[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                  ENHANCING AMERICA'S ENERGY SECURITY

=======================================================================

                           OVERSIGHT HEARING

                               before the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             March 19, 2003

                               __________

                            Serial No. 108-7

                               __________

           Printed for the use of the Committee on Resources



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                         COMMITTEE ON RESOURCES

                 RICHARD W. POMBO, California, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska                    Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana     Eni F.H. Faleomavaega, American 
Jim Saxton, New Jersey                   Samoa
Elton Gallegly, California           Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee       Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland         Frank Pallone, Jr., New Jersey
Ken Calvert, California              Calvin M. Dooley, California
Scott McInnis, Colorado              Donna M. Christensen, Virgin 
Barbara Cubin, Wyoming                   Islands
George Radanovich, California        Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Jay Inslee, Washington
    Carolina                         Grace F. Napolitano, California
Chris Cannon, Utah                   Tom Udall, New Mexico
John E. Peterson, Pennsylvania       Mark Udall, Colorado
Jim Gibbons, Nevada,                 Anibal Acevedo-Vila, Puerto Rico
  Vice Chairman                      Brad Carson, Oklahoma
Mark E. Souder, Indiana              Raul M. Grijalva, Arizona
Greg Walden, Oregon                  Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado         Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona               George Miller, California
Tom Osborne, Nebraska                Edward J. Markey, Massachusetts
Jeff Flake, Arizona                  Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana           Ciro D. Rodriguez, Texas
Rick Renzi, Arizona                  Joe Baca, California
Tom Cole, Oklahoma                   Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
VACANCY

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on March 19, 2003...................................     1

Statement of Members:
    Gilchrest, Hon. Wayne T., a Representative in Congress from 
      the State of Maryland......................................    10
    Kind, Hon. Ron, a Representative in Congress from the State 
      of Wisconsin...............................................     5
        Prepared statement of....................................     9
        Wall Street Journal article ``Bad Habit: Why the U.S. Is 
          Still Hooked On Oil Imports'' submitted for the record.     6
    Pombo, Hon. Richard W., a Representative in Congress from the 
      State of California........................................     1
        Prepared statement of....................................     2
    Rahall, Hon. Nick J. II, a Representative in Congress from 
      the State of West Virginia.................................     3
        Prepared statement of....................................     4

Statement of Witnesses:
    Alberswerth, David, Director, Bureau of Land Management 
      Program, The Wilderness Society............................   138
        Prepared statement of....................................   139
    Barlow, Eric, Western Organization of Resource Councils, 
      Prepared statement of......................................   101
    Carlson, William H., Vice President, Wheelabrator 
      Technologies, Inc., Chairman, USA Biomass Power Producers 
      Alliance...................................................   142
        Prepared statement of....................................   144
    Downer, Hon. Hunt, Louisiana State Representative............    42
        Prepared statement of....................................    45
    Gawell, Karl, Executive Director, Geothermal Energy 
      Association................................................   111
        Prepared statement of....................................   113
        Response to questions submitted for the record...........   120
    Gupta, Raj, Chairman and Chief Executive Officer, Rohm and 
      Haas Company, on behalf of the American Chemistry Council..    47
        Prepared statement of....................................    48
    Novak, Mary H., Managing Director, Global Insight Inc........    61
        Prepared statement of....................................    62
    Parker, David N., President and Chief Executive Officer, 
      American Gas Association...................................    54
        Prepared statement of....................................    55
    Santistevan, Robert, Executive Director, Southern Ute Indian 
      Tribe Growth Fund..........................................    66
        Prepared statement of....................................    68
        Response to questions submitted for the record...........    72
    Smith, Carl Michael, Assistant Secretary for Fossil Energy, 
      U.S. Department of Energy..................................    19
        Prepared statement of....................................    20
    Sparrowe, Dr. Rollin D., President, Wildlife Management 
      Institute..................................................   131
        Prepared statement of....................................   133
    Steve, Jaime, Legislative Director, American Wind Energy 
      Association................................................   129
        Prepared statement of....................................   130
    Sweeney, Patrick, Executive Director, Western Organization of 
      Resource Councils, on behalf of Eric Barlow, Oral statement 
      of.........................................................    99
    True, Diemer, Chairman, Independent Petroleum Association of 
      America....................................................    87
        Prepared statement of....................................    89
    Watson, Rebecca, Assistant Secretary for Land and Minerals 
      Management, U.S. Department of the Interior................    11
        Prepared statement of....................................    13
    Wood, Wayne, President, Michigan Farm Bureau Federation, on 
      behalf of the American Farm Bureau Federation..............    96
        Prepared statement of....................................    97
Additional materials supplied:
    Richards, Howard D., Sr., Chairman, Southern Ute Indian 
      Tribal Council, Statement submitted for the record.........   152


        OVERSIGHT HEARING ON ENHANCING AMERICA'S ENERGY SECURITY

                              ----------                              


                       Wednesday, March 19, 2003

                     U.S. House of Representatives

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to notice, at 10:04 a.m., in 
room 1324, Longworth House Office Building, Hon. Richard Pombo 
(Chairman of the Committee) presiding.
    Present: Representatives Pombo, Tauzin, Gallegly, Duncan, 
Gilchrest, Cubin, Gibbons, Osborne, Rehberg, Renzi, Pearce, 
Nunes, Rahall, Kildee, Kind, Udall of New Mexico, Acevedo-Vila, 
Grijalva, Cardoza, Bordallo, Hinojosa, Rodriguez and Baca.

  STATEMENT OF THE HON. RICHARD W. POMBO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    The Chairman. The hearing will come to order. Good morning.
    In the last Congress, the House Committee on Resources 
approved a comprehensive energy bill. The legislation was later 
wrapped into H.R. 4 and approved by the whole House before 
dying on the vine in conference. It is my intention to see to 
it that this does not happen again.
    Few doubt the need for a national energy policy. Today we 
are facing a daunting challenge and the supply and demand 
picture has only gotten worse. The price that consumers are 
paying for a gallon of gasoline is topping two dollars a gallon 
in many parts of the country. Just as an aside to that, I paid 
$2.39 yesterday for gas in California.
    Energy supply and price have a direct impact on the 
economy. It should come as no surprise that every recession 
since World War II has followed a period of increased energy 
prices. The high oil and resulting jet fuel prices are having a 
devastating impact on an already suffering airline industry and 
could help break the back of one of our Nation's premier 
carriers.
    While most agree that America needs to be more energy 
independent, we are currently moving in the opposite direction. 
We now import about 60 percent of the crude oil we use in this 
country, and much of that oil comes from nations that are 
hostile to us. We need to begin to reverse that pattern.
    America has abundant energy resources and an even greater 
sense of ingenuity. Our ability to efficiently and cleanly 
develop those resources, using technology to harness them to 
create wealth, has made our economy the envy of the world. 
Unfortunately, well-intended policies developed in Washington 
sometimes seem to work against the Nation's well-being. 
Statutes that were intended to protect the environment, while 
allowing for responsible development of energy resources on 
Federal lands, have been misinterpreted and implemented in a 
way that is preventing energy development in many promising 
areas.
    We have the ability to develop our natural resources in an 
environmentally friendly manner. Modern three and four 
dimensional seismic, directional drilling methods and extended 
reach technology are significantly reducing the footprint 
associated with exploration and development. We need to 
recognize both our abilities and our limitations and enact 
policies that strike a proper balance between conservation and 
responsible development.
    Federal lands also hold enormous potential for renewable 
resource development and policies should be developed to 
facilitate the use of these energy sources as well. We need to 
pass a common sense energy bill and deliver it to the President 
this year.
    I thank the witnesses for coming and look forward to their 
testimony.
    [The prepared statement of Chairman Pombo follows:]

          Statement of The Honorable Richard Pombo, Chairman, 
                         Committee on Resources

    During the 107th Congress this Committee and the Nation as a whole 
engaged in a healthy and spirited debate over energy policy and energy 
security. At the time, the U.S. had gone through a period of high 
energy prices that were adversely affecting our economy and our 
national security. We passed comprehensive energy legislation through 
this Committee and through the House. A bill was assembled and passed 
on the Senate floor and we proceeded to Conference where a national 
energy policy died on the vine.
    While there were disagreements two years ago about the path we 
should take to achieve greater energy security, few doubted the need 
for a national energy policy. Today, we are facing an even moreting 
challenge and the supply and demand picture has only gotten worse. The 
price consumers are paying for a gallon of gasoline is topping two 
dollars a gallon in many parts of the country. Last month natural gas 
prices reached an all time high at over $19.00 per thousand cubic feet.
    Globally, conditions are putting pressures on all energy markets. 
World oil prices have approached forty dollars per barrel. An eminent 
war in Iraq and instability in the Middle East is putting pressure on 
global oil markets. Political unrest in Venezuela, the fourth largest 
supplier of oil to the U.S., is further driving up the price of 
gasoline, heating oil and diesel fuel. Weather has also played a major 
role this year. A cold winter on the East Coast put further pressure on 
oil and natural gas. High natural gas prices have hurt small and large 
consumers alike. Residential natural gas users are seeing their monthly 
bills rise. Commercial and industrial gas consumers are suffering as 
well. High natural gas prices are hurting the profitability of 
businesses large and small. Family farms have been particularly hard 
hit as the prices of propane and fertilizer increase. Chemical 
companies that rely on natural gas, both an energy source and chemical 
feedstock are suffering and jobs are likely to be lost as a result.
    Energy supply and price have a direct impact on the economy. It 
should come as no surprise that every recession since World War II has 
followed a period of increased energy prices. The high oil and 
resulting jet fuel prices are having a devastating impact on an already 
suffering airline industry and could help break the back of one or more 
of our Nation's carriers.
    While most agree that America needs to be more energy independent, 
we are currently moving in the opposite direction. We now import about 
60 percent of the crude oil we use in this country. And much of that 
oil comes from nation's that are hostile to us. We need to begin to 
reverse that pattern.
    America has abundant energy resources and an even greater sense of 
ingenuity. Our ability to efficiently develop those resources, using 
technology to harness them to create wealth, has made our economy the 
envy of the world. Unfortunately, policies developed in Washington 
sometimes, though well intended, seem to work against the Nation's well 
being. That is what is occurring right now with our energy and resource 
development policies. Statutes that were intended to protect the 
environment, while allowing for responsible development of energy 
resources on Federal lands, have been misinterpreted and implemented in 
a way that is preventing energy development in many promising areas.
    Because production of much of the conventional energy resources on 
private lands is declining, Federal lands provide the greatest promise 
for future development of domestic energy resources. This is true for 
oil, natural gas, coal and renewable energy resources. We know that we 
have abundant resources on Federal lands that can fuel our economy for 
generations to come. Natural gas, a clean burning domestic resource, is 
taking on a greater role on our Nation's energy portfolio as more 
natural gas-fired power plants come on line. But in order for the U.S. 
to meet its future natural gas demand, it is imperative that energy 
producers have access to Federal lands in the Rocky Mountains. A 
combination of factors are preventing energy producers from developing 
sufficient resources from the region. First, significant resources in 
the region are currently off limits to oil and gas leasing and 
development. Many of those resources that are available are subject to 
stringent leasing stipulations that make production technically or 
economically prohibitive. Finally, a number of post-leasing hurdles are 
preventing producers from accessing those energy supplies. Delays in 
permitting projects on Bureau of Land Management and U.S. Forest 
Service lands are essentially killing some of the most promising 
domestic energy development projects. As we are seeing all too often in 
the West, just because a lease is issued doesn't mean that energy gets 
produced.
    We have the ability to develop our natural resources in an 
environmentally friendly manner. Modern three and four dimensional 
seismic, directional drilling methods and extended reach technology are 
significantly reducing the footprint associated with exploration and 
development. We need to recognize both our abilities and our 
limitations and enact policies that strike a proper balance between 
conservation and responsible development.
    Currently there are inherent flaws in the system that not only 
affect traditional oil, gas and coal development, but also clean, 
renewable energy development. While twelve western states have a 
combined high temperature geothermal resource potential of 22,000 
megawatts of power, only 2,800 megawatts are currently being produced 
in the region. Given the need for more electricity generation in the 
West, we need to develop policies that encourage development of this 
renewable resource. Likewise Federal lands, both onshore and offshore, 
hold enormous promise for wind, biomass and solar energy. I understand 
that the Interior and Energy Departments are working to encourage and 
facilitate this develop and I am anxious to hear what more needs to be 
done.
    The energy titles that passed this Committee last Congress would 
have done much to address the problems we are now facing in developing 
our vast energy resources on Federal lands. The bill contained over 
thirty provisions that would have had a direct positive affect on our 
growing energy supply and demand imbalance. As we face a war in the 
Middle East and a sputtering economy at home, it is imperative that we 
act now to fix a system that has been broken for many years. We need to 
pass a common sense energy bill and deliver it to the President this 
year so that we can begin to address the energy security concerns we 
have neglected for so long.
                                 ______
                                 
    The Chairman. I will recognize Mr. Rahall.

