, Henry Paulson, this morning tried to restore a little bit of confidence in both of them, saying, "Our primary focus is supporting Fannie Mae and Freddie Mac in their current form. We are maintaining a dialogue with regulators and with the companies."

President Bush this morning said the secretary briefed him on the situation and added that Mr. Paulson, as well as the Fed chief, Ben Bernanke, are working very hard on the issue. Now, because of the foreclosure crisis, Fannie Mae and Freddie Mac have suffered huge losses, and now they're under pressure to raise money from investors to ensure their stability. But if they can't do that, the federal government may have to step in -- Ali.

VELSHI: Well, right now, this is, as you said, a crisis of conference (ph). The Dow is now up about 200 points right now. We're keeping a close eye on that.

We're also waiting for what the administration is doing about the other thing that we can consider a crisis in the markets, and that is an energy prices. President Bush was -- has just been meeting with senior officials at the Department of Energy, and we will be going to that in about a minute. We'll be getting tape of that.

But Allan, are we seeing enough from the government that suggests that Fannie Mae and Freddie Mac are not going to go out of business? Will they -- do we think they're going to step if things get worse for those two companies?

CHERNOFF: A lot of investors are betting just that. That's why some investors are buying...

VELSHI: Right.

CHERNOFF: ... when others are just throwing these shares out of the market, because these two companies are essential to the economy, essential to the housing business. This is something that the government can control. It can't really control the price of oil, it can control this. And we may see once again Ben Bernanke of the Fed stepping in, along with the Treasury secretary, just as they did to save Bear Stearns when we had that huge collapse earlier this year. They don't want to see the dominoes just falling down and down.

VELSHI: Yes. All right.

Let's now listen into President Bush. This has just come back from a meeting that he has had with Energy Department officials about the price of oil.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I want to thank the members of my economic team for assembling here at the Department of Energy.

Secretary Bodman, thank you for hosting us.

And first of all, Secretary Paulson came by this morning to brief me on the financial markets. Freddie Mac and Fannie Mae are very important institutions. We spent a fair amount of time discussing these institutions, and he assured me that he and Ben Bernanke will be working this issue very hard.

Secondly, he did inform us that 112 million stimulus payments have gone out.

And I congratulation you and your department for doing your job.

So far spent is about $91 billion in tax relief, which has had a positive effect on retail sales. The problem, of course, is that gasoline prices are up, which has affected the people here in our country.

And one of the main reasons why gasoline prices are up is because crude oil prices are up. And one reason crude oil prices are up is because demand is outstripping supply.

And therefore, what can we do about it? And that ought to be the question the United States Congress asks.

And one way to deal with supply problems is to increase supply here in America. And one of the things we just went through was a briefing from Secretary Bodman, Secretary Kempthorne about the vast potential of crude oil reserves on offshore lands, as well as in Alaska, as well as in the oil shale in the western part of our country. And yet, the Democratic leaders of Congress have consistently blocked opening up these lands for exploration.

The other part of our briefing was how we can explore an environmentally friendly way. Technology has changed dramatically to enable the exploitation of oil in a way that protects the environment.

You know, these members of Congress, particularly the Democratic leadership, must address this issue before they go home, for this upcoming August break. They have a responsibility to explain to their constituents why we should not be drilling for more oil here in America to take pressure off of gasoline prices.

I want to thank you all very much for your briefing. These are tough economic times for the American citizens. But there is a way forward to help relieve some of their -- some of the pressure on their pocketbooks. And I'm looking forward to seeing -- watching this Congress respond in a positive way.

Thank you.


VELSHI: CNN's Brianna Keilar -- that's President Bush meeting with Energy Department officials.

CNN's Brianna Keilar has been following this. She joins us now from the White House.

What do you make of it, Brianna?

BRIANNA KEILAR, CNN CORRESPONDENT: Well, Ali, you know, about a year ago, gas was at, what, almost $3, about $3 a gallon? Today is just under $4.10 a gallon.

So President Bush was at the Department of Energy today trying to assure Americans that he's on it when it comes to a solution to these soaring energy prices. You saw him there, flanked by Vice President Cheney, as well as several members of his cabinet -- the secretaries of Agriculture, Commerce, Transportation, Energy, Treasury, trying to assure Americans.

And basically his message there, you heard it, that demand is outstripping supply. And he's really putting this on Congress.

He has for a few weeks now been urging Congress to lift an offshore oil ban on the Outer Continental Shelf around the coast of the United States. You also heard him mention drilling in Alaska.

He says these are some of the solutions, along with increasing refinery capacity here in the U.S. But this is a contention issue.

