* Ex-officials participate in oil crisis simulation
* Debate revolves around when to tap emergency reserves
* "We have met the enemy and he is us"-Schwab
By Timothy Gardner
WASHINGTON, July 13 (Reuters) - The cable news headlines were fictional, the cabinet members were played by ex-officials, but the message was real: Don't wait until crisis hits a major oil exporter to hammer out U.S. energy policy.
In white-knuckled scenes during a energy crisis war-game on Wednesday, the cabinet debated how to guide the U.S. president after an attack from helicopters, thought to be directed by al Qaeda, shut down a main Saudi Arabian crude processing center.
In the background, GNN, a nonexistent news channel, showed oil prices jumping to nearly $200 a barrel over two days, threatening to push the United States back into recession.
This was not the White House situation room, but a Ritz Carlton Hotel ballroom about a mile away. Former U.S. officials and an ex-CEO of the U.S. arm of a major oil company played cabinet members in the simulation put on by a nonprofit group called SAFE, or Securing America's Future Energy.
The national security adviser, played by Stephen Hadley, George W. Bush's former security adviser, desperately asked the team whether the loss of 2 million barrels per day of Saudi Arabian oil and fears of more attacks should prompt the president to quickly tap the 727 million barrel Strategic Petroleum Reserve, or SPR, to calm markets.
The energy secretary, played by John Hofmeister, the former president of Houston-based Shell Oil Co, was not so sure.
"The temptation is always there especially with today's price spike," he said. "But if we start using this as a price offset we set a dangerous trend," he said adding that global supplies were robust and plenty of oil was being shipped from other sources to the United States.
The debate was eerily similar to the one oil market players had this spring and summer when President Barack Obama mulled whether to tap the SPR to control prices after the loss of oil due to fighting in Libya. Obama eventually decided to sell 30 million barrels of oil from the SPR in coordination with the Paris-based International Energy Agency.
But U.S. oil prices CLc1 quickly returned to near $100 a barrel, after a short-term drop, prompting some analysts to question whether tapping the SPR would be effectual in the future if there was a real supply crisis.
SAFE, which advocates for expanded domestic oil and natural gas output in the short term and electric vehicles in the long term, has held the simulations since 2005. In the past ex-officials recommended capping the speed limit at 55 miles per hour and restricting driving on Sundays to control prices.
This time, the ex-officials -- mainly Republicans -- urged the U.S. government to move boldly into both new oil drilling and energy alternatives like solar farms and battery powered cars.
Hofmeister proposed that oil drillers in the United States should be forced to pay more in royalties and that a percentage of the payments should be directed to fund alternative energy.
John Negroponte, a former deputy secretary of state who played the secretary of state, said covert actions could be taken to make sure there were no more attacks.
But after oil exporters Iran and Venezuela sent oil prices even higher by refusing to boost output, the participants emphasized that United States should spur its own energy programs, as it can never control what happens in the world's oil exporters.
"We have met the enemy and he is us," said Susan Schwab, a former U.S. trade representative who played the president's national economic adviser, said about the lack of a comprehensive U.S. energy plan. "Once a crisis has started, we are in deep trouble." (Reporting by Timothy Gardner; Editing by Lisa Shumaker)