 STATEMENT OF THE HON. NICK J. RAHALL II, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF WEST VIRGINIA

    Mr. Rahall. Thank you, Mr. Chairman.
    Mr. Chairman, I recognize the price of gasoline is higher 
in your State of California. The average price for regular 
grade gasoline in this country, as we all know, is currently 
$1.71 per gallon. That price is only a tenth of a cent below 
the highest national average price on record, without even 
adjustment for inflation. Meanwhile, many Americans, with some 
justification, are convinced that price gouging is taking place 
at the gas pump. In fact, I would venture to say that many 
Americans also believe that, if Exxon produced wine, we would 
probably be going to war with France rather than Iraq.
    I make these observations out of a concern that this 
Committee might, as it did in the last Congress, once again 
respond to the energy crises with legislation that provides a 
great deal in the way of unwarranted relief for oil and gas 
producers and little in the way of promoting domestic energy 
security. The bill reported by this Committee last Congress 
contained $8 billion worth of royalty relief, a ``royalty 
holiday'', if you will, for the Exxons and Royal Dutch Shells 
of the world to drill in the Gulf of Mexico. That would have 
been $8 billion in unnecessary drilling incentives and $8 
billion that would have been lost to the U.S. Treasury.
    Indeed, at the time, even the Secretary of the Interior 
testified that sufficient administrative authority already 
exists if drilling incentives are necessary; a mandate to 
provide them, however, was not necessary. That particular 
provision was just one of a long laundry list of giveaways in 
the bill, none of which, in my view, would have contributed one 
iota to enhancing America's energy security.
    For instance, drilling in environmentally sensitive areas 
and having the taxpayer foot the bill for corporate 
environmental compliance were part and parcel of the energy 
legislation the majority herded through this Committee in the 
last Congress. What kind of message does that send to the 
average American who is shelling out an ever-increasing 
percentage of his or her household income to fill up their 
vehicle, or to heat their homes?
    News flash, folks: Big oil is just out there licking its 
chops once again, with skyrocketing gas prices, record profits, 
a beleaguered American public, and a chance to rip into areas 
they've been hankering after for many years. What more could 
any self-respecting, multinational energy conglomerate want? 
What more would they ever want?
    I hope, Mr. Chairman, I really do hope that this is not the 
course we'll be pursing under your leadership. At this time, 
when America's sons and daughters are faced with the prospect 
of being in harm's way in the oil fields of Iraq, we owe it to 
them. We owe it to all Americans to devise a prudent national 
energy policy that balances the needs for energy security with 
the social and environmental consequences that comes with 
energy production.
    Thank you, Mr. Chairman, and thank you for having these 
hearings today.
    [The prepared statement of Mr. Rahall follows:]

   Statement of The Honorable Nick J. Rahall, II, Ranking Democrat, 
                         Committee on Resources

    Mr. Chairman, the average price for regular grade gasoline in this 
country is currently at $1.71 per gallon. That price is only a tenth of 
a cent below the highest national average price on record without even 
adjusting for inflation.
    Meanwhile, many Americans with some justification are convinced 
that price gouging is taking place at the gas pump.
    In fact, I would venture to say that many Americans also believe 
that if Exxon produced wine we would probably be going to war with 
France rather than Iraq.
    I make these observations out of a concern that this Committee 
might, as it did last Congress, once again respond to the energy crisis 
with legislation that provides a great deal in the way of unwarranted 
relief for oil and gas producers, and little in the way of promoting 
domestic energy security.
    The bill reported by this Committee last Congress contained $8 
billion worth of royalty relief--a royalty holiday--for the Exxons and 
Royal Dutch Shells of the world to drill in the Gulf of Mexico.
    That would have been $8 billion dollars in unnecessary drilling 
incentives and $8 billion that would have been lost to the Treasury.
    Indeed, at the time, even the Secretary of the Interior testified 
that sufficient administrative authority already exists if drilling 
incentives are necessary. A mandate to provide them, however, was not 
necessary.
    That particular provision was just one of a long laundry list of 
give-aways in the bill, none of which, in my view, would have 
contributed one iota to enhancing America's energy security.
    For instance, drilling in environmentally sensitive areas and 
having the taxpayer foot the bill for corporate environmental 
compliance were part and parcel of the energy legislation the Majority 
herded through this Committee last Congress.
    What kind of message does this send to the average American who is 
shelling out an ever increasing percentage of his or her household 
income to fill up their vehicle, or to heat their homes.
    News flash, folks. Big Oil is just licking its chops.
    Skyrocketing gas prices. Record profits. A beleaguered American 
public. And the chance to rip into areas they have been hankering after 
for many years.
    What more could any self-respecting multinational energy 
conglomerate want.
    I hope, Mr. Chairman, I really do, that this is not the course we 
will be pursuing under your leadership.
    At this time, when America's sons and daughters are faced with the 
prospect of being in harms way in the oilfields of Iraq, we owe it to 
them, we owe it to all Americans, to devise a prudent national energy 
policy that balances the need for energy security with the social and 
environmental consequences that comes with energy production.
                                 ______
                                 
    The Gibbons. [Presiding.] Thank you, Mr. Rahall.
    Let me state that, in an effort to get to our witnesses 
today, to make sure these panels are fully heard, we would ask 
that anybody who wants to make an opening statement may do so, 
and it would be preferred to present it in writing, but there 
may be someone who wishes to make a verbal statement.
    Mr. Kind.

 STATEMENT OF THE HON. RON KIND, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WISCONSIN

    Mr. Kind. Thank you, Mr. Chairman. I will try to be brief.
    As Ranking Member of the Energy and Minerals Subcommittee, 
I, too, want to thank the witnesses for your presence and 
testimony here today.
    Mr. Chairman, in all likelihood, by this weekend our 
country will be at war with Saddam Hussein's regime in Iraq, a 
part of the world that gave rise to September 11th, the 
terrorist threats that we now face emanating from that region. 
But it also a part of the world that we have a large investment 
and a large presence in, mainly because of one reason: our 
Nation's dependence on the oil that they have plenty of in that 
region. The question is, when the dust settles with this war in 
Iraq, what will our Nation do about that fundamental fact?
    Over the last thousand years we have seen a half a degree 
increase in Celsius due to global warming. Most scientists 
today believe that, over the next 100 years, we're going to see 
a two degree increase Celsius due to global warming. The 
question is, what are we, as a nation, going to do about it, 
because the rest of the world sees us as an eminent threat to 
their national security interests as well. But instead of us 
working collaboratively with the international community on it 
and trying to revise the difficult provisions of Kyoto, we 
instead sent the message to the world that ``no thanks, we're 
not interested.'' We turned our back and said, ``Don't bother 
us. We're going to continue to drive our low mileage SUVs and 
Humvees. We are the United States of America and you can't tell 
us how we're going to behave.'' That is a serious problem that 
we have.
    I don't know how many of you had a chance to read the Wall 
Street article yesterday. It's titled, ``Why the U.S. is Still 
Hooked on Oil Imports.'' I would like unanimous consent to have 
this inserted in the record at this time.
    Let me just quote briefly from this article. It says, ``The 
U.S. remains hooked on foreign oil for two reasons: the 
Organization of Petroleum Exporting Countries, especially Saudi 
Arabia and its neighbors, are skillful in its management of oil 
prices to maintain America's dependence, and the U.S. lacks the 
political will to do what is necessary to weaken the cartel or 
reduce the American appetite for oil. The primary issue is 
price. OPEC manages production to try to keep prices higher 
than they would be if set in the free market, but low enough to 
make alternative fuels and technologies uncompetitive.''
    [The Wall Street Journal article follows:]

         Bad Habit: Why the U.S. Is Still Hooked On Oil Imports

         BY BOB DAVIS IN WASHINGTON AND BHUSHAN BAHREE IN PARIS
               THE WALL STREET JOURNAL -- MARCH 18, 2003

    All seven presidents of the past 30 years, Democrat and Republican 
alike, have tried to wean the U.S. off imported oil. All have failed.
    In 1973, President Nixon pledged to end oil imports by 1980 through 
Project Independence. The U.S. imported 40% of its oil that year. In 
1979, President Carter said imports wouldn't ever rise again. They did. 
Today, with the U.S. importing 60% of its oil, President Bush says 
hydrogen power will lead to energy independence.
    Mr. Bush is almost certain to be proved wrong, at least in the next 
couple of decades.
    Despite an increasingly energy-efficient economy, the U.S. remains 
hooked on foreign oil for two reasons. The Organization of Petroleum 
Exporting Countries, especially Saudi Arabia and its neighbors, is 
skillful in its management of oil prices to maintain America's 
dependence. And the U.S. lacks the political will to do what's 
necessary to weaken the cartel or reduce the American appetite for oil.
    With American troops poised for war in the Persian Gulf, which 
dominates oil exports and has two-thirds of global reserves, the 
consequences of oil dependency are starker than ever. The U.S. relies 
on some of the world's most volatile countries to supply a component 
that is critical to American society. Political turmoil in the region, 
in 1973 and 1979, produced oil-price jumps that ravaged the U.S. 
economy. In 1991, the U.S. sent 500,000 troops to the region to expel 
Saddam Hussein from Kuwait to ensure that he didn't grab an even-larger 
share of Gulf oil.
    The primary issue is price. OPEC manages production to try to keep 
prices higher than they would be if set in a free market, but low 
enough to make alternative fuels and technologies uncompetitive.
    ``If we force Western countries to invest heavily in finding 
alternative sources of energy, they will,'' Saudi Arabia's influential 
oil minister, Sheik Ahmed Zaki Yamani, said in a 1981 speech at a Saudi 
petroleum university. ``This will take them no more than seven to 10 
years and will result in their reduced dependence on oil as a source of 
energy to a point which will jeopardize Saudi Arabia's interests.''
    The U.S. could make rules to force Americans to use less oil or 
achieve the same end by raising the price through tariffs or taxes. Of 
the 19.5 million barrels of oil Americans consume every day, about 11.5 
million are imported. Roughly half the oil consumed in the U.S. goes 
for cars and trucks.
    Some economists are reviving old proposals to boost the gasoline 
tax. Others are crafting new ones. One of President Bush's favorite 
economists, Harvard University's Martin Feldstein, suggests that the 
government cap overall gasoline sales and distribute fuel vouchers 
electronically. Owners of gas guzzlers would buy vouchers from owners 
of fuel-efficient cars, creating an incentive to use less gasoline and 
develop fuel-efficient technologies without pumping money into the 
government's pockets.
    But neither the White House nor the Democratic opposition is 
interested. Cheap oil benefits the U.S. The lowest gasoline prices in 
the industrialized world boost auto sales, tourism and suburban 
construction. Lower diesel prices reduce trucking costs and help 
businesses along the supply chain.
    ``If you let the price of oil go artificially high, it will hurt 
our economy,'' says Commerce Secretary Don Evans, a former Texas oil-
patch executive.
    At the same time, reliance on imported oil makes the U.S. 
vulnerable to instability in Venezuela and the Middle East, and leaves 
a key economic lever in the hands of a foreign cartel. Every recession 
since 1973 has been preceded by a big run-up in oil prices. And while 
only about 20% of U.S. oil imports comes directly from Persian Gulf 
members of OPEC, the Gulf effectively sets prices because it produces 
the lowest-priced oil and has 90% of the world's extra capacity.
    The only time in the past three decades that U.S. oil imports have 
declined substantially was between 1979 and 1983, when they fell by 
40%. One reason was the deepest recession since the Great Depression, 
which cut demand for energy. Another was the almost-simultaneous rise 
both in oil prices after the Iranian revolution of 1979--when fears 
rose again of a cut-off in oil--and in the fuel efficiency of American 
autos between 1979 and 1983, as the U.S. began enforcing new fuel-
efficiency standards. Many Americans dumped gas guzzlers for smaller 
cars. President Reagan ended oil-price controls, setting off a boom in 
domestic drilling and arresting, through the mid-1980s, the downward 
spiral in U.S. oil output.
    Prices hit $40 a barrel in 1979--$100 a barrel at today's prices, 
after accounting for inflation--and were expected to double during 
subsequent years. Saudi Arabia worried that high prices would backfire. 
And to reduce U.S. imports, President Carter championed an $88 billion 
plan to develop synthetic oil from abundant U.S. reserves of coal and 
shale.
    So Saudi Arabia started selling oil at prices several dollars a 
barrel lower than the OPEC $34-a-barrel standard. Then, in 1985, as the 
cartel was facing increasing competition from Alaskan and North Sea oil 
fields, Saudi Arabia and Kuwait engineered a price crash. After a 
meeting in which OPEC decided to go after market share rather than prop 
up prices, Sheik Yamani, the Saudi oil minister, said to several 
reporters: Let's see how the North Sea can produce oil when prices are 
at $5 a barrel. At low prices, the Persian Gulf countries have an 
unbeatable edge. In the mid-1980s, it cost them a couple of dollars a 
barrel to produce oil. It cost about $15 to produce a barrel off the 
coast of Britain and Norway or in the U.S.
    The move was a warning to the U.S.: Forget about energy 
independence. Besides being the world's largest consumer and importer 
of oil, the U.S. is also one of the largest producers. The price 
decline, to about $12 a barrel, was so devastating to the economies of 
Texas, Louisiana and other oil-rich states that then-Vice President 
George H.W. Bush toured the Persian Gulf in 1986, urging countries to 
rein in their output and raise prices.
    ``Isn't that what you wanted? A free price in oil,'' OPEC's 
president, Rilwanu Lukman of Nigeria, goaded Mr. Bush when the two met 
in Kuwait. Mr. Bush eventually reached an understanding with Saudi 
Arabia's King Fahd, to limit production and seek a 50% rise in oil 
prices to a target price of $18 a barrel (or $30 in today's dollars). 
Over the years, OPEC has adjusted its target range and now generally 
aims for between $22 and $28 a barrel.
    OPEC's strategy has largely worked. Since the mid-1980s, the U.S. 
thirst for oil has increased. President Carter's synthetic-fuel program 
couldn't compete with the new OPEC prices and was ridiculed for its 
massive, money-losing projects.
    The U.S. is far more energy-efficient than it was in 1973, when 
Arab nations cut off oil exports to the U.S. because of America's 
support for Israel during the October war. It takes about half as many 
barrels of oil to produce each $1 of economic output today as it did 30 
years ago, according to Cambridge Energy Research Associates, a 
consulting firm.
    But most of the gains in fuel efficiency came in the early 1980s 
when oil prices were high. Electric utilities and other large customers 
switched to natural gas, which was seen as a cheaper and cleaner 
alternative, and less vulnerable to disruption because it was produced 
in the U.S. and Canada. In 1979, 13.5% of electricity was produced by 
oil; that figure dropped to 4.1% in 1985 and about 3% today. Home 
heating went through a similar transformation, from oil to natural gas.
    When oil prices declined after 1985, the pace of energy efficiency 
slowed. The U.S. became somewhat less dependent on oil mostly because 
of long-term changes in the structure of the economy, not because of 
energy-saving technology. Nine energy-intensive industries--aluminum, 
agriculture, chemicals, forest products, glass, metal casting, mining, 
steel and petroleum--account for 80% of industrial energy use. Many of 
those industries are in decline. Newer ascendant ones, such as software 
and communications, don't use as much energy. Petroleum accounts for 
40% of total U.S. energy consumption, down from 50% in 1973.
    In the 1990s, gasoline prices fell lower than they had been since 
the oil embargo of 1973, taking inflation into account. OPEC was 
determined to keep prices relatively low to retain market share and 
scare off rigs in other regions. The American government didn't require 
further increases in automobile fuel efficiency. With the economy 
surging, consumers flocked to minivans, SUVs and other fuel hogs.
    To lessen dependence on oil, economists say, the U.S. would have to 
raise the price of gasoline substantially. It would take an additional 
$1-per-gallon tax, on top of the average current tax of 41 cents, to 
reduce gasoline consumption by about one-fourth, according to 
Congressional Budget Office estimates.
    Europe and Japan have especially high gas taxes--$3.16 a gallon in 
Britain; $1.75 in Japan--so drivers there overwhelmingly choose 
smaller, fuel-efficient vehicles. ``To reduce oil consumption, the most 
obvious thing to do is to tax gasoline and make fuel economy a 
desirable feature,'' says Loren Beard, a senior manager for energy 
planning at DaimlerChrysler AG in Detroit.
    Overall, Germany, France and Japan need only half as much oil as 
the U.S. to produce the same amount of economic growth. Given the 
higher gasoline prices in Europe and Japan, the International Energy 
Agency in Paris expects their oil imports to grow more slowly in coming 
decades than those of the U.S.
    But even small gasoline-tax increases are political poison in the 
U.S. The first President Bush agreed to a five-cent-a-gallon tax 
increase in 1990 despite his famous ``no new taxes'' pledge. Partly 
because of that, he lost his re-election bid. President Clinton pressed 
for a broad energy tax in 1993, but settled for a modest 4.3-cents-a-
gallon levy. Officials in the current Bush administration say they 
considered higher gas taxes when they put together their first energy 
plan in 2001, but quickly rejected them in any form.
    A tax increase by itself wouldn't solve the oil-import problem. 
Higher gas-pump prices would lessen demand for oil, which could lead to 
a glut and lower wholesale oil prices. OPEC could cut back on 
production, to boost prices, as it did when oil prices slumped in 1998. 
If OPEC encouraged prices to sink, the U.S. and other consuming 
countries would have to consider soaking up extra supply--by greatly 
expanding the reserves of oil they maintain for emergency use--in order 
to prop up prices and prevent OPEC from gaining an even-stronger hand 
in controlling supply.
    Boosting supplies of oil outside the Persian Gulf would also help 
make the U.S. less dependent on OPEC. But the Bush administration 
hasn't been able to persuade Congress to start drilling in the Alaska 
National Wildlife Reserve, and environmental regulations have put much 
of the Rockies, along with the Atlantic and Pacific coasts, off-limits 
for new rigs. Oil companies are using technology to extend the lives in 
old fields, but domestic supply continues its long swoon to about 5.8 
million barrels a day, one-third less than when President Nixon set his 
energy-independence goal in 1973.
    Elsewhere, Russia, central Asia and Africa are expected to broadly 
expand production over the coming decades. Even when taken together, 
however, these oil regions don't have the reserves to affect U.S. 
reliance on the Persian Gulf, which has the bulk of the world's 
reserves in cheap, easy-to-tap fields. OPEC nations ``are back in 
charge,'' says Vito Stagliano, an energy official in the first Bush 
administration.
    Rep. Charles Rangel of New York, the top Democrat on the House Ways 
and Means Committee, says the U.S. may be able to use its military 
might to change the oil balance of power. If the U.S. seizes Iraq's oil 
fields during a war and turns Baghdad into a reliable ally, that could 
reduce the concerns about U.S. reliance on Persian Gulf oil. ``If we 
control all that oil,'' Mr. Rangel says, ``we don't need a damn 
gasoline tax.'' But the political consequences of the war are hard to 
foretell, especially if Saddam Hussein destroys Iraq's oil wells, or if 
other Gulf oil fields become terrorist targets. A democratic Iraq is 
also likely to see the economic virtues of strengthening OPEC, not 
weakening it.
    President Bush is looking for a technological fix. He has seized on 
the technology of hydrogen-powered fuel cells, budgeting $1.7 billion 
over the next five years to try to produce hydrogen-powered cars and 
trucks. But the challenges are daunting. Hydrogen now costs four times 
as much as gasoline, fuel cells are clunky and expensive, and the U.S. 
lacks an infrastructure of hydrogen pumps to match the nation's 
gasoline stations.
    And OPEC is ever vigilant to the possibility that the U.S. could 
kick its oil habit. In the late 1980s, Kuwait's oil minister shooed 
away a businessman who approached him at a bar in a London Hotel. Sheik 
Ali Khalifa al-Sabah explained that the man ``wanted to sell me on an 
engine that works on water. If I thought it worked, I would have bought 
it and killed it.''
                                 ______
                                 