It's very unlikely that with Democrats in power in Congress this is going to go anywhere. But even so, some Republicans in Congress, Ali, are heading to Alaska just next week, going on a Republican energy tour. I believe it's 10 members of the House, led by House Minority Leader John Boehner, going to Alaska to bring some awareness to this. And obviously the White House hammering this home as well.

VELSHI: All right. Yes, you're right, there's a lot of talk, the Republicans talking about that -- those massive areas of coastline that are not explored. Right now it's really just the western Gulf of Mexico and some parts off of California.

So we'll keep posted on that. Brianna Keilar at the White House.

Thanks very much for that.

Oil right now trading at $144.15 a barrel, lower than it was this morning, though, getting above $147 for the first time ever.

We talk a lot about oil and gas on this show because it is something that you tell us you care a lot about. That's the focus of today's "Quick Vote."'s Poppy Harlow joins us now with more on that -- Poppy.


With oil at historic levels, it's become pretty clear that we need an alternative source of energy. So what will power the world in the future? Here's our "Quick Vote" question today.

"I believe the best use for energy lies in solar, wind, or something yet to be discovered?" Please tell us what you think on

We'll bring you those numbers later in the show, Ali.

VELSHI: And Poppy, you'll be back with us, as well, talking about "Energy Fix" and other things that we're discussing. We're talking a lot about energy on this show.

The candidates and your economy, that's also something we talk about. One talks energy, while the other is in full damage control mode.

And then, what is the world's population? What does it mean to the economy here at home? We're all over that on ISSUE #1 right here on CNN.

We're coming right back.


VELSHI: All right. Welcome back to ISSUE #1.

Let's talk politics and your bottom line.

With likely Democratic presidential nominee Barack Obama campaigning in the critical battleground state of Ohio today, Senator Obama discussing energy policy at a town hall-style meeting in Dayton that just got under way. Let's hear what he had to say.


SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: ... provide short-term relief. If we started drilling today, the first drop of oil wouldn't come for another seven years. And even then, it wouldn't have a lot of impact on prices because it would go to a world oil market.

The Chinese and the Indians, they'd be buying that oil just like us. You would not see a significant savings. Everybody agrees with that.

Meanwhile, the oil companies currently have the rights already to drill 68 million acres of land in offshore areas that they haven't touched. So the oil companies already have 68 million acres that they're not using effectively, and yet, John McCain is talking about giving them more...


VELSHI: Well, presidential candidate Barack Obama goes one-on- one with CNN's Fareed Zakaria. What ideas will Obama share about solving America's and the world's toughest problems? Find out this Sunday at 1:00 p.m. Eastern on "FAREED ZAKARIA GPS," right here on CNN.

Well, moving over to the McCain camp, Senator McCain is doing damage control today. A top campaign official, former senator Phil Gramm, called Americans whiners for complaining about the poor economy.

CNN's Dana Bash has a look.


DANA BASH, CNN CONGRESSIONAL CORRESPONDENT (voice-over): In hard hit Michigan, this is the McCain mantra on the economy...

SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: People are hurting. People are hurting very badly.

BASH: A carefully-measured message that's part "feel your pain," part realist, but all optimist.

MCCAIN: But they need to have trust and hope and confidence in the future.

BASH: Given that, quotes in "The Washington Times" from Phil Gramm, one of John McCain's top economic advisers, were a big oops.

"We've become a nation of whiners. You just hear this constant whing, complaining about a loss of competitiveness." Gramm also said, "You've heard of mental depression. This is mental recession."

McCain couldn't distance himself fast enough from his friend.

MCCAIN: Phil Gramm does not speak for me. I speak for me. So I strongly disagree.

BASH: He struggled to steer his economic message back on course.

MCCAIN: I don't agree with Senator Gramm. I believe that the person here in Michigan that just lost his job isn't suffering from a mental recession. I believe the mother here in Michigan and around America who's trying to get enough money to educate their children isn't whining.

BASH: Democrats had already pounced.

OBAMA: It's not just a figment of your imagination.

BASH: Minutes earlier, Barack Obama shoved a dig about Phil Gramm's comments into his speech.

OBAMA: ... that America already has one Dr. Phil. We don't need another one when it comes to the economy.

BASH: Now, surrogate slip ups have plagued both campaigns. Obama recently rebuked retired General Wesley Clark, his supporter, for questioning McCain's military service.

PHIL GRAMM (R), FMR. U.S. SENATOR: And John McCain has character.

BASH: The problem for McCain is that he relies on Gramm, a Ph.D. in economics, for policy advice, and as a character witness for voters worried McCain doesn't get the economy.

MCCAIN: And the reason why I have the support of people like Jack Kemp and Phil Gramm is because of their confidence in my proven record of handling the economy.


BASH: Now, I spoke with former senator Phil Gramm by phone yesterday. He said he wanted to clarify some of his comments.

He insisted that he didn't mean to say Americans are whining about the economy, but rather, many of the country's leaders are. And I'll read you what he said to me.

He said, "The whiners are the leaders. Hell, the American people are the victims, but it didn't quite come out that way in the story."

But Ali, Gramm told me he was actually standing by another controversial thing he said, and that is that we're in a "mental recession." He said he believes the steady drum beat of bad news is simply making Americans feel worse about the economy than they really should.

VELSHI: That's an interesting discussion. I mean, I often refer to it as a psychological recession. If you think you're in that recession, you may hold back on your spending. So that, perhaps, is one that we can understand a little bit better.

Dana, thanks very much for that.

BASH: Thank you.

VELSHI: Well, whether you buy it or not, how will the iPhone change the way you use your cell phone forever?

And we're counting down. Just about 15 minutes away from a CNN special report, "Energy Hunt," the worldwide search for the future of your energy. You won't want to miss it.

You're watching ISSUE #1 right here on CNN.


VELSHI: Are you willing to go generic to save a few bucks? An article in today's "Wall Street Journal" suggests there's a seismic shift under way in the shopping habits of Americans who are worried about today's economic troubles.

It's called trading down, which is a common consumer reaction to a souring economy. Basically, shoppers forego buying the name brand for cheaper in-store or generic items instead. Now, this has happened before, but this article suggests that it has never been so fast as what we're seeing today.

Well, who benefits from that? As you might think, discount retailers like Wal-Mart, which yesterday posted its strongest month of sales in four years.

Well, there's generic and then there is the iPhone. The new iPhone is out, by the way. We're not going to talk about the hype and the lines and all of that, but we are going to talk about the fact that Apple is taking steps with this iPhone that could change the landscape of the cell phone PDA game forever.

Jennifer Westhoven, who likes these gadgets almost as much as I do, is here. And this morning we had a chance to -- well, you got it. We got a chance to take a look at this iPhone and check it out.

Offer some sort of perspective on how important this is.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: You know, I think it really does change the landscape in some ways for all of the other phone companies to compete, because once it's so easy to move around -- you know, you can move around with your thumb on these as you go through the Internet. It's really quite quick.

It really means that other phones become hard to navigate in some ways. If you think about how easy it seems, like, to book an airline ticket on this, compared to these, it's almost unmanageable at times. So, the iPhone finally speedy, which is a bottom line if you're a business person.

VELSHI: And that was a bit of criticism. It worked on -- AT&T is the provider, and it worked on a service that -- it felt like the speed wasn't as fast as a device like that would invite.

WESTHOVEN: That's right. And they're still -- by the way, they're attached to AT&T for four more years now. But it's finally got the speed on this broadband-style line. It also works with Microsoft Outlook, which is another huge plus for people who are in business. So, really, I think, one of the big questions in terms of its success is going to be, can they get ITs to give it the seal of approval, shall we say?

VELSHI: Right. The corporate department.

WESTHOVEN: Are they going to support them? Right.

VELSHI: This is -- the question has always been, what's the one device that is going to work, that is going to replace the two that you might carry or the three?


VELSHI: So this is a camera, this is a cell phone, this is an e- mail device. It's your iPod. It's all of those things in one.

WESTHOVEN: It is. But even, you know, just from using this loaner in the past few hours, it's really more of a mini computer.

And you start using it that way and thinking about your phone that way, and suddenly the other phone seems obsolete in some ways. There are a lot of phones that purport to do the same thing. You know, we haven't really tested those. This is just the (INAUDIBLE) for this one.

But I also think, you know, the App Store that's coming out, this is so huge, because I've just been looking at the App Store. You can get programs to help you get the best gas mileage on your car, read the bible. GPS, to get directions anywhere.

It really can do so much.


VELSHI: It's all falling off.

WESTHOVEN: Just customizes this for you, though, that it's really quite interesting. And of course, it's not Apple making those programs, it's so many other designers around the world, putting their brain power to work.

VELSHI: Right. It's the same way Facebook became interesting, because it had other people making programs that will work on its platform.

All right. Interesting. It'll be good to see if that's the game changer that we've been thinking about for so many years, the one thing that's actually going to start to be the one thing people want to carry.

WESTHOVEN: When people start to use these, they start to use the Internet a lot more.

VELSHI: But you're still not loving the e-mail, you're not loving the keyboard?