    Mr. Kind. This is a serious problem, and I think the 
President has recognized it. I was struck that during his State 
of the Union address he spent 15 minutes talking about the 
environment and alternative energy supplies for our country. 
That indicates two things to me. One, there is a growing 
recognition even in the Administration that this is a serious 
problem that we need to address, but two, that they're in a 
difficult position politically on this issue. We have an 
opportunity, as we move forward in developing a new energy 
plan--because I think the current energy plan that's before us 
is too status quo, too ``some old/same old'' around here--that 
we can change the paradigm in regards to our energy needs and 
do it in a growth-oriented fashion.
    The Administration just announced that they're going to be 
importing a lot more liquified natural gas in the future, 
mainly from Nigeria. The problem is that Nigeria is a part of 
OPEC, and if we're not careful, we're going to be in the same 
position we are with our natural gas needs dealing with OPEC as 
we currently are with our oil needs in dealing with OPEC.
    We can try changing this paradigm through a couple of 
options. We can increase the energy consumption tax in this 
country to reduce demand--which isn't all that popular and I 
certainly wouldn't support--or another option is we can change 
the energy dynamic through increased investment in R&D in 
developing the new technologies that I feel are necessary in 
order for us to make the transition from a fossil fuel 
consumption society to an alternative renewable and especially 
hydrogen-powered society.
    That's really the question and the challenge that's before 
us in this Committee. Hopefully, as we move forward with the 
advice and the expertise from panel experts that we have here 
today, but especially among our colleagues, that we will find a 
way to be able to work together, to think through the long-term 
ramifications of what we're about to see in the next few days 
in a country like Iraq, and how we're going to wean ourselves 
off from that politically unsustainable position.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kind follows:]

Statement of The Honorable Ron Kind, a Representative in Congress from 
                         the State of Wisconsin

    In all likelihood, by this weekend our country will be at war with 
Saddam Hussein's regime in Iraq, a part of the world that gave rise to 
the tragedies of September 11th and the terrorist threats that we now 
face emanating from that region. However, it is also a part of the 
world in which we have a large investment and presence, mainly because 
of one reason: our Nation's dependence on the vast oil resources of the 
Middle East. The question is: when the dust settles with the war in 
Iraq, what will our Nation do about that fundamental fact?
    Over the last thousand years we have seen a half degree Celsius 
increase in average global temperature due to global warming. Most 
scientists today believe that, over the next 100 years, we are going to 
see a two degree Celsius increase in world temperature due to global 
warming.
    What, then, are we to do about this problem? I believe we have a 
considerable problem if the rest of the world considers the United 
States as an eminent threat to their national security interests 
because our contribution to this trend is so significant.
    But instead of working collaboratively with the international 
community on this issue and trying to revise the difficult provisions 
of Kyoto, we instead sent the message to the world that ``no thanks, we 
are not interested.'' We turned our back and said, ``Do not bother us. 
We are going to continue to drive our low mileage SUVs and Humvees. We 
are the United States of America and you cannot tell us how we are 
going to behave.'' This type of rationale is a serious problem of ours.
    If any of you had a chance to read the Wall Street article 
yesterday, you might have read a story entitled, ``Why the U.S. is 
Still Hooked on Oil Imports.'' I would like unanimous consent to have 
this inserted in the record at this time.
    I will quote briefly from this article. ``The U.S. remains hooked 
on foreign oil for two reasons: the Organization of Petroleum Exporting 
Countries, especially Saudi Arabia and its neighbors, is skillful in 
its management of oil prices to maintain America's dependence, and the 
U.S. lacks the political will to do what is necessary to weaken the 
cartel or reduce the American appetite for oil. The primary issue is 
price. OPEC manages production to try to keep prices higher than they 
would be if set in the free market, but low enough to make alternative 
fuels and technologies uncompetitive.''
    The OPEC issue is a serious problem, and I sense the President has 
recognized it. I was struck that, during his State of the Union 
address, he spent 15 minutes speaking about the environment and 
alternative energy supplies for our country. This indicates two things 
to me. One, there is a growing recognition, even in the Administration, 
that this is a serious problem that we need to address, but two, that 
they are in a difficult position politically on this issue. We have an 
opportunity, as we move forward in developing a new energy plan--
because I think the current energy plan that is before us is too status 
quo, too ``some old/same old'' around here'', to change the paradigm in 
regards to our energy needs and do so in a growth-oriented fashion.
    The Administration recently announced that they are going to be 
importing far more liquified natural gas in the future, primarily from 
Nigeria. The problem here is that Nigeria is a part of OPEC, and if we 
are not careful, we will be in the same position with our natural gas 
needs as we are with our oil needs in dealing with OPEC.
    We can attempt to change this paradigm in a variety of ways. We can 
increase the energy consumption tax in this country to reduce demand--
which is not very popular and I certainly would not support--or change 
the energy dynamic through increased investment in research and 
development, forming new technologies that I feel are necessary in 
order for America to make the transition from a fossil fuel consumption 
society to an alternative, renewable, and hydrogen-powered society.
    This issue is our primary responsibility and the challenge that we 
face in this Committee. Hopefully, as we move forward with the advice 
and the expertise from the panels of experts that we have here today, 
but especially among our colleagues, we will find a way to be able to 
work together, think through the long-term ramifications of what we are 
about to see in the next few days in Iraq and its surrounding nations, 
and how we plan to wean ourselves from the resources of a politically 
unsustainable region.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Kind.
    Does anyone else have a burning desire in their bosom to 
make an opening remark? Mr. Gilchrest.

 STATEMENT OF THE HON. WAYNE T. GILCHREST, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Gilchrest. Mr. Chairman, I wasn't going to make a 
remark, but you said does anyone have a burning desire--and I 
do.
    I just want to buttress Mr. Kind's statement about the 
future energy policy of this country. I would say that if we 
could put a man on the moon in just a few years after a 
statement was made, and developed the Manhattan Project, we 
can, within 20 years, develop an alternative to fossil fuel 
which would improve dramatically environmental concerns and 
realities that would make us not only energy independent but 
increase our security by a thousand percent of this Nation so 
that we're not dependent on a volatile region of the world.
    Thanks for the opportunity, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Gilchrest.
    At this point in time, with no one else wishing to make an 
opening statement, let me introduce our first panel. It is 
Rebecca Watson, Assistant Secretary for Land and Minerals 
Management, U.S. Department of Interior, and Carl Michael 
Smith, Assistant Secretary for Fossil Energy, U.S. Department 
of Energy.
    Let me first begin by swearing in our witnesses. We believe 
that is an important point that we do in this Committee. If you 
will please rise.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record show that both witnesses 
indicated that they agree. Miss Watson, I believe you will be 
the opening speaker.
    If you will notice, we have three lights in front of you. 
They are limited to 5 minutes. The green light is ``go'', the 
yellow is to sort of wrap it up, and when the red light comes 
on, we would hope you would be finishing up your remarks.
    If you wish to submit your full and complete testimony for 
the record, we can do that, and you can make a summary of your 
statement as well.
    Miss Watson.

 STATEMENT OF REBECCA WATSON, ASSISTANT SECRETARY FOR LAND AND 
      MINERALS MANAGEMENT, U.S. DEPARTMENT OF THE INTERIOR

    Ms. Watson. Good morning, Mr. Chairman, and thank you for 
the opportunity to appear here today to discuss enhancing 
America's energy security. I would like to discuss the key role 
the Department of the Interior has in meeting the Nation's 
energy needs.
    America faces an energy challenge. Energy use sustains our 
economy and it sustains our quality of life, but we have a 
fundamental imbalance between our energy consumption and our 
domestic energy production. As policymakers, as Congressman, we 
need to work together to narrow the gap between the amount of 
energy that we use and the amount of energy we produce. We must 
also continue to diversity our sources of energy.
    President Bush's National Energy Policy report laid out a 
comprehensive, long-term energy strategy for securing America's 
energy future. The Department of Interior plays a key role in 
implementing many of the tasks identified in the President's 
energy policy. Today, the Department of Interior public lands 
and public resources supply over 30 percent of our country's 
national energy. I think today, given the debate that's going 
on in the Senate over ANWR, I would be remiss if I didn't 
mention that, as we look toward war with Iraq.
    Right now, Alaska supplies a considerable amount of the oil 
that our country uses. The Secretary of Interior testified last 
week about the important role of ANWR in that supply. Many have 
said that ANWR is a short term, speculative supply of oil. I 
don't think they can say that any more after the Secretary's 
testimony about the 10.4 billion barrels of oil and the 
potential that the daily production from ANWR is larger than 
the current daily unfilled oil production of the lower 48 
states.
    I think it is significant, given some of the remarks this 
morning, that the oil that could be produced from ANWR is 
double, more than double what we are important from Iraq. This 
is a way to provide real energy security. This is the right 
time to open ANWR.
    Most media attention has focused on traditional oil and gas 
production components of the President's National Energy 
Policy, but there is a strong focus on other components as 
well. Energy conservation and renewable resources are also key 
components of that plan.
    The report identified the remarkable progress that our 
American industry has made in continuing to improve 
productivity but lower the amount of energy consumed to produce 
that productivity. We are producing more but using less energy 
to do that. The NEP believes that small businesses and 
individuals, which are huge consumers of energy, can also play 
a similar role in conservation and reducing demand, which also 
contributes to our energy security.
    On alternative and renewable energy, we think there is good 
potential in that area and we are taking steps to improve the 
contribution of renewable energy. Some of those that we're 
focusing on are geothermal, wind, solar and biomass. One of the 
tasks that we had in the National Energy Plan was to go out on 
to the public lands and work together with DOE's National 
Renewable Energy Lab to identify the best places on the public 
lands to produce particular types of energy, and we rolled that 
report out at NRL in Golden, CO on February 17th. We think that 
is going to provide a useful tool to industry to focus their 
efforts on areas where renewables would be best produced.
    We are also very interested in how the biomass energy under 
the President's National Energy Plan can fit together with the 
President's Healthy Forest Initiative. We think there's a good 
potential there as we get a more assured supply of materials 
off the public lands that we could then support a biomass 
industry based on that security. Investment in biomass plans 
takes a considerable sum, at least $50,000. They need some 
certainty of supply. We think the Healthy Forest Initiative 
could help provide that certainty.
    I think one of the main things we're concerned about, 
besides oil, is natural gas. Increasingly, natural gas runs our 
economy, our high-tech economy. We have turned to natural gas 
because it has clear environmental advantages, and we have 
abundant domestic supplies of natural gas. Right now, we're 
supplying 86 percent of our natural gas demand.
    But right now we're in a shortage. Last year, I testified 
to the Energy Subcommittee of the House Resources Committee 
about the potential for short-term natural gas shortages and 
steps that we needed to take to anticipate that. Well, we are 
facing the brunt of those prices right now. I just want to tick 
through some of the things that we're doing as part of the 
President's National Energy Plan to address the natural gas 
supply issue. I want to talk first about offshore, and then 
I'll talk a little about on shore.
    Offshore, on the Outer Continental Shelf, there is 
approximately 1.76 billion acres, but over 600 million of those 
acres are currently off limits to oil and gas production. 
Nonetheless, the central and western portions of the Gulf and 
Alaska supply oil and gas to our country.
    Potential long-term opportunities are in the deep water 
areas off the Gulf of Mexico, but these are technically very 
challenging. You're drilling down through some 7,000 to 8,000 
and even more feet of water before you even hit the seabed, and 
then drill down yet further to the oil or gas potential. This 
is a high capital investment and many of our large major 
companies have to come together in join partnerships to even 
begin to do this exploration. There is a lot of interest and a 
lot of potential out there, but it is more in the long term.
    In the short term, we believe the shallow waters of the 
Gulf of Mexico hold opportunity. Those basins are maturing and 
are rapidly declining, but there is a new potential, which 
would be in the deep gas of the shallow water. We're looking at 
how we can encourage the production of deep gas from the 
shallow water because that is natural gas that can be brought 
on quickly in the short term because we have the pipelines and 
infrastructure to support it.
    We also are pleased to report there are 19 new projects in 
the deep water off the Gulf of Mexico that are scheduled to 
come on line in 2003. We think that will boost the off-short 
contribution from 30 percent to close to 40 percent. There are 
also two new pipeline projects that are bringing an additional 
one million or more barrels per day, again in the year 2005.
    Today, March 19th, we are holding a lease sale in New 
Orleans, and we are really pleased at the competitive, intense 
bidding interest in the central Gulf of Mexico province. We 
have 793 bids, with 66 different companies bidding on it, and 
so we think there's a good potential there.
    Finally, with the encouragement of Representative Gibbons 
up there, I just want to mention quickly about coalbed natural 
gas. This is the most readily available, short-term supply of 
natural gas to meet our energy demands. This is from the area 
from Montana down to New Mexico. This is an area that the 
Bureau of Land Management is focusing on through the land use 
plan. It is critical to our natural gas supply.
    Thank you.
    [The prepared statement of Ms. Watson follows:]

         Statement of Rebecca W. Watson, Assistant Secretary, 
                    U.S. Department of the Interior

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear here today to discuss enhancing America's energy 
security. I would like to discuss the key role the Department of the 
Interior has in meeting the nation's energy needs.