WESTHOVEN: Yes, the typing is really difficult for me so far.

VELSHI: All right.

WESTHOVEN: So we'll see. And camera lovers say there's no flash. They don't like that.

VELSHI: Can't be taking pictures in the dark.

WESTHOVEN: Also, you know -- sorry -- just the first day though, some people have been sent away because they haven't been able to get on the server yet.

VELSHI: All right. Jennifer Westhoven, thank you very much.

Listen, one state wants to let you know how environmentally- friendly your car is with a sticker. We'll explain.

And you'll want to stick around for our special report, CNN's "Energy Hunt." It's all about a worldwide search for the future of your energy. It starts north of the border.

Stick around. You're watching ISSUE #1 right here on CNN.


VELSHI: We want to update you now on the price of oil. It's been hitting record levels all day. And that, of course, will translate into your gas prices.

CNNMoney's Poppy Harlow is here with today's "Energy Fix" -- Poppy.

HARLOW: Hi there, Ali.

First, let's get to prices. No easy fixes for what we're seeing today, folks.

Oil this morning briefly crossing $147 a barrel. That is a new record high. Right now, not far off of that. We stand at $144.50.

That is not good news for you at the gas station. But there is a glimmer of light at the end of all of this.

Driving habits in this country are changing rapidly. Gas consumption in the U.S. is falling more than analysts could have ever imagined just a year ago. And most of us are coming to the realization that the days of cheap gas are likely far, far behind us.

Case in point here, global warming stickers are starting to appear this month on new cars in California. And they are mandatory in the state next year. These stickers give consumers a way to gauge the car's environmental impact.

Combine that score with smog scores and miles per gallon, and consumers actually have the tools to make smart decisions in the cars they're buying. You'll see them here in New York City starting in 2010, likely across the country soon after that.

Even without the stickers, we all know how weak SUV sales and pickup sales have been. You'd think at some point our reduced consumption should impact prices, but when is anyone's guess.

You can follow oil prices all day on our Web site, Ali, but pretty historic moves today.

VELSHI: Yes, pretty incredible. We will stay on top of it.

Poppy Harlow, thanks very much.

Poppy will be back later to take part in our "Energy Hunt" special report.

But first, your latest headlines. Don Lemon in the "CNN NEWSROOM."

Hello, Don.

DON LEMON, CNN ANCHOR: Hello to you, Ali Velshi. Always good to see you, sir.

Let's talk about out-of-control wildfires are closing in on homes in two western states. In California, firefighters are battling to save the town of Paradise. Shifting winds forecast today are similar to those that pushed flames to destroy dozens of homes this week.

Now flames on the ridge line lit up suburban Spokane Valley, Washington, overnight. Winds gusting up to 50 miles an hour stoked the wildfire. At least eight homes destroyed in that.

Barack Obama promoting his plans for dealing with the nation's energy issues. This is a live picture of Barack Obama. He's speaking at a town hall meeting in Dayton, Ohio. He wants to increase spending on renewable energy sources and cap carbon emissions. Obama says his plans will lead to a secure energy future. He says John McCain has done little to reduce America's dependence on foreign oil.

John McCain is in Wisconsin right now. Here's a live look at his town hall meeting. It's happening in Hudson. There you see him right there. He told the audience that Barack Obama will raise taxes. McCain is promoting his plans for job growth and cutting wasteful spending. He also called for more U.S. oil exploration and more energy independence.

Soldiers electrocuted. Hearings today on Capitol Hill about a dozen soldiers who have died as a result of bad wiring of military equipment. We'll talk with two mothers who lost their sons this way straight ahead in the CNN "Newsroom."

I'm Don Lemon. I'm back at the top of the hour in the CNN "NEWSROOM." Now let's throw it back to New York and ISSUE #1.

VELSHI: Don, thanks very much. We'll see you in about half an hour.

Time now to start the energy hunt. CNN is dedicated to traveling the world to find the future sources for your energy. And we began north of the border in Canada. The United States gets most of its oil from Canada. And in one town in particular, the ground is literally soaked with oil.


VELSHI, (voice over): One-third of the world's known oil deposits are right here in the dirt. So that's where we headed on our energy hunt, from New York to Ft. McMurray, Alberta.

All right, this is it. We are literally walking on black gold. This is what we came here to see. This is oil sand. It's sand that's encased in water and oil. In fact, this is about 10 percent crude oil.

Large quantities of oil embedded in sand only occur in two places in the world, Venezuela and Canada. Giant shovels scoop up 100 tons of oil laden dirt at a time. Hundreds of trucks move across the landscape all day and night every single day.