                           OUR ENERGY FUTURE

    America faces an energy challenge. Energy use sustains our economy 
and our quality of life, but a fundamental imbalance exists between our 
energy consumption and domestic energy production. We must look ays to 
narrow the gap between the amount of energy we use and the amount we 
produce. There is no one single solution. Achieving the goal of secure, 
affordable and environmentally sound energy will require diligent, 
concerted efforts on many fronts on both the supply and demand sides of 
the energy equation.
    President Bush's National Energy Policy report laid out a 
comprehensive, long-term energy strategy for securing America's energy 
future. That strategy recognizes that to reduce our rising dependence 
on oil and gas, we must also increase domestic production. The 
President proposes to open a small portion of the Arctic National 
Wildlife Refuge (ANWR) to environmentally responsible oil and gas 
exploration using newly available, environmentally friendly technology. 
ANWR is by far the largest untapped source of domestic petroleum and 
would equal nearly 60 years of imports from Iraq.
    In 1998, a United States Geological Survey assessment of petroleum 
resources of the 1002 region of ANWR estimated the expected mean volume 
of technically recoverable oil beneath the 1002 area to be 10.4 billion 
barrels. For comparison, the U.S. currently consumes about 7 billion 
barrels per year. Of this, the U.S. imports about 4 billion barrels and 
produces about 3 billion barrels.
    Most media coverage focuses on the parts of the National Energy 
Policy that discuss production of traditional energy, but increased 
energy conservation and alternative and renewable sources are also 
critical components of the President's balanced, comprehensive policy. 
Good stewardship of resources dictates that we use energy efficiently 
and conserve resources. Thus, fossil fuel development is only a part of 
the solution to our Nation's energy issues. Americans have already made 
great strides in using energy more efficiently. Since 1973, the United 
States economy has grown nearly three times faster than energy use, in 
part due to more efficient use of energy. Had we continued to use 
energy as intensely as in the 1970's, the United States would have 
consumed about 177 quadrillion BTUs of energy in 2001, compared to 
actual consumption of approximately 97 quadrillion BTUs. To put that in 
perspective, the 80 quadrillion BTUs saved is more than the total 
amount of energy produced in the United States from all sources--oil, 
gas, coal, nuclear, renewable--in the year 2000. Simple conservation 
actions by individuals and small business can yield impressive results 
in demand reduction.

                    ALTERNATIVE AND RENEWABLE ENERGY

    Alternative and renewable sources of energy can also play an 
important role in helping meet our increased energy needs. To this end, 
the National Energy Policy encourages development of a cleaner, more 
diverse portfolio of domestic energy supplies. The Policy includes 
measures to aid in the development and expansion of renewable energy 
technologies in use today, including geothermal, wind, solar, and 
biomass, as well as continued research into using hydrogen as an 
alternative energy carrier. Such diversity helps to ensure that 
Americans will continue to have access to the energy they need.
    Between 1975 and 2000, total renewable energy production in the 
United States increased from about 4.8 to 6.8 quadrillion BTUs, 
supplying about seven percent of the Nation's energy consumption in 
2000. By 2020, renewable energy production is forecast to rise to about 
8.6 quadrillion BTUs, but still will account for only about seven 
percent of consumption.
    Thus, for the present and as far as the future can be reasonably 
forecast, renewable energy is likely to remain an incremental source of 
supply supplementing fossil fuels as our primary source of energy. 
Renewable and alternative energy sources can be an important component 
to a diversified domestic energy portfolio especially for addressing 
distributed energy and peak demand needs. At the Department of the 
Interior, Secretary Norton has convened two conferences focused on the 
renewable resource industry. These conferences have generated ideas and 
action.
    The Department is also supportive of efforts to increase the use of 
biomass. The President's National Energy Policy directed the Department 
to evaluate ways to increase the use of biomass as a renewable 
resource. We are particularly encouraged by the possibility of linking 
biomass energy production with our efforts on hazardous fuel reduction 
in the national forests and rangelands. The National Fire Plan's 
hazardous fuels reduction program has the potential to produce a steady 
supply of non-commercial grade organic matter that could be utilized as 
a valuable renewable energy source.
    As part of its efforts to advance the President's National Energy 
Policy, the BLM recently released a joint report with the Department of 
Energy that identifies and evaluates renewable energy resources on 
public lands. It highlights the best places on public lands for 
particular renewable resource development. The BLM will use the 
report's findings to prioritize land-use planning activities, and to 
increase the development and use of renewable energy resources on 
public lands.

                ENERGY PRODUCTION FROM FEDERAL RESOURCES

    As the Assistant Secretary for Land and Minerals Management I have 
administrative and managerial responsibility for the Bureau of Land 
Management (BLM), the Minerals Management Service (MMS), and the Office 
of Surface Mining Reclamation and Enforcement (OSMRE). All of these 
bureaus are undertaking significant initiatives to fulfill the 
President's National Energy Policy, and are working diligently to 
promote environmentally sound production of our Nation's energy 
resources. The BLM has authority to offer lands under their 
jurisdiction to produce mineral and energy (renewable and non-
renewable) resources, and the MMS has the authority to offer Outer 
Continental Shelf (OCS) lands under their jurisdiction to produce oil, 
natural gas, and mineral resources, consistent with environmental 
protection goals. The Administration is seeking enactment of 
legislation, of which I will speak of later, to expand the Secretary's 
authority offshore to include renewable resources and other energy-
related activities.
    The Department of the Interior manages approximately 500 million 
surface acres of land, with the BLM managing 262 million surface acres 
and more than 700 million subsurface acres of Federal mineral estate. 
MMS manages approximately 1.76 billion acres of offshore Federal 
mineral estate. These lands and resources currently account for 30% of 
total domestic energy production--including 48% of geothermal 
production, 35% of natural gas production (25% offshore and 10% 
onshore), 35% of coal production, 35% of oil production (30% offshore 
and 5% onshore), 20% of wind power, and 17% of hydropower production.
    To address the Nation's growing energy needs, the Department 
believes we must optimize leasing opportunities on Federal lands. 
Orphan wells continue to be a major concern for the Department. The BLM 
has approximately 250 orphan wells, the majority of which are in 
Alaska, California, and Wyoming. The Department supports the idea of 
working with lessees to help address this problem, and reclaim orphan 
wells on public lands.
    The Secretary continues to seek out advice and counsel from our 
stakeholders on a myriad of issues affecting the Department's mission 
and operations. Resource advisory councils established by the 
Department provide advice, counsel and recommendations on issues within 
the special areas designated in their charters. The BLM works actively 
with its Citizen Resource Advisory Councils. The Department also 
continually looks for ways to improve its business practices for the 
benefit of industry and other land use groups. Improving business 
functions and utilizing best management practices allows the Department 
to make timely and informed decisions using the best available 
information and science. This benefits all interested parties by 
limiting uncertainties, delivering better services and reducing costs. 
The Department is committed to making public input into decision making 
the cornerstone of its process by practicing the Secretary's 4-C's--
consultation, cooperation, and communication all in the service of 
conservation. These efforts have cultivated a community-based 
conservation, citizen-centered stewardship of the public lands that has 
benefited all public land users.

New Energy Resources
    Deepwater areas of the Gulf of Mexico are expected to provide 
substantial volumes of new natural gas production, but it may be 
several years before that area reaches its potential. The shallow 
waters of the Gulf of Mexico hold the greatest promise for new 
resources of natural gas from deep wells to meet the Nation's near-term 
gas needs. The Department continues to look at appropriate royalty 
relief incentives to encourage exploration and production of oil and 
gas in the deep waters of the Gulf of Mexico and to extend production 
on marginal leases that are still producing but approaching 
abandonment. Beginning in 2002, MMS started providing royalty relief as 
part of OCS lease sale terms to encourage production from wells on new 
leases drilled to deep horizons (greater than 15,000 feet total depth). 
This deep gas play, expected to hold between 5 and 20 trillion cubic 
feet (Tcf) of gas, can be developed quickly due to existing 
infrastructure in the shallow waters of the Gulf. MMS also issued a 
final rule in July 2002 that allows companies to apply for lease 
suspensions for exploration of subsalt resources.
    Coalbed natural gas, also known as coalbed methane, accounts for 
about 9.6% of the total natural gas reserves in the United States. The 
Interior West States of New Mexico, Utah, Colorado, Wyoming, and 
Montana hold an estimated 30 to 48 Tcf of undiscovered natural gas 
resources associated with coal. This represents the second largest gas 
resource in the United States behind the Gulf of Mexico. While many 
areas of the United States are experiencing declining natural gas 
reserves, the Interior West resources are largely untapped and the 
amount of newly discovered gas in the area is increasing on a daily 
basis.
    The majority of the coalbed natural gas is in the Federal mineral 
estate. Some of the surfaces overlying Federal minerals is, however, in 
private ownership. As good stewards of these domestic natural gas 
reserves and consistent with the National Energy Policy directive to 
facilitate our domestic energy supplies, we should develop these 
resources in an environmentally-responsible manner to sustain our 
Nation's quality of life in the face of our increasing demand for 
natural gas. The BLM believes in being a good neighbor to adjacent 
landowners and expects Federal lessees to meet their obligations to 
private surface owners.
    Coalbed natural gas from public lands can and should play a role in 
meeting increasing energy demands. Congress established a policy of 
multiple use for much of the Federal lands, which the Department 
strongly supports. Multiple use is critical for the health and well-
being for the citizens of our public land states. Many uses, including 
access for energy development, can co-exist on public lands, if 
properly managed. We do not believe the public lands and resources 
should be put off limits to development. Today the Nation meets over 
50% of demand for petroleum products with imports. Many of these 
imports are vulnerable to disruptions resulting from instabilities in 
exporting Nations or regimes. Thirty percent of our total domestic 
energy production comes from Federal lands and resources. Without the 
contribution of public resources, the country's energy supply would be 
even more dependent on foreign sources. And, of significance for the 
public lands states that are anywhere from 30% to 80% Federally-
managed, the development of these resources can help western rural 
economies by creating jobs, new wealth, and tax revenue.

The EPCA Inventory
    In January 2003, BLM delivered to Congress the first Energy Policy 
Conservation Act (EPCA) inventory of 59.4 million acres managed by 
Federal agencies in five study areas in the West. The areas contain the 
bulk of the known natural gas and much of the known oil resources under 
public management in the onshore United States. This initial EPCA 
inventory provides an estimate of undiscovered technically recoverable 
resources and proved reserves of oil and gas beneath the five basins 
and an inventory of the extent and nature of limitations to their 
development. The Department is working to complete the full assessment 
of onshore oil and natural gas resources on Federal lands beyond the 
five initial basins, not including Alaska. We anticipate this process 
will take approximately two years. All information gathered as a result 
of the EPCA effort will be integrated into the BLM's ongoing land use 
planning efforts are a cornerstone for future energy production from 
public lands. We would note that the EPCA inventory does not include 
information relating to the Federal OCS, which will play a big part in 
America's energy future.

Energy Rights-of-Way
    Federal lands are important to the rights-of-way needs of the 
energy industry and utilities, especially in the western United States. 
BLM estimates that 90% of the oil and natural gas pipeline and electric 
transmission rights-of-way in the western U.S. cross Federal lands. The 
BLM alone administers approximately 85,000 rights-of-way, including 
approximately 23,000 for oil and gas pipelines.
    Our challenge is to improve and expand the existing network of 
pipelines and transmission lines to meet the increased demand for 
energy. One way to meet that challenge is to identify and designate 
right-of-way utility corridors on public lands in a collaborative 
manner. The Department has been working with the Western Governors' 
Association and the Western Utility Group to do just that. The 
designation of utility corridors through BLM land use plans provides an 
important tool in the planning and location of future pipelines and 
assists in the processing of rights-of-way applications on the public 
lands. In addition, the Department is committed to working with our 
stakeholders and Congress to ensure that rights-of-way (ROW) rental 
fees on public lands are appropriate and fair, and that there is 
certainty in ROW rental fee valuation.

Offshore Resources
    As you may know, Federal offshore lands on the OCS encompass 1.76 
billion acres. However, of this total, about 600 million acres are 
currently off-limits to oil and gas leasing. This action has been 
extended by Presidential directive through 2012. Nevertheless, industry 
activities on the remaining areas available for development, 
particularly the 40 million acres currently under lease, make the OCS 
an essential part of ensuring the energy and economic security of the 
United States.
    At the end of December 2002, the Department estimated that Federal 
offshore lands produce about 1.7 million barrels of oil each day, 
accounting for 30 percent of the oil produced in the United States. 
This makes the OCS the largest single source of oil for the U.S. 
economy (larger than Saudi Arabia or our neighbor to the north, 
Canada). In addition to oil, the OCS is also a major source of the 
Nation's natural gas, making a contribution of about 13 billion cubic 
feet per day, or about 25 percent of the Nation's domestic production. 
More than 90 percent of these resources come from the Gulf of Mexico 
OCS, with the rest coming from leases offshore California and the 
Beaufort Sea offshore Alaska.
    With major projects slated to come online in the next few years 
(including Thunder Horse, the largest discovery in the U.S. in the past 
30 years), we project that OCS production could easily reach 2 million 
barrels per day in the next few years and account for over a third of 
domestic crude oil production. Natural gas production is expected to 
remain at its current level, or increase slightly.
    At the Department, we are taking steps to ensure that the OCS 
remains a solid contributor to our Nation's energy and economic 
security by holding sales in available areas on schedule. The OCS 5-
Year Oil and Gas Leasing Program for 2002-2007, which was approved in 
July 2002, calls for 20 lease sales in the Gulf of Mexico and certain 
areas offshore Alaska during that timeframe. We estimate that these 
areas could contain economically recoverable resources of up to 22 
billion barrels of oil and 61 trillion cubic feet of natural gas.
    In 2002, the Department's Minerals Management Service held the 
128th and 129th competitive oil and gas lease sale since OCS leasing 
began in 1954. For these two Gulf of Mexico sales alone, MMS leased 
over 800 tracts, bringing in more than $500 million in revenue from 
high bids for the American people. Today, March 19, 2003, the 
Department is holding the 130th lease sale in the program. Since 1953, 
more than $140 billion has been brought into the U.S. Treasury from OCS 
lease sales.
    In addition to holding the lease sales outlined in the 2002-2007 
program, MMS has developed a series of economic incentives to encourage 
industry to explore ``frontier areas'' where business risks are very 
high, and to facilitate getting the most production possible from 
available OCS acreage. The MMS continues to offer a royalty incentive 
program for deepwater leases in the Gulf of Mexico, and has expanded 
the incentives to promote development of natural gas from deep horizons 
in shallow waters. These leasing incentives come in the form of a 
royalty suspension for specified amounts of production from these 
areas. Currently, MMS is considering extending the shallow water, deep 
gas royalty relief provisions to leases purchased before 2002. MMS has 
also offered lease extensions for certain qualifying exploration 
activities that focus on reservoir targets that occur beneath 
subsurface salt sheets.
    For offshore areas of Alaska, MMS is considering various incentives 
in addition to changes in suspension policies that will allow more time 
for exploration activity to occur. Additionally, MMS is evaluating its 
business processes program-wide to take advantage of opportunities to 
make the permitting process for drilling wells more efficient.
    The Department would also like to see permanent authority for the 
Royalty-in-Kind (RIK) program, including authority to pay for the 
administration costs directly related to the President's initiative to 
fill the Strategic Petroleum Reserve with RIK oil.