You need a lot of earth to make oil. It takes about two tons of oil sands to make one barrel of oil. Now this big hauler holds 400 tons of oil sand. So once that's all filled up and made into oil, you'll have about 200 barrels of oil.

That's right, two tons of oil sand makes one barrel of oil. But at today's oil prices, it's wildly profitable. That's why major players like ExxonMobil, Shell, Chevron and others squeeze one and a half million barrels of oil out of this land every day. And they send most of it to the U.S.

It's costlier than getting it from a simple land well because the tar-like oil has to be separated from the sand. And that uses lots of natural gas and warm water. The result is a heavy molasses-like oil which has to be upgraded into a lighter, high quality form of crude that can then be easily refined into gasoline, home heating oil and other petroleum products.

Canada produces much more oil than it needs. So the excess oil is sold and sent by pipeline to its best customer, the United States. Notice there's no pipeline to Canada's west coast. There is one proposed and it's backed by China.


VELSHI: Most of the oil from the oil sands comes to the U.S. right now. It's not clear that that will always be the case. If that pipeline to the west coast of Canada gets built, the oil could just as easily be shipped to China.

As for how much oil we can get from Canada, optimistic predictions are that Canada can increase its daily oil sands production to between 4 million and 5 million barrels per day within the next decade. And that would be about a third of all U.S. imports.

Now Canada is the number one source of imported oil to the United States. Nigeria is the number four source of imported oil to the United States. Nigeria is actually the world's sixth largest producer of oil.

Now as we zoom into that shot, you'll see right about where the R is in Niger Delta, is the Niger River. And it comes out right south of there. And that is a source -- that's where much of the oil in Nigeria is produced. It is an area that has been subject to some warfare over the last few years.

Nigeria would typically put out about two and a half million barrels of oil per day, but that's been reduced. And one of the things that's pushing the price of oil higher, particularly today, is the fact that a cease fire between rebels -- that the rebels have been part of in southern Nigeria, is expected to come to an end within a few hours.

Ed Kashi is the photographer of a fascinating book. It's called "Curse of the Black Gold." And he joins me now.

Ed, I don't think most people really understand. We report that there was a pipeline attack in Nigeria and that's why the price of oil has gone up a buck or two. I don't think most people have any conception of what's going on in Nigeria. There's oil and there are a lot of poor people. And a lot of those poor people think they've got nothing to do with the oil. They haven't benefited from it.

ED KASHI, PHOTOGRAPHER, "CURSE OF THE BLACK GOLD": Absolutely. I mean the people in the Niger Delta, for me, this was the starkest examples of the social inequity and economic inequity in the world associated with oil. And while Nigeria in the 50 years -- this is the 50th anniversary of oil coming out of the Niger Delta, it is pumped something like $600 billion of oil wealth in those 50 years, but the people there have nothing to show for it.

VELSHI: Tell us about this Niger Delta. It's where the Niger River goes out into the ocean. It's an impoverished area. There are a lot of oil facilities and installations there. And these people have not -- they don't -- they're not even prospering from it. They're just -- they're not seeing any relationship. They're getting some jobs out of it.

KASHI: Hardly any jobs. And, you know, the people that are prospering there are the government officials, not all of them, but many of them. And there's still the sort of chief and, you know, kind of king structure that exists there. And they, of course, benefit, as well. But unfortunately, there's no trickle down to the people.

VELSHI: Tell me what you've done. What made you put this book together? It's a book full of great information. A lot of pictures. And you've not tried to be sort of journalistic about it. You've been very clear on the fact that you were very moved by what you found there. What got you there and what did you feel? KASHI: Well, you know, I'm a real believer in advocacy journalism in some of my work. You know, when you find a story, as a journalist, there is no good or bad. It's sort of -- it's pretty straightforward what's going on. I want to report that and report it with intimacy and power. Professor Michael Watts from Berkeley, who had been going there for 30 years, introduced me to the subject in 2004.

VELSHI: While you were in Iraq. You had been working in Iraq.

KASHI: I had been worked in Iraq and he learned about me through that work. You never know where life will take you. And in 2004, when I went with him and I saw what was going on there, I was absolutely captivated by it and it became my obsession. And for three years, I devoted myself to doing this project. And now this book, "Curse of the Black Gold."

VELSHI: Do you get a sense when you talk to people that they just don't know this story?

KASHI: Absolutely. Well most Americans have no clue where their oil comes from. And the irony is, we probably -- most Americans think most of our oil comes from the Middle East. And except for Saudi Arabia, it's Mexico, Venezuela, and Nigeria. Last year America took half of Nigeria's oil. Which means, to do this show, we're burning Nigerian oil right now.