                  OFFSHORE ALTERNATIVE ENERGY PROPOSAL

    For the past 50 years, the Department has leased the OCS for oil, 
gas, and other minerals under the mandates of the OCS Lands Act. 
However, in recent years we have seen a growing interest by the private 
sector in developing alternative energy projects located on the OCS, 
such as renewable energy production from currents, wind and waves, and 
floating supply bases and other facilities that would directly support 
OCS oil and gas development.
    In an effort to facilitate these innovative projects and to ensure 
that the Federal Government's economic and land use interests are fully 
protected, the Administration submitted legislation to Congress in June 
2002 that would set up a statutory framework for reviewing and 
permitting such activities that are not otherwise covered by statute. 
It was developed in close collaboration with other Federal agencies 
with permitting authority on the OCS and would provide the Department 
with a full suite of regulatory tools necessary to comprehensively 
manage non-traditional OCS energy and related activities.
    Mrs. Cubin introduced the legislation during the 107th Congress and 
again on February 13, 2003 as H.R. 793. The Administration continues to 
strongly support enactment of such legislation and looks forward to 
working closely with Congress on this important issue. We firmly 
believe that we must encourage new and innovative technologies to help 
us meet our increasing energy needs. Enactment of this legislation will 
be one important step in helping us meet those needs.

                               CONCLUSION

    We will continue to operate under Secretary Norton's leadership and 
vision for managing the public resources--through communication, 
cooperation, and consultation in the service of conservation. The 
essence of this goal is to continue to forge new and stronger 
partnerships with other Federal and state agencies, Tribal governments, 
and all of our stakeholders--including Congress--to create greater 
opportunities for the responsible development of energy resources on 
Federal lands.
    In summary, the following actions have been implemented or are 
being considered to facilitate the President's National Energy Policy:
     The BLM has recently released a joint report with the 
Department of Energy that identifies and evaluates renewable energy 
resources on public lands. The BLM will use the report's findings to 
prioritize land-use planning activities, and to increase the 
development and use of renewable energy resources.
     To ensure that the OCS remains a solid contributor to our 
Nation's energy and economic security by holding sales in available 
areas on schedule, we approved a 5-year Oil and Gas Leasing Program in 
July 2002 that calls for 20 lease sales in the Gulf of Mexico and 
certain areas offshore Alaska during that timeframe. We estimate that 
these areas could contain economically recoverable resources of up to 
22 billion barrels of oil and 61 trillion cubic feet of natural gas.
     MMS is acting to increase energy production in promising, 
shallow waters of the Gulf of Mexico by providing royalty relief in OCS 
lease sale terms to encourage production from new wells drilled to deep 
horizons (greater than 15,000 feet total depth). This area of the Gulf 
of Mexico is expected to hold between 5 and 20 trillion cubic feet 
(TCF) of gas and can be developed quickly due to existing 
infrastructure in the shallow waters of the Gulf.
     MMS is considering providing similar shallow water, deep 
gas royalty relief to leases purchased before 2002.
     MMS issued a final rule in July 2002 that allows 
companies to apply for lease term extensions that will provide 
additional time to analyze complex geophysical data in area under salt 
sheets. Vast resources of oil and natural gas may underlie sheets of 
salt in the OCS, which makes it difficult to obtain a clear image of 
the subsalt geology. This will help identify and define drilling 
targets and accelerate discovery and production of deep natural gas as 
well as foster new technology.
     The Department completed the EPCA inventory this year. 
The EPCA inventory provides an estimate of undiscovered technically 
recoverable resources and proved reserves of oil and gas beneath the 
five Interior West basins and an inventory of the extent and nature of 
limitations to their development.
     BLM is completing the necessary land management planning 
for the two major coalbed natural gas basins in the United States: San 
Juan and Powder River Basin. BLM's completion of these plans may result 
in additional drilling of Federal minerals, which will increase the 
production of natural gas from coalbed natural gas. BLM is developing 
policies to streamline its processing of applications for permits to 
drill, which will include the development of an approved methodology 
(``best management practices'') for drilling permit approval. BLM is 
also working on guidance to improve BLM and its lessees coordination 
and consultation with surface land owners. In addition, BLM is 
improving the necessary coordination and consultation with State and 
other Federal agencies to address the concerns that have been raised 
and to make the process more efficient.
     The BLM has prioritized a number of land-use planning 
efforts that have major oil and gas components. The public process, 
once completed, will expedite the development of natural gas and oil.
     The Department is working with State and local 
governments as well as with industry (e.g., the Western Governors' 
Association and the Western Utility Group) to identify and designate 
right-of-way utility corridors on public lands.
     The Department is taking steps to ensure that the OCS 
remains a solid contributor to our Nation's energy and economic 
security by holding sales in available areas on schedule. In past 
years, scheduled sales in several areas were either delayed, cancelled 
or put under moratoria even though they appear on a 5-year schedule. 
This did not provide industry with the certainty it needs to make long-
term investments in the OCS.
     In support of the President's goal of streamlining 
permitting of energy projects, MMS has initiated a multi-year effort 
designed to increase our efficiency in processing applications to 
permit drilling of OCS wells.
     The Administration submitted legislation to Congress in 
June 2002 that would set up a statutory framework for reviewing and 
permitting alternative energy and energy-related activities not 
otherwise explicitly covered by statute. This legislation will include 
renewable energy projects, such as wind, wave or solar energy; and 
energy-related projects that are ancillary to OCS oil and gas 
development, such as offshore staging facilities and emergency medical 
facilities.
    Thank you for the opportunity to testify before you today. I 
welcome any questions the Committee may have.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Madam Secretary. I do 
want to assure everyone that their full and complete testimony 
will be placed in the records of this Committee in an effort, 
as I have said, to keep the panel going. We would hope you 
would summarize.
    With that, let me turn it over to Secretary Smith. Your 
opportunity is now available for you to address the body. We 
welcome you and the floor is yours.

STATEMENT OF CARL MICHAEL SMITH, ASSISTANT SECRETARY FOR FOSSIL 
               ENERGY, U.S. DEPARTMENT OF ENERGY

    Mr. Smith. Thank you, Mr. Chairman, and members of the 
Committee. I am pleased to join my colleague, Assistant 
Secretary Watson, in discussing the energy potential of our 
Federal lands and the importance of new technology in 
developing these energy resources in the most environmentally 
responsible manner.
    Much of our Nation's attention again is focused on the 
security of global energy supplies. And while that focus is 
there, it is important for us to remember that we remain an 
energy-rich country. Our Nation has rich deposits of coal, oil 
and natural gas. We have more energy in our domestic coal 
reserves than the rest of the world has in recoverable oil. Our 
natural gas deposits are extensive, with resources ranging from 
the shales of Appalachia to the tight sandstones of the 
Rockies, to the hydrates of the Gulf of Mexico and the Arctic. 
And even though we currently produce less than half the oil we 
consume, we remain the world's third largest oil producing 
nation.
    Today, fossil energy resources supply 85 percent of the 
energy we consume,. and over the next 20 years virtually all 
credible energy productions agree that these fuels will supply 
a similar if not larger share of our energy needs.
    Because coal, oil and natural gas are the Nation's dominant 
fuels, when President Bush formulated his National Energy 
Policy, he recognized that we must look for ways to maximize 
the energy potential of these traditional resources. He also 
recognized that, to do this, we must look in large part to the 
resources that exist on Federal lands.
    The Federal Government owns about 31 percent of our 
Nation's land. Public lands provide nearly 30 percent of annual 
energy production and contain a majority of the Nation's 
undiscovered domestic resources. The recent EPCA report, 
conducted by the Interior Department, estimated that there are 
226 trillion cubic feet of natural gas and over six billion 
barrels of oil under these lands. Secretary Abraham requested 
that our Office of Fossil Energy work with our colleagues at 
Interior in making this inventory. Such inventories will be an 
invaluable tool for improving public policy decisions. Yet we 
must also recognize that new technology will likewise be 
important if we are to realize the full energy potential of our 
Federal lands.
    The United States is one of the most mature oil and gas 
regions of the world. Most of what we produce today has come 
from shallow reserves with relatively easy access. The easy oil 
and gas has been produced. It will take improved technology if 
our energy industry is to overcome the challenges of previously 
unrecoverable higher cost resources. These advances are 
occurring. Technological improvements have enabled oil and gas 
producers to access new frontiers, such as tight gas 
formations, ultra-deepwater, Arctic areas, and gas from coal 
seams, as Secretary Watson mentioned.
    These advances are occurring as we speak. We are working 
through new technologies that are being developed, and they are 
activities that are bringing us much more efficient production 
of energy and in a more environmentally friendly way, with 
fewer dry holes drilled and fewer than half the wells needed to 
be drilled today to locate the same amount of reserves that we 
recovered 20 years ago. In short, we have learned how to 
produce oil and gas in a more efficient manner that is more 
environmentally friendly and gives better protection.
    Through both technology developments and new operational 
techniques, domestic oil and gas production shows considerable 
improvement on the environment. Fewer wells add the same level 
of oil and gas reserves, lower volumes of produced water and 
other production fluids, and smaller footprints for oil and gas 
rig locations and field facilities.
    I would like to give you an example of at least one of 
these technological advances that has recently been announced.
    A new modular drilling rig has been deployed in Alaska as 
the platform for a methane hydrates well. This drilling rig is 
patterned after offshore jack-up rigs and sits above the tundra 
on stilts. It will allow drilling operations to have a 
virtually zero footprint. This is a dramatic leap forward in 
our ability to maintain and protect the environment while 
developing those resources that Secretary Watson mentioned that 
are on the North Slope of Alaska.
    Another important new resource could be the methane hydrate 
resource, which this rig in Alaska is seeking to produce. On 
the North Slope alone, the USGS estimates that we have about 
590 trillion cubic feet of potential gas hydrates available. 
For years, this gas that was trapped in the permafrost has 
really been a nuisance at best to drilling operations, and it 
was actually detrimental to production because we simply did 
not have the technology to produce it. Now we are working 
toward that technology, and as much as we have worked toward 
coalbed methane technology, this new technology really has a 
promise.
    The coalbed methane that both Secretary Watson and I have 
mentioned is a prime example of our energy resource that we're 
going to need in the future. The San Juan Basin in Colorado and 
New Mexico is the top producer of coalbed methane. Yet the 
Powder River Basin in Wyoming really holds the most promise.
    Mr. Chairman, I appreciate the opportunity to be with the 
Committee today and would be happy to answer any questions that 
at the appropriate time.
    [The prepared statement of Mr. Smith follows:]

Statement of Carl Michael Smith, Assistant Secretary for Fossil Energy, 
                       U.S. Department of Energy

    Mr. Chairman and Members of the Committee:
    I am pleased to join my colleague from the Department of the 
Interior in discussing the energy potential of our Federal lands and 
the importance new technology will play in permitting the nation to 
benefit fully from these energy resources in the most environmentally 
responsible manner.
    With much of the nation's attention again focused on the security 
of global energy supplies, it is important to remember that we remain 
an energy-rich country. Our nation has rich deposits of coal, oil and 
natural gas. We have more energy in our domestic coal reserves, for 
example, than the rest of the world has in its recoverable oil. Our 
natural gas deposits are extensive with resources ranging from the 
shales of Appalachia to the tight sandstones of the Rocky Mountains to 
the ice-like hydrates of the Gulf of Mexico and the Arctic. And even 
though we currently produce less than half the oil we consume, we 
remain the world's third largest oil producing nation.
    Today, fossil energy resources supply 85% of the energy we consume; 
over the next 20 years, virtually all credible energy projections agree 
that these fuels will supply a similar, if not larger, share of our 
energy needs.
    Coal will continue to supply around 50% of our nation's 
electricity, and because of the growing demand for electric power, that 
will require nearly 1.4 billion tons of coal to be mined in 2020, 20% 
more than was mined last year. Similarly, by 2020, the United States 
will need about 50% more natural gas, largely because of increasing gas 
use for power generation. Moreover, demand for these fuels could 
increase even beyond current projections since both coal and natural 
gas could serve as major feedstocks for the ``hydrogen economy'' 
described by the President in his recent State-of-the-Union address. It 
is also projected that the nation's use of oil will increase by about a 
third over the next two decades.
    Because coal, oil and natural gas are the dominant fuels in the 
U.S. economy, when President Bush formulated his National Energy 
Policy, he recognized that to be truly energy secure, we must look for 
ways to maximize the energy potential of these traditional energy 
resources even as we explore the possibilities of future energy 
resources such as renewables and fusion and improve efficiencies in the 
way we use energy.
The Importance of Federal Lands
    The energy strength of our nation lies in the abundance and 
diversity of our energy resources, and many of these resources exist on 
Federal lands.
    The Federal Government owns about 31 percent of our nation's land. 
Large portions of U.S. energy resources are contained in these Federal 
lands and offshore areas. Public lands provide nearly 30% of annual 
energy production and are estimated to contain a substantial majority 
of the nation's undiscovered domestic energy resources.
    The Department of Energy supports the Department of the Interior's 
activities to effectively inventory these domestic resources vital to 
our nation's energy supplies and assess the consequences of 
restrictions to land access. We have worked closely with the Interior 
Department in conducting these inventories, and we stand ready to 
continue our close collaboration in future studies.
    The Energy Policy and Conservation Act (EPCA) enacted in 2000 
directed the Interior Department, in consultation with the Energy and 
Agriculture Departments, to conduct an inventory of energy resources 
beneath onshore Federal lands. The resulting report assessed five 
basins which have proven to contain some of the most significant 
amounts of natural gas and oil resources under onshore public lands: 
Powder River Basin (Montana and Wyoming), Montana Thrust Belt 
(Montana), Greater Green River Basin (Wyoming and northwestern 
Colorado), Uinta-Piceance Basin (Utah and western Colorado), and 
Paradox-San Juan Basin (Colorado and Utah). It also identified ten 
different categories of land accessibility through a process of mapping 
the surface of the public lands in conjunction with the underground 
resource. This method provides the ability to look at resource 
restriction as well as land surface restriction.
    The key findings of the report indicate there are an estimated 226 
trillion cubic feet (Tcf) of natural gas and 6.3 billion barrels of oil 
under these lands.
    This report begins the process of identifying and making an 
inventory of these resources and I believe that this process will be an 
invaluable tool for improving public policy decision-making. With 
President Bush's comprehensive energy plan and this new Federal 
inventory we can meet the challenge of both providing energy for 
Americans and protecting our environment.
Responsible Domestic Production
    The United States is one of the most mature oil and gas regions of 
the world. The vast majority of resources that have been developed have 
been from shallow reservoirs with relatively easy access. Maintaining a 
strong base of domestic production is a challenge to the industry, but 
we have continued to produce by implementing constantly improved 
technology and operational practices. Because of our ability to develop 
resources more efficiently with smaller land disturbance, the U.S. 
remains the third largest producer in the world.
    The President's National Energy Policy emphasizes that 21st century 
technology is the key to environmental protection and new energy 
production. The American oil and gas industry has made great strides in 
technology development and is one of the global leaders in the 
successful use of advanced technologies and best operational practices.
    As technology and understanding of our Nation's resource potential 
advances, previously unrecoverable, higher cost resources become 
feasible, thereby providing a larger contribution to reliable and 
affordable energy supplies for America. Technological advances have 
enabled oil and gas producers to access new frontiers such as tight gas 
formations, ultra-deepwater, Arctic areas, and gas from coal seams. It 
also has made exploration and production activities much more 
efficient. Drilling success rates have doubled in the last two decades, 
resulting in fewer dry holes. Today, fewer than half as many wells must 
be drilled to locate the same amount of oil and gas reserves as two 
decades ago. Enhanced recovery now allows industry to produce a higher 
proportion of the hydrocarbons in discovered reservoirs, leaving less 
behind.
    Not only have we learned how to produce oil and gas more 
efficiently, we also have been able to do so with a greater degree of 
environmental protection. Through both technology developments and new 
operational techniques, domestic oil and gas production shows 
considerable environmental improvements. Fewer wells to add the same 
level of oil and gas reserves, lower volumes of produced water and 
other production fluids, smaller footprints for oil and gas rigs and 
other field facilities; reduced air emissions; and an enhanced worker 
safety environment.
    I would like to give you a perfect example of the ability of the 
domestic oil and gas industry to provide energy supplies while 
protecting the environment. Recently, a new modular drilling rig has 
been deployed in Alaska as the platform for a methane hydrates well.
    This drilling rig is patterned after offshore jack-up rigs and sits 
above the tundra on stilts. Its use will allow drilling operations to 
have a virtually zero footprint. This is a dramatic leap forward in our 
ability to maintain and protect the environment while developing our 
essential resources.
    In addition to its negligible environmental impact, this technology 
has the added benefit of allowing production to continue year-round. 
Currently, in Alaska, wells are only drilled in the winter when the 
ground is frozen and will support ice roads and ice drilling pads. When 
the ice melts, the rigs and associated equipment can sink; consequently 
the rigs and equipment must be removed prior to thawing. Ice roads will 
be unnecessary because all equipment for this new rig can be brought in 
on rollagons--vehicles specifically designed for Arctic travel--by land 
in the winter and by helicopters in the summer. This rig will also be 
able to fully contain any drilling fluid or potential spills.
    It is technological improvements such as the virtually zero-
footprint drill rig that give us confidence that oil and gas operations 
can be conducted on Alaska's North Slope, including in the 1002 Area of 
the Arctic National Wildlife Refuge, in a way that protects the 
character of the land and the quality of the Arctic environment. 
Continual improvements in the way the industry does business in the 
Arctic now open the possibility that we could achieve the 1002 Area's 
potential as the single most promising prospect in the United States. 
As we examine ways to secure the Nation's energy future, it is 
important to recognize that with advances in environmentally-sensitive 
oil field technology, production from ANWR could one day account for 
more than 20 percent of all U.S. oil production and could be equal to 
more than 60 years of current oil imports from Iraq.
    In addition to the inherent environmental benefit of a virtually 
zero-impact drilling rig, new technologies will also enhance our 
ability to produce natural gas from potentially huge methane hydrate 
resources. We believe methane hydrates constitute one of the most 
significant long-term sources of natural gas in the world. On the North 
Slope of Alaska alone, the hydrate resource has been estimated at 590 
TCF. For years, the discovery of natural gas hydrates beneath the 
permafrost during drilling operations has been considered a nuisance at 
best and at times, has been detrimental to production. However, 
technological advances are giving us the capability to extract natural 
gas from the hydrates.
    Coalbed methane is another prime example of an energy resource the 
nation will need increasingly in the future. In 2000, about 1.4 Tcf of 
coalbed methane was produced in the United States, 7.5 percent of total 
annual domestic natural gas production. While the San Juan Basin in 
southwestern Colorado and northwestern New Mexico is the nation's top 
producer of coalbed methane and there are other large coal seams, such 
as in Alabama, that produce natural gas, the Powder River Basin, 
located in northeastern Wyoming and southeastern Montana, is the 
fastest growing source of coalbed methane.
    In the next 10 years, as many as 39,000 new coalbed methane wells 
could be drilled in the Powder River Basin. Nearly 24,000 of these will 
likely be on the Federal mineral estate.
    The amount of natural gas that will be economically recoverable 
from these coal seams will depend largely on the clear definitions and 
consistency of regulations surrounding produced water. We recognize the 
importance of the safe disposal of produced water, and that is why we 
need a clear and consistent regulation. We are committed to working 
with Interior, EPA and other Federal and State agencies to make sure 
that we will have a regulatory process that is not only effective, but 
not unduly burdensome.
    Other recent technological advancements that can help realize the 
energy potential of our Federal lands while protecting the environment 
include:
     Three and four-dimensional seismic technology now provide 
the capability for virtually ``seeing'' resource formations--including 
how the reservoir changes over time. This, in turn, allows better 
targeting of exploration prospects and improved recovery in discovered 
fields;
     Directional and multi-lateral drilling now enable 
industry to access oil and natural gas resources miles away from a 
drill rig. Multiple boreholes can now be drilled into different 
producing horizons from a single wellbore--again minimizing surface 
disturbance.
     New, high performance synthetic drilling fluids can be 
safely discharged without harm to the environment. These new fluids 
greatly improve the economics of drilling, allowing the pursuit of 
resources in complex geological settings.
     Developments in offshore platform technology now take 
advantage of advances in materials and computer-aided design. This has 
resulted in lower cost, modular production facilities that enable 
producers to pursue smaller prospects in deepwater settings.
    When the President released his National Energy Policy almost two 
years ago, he gave us a blueprint for energy security. It is imperative 
that we have reliable and affordable supplies of energy, and we must 
improve our stewardship of the environment. It is through the use of 
best available technology and best operation practices like these that 
I have just described that allow us to responsibly develop large new 
domestic resource basins while improving the quality of environmental 
protection. These capabilities already exist and are being put into 
practice, from the coal seams of Alabama to the Rocky Mountains to the 
Alaskan Arctic.
    Thank you Mr. Chairman.
                                 ______
                                 