VELSHI: Do we -- is there some sense that things improve? Or when you publish a book like this, does it shine a light? And do you think there's any likelihood that things will change in Nigeria?

KASHI: Well, I'd like to believe that part of what all we do in the media is to shed light and to raise awareness. I have further plans to creative activist and teaching tool kits from this work. But to answer your question, it's going to be really hard for things to improve there.

VELSHI: There are many things we have to think about when we think of where our oil comes from. Some of it is the environmental damage. Some of it is whether or not our need for oil is stimulating or continuing conflicts like this. Thank you, Ed, for your book and thank you for joining us.

KASHI: Thank you, sir.

VELSHI: There's also another effect of buying oil, particularly at these prices. How oil can turn an out of the way country town into a boom town is one of those examples.

Plus, diving deeper into the reason we do the energy hunt here at CNN. Finding the future source of oil for the long-term.

ISSUE #1 rolls on next. You're not going to want to miss this.

(COMMERCIAL BREAK) VELSHI: The energy hunt continues here on CNN. Ft. McMurray, Canada, is the town that sits on top of the world's largest reserve of oil known as the oil sands. I want to show you one of the consequences of this oil boom.


VELSHI: This once sleepy little town in northern Alberta, Canada, is surrounded by forests, pristine lakes with lots of mosquitoes.

You don't seem nearly as bothered by the bugs as my people are? (INAUDIBLE).

UNIDENTIFIED MALE: Probably not. Oh, no, that's friendly little critters.

VELSHI: Friendly little critters until they bite you.

But what sets this place apart is what's beneath it. Ft. McMurray, Canada, population growing fast toward 100,000. It's the rapidly beating heart of the oil sands, the largest known oil deposit in the world. It is a bona fide boom town.

It has a major highway with traffic jams that would shame a city ten times its size. These people are all headed for work in the oil sand, 24/7. And almost every works the maximum allowed overtime. It's tough work, long hours, but for really good pay.

JESSE BRETHER, OIL WORKER: You can say all of the bad things you want about this town. The traffic is terrible, you know, pollution, it stinks. You know what? For $50 an hour, I'll deal with it. I'll deal with being stuck in traffic for an hour. I can take it, right? I'm making over $100,000 a year and I'm 22 years old.

VELSHI: His story is typical. And with so many workers, it's hard to find a place to live. The median price for a single family home is just under $700,000. Roughly the same as San Francisco. Just buying a little piece of land and dropping a mobile home on it will set you back $500,000, although plenty of people are doing it.

So what do you do with these?

Robert Cree was the chief of a local band of native Canadians, whose people once thrived on the abundance of natural resources here -- hunting, fishing, trapping.

ROBERT CREE, GREGOIRE LAKE RESERVE RESIDENT: There's so much development happening. There's a shortage of housing. There's the medical, the health situation is right to the brink.

VELSHI: Problems have followed this boom town. Drugs are readily available. And drinking. Lots of drinking. But do the opportunities outweigh the problems?

BRETHER: I come here and every teacher that ever told me, well you don't do good in school, you're never going to make it. I'm making triple what they make.


VELSHI: Not too bad for a guy (ph) who moved to an old beaver pelt trading post. Ft. McMurray has the highest per capita income in Canada, as we showed in that example, as well as the highest median home prices. In fact, it's commonly referred to as Ft. McMoney.

Well, the oil sands and the environment, how an area rich in energy could be taking its toll.

And where do we go from here in our energy hunt? The CNN Money team that's that on. They're standing by.

You're watching ISSUE #1 right here on CNN.


VELSHI: We're back on ISSUE #1.

We don't often tell you about markets on this show, but we want to tell you when there are milestones you should think about. Take a look at that. The Dow is down almost 225 points today. It's not as low as it's been, but it's hovering around that 11,000 mark. It has been nearly two years since we have seen the Dow at 11,000.

So we are definitely seeing a pullback in stocks. Part of that is because of a concern about Freddie Mac and Fannie Mae that Allan Chernoff was talking about earlier. Part of it is because of the price of oil. Right now we're looking at a barrel of oil running $144.14, which is actually significantly lower, about $3 lower than it was at its high this morning, hitting an all-time high above $147.

Our energy hunt continues, partially fueled by these high costs of oil. This is the third and final installment of our series on Canada's oil sands, which today pump one and a half million barrels of oil into the United States every single day. Now as long as oil prices stay above $50 a barrel, there's a lot more oil to come from that region and some say that's a win-win situation for Canada and the United States. But others say the cost to the environment is too high.