    Mr. Gibbons. Thank you very much for your testimony. Both 
you and Secretary Watson have certainly provided us with 
information which I think is going to be very helpful to the 
Committee. Let me begin the questioning--and we will limit it 
to 5 minutes on each side--with Secretary Watson.
    Secretary Watson, I am now going on my seventh year with 
this Committee. Each time we have heard producers and 
developers walk in here and talk about the difficulties they 
have had with regard to accessing, permitting, delays, et 
cetera. Let me ask a question.
    Would you explain to us what you and the BLM are doing with 
regard to coordinating, lessee coordination, lessee 
consultation with surface owners, in order to improve the 
process by which companies access these energy fields.
    Ms. Watson. Well, we are doing a lot of things. I think 
your question has two parts. One, we are looking at our 
relationship between our lessees and the surface owners, 
particularly in that case where the surface owner does not own 
the mineral under the surface estate. We want to be sure that 
the letter of the law is followed, that our lessees consult 
with the land owner, work with them to reduce the impact to 
their property, and appropriately bond for the surface.
    The other things we're trying to do are process 
applications for permit to drill in a more efficient way. 
Certain of our offices in the BLM have developed batching 
procedures, more efficient ways to process, because they've 
been faced with many more permits to have to process. So they 
have been creative and have come up with better methods. We 
want to transfer their success to other offices of the BLM and, 
to that end, we're developing best management practices along 
with our application for permit to drill processing procedures.
    Mr. Gibbons. Madam Secretary, as we all know, price is 
usually a component of supply and demand. America is becoming, 
as we have heard, increasingly dependent upon natural gas to 
provide electricity and heat for homes, and there is a supply 
and demand issue that has suddenly revealed a gap between the 
supply and the demand.
    What do we need to do to ensure that that potential gap, or 
that existing gap, is diminished and that we end up with a 
stable supply of gas and energy sources to meet the anticipated 
huge demand that we see rising in the future, to avoid a gap 
which drives the price beyond the affordability of most 
Americans in this economy?
    Ms. Watson. I think we have to look at both the short term 
and the long term. I the short term, I think coalbed natural 
gas in the interior West is a key part of addressing the short-
term demand. Also, development of deep gas in the shallow water 
off the Gulf of Mexico. Those are the two most readily 
available sources that can meet our short-term natural gas 
supply crunch.
    In the long term, we need to look at where we're going to 
be getting our natural gas. We will be importing increasing 
amounts of natural gas. That means we need to build the 
infrastructure for liquified natural gas. We also need to look 
seriously at developing the natural gas in Alaska. That 
requires a huge capital investment in the way of a pipeline. 
The technical challenges of building such a structure are 
enormous. But in the long term, we need to take a look at that, 
to support both supplies from Alaska and frontier areas in 
Canada. So those would be two ideas that I have.
    Mr. Gibbons. Thank you.
    Secretary Smith, let me ask just a general question. In 
your opinion, would more access to energy resources on 
government land, in view of the rising demand, actually lower 
energy bills for consumers?
    Mr. Smith. Mr. Chairman, that's a difficult question to 
answer. As Secretary Watson said, there is both a short term 
and a long term answer to that.
    In the short term, it would not immediately lower bills, 
because you have to remember that, if you do have access, some 
geologist has to have an idea that there is natural gas there. 
Then that idea has to be sold and drilled and completed and put 
into the system. And even if it's a fairly shallow prospect, 
less than 5,000 feet--and coalbed methane mostly is--but even 
if it's fairly easy to drill, it still takes about a year to 
get it into the system. So if you started drilling today, it 
would be March of '04 before that gas is actually in the 
system.
    But yes, access is one of the major challenges that the 
industry has. That is part of the EPCA report that I mentioned 
in my opening comments, Mr. Chairman, that we, along with 
Interior, have looked at some of these challenges and have 
examined those resources in the Rockies in particular, to see 
where oil and gas exploration, using modern technology that 
safeguards the environment, is available for actual use. I 
think that, both in the short term--if you call a year a short 
term--and the long term, it certainly will add to our 
resources.
    Mr. Gibbons. I guess, in summary, the issue of access is 
one without access. The demands and the gap between supply and 
demand will always exceed what we have today.
    Mr. Smith. Yes, sir. I would say so.
    Our energy information agency at the Department of Energy 
has estimated--just to give you an example--that by the year 
2010, our Nation will be using about 30 trillion cubic feet of 
natural gas a year. We use about 23 trillion cubic feet today. 
So we are going to have to drill a lot of wells and find a lot 
of production just to run in place, if you will.
    Mr. Gibbons. Thank you very much.
    Mr. Kildee.
    Mr. Kildee. I have no questions at this time, Mr. Chairman. 
Thank you very much.
    Mr. Gibbons. Mr. Duncan?
    Mr. Duncan. I have no questions.
    Mr. Gibbons. Mr. Kind.
    Mr. Kind. Thank you, Mr. Chairman. And thank you again for 
your testimony.
    Secretary Watson, first of all, I am pleased to hear the 
Administration's support in regards to the national assessment 
on energy on Federal lands, especially as it relates to 
alternative renewable energy projects. I think there is a 
general consensus in this field, whether it's wind or solar or 
geothermal, biomass, that there is tremendous potential out 
there on the public lands in this country to develop further 
projects, but also for the feedback that I have been getting, a 
sense of frustration that, because of the overlapping 
jurisdictions that are involved, it's very hard to move forward 
on a lot of these projects. I look forward, as we delve into 
this, to being able to work with you and your office to explore 
the difficulties that many of them are encountering.
    We just had a hearing on the Nantucket Sound wind project 
about a week ago, which could be a model of how or how not to 
actually move forward on these issues. Obviously, there is a 
lot of NIMBY issues involved in this, too. But again, I think 
with the Administration's cooperation, and with your help in 
particular, we might be able to think through some of these 
road blocks.
    Also, I was very supportive in the last Congress in regard 
to having the Administration move forward on a national 
resource assessment, and in particular the geothermal 
assessment, on all public lands. I understand you are moving 
forward on the Great Basin assessment right now. The National 
Resource Council, too, has taken a look at it and says it is 
vital to get this assessment done as soon as possible so we can 
put the pieces of a long-term energy plan in place.
    My question is, would it be helpful at all in getting some 
specific authorization from this Committee in regards to 
funding levels and time period, to enable you to do the 
national scope, the national assessment, on these energy 
potentials?
    Ms. Watson. Well, I'm not sure I understand exactly what 
you're talking about, but I do know that we have a geothermal 
assessment that we will be rolling out this month. I think that 
has been eagerly awaited by the geothermal industry. It takes 
the report, the general assessment report that we have, and 
brings it down into sharper focus.
    Ideally, we have been talking with the Department of Energy 
about partnering up and doing that for each of the renewable 
resources, particularly in the biomass area, where are the best 
areas on the public lands to develop biomass energy, and that 
would be a companion to the soon to be released geothermal 
report.
    Mr. Kind. Let me ask you in regards to the geothermal 
report. Is that Great Basin specific, or is it nationwide in 
scope? It's my understanding that the assessment was limited to 
certain geography.
    Ms. Watson. It was my understanding that it would be larger 
in scope than just the Great Basis, but...[conferring]It's not 
the entire country because, of course--I think it's a look at 
public lands, but it is not narrowly focused on the Great 
Basin.
    Mr. Kind. And this would be all public lands throughout the 
country that we're talking about the assessment being done on?
    Ms. Watson. I guess eventually it will be all public lands. 
This particular one is larger than the Great Basin but somewhat 
smaller than all public lands.
    Mr. Kind. That's my question. I mean, do you need some 
further authorization, do you need some help, as far as the 
completion of the national assessment?
    Ms. Watson. Probably, but...[laughter.] We'll follow up. We 
always need your assistance, let's put it that way.
    Mr. Kind. Finally, just one last question. We are 
anticipating hearing testimony from a couple of witnesses about 
some concerns arising out in Colorado in regards to a couple of 
BLM offices and how they have been quick to waive some of the 
environmental and recreational concerns in the area. I am 
wondering if you can today assure the hunters and fishermen in 
that area that the energy projects aren't taking precedence 
over their interests in this same area.
    Ms. Watson. Yes. I do want to assure them of that, because 
we want to work closely with the hunters and fishermen. We have 
been working with them in the Bureau of Land Management to 
address their concerns.
    This issue came out when we rolled out the EPCA report. One 
of the contracts that was involved in preparing that made the 
point that many times the Department of Interior, the Bureau of 
Land Management, puts in wildlife stipulations that are broader 
than are necessary, so it is easier then to do planning. Part 
of the reason that the numbers of waivers are so high is a 
reflection of this ease of planning. I am asked to take a look 
into that because I think that creates misinformation for the 
public perhaps on what protections are there, what protections 
are truly necessary, and when they're waived, it raises 
concerns like you're hearing today.
    I think that there is a very careful process in each of the 
BLM offices, where they go through what criteria have to be met 
before you can waive them.
    Mr. Kind. We're hearing some complaints on a couple of 
specific BLM offices on that. Whether the perception is real or 
not, it's there. So again, I think we'll have to follow up and 
try to deal with this in light of the growing concerns and the 
questions that are being raised right now.
    Ms. Watson. OK.
    Mr. Kind. Thank you.
    Thank you, Mr. Chairman.
    Mr. Gibbons. Thank you, Mr. Kind.
    Mr. Osborne.
    Mr. Osborne. Thank you, Mr. Chairman, and thank you for 
being here.
    I am somewhat interested in renewable fuels, particularly 
ethanol, biodiesel. Right now, that is one component of the 
energy bill. As you well know, one of the major obstacles to 
the passage of the energy bill is the controversy over ANWR. So 
I guess my question to you is this: Is it possible to find out 
what is there in ANWR without doing great damage to the area? 
In other words, just finding out the reserves that are present. 
Because you hear wild estimates that vary so much. Obviously, 
if it's a very small supply, it may not be worth the effort or 
whatever damage it might do to the environment.
    Personally, I am pretty well convinced that it can be done 
without any major problem, but I would like to explore your 
thoughts on that because it seems to be holding up the whole 
renewable fuels portion of the energy bill and the energy bill 
in general. I think this is something we badly need to have 
passed for the security of the country.
    Ms. Watson. I think that this administration believes in a 
diverse supply of energy. Renewables is an important component 
of it, but right now, the demand in our country is for oil to 
run our vehicles. ANWR is the best opportunity to provide that 
oil domestically. It provides that diversity of supply 
component that we need. It takes us away from an overdependence 
on foreign countries because we have a diverse component of 
domestic energy in there.
    I think the estimates on ANWR that our Secretary testified 
to last week are pretty firm on what is technically recoverable 
oil, and that over 10 billion barrels of oil. It more than the 
oil that is produced in Louisiana or Texas, and as I testified, 
it is more than double what we get from Iraq. I think that oil 
is an important part of our energy supply mix, and I think it 
can be done, as Assistant Secretary Smith testified to, in an 
environmentally sensitive way. So it is not an either/or 
proposition.
    Mr. Osborne. I understand there are claims of 10 billion 
barrels, but I have also heard three and I have also heard 16. 
My question is, is there some way to get a clear ascertainment 
within a range of one or two billion barrels on what is 
actually there.
    The reason I mention this is because I think you're 
concerned about fuels, but--for instance, in Brazil, 22 percent 
of their gasoline supply is ethanol. We have vehicles that can 
be run on 85 percent ethanol, so we're not talking about just a 
casual part of the energy bill here. We think this is a very 
viable supplement to petroleum. To have this whole thing held 
up, we have ethanol plants being built with people not having 
any idea whether the energy bill is going to contain that 
element or not. It makes investment very risky.
    So my point is that we're seeming to hold this whole thing 
up over ANWR. The question again I have, is there some way you 
can have a fairly hard number, other than just saying well, we 
estimate? Can you go there and do some limited drilling and 
find out what the reserves actually are, without actually doing 
some of the things that some folks in this room are concerned 
about?
    Ms. Watson. Well, I think there are new technologies, some 
of which were mentioned in opening statements, and 3-D seismic 
exploration on rollagons is one way that that type of 
information can be obtained. But the way you get estimates 
firmed up is through drilling, and drilling requires the very 
infrastructure that many people are concerned about. So I'm not 
sure that we could get to that point. But that is what would be 
necessary, seismic and drilling, to get that number more firm.
    Mr. Osborne. So what you're saying is, to get an accurate 
portrayal will mean you will have to do whatever damage to the 
environment, if you want to use that term--I don't subscribe to 
it--that would be required to do major drilling and extract the 
oil anyway, is that what you're saying?
    Ms. Watson. Well, I think that the recent report that came 
out made it pretty clear that the technologies that are being 
used in the North Slope are minimal damage to the environment, 
but that the concern is over infrastructure and the change of 
an area that has little impact for man into one that has a 
greater impact for man. So I think to drill, to find out your 
reserve base, would bring that activity of man into this area, 
which I think many of the opponents of ANWR are opposed to.
    I want to emphasize, having been to the North Slope twice, 
that the technologies that are used have made enormous 
progress. I think the oil and gas industry and the government 
have heard the concerns of the American people over how we 
produce oil and gas and have significantly modified their 
behavior so that the impact on the environment is significantly 
less. The size of drill pads has gone down some 80 percent over 
the last 10 to 20 years. Changes have been made.
    Mr. Osborne. Thank you. My time has expired.
    Mr. Gibbons. Thank you very much, Mr. Osborne.
    Mr. Udall.
    Mr. Udall of New Mexico. Thank you very much, Mr. Chairman, 
and thank you for having this hearing.
    I think this is a very important issue for many of us, 
especially in the West, with energy development on our lands. 
As Secretary Smith mentioned, the top producer is the San Juan 
Basin, which is in my district in New Mexico, and we all know, 
as you have said, that coalbed methane is an important energy 
source. We need the energy and we need energy security. But I 
think the important point for me, too, is that when we do this 
development, we must do it reasonably and we must do it 
responsibly. I think there are some serious questions that have 
been raised by my constituents and other people in the West as 
to whether or not the surface owners are being treated fairly 
in this whole process. I'm now talking about coalbed methane 
development, the complaints about putting low quality water on 
the land, doing little enforcement. There are a number of 
complaints that seem to be surfacing.
    I'm just wondering how you're addressing those, because it 
was acknowledged in our area that enough enforcement wasn't 
being done. Late last year BLM Director Kathleen Clarke 
promised more inspectors at the Farmington field office. I 
think this was recognizing that in Farmington we were opening 
up so quickly that we weren't doing the enforcement side.
    I'm wondering what has been done to beef up inspections out 
of the Farmington office, and are those inspectors now on the 
job that BLM Director Clarke promised.
    Ms. Watson. I believe that that office was increased with 
some 13 inspectors. That's the figure that comes to my mind, 
but I would want to get back to you on that to be sure my 
memory is correct.
    Mr. Udall of New Mexico. You believe they're there, on the 
ground, doing enforcement right now?
    Ms. Watson. That's what I believe I've been told, that 
there was an identified lack of inspectors in that office, and 
that the budget was provided and was increased by that number. 
Again, I'll get back to you to be sure that I'm accurate on 
that.
    I think that we take very seriously the concerns of the 
surface owners, as I said in my testimony, and we are looking 
at our on shore order No. 1 to improve the relationship between 
our lessees and the surface owners. We want to be good 
neighbors. As managers of the public land, we want to be good 
neighbors to our neighbors. So we are looking for ways to 
establish a stronger relationship and make sure that our 
lessees live up to the law, which requires them to work with 
the lessees and to clean up after they're done. That's 
important to us and we're focusing on it.
    Mr. Udall of New Mexico. Secretary Watson, one of the ways 
you can do that is require surface agreements between lessees 
and landowners. I understand that BLM already requires 
waterwell mitigation agreements between oil and gas operators 
and landowners.
    Why not expand this requirement to encompass surface use 
and damage agreements?
    Ms. Watson. Well, I would respectfully state that we do 
require surface agreements. That's part of the stock raising 
Homestead Act requirement, that you either have to have an 
agreement with your surface owner, and if you can't come to an 
agreement, you have to post a bond.
    One of the things that we are going to be doing very 
shortly is sending out an instruction to our field office to 
emphasize the importance of obtaining a surface owner agreement 
before any application for permit to drill is issued, making 
sure that again our lessees work seriously with the surface 
owner and locate the facilities on their surface land in a 
least intrusive way. So we do require agreements, but we're 
going to emphasize in an instruction memorandum to the field 
that we're serious about it.
    Mr. Udall of New Mexico. And when are you expecting that 
instruction memorandum to be--
    Ms. Watson. I hope it to be issued by the end of this 
month.
    Mr. Udall of New Mexico. BLM Director Clarke also told 
landowners in Gillette, Wyoming, in April 2002 that ``There 
will be some oil and gas bonding increases.'' It is my 
understanding that BLM hasn't taken any action up to this 
point. Why not, and do you plan to address oil and gas bonding 
issues?
    Ms. Watson. Yes, we also plan to address oil and gas 
bonding issues again in the same timeframe. Again, we want to 
make clear to people--One of the regulations that applies to 
surface owners indicates that if you have to bond on, if you 
fail to achieve agreement with your surface owner, that a bond 
must be posted at no less than $1,000. Well, somehow it has 
turned into no more than $1,000. We want to make it clear to 
our managers that the bond must be commensurate for the 
potential to damage and that the one thousand is a floor, not a 
ceiling.
    We are also looking at the ability to bond particular 
facilities such as large stockwater ponds with a separate bond 
that is particular to that impact, rather than a nationwide or 
statewide bond. So that is an important issue and we are going 
to be addressing that.
    Mr. Udall of New Mexico. Thank you for those answers. Mr. 
Chairman, my time has expired. Thank you.
    The Chairman. [Presiding.] Mr. Renzi.
    Mr. Renzi. Thank you, Mr. Chairman.
    Secretary Watson, I want to thank you for coming to 
Flagstaff, AZ, and also to our Chairman, for bringing 
Washington and our Subcommittee hearing to the people of 
Flagstaff. I found your testimony there to be compelling.
    I think you probably saw first hand the conditions of our 
western forests, and in my district, which is almost 58,000 
square miles, made up of some of the greatest Ponderosa pine 
forests in our Nation, if not the biggest. We have had policies 
in the past which have caused those forests to be now very 
vulnerable to catastrophic fire, unnaturally hot, burning 
fires, in which millions of acres are being burned. We have had 
policies in the past where we have suppressed all fires, 
including cool fires, and the kind of fires that go through 
grasslands that help to thin our forests. We have had 
judicially imposed environmentally extreme views, in my 
opinion, that have said no cutting at all, and we've lost our 
timber industry essentially in Arizona. We have one sawmill 
left in Flagstaff, AZ, a town that was built on the timber 
industry. Yet, we are reaching across and we're finding 
compromise with our environmental friends on the use of 
biomass, small diameter fuels.
    We are also on the verge of losing over a million acres to 
the bark beetle in northern Arizona. That wood will rot and be 
unused by our timber industry, by our real estate or by our 
building industry unless we're able to go in and thin the 
forest.
    The ability to use biomass, the ability to harvest small 
diameter woods, and use that as part of our energy, as part of 
producing electricity and getting it on the grid, and helping 
to stabilize the electrical use in the West, particularly in 
California--and Arizona does produce electricity and ship it to 
California--is something of a hope for us. We know that, 
without the commercial timber industry in Arizona, we're going 
to lose our forests. We know we have got to be able to reach 
across and be allowed to go back into our woods and thin.
    What are your ideas, and what is your hope, on helping to 
increase the use of biomass and maybe the uses of small 
diameter wood, if you wouldn't mind?
    Ms. Watson. There is a great potential there. Out of all 
our renewable resources, we get most of our electricity from 
biomass, so it is already a good contributor. But it is still 
in its infancy. The State of California has begun to use 
biomass plants.
    I think that the Healthy Forest Initiative, that initiative 
to go in and address the conditions of the forests which you 
just outlined, where we go in and thin small diameter wood, can 
contribute in a very significant way to increasing biomass as 
part of our energy mix.
    Again, it gets back to the security of supply. an 
entrepreneur, a business person, will not invest in a biomass 
plant unless there is certainty that they have a supply coming 
off the public lands to feed that plant. If they have to go to 
the bank and borrow $50,000 or $100,000 for a biomass plant, 
they need to show the bank officer they have a supply for 10 
years, twenty years, to supply their plant. So I think the 
President's Healthy Forest Initiative, coupled with the 
stewardship contracting authority that the Bureau of Land 
Management and the Forest Service just received out of the 
appropriations bill, give us some tools that we can use that 
have a really good synergistic effect, not just on the health 
of our forests but also on our energy dependency situation.
    Mr. Renzi. Thank you, Mr. Chairman.
    The Chairman. Mr. Grijalva.
    Mr. Grijalva. Thank you, Mr. Chairman.
    Madam Secretary, let me follow up on a point that you made 
in response to a question by Congressman Udall, having to do 
with the issuing of an instruction memorandum to field 
personnel. Let me just follow up on that a little bit.
    Why are you issuing a memorandum as opposed to new 
regulations?
    Ms. Watson. Because we can get that direction out to the 
field more rapidly with an instruction memorandum. In order to 
publish a regulation, that takes time. But this would not be 
necessary to be done by regulation. The regulation already 
exists that provides for this.
    What we have found is, through mythology or practice or 
whatever, certain bad practices have developed that fail to 
recognize the direction that the regulation already provides, 
so this guidance is simply reemphasizing what already is 
provided for in statute and regulation, as far as that 
relationship between the surface landowner and the lessee of 
the Federal mineral.
    Mr. Grijalva. Being that it is a memorandum, will there be 
an opportunity prior to the release for public comment and 
public notification of the contents of the memorandum?
    Ms. Watson. We have been talking to people in the public, 
and will do so before we release it. But it won't be put out 
for a formal public comment period. Again, we want to get this 
out to our field. Again, it is simply restating what already is 
provided in regulation and has received public comment.
    Mr. Grijalva. This instruction memorandum, if I may, Madam 
Secretary, will that require surface owner notification or 
surface use agreement, as we have been speaking to today?
    Ms. Watson. Yes. Again, that is already required by law.
    Mr. Grijalva. One more question, if I may, Mr. Chairman. 
That has to do with the cost issue.
    I think BLM has estimated there are approximately 12,000 
shut in and abandoned oil and gas wells on the lands under the 
agency's supervision that have an attendant cost to them. If we 
go to the tens of thousands of new coalbed methane wells that 
are expected to be developed in the near future, there is an 
estimated cost of a billion dollars for reclamation costs 
related to the coalbed methane development in the Powder River 
Basin alone in Wyoming.
    So my question is, what will Interior do to prevent 
taxpayers from being stuck with a potential clean-up bill of 
that magnitude?
    Ms. Watson. Well, we require that these wells be bonded, 
and also the states have requirements on abandonment and how 
you deal with that. The Secretary is adamant that the American 
taxpayer not be left cleaning up the environmental impacts left 
behind from natural resource development. So we will make sure 
that that does not happen.
    Mr. Grijalva. Thank you, Madam Secretary, and thank you, 
Mr. Chairman.
    The Chairman. Mr. Pearce.
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Smith, in your testimony you talked about the safe 
disposal of produced water and making sure that your commitment 
to the process of disposing of that water is well known and is 
effective.
    Are you aware of any of the pilot projects in New Mexico 
that are actually trying to use that produced water, where in 
the West we have difficulties with access to water, that some 
of this water is fairly easy to be cleaned up? Is your 
Department aware of that and are you building that into the 
regulatory process, and is your Department doing anything to 
research the potential for use of waters that come under your 
control?
    Mr. Smith. Yes, sir, Congressman. We are doing extensive 
work on all coalbed methane issues, in cooperation with our 
colleagues at Interior, including produced water issues. I am 
vaguely familiar with the situation you mention in New Mexico. 
Of course, there are similar studies occurring in Wyoming and 
Montana and other parts of the Rockies involving produced water 
from coalbed methane.
    Certainly, some of the water that is produced is very high 
quality. Some of it needs some treatment; some of it needs 
disposal. It varies on the formation from which it's produced 
and the area where it's produced. But yes, to answer your 
question, we are aware and we are working on those issues.
    Certainly, water issues are extremely important all across 
the country, but they are critical in the Rockies.
    Mr. Pearce. Thank you, Mr. Chairman, and Secretary Watson. 
I, like everyone else, hold out the hope for alternatives, but 
having watched a brother work in the silver business for 20 
years in Denver, and the realizations gradually come then that 
many of the expectations are not economic, that we don't have 
delivery processes, that we don't have dependability, we don't 
have predictability in a lot of the alternative sources.
    As I look at the price of natural gas, realizing the price 
of natural gas traditionally has been in approximately the two 
dollar range, but in the year of 2000 it spiked up to $50 
compared to two dollars, that this year, right now, it's 
approximately in the nine to ten dollar range, and in this very 
cold winter we have expended all of our resources, that our 
storage is almost depleted.
    Given that your Department has a tremendous amount to do 
with the access to public lands, I wonder what your 
Department's exact position is with respect to access to the 
Otero Mesa, which some describe as a pristine wilderness, but 
Adam Klimer of the New York Times, flying with me from El Paso 
to Hobbs during the campaign, said, ``This is the pristine 
wilderness that we're protecting?'' He was not too impressed 
with that.
    So what is the exact status of the Otero Mesa, the access 
to that?
    Ms. Watson. Well, I'm not prepared to answer that question 
today, since you're so precise, on the exact status. But I 
would say I would like to get back to you on that, to provide 
you an exact answer.
    Mr. Pearce. Thank you, Mr. Chairman.
    I think an additional question then would be on policy. 
There was a previous question that dealt with sportsmen's 
access, so you have groups of individuals, maybe 100, maybe 
500, maybe 1,000, maybe 10,000, who are wanting to access a 
particular area and don't want oil and gas there. Does your 
Department have any way to balance the price of natural gas 
with those competing demands? How do you rectify that maybe at 
the price of two dollars we could limit access, but if the 
price of natural gas is $50, do we at some point say the 
consumer has maybe a greater need than this limited body of 
hunters? How do you, as a department, rationalize between those 
and balance between those competing needs?
    Ms. Watson. I think that's the constant challenge of the 
Bureau of Land Management. We are a multiple use land 
management agency. We are directed by Congress to manage those 
lands for recreation, oil and gas development, mining, grazing, 
forestry, alternative fuels, a lot of different uses. At the 
same time, we are also directed by Congress to comply with 
environmental protection laws, the protection of cultural 
resources, the protection of endanger species, the protection 
of clean water. So it is constantly a balance.
    I would say that the President's recognition of the natural 
gas supply problem in the National Energy Plan is a good 
direction to us. We have put an increased focus on rebuilding 
our domestic production capacity. That is why we have continued 
to talk about ANWR. That is why we talk about natural gas 
development in the interior West and in our off-shore areas. We 
have a strong focus on that and are working across departments 
to increase our diversity of supply, both domestically and in 
the alternative area.
    Mr. Pearce. Thank you, Mr. Chairman.
    I would observe that I was aware of the competing demands, 
but my question, more precisely, was is there some mechanism 
where, as the price of resources escalates to consumers, if we 
get into the $50 range for natural gas, is there anything that 
your department does to send out a message that we've got some 
very difficult circumstances facing the entire nation and we 
should begin to evaluate a little bit differently. That was my 
question.
    Ms. Watson. There is no particular mechanism, but my answer 
attempted to say that the President's National Energy Policy is 
a response to the recognition of this imbalance between our 
domestic supply and our domestic demand. That is a message that 
goes out, that says we need to focus on production, but law 
requires us to weigh those countervailing--there is no law that 
allows us to avoid the balancing act that we're required to do 
by Congress.
    Mr. Pearce. Thank you, Mr. Chairman.
    The Chairman. Miss Bordallo.
    Ms. Bordallo. Thank you very much, Mr. Chairman, Secretary 
Watson, Mr. Smith.
    What is the Administration proposing in terms of providing 
for a more secure and stable energy supply for the insular 
areas--Guam, American Samoa, the Virgin Islands--and will you 
support and work with me to provide Federal funding to harden 
our power infrastructure to resist typhoons? This has been a 
constant problem and the Federal Government has poured millions 
and millions of dollars into the territories just to put back 
the infrastructure. For example, would you authorize a grant 
program for the insular areas to bury their power lines?
    Ms. Watson. I am not prepared to discuss the particular 
concerns of the insular areas, but I will work with my 
colleague who represents the insular areas at the Department of 
Interior to provide a response to you on those particular 
questions.
    Ms. Bordallo. Who is that person?
    Ms. Watson. I knew you would ask me that. I can't recall 
his name. I can see his face, but I'm sorry.
    Ms. Bordallo. All right. We'll follow up on that, then. If 
you could provide my office with that name.
    Ms. Watson. It's David Cohen.
    Ms. Bordallo. Thank you.
    The other question I have, Mr. Chairman--and maybe Mr. 
Smith could answer this, or Madam Secretary. Are there any 
plans now for ocean thermal energy? What are the latest 
developments in this area?
    Ms. Watson. I can tell a little bit about that. The 
Minerals Management Service has put a bill, or is supporting a 
bill, in this Congress, as they did in the last Congress. I 
think it's H.R. 763, or something like that. I'll find out.
    Anyway, this is a bill to develop a permitting authority in 
the Minerals Management Service for alternative energy in the 
offshore area. That would include wind energy, wave energy, and 
the thermal energy you're talking about in the offshore area.
    Right now, there is a permitting gap for some of these 
alternative energy fuels from offshore. We think MMS, with its 
experience in working offshore, would be the right agency to 
provide permitting, a place to go for companies that have 
already expressed interest in developing these alternative 
forms.
    Ms. Bordallo. Thank you very much. Thank you, Mr. Chairman.
    The Chairman. Mr. Rodriguez.
    Mr. Rodriguez. Thank you, Mr. Chairman, and thank you for 
having me. This is my first day here in this Committee.
    Madam Secretary, you mentioned a little bit in terms of 
liquified gas, and you mentioned the fact that we only have, I 
think, one or two installations in the country, something to 
that effect. You mentioned the importance of infrastructure in 
that area. I was wondering if we're actually looking at 
developing that infrastructure for getting the liquified gas, 
and second, if we do so, how does that compare in terms of cost 
of regular gas, in terms of liquified and the difference in the 
cost. I am asking this because I am completely naive about--You 
know, I know we can do storage and retrieval with water and 
with oil, and I'm not sure we can do that with gas. I was just 
wondering how do we store it, besides freezing it in the 
liquified form, and then the difference in cost.
    Ms. Watson. I'll answer your first question and then I will 
turn to Mike, because I think he could deal with the cost 
issues and the technical aspects of storing it.
    Right now we have four liquified natural gas terminals in 
the country. I believe one of those was in mothballs and we're 
getting it up out of mothballs. I understand from colleagues at 
FERC and the Coast Guard who are more directly concerned with 
LNG that there are some other proposals out there. But again, 
those take time and capital investment to get those. So we are 
moving in that direction, because, again, the long-term outlook 
is that, like oil, we will have to begin importing natural gas 
from around the world. In order to move that gas, you liquify 
it, put it in ships, bring it here, off load it at the 
terminals, and then put it in the pipeline.
    In addition to the LNG terminal itself, you need to have 
the pipeline to get that gas to the areas that need it. As our 
population is centered on the East and West Coasts, those are 
particular areas that will need to have the right 
infrastructure to deliver LNG.
    I will turn the second half of your question over to Mike.
    Mr. Smith. I would just add, Congressman, that there are 
several LNG facilities that are being considered by the private 
sector, and they're in the various stages of implementation, 
the permitting process, the proposal process, if you will. It 
takes about 2 years to permit, on average, a new facility--and 
these would be new facilities--and then the construction time 
takes probably three to 4 years. So you're looking at quite a 
time line.
    But LNG does have a future; there's no question about it. 
Our office at the Department of Energy is very involved in 
looking at LNG as a long-term addition to our energy portfolio. 
As Secretary Watson mentioned earlier, we are looking at all 
forms of energy, because America needs all forms. LNG has 
certainly potential.
    Mr. Rodriguez. Do we need to do some studies in terms of 
the cost variances between liquified gas and natural gas, to 
see the difference, to see if it's cost effective or not?
    Mr. Smith. Well, the industry is doing that, yes, sir. 
That's really what is driving the process. The private sector 
could probably speak better to that than I. But it appears, 
just from my observation, that the proposals that have been 
made are based on a long-term outlook. Again, there is some 
forecasting that has to be done, because if you start a plant 
today, it's six or 7 years before that plant is actually 
functioning and you're turning a profit. Again, you have to 
look and see what you, as a business, think the long-term 
outlook would be.
    We at the Department of Energy are encouraged by the 
technology of LNG and some of the proposals that have been one. 
We certainly think that in the future it will be part of our 
portfolio.
    Mr. Rodriguez. And the storage of it. Besides freezing it, 
do we know of any other way of storing it that might be more 
cost effective.
    Mr. Smith. Well, we're still looking at all of these 
technological issues. As Secretary Watson mentioned, not only 
is there storage but there's transportation and there is the 
infrastructure that you need to actually make it cost 
effective. But we're looking at all that technology within the 
Department of Energy.
    Mr. Rodriguez. In Texas, the only site available for that, 
for liquified gas, is the one in Galveston, around that area; 
am I correct on that?
    Mr. Smith. There is one at Lake Charles, Louisiana.
    Mr. Rodriguez. Any in Texas?
    Mr. Smith. There have been some proposed for Texas, but 
there aren't any currently in operation.
    Mr. Rodriguez. Thank you.
    The Chairman. Mr. Baca.
    Mr. Baca. Thank you very much, Mr. Chairman.
    I would like to follow up on a question that Representative 
Gibbons asked about supply and demand. What are the problems 
that we will encounter? If you look at short and long range in 
the areas of supply and demand in building the kind of plants, 
looking at the process in terms of the permitting process, 
taking approximately two to 5 years before that plant is in 
operation, what are the obstacles in building, once we've got 
the plant, the infrastructure that needs to be built as well, 
and what are the obstacles in making sure that the 
infrastructure is in place if, in fact, we're going to be cost 
effective and be able to supply the demands of the various 
entities?
    Ms. Watson. Well, I think the risk to the infrastructure--
and I'm not an expert in this; again, this is in the area of 
FERC's expertise, and the Coast Guard. But it's like many 
projects that have to take place in the United States. It's the 
risk of capital and it's the regulatory uncertainty. Will 
people invest in building a pipeline? Do they have some 
certainty as to their ability to permit that?
    I think Representative Kind spoke of the opposition that 
even an industry like wind energy is facing in siting. He 
mentioned ``NIMBYism''. I think that's an obstacle that I would 
identify to LNG terminal siting, to LNG pipeline construction, 
and conventional oil and gas. That creates uncertainty and that 
makes the business person unwilling to take that risk to borrow 
capital to build the project.
    Mr. Baca. In terms of risk for us, as we become innovative 
and creative in looking at alternative energy, if, in fact, the 
infrastructure is not there, it has to be along the same lines 
of looking at supply and demand of energy. If it's not there, 
then we're wasting dollars in providing the assistance for 
someone when the infrastructure is not going to be done in 
order to make sure the supply is there, because we're looking 
at long range and not short range as well.
    Ms. Watson. I think you have to look at both things. I 
think they go hand in hand. As you develop domestic resources, 
you need a way to deliver that product to the consumer. And you 
need it, whether it's renewable or nonrenewable. That's why it 
was important that we issue the renewable report as well as the 
EPCA report. It identifies those areas in the public lands that 
are very good for producing energy of both kinds. That then is 
a clue to energy companies and transportation companies as to 
where we need that infrastructure to take the energy developed 
from those two sources and deliver it to the ultimate consumer.
    I think as companies that build infrastructure see some 
certainty of supply of product, that makes them encouraged. So 
I don't think it's one or the other. They have to work together 
to create the right environment to build the infrastructure to 
deliver our product.
    Mr. Baca. Along those lines, we also need to have 
protection to make sure we don't have the gouging or the 
pricing that goes on, as well, as we look at supply and demand. 
California was gouged quite a lot this last time because of the 
lack of energy in that area. So hopefully you're looking at 
some kind of a structure so that there is a formula or some way 
of being able to determine what the actual price should be 
without overcharging our consumers as well.
    Ms. Watson. I don't believe that's in our bailiwick at the 
Department of Interior, but I know the Minerals Management 
Service pays close attention to oil and gas pricing as part of 
their duty and responsibility to pay royalties to the Federal 
treasury.
    Mr. Baca. One final question. In looking at exploring 
alternative energy, looking at offshore drilling and some of 
the other areas, have we explored the possibility with Mexico? 
Mexico has a lot of oil in that area. Have we looked at 
building a pipeline or infrastructure in that area that could 
supply us, so that we're not dependent on foreign countries or 
others?
    Ms. Watson. I'm not that conversant with oil and gas 
production. I do know, in my discussion about natural gas, that 
Mexico has natural gas, but they are using all that they 
produce and would not be in a position to export natural gas to 
us. As to oil, I don't know. Maybe Mr. Smith does.
    Mr. Smith. Congressman, of course, Mexico is a very 
important trading partner, and good neighbor and friend of 
ours. It is one of our sources for imported oil, and will 
continue to be.
    Natural gas is a part of the equation that's being 
developed in Mexico. Last spring, Secretary Abraham asked the 
National Petroleum Council to update the 1999 natural gas 
study. Part of that update includes looking at our trading 
partners, our neighbors, Canada and Mexico, to see how they fit 
into that equation.
    Currently, Mexico supplies a very little amount of natural 
gas into the United States. But as that is developed, I think 
the report will show that Mexico will continue to be an 
important trading partner in that area. Also, of course, we 
export natural gas into Mexico, too. It goes both ways. But 
that report will be issued, we anticipate, some time late this 
summer, and it will have a comprehensive review of not only 
America's natural gas supply, demand and infrastructure 
situation, but also our trading partners to the north and 
south.
    As far as pipeline--I'm sorry, I misunderstood your 
question.
    Mr. Baca. In reference to oil. You addressed natural gas, 
but what about oil, in terms of the ability to work with 
Mexico? At least the information I have gotten, and the 
research, there is plenty of oil in Mexico. But are we tapping 
Mexico in terms of them supplying to us, and then are we 
willing to build the infrastructure to make sure we have the 
supply as well?
    Mr. Smith. I think the answer is yes in both cases. 
Certainly oil moves on the world market, and oil produced in 
Mexico moves into that world market. We are a natural purchaser 
of that oil, a natural trading partner with Mexico, and that 
relationship has worked very well in the past and I think it 
will continue to.
    Mr. Baca. Because in the long run it would be a savings to 
us. It would cost us less to import oil from Mexico than it 
would from other foreign countries, in terms of the barrels 
that are shipped over, versus from our neighboring country