VELSHI: Robert Cree lives on an Indian reserve in Canada. He's worried about the future of his ancestral land. His home sits on top of the oil sand, the world's largest known reserve of oil.

This is oil sand. It's basically little grains of sand with a little bit of water in it and bitumen, which is -- yes, it sort of smells and feels a little like tar, but it's not actually tar. Now what you do is you separate the bitumen from the water and the sand. And when you purify it, it sort of comes out like this. It looks like molasses. It's very thick and heavy.

That heavy stuff is then upgraded into usable light crude oil, one and a half million barrels of it per day and growing fast. Most of it U.S.-bound.

So what's the problem? Critics say the upgrading process emits three times as much carbon dioxide as drilling for conventional oil and transporting it to market. Shell, one of the major operators in the area, disputes that, saying it's only twice as polluting. Still, the oil sands are responsible for 3 percent of Canada's total greenhouse gas emissions.

And then there's the land. The oil sands are under 54,000 square miles, an area the size of Florida. And some of that area, woodland, has to be clear cut to be surface mined, creating the largest industrial zone on earth. Robert Cree says cutting the forest down could bring environmental disaster.

CREE: I call it the borial (ph) forest, lungs of the earth. And if the borial forest were depleted to a point, then what's going to happen?

VELSHI: And then there's the water, taken from the local river, used to wash the oil from the sand. The used water is then left to evaporate in huge, lined ponds, required by law to ensure it doesn't leak back into the earth. After it's gone, a fine sand blows across a vast, surreal, devastated landscape. Locals have reported deformed fish, discolored meat in the wildlife and a local health board study says there's been a spike in illnesses. Both Alberta and the oil companies dispute those claims citing their own research.

Cree Chief George Poitras wants new oil sands production to stop until the dangers are clearly established.

CHIEF GEORGE POITRAS, MIKISEW CREE FIRST NATION: And like any kind of resource boom anywhere in the world, people will come and exploit and then they'll leave. And we'll be here with land that is decimated.

VELSHI: The oil companies are required to replant the land that they displace. They show off this former mine, complete with bison, as an example of what the land can look like once it's reclaimed. It's a process that can take up to 50 years.


VELSHI: Now the environmental concerns have spread to the United States. Some U.S. mayors are urging major American cities to ban the use of gas that's made from oil sands in municipal vehicles, although it's virtually impossible to trace the origin of a given gallon of gasoline.

Well, I want to bring in the CNN Money team to this discussion. Allan Chernoff is CNN's senior correspondent. Steve Hargreaves and Poppy Harlow are our friends with, where we get so much of our content for this show from.

The big question that none of this answers is, why is oil at $140, $145, almost $150, Allan? Why are we even here? ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: It almost argues against it. The oil sands, as you very well point out, there is tons of oil up there. We are not running out of oil. We don't see a shortage of gasoline. No gas lines. There is no legitimate, fundamental reason that oil is trading at this level. It's market psychology. People are just bidding it up. Anything happens, they say buy, buy, buy, send it higher.

VELSHI: Yes, that's just one visit on the energy hunt. But you can go all over the place. You can go to Midland, Texas, which is the home of some of the oil drilling in west Texas and you've got a boom town environment there. $140 plus oil is giving birth, Steve, to -- these are technologies that have been around for a while, but maybe others.

STEVE HARGREAVES, WRITER, CNNMONEY.COM: Right. I mean there's oil shale, there's ethanol. There are all these other so-called marginal barrels of oil made with unconventional technology. And we're going to be using more and more of these, you know, as the traditional crude oil runs out.

VELSHI: Yes. What's the argument? Do we use more and more of those, other ways to find oil, tough ways to find oil, where we dig deeper and look further? Or do we change, Poppy, to that windmill behind you and solar? What's the argument for that?

POPPY HARLOW, CNNMONEY.COM: It depends who you ask. If you ask President Bush, he wants us to drill in Alaska and drill on the shores outside of the United States. If you ask the presumptive nominees for the next -- for the White House, they say we need alternative fixes, not just band-aid fixes -- solar or wind.

It's interesting, if you look at solar, the increase was about 74 percent the money going into solar last year. And if you look at wind. T. Boone Pickens, an oil man, is backing wind. He went as far to say, the United States is the Saudi Arabia of wind power. That's what he wants to see replacing it.

I think that is what's moving forward. What it's going to be, the key is, what's cheapest and what's most available. That's what Americans will consume.

CHERNOFF: Well, one good thing that we can say about oil in these insane prices is that it is getting all this going. People are pumping money into alternatives and we are going to need all of it. And you can add nuclear to that list. I know 20, 30 years ago, nobody wanted nuclear. We are going to be building more nuclear power plants and we've got to do it.

HARLOW: Especially if John McCain is in the White House. That's what he'd like to see.

VELSHI: But the other unintended consequence, we're finding all these other resources, but, Steve, we're also backing off our consumption. While the world's consumption of oil is growing dramatically, America's is leveling off and actually pulling back a little bit.

HARGREAVES: Yes, we've cut down a little bit, about a half a million barrels a day. But, you know, doing that -- everything takes time, you know. People have to go out, they have to buy new cars, you know. They have to relocate where they live. And, you know, that's not going to happen overnight.

VELSHI: And, economically, is that likely to be what we -- I mean, I'm sitting here. I have a car that gets 17 miles to the gallon. I have to think about, am I going to sell that, take a wash on that, and wait for a year to get the Prius or do I wait this out?

HARLOW: I think people are doing it right now, waiting it out. Over the Fourth of July, people drove more than 3 percent less. The lowest point since 2003. They're really cutting back. They're staying home. They're starting now. Whether they go out and buy a hybrid, it depends if they can afford one right now with the way the market is. You have to think about that too.

VELSHI: Right. And the way the market is right now, and we're looking at a market that is again below -- a Dow that is below 11,000. Allan, this is the thing we don't understand, what role energy is going to play in that market, in our economy in general.

CHERNOFF: Well, it has played a huge role in the stock market. The energy companies have been the one area really that has been just a boom for investors. That seems to be ending, as well. Those companies, some of them are pulling back a little bit. We may not see those stocks keep on soaring the way we're going.

Another important point here, with the market going down, the economy going down, this is all leading to, as you point out, reduced demand. And the markets, they're calling it, demand destruction.

VELSHI: Right.

CHERNOFF: You've got oil at 150, that is destroying demand.

VELSHI: The problem, again, is that it's hard for us to comprehend that we can destroy demand in the United States but it's not being destroyed in China and India at the same degree. I mean India's got these new cars that they're going to be driving, the Tata (ph). China is going to be accumulating more cars. So it's hard to know where this is going. What's your sense, Poppy? Do you think we're at an inflection point?

HARLOW: Well, I think we have to wait also until the winter. You know, right now people can walk instead of drive or take the train. But what about those people in the middle of the country who have to heat their homes? What about these people in these McMansions and they have to heat them when it's 20 below? A lot of this is not just about gasoline, it's about heating oil and other things. And demand is not going to decrease around the world. We saw China increases the taxes on their gas by about 18 percent. They expected demand to fall. Oil prices fell for about a day and then they went right back up. VELSHI: Right. Well, we'll have a lot to talk about this. Thanks very much, Steve Hargreaves, Poppy Harlow, Allan Chernoff.

We'll continue to cover all of these things. It's not too late, by the way, for you to weigh in on this debate, which is what this show is all about. What do you believe is the future of energy? That's our Quick Vote question. Head on over to and vote. We'll have the results next.

You're watching ISSUE #1 right here on CNN.


VELSHI: We've talked a great deal about the future of energy on this show, but now it's time to hear what you have to say about the topic. With me again,'s Poppy Harlow.

HARLOW: Hey, Ali.

Well, solar won out. Nine percent of you said oil is the future. Twenty-one percent said wind. Thirty-one percent said something yet to be discovered. But 38 percent of people said it is solar power. They're turning to the sun. That's what they want to see our investment in solar. It's really, really rapidly increasing in this country.

VELSHI: Yes. I think it's got something to do with what we cover. Well, when I say we, I mean what you hear about happening out there. I mean Boone Pickens talking about wind will probably generate some energy into that discussion. And I think when you hear more about solar, you think it's viable.

HARLOW: Well, people get -- you can't put a windmill in your backyard, those big ones made by GE.

VELSHI: Some guy called into the radio show yesterday and said you actually can. But I think you're right, the solar power . . .

HARLOW: In New York you can't. But you can put solar panels on your house. And there's talk about people even using them in car.

VELSHI: I have to say, I'm surprised that only 9 percent of people said that it was oil. And I think that's interesting. I think that gets us somewhere when people understand that it's limited.

HARLOW: I think they think we are not going to be able to drill in Alaska or, you know, offshore drilling. They think it won't happen. So we'll have to find something else.

VELSHI: All right. Well, we learn a lot from these polls.

Poppy, thanks very much and thanks to all of you who actually responded to that. Please continue to do that.

For more on how the news of the week affects you bottom line, tune in to "Your Money" Saturdays at 1:00 p.m. Eastern, Sundays at 3:00 right here on CNN.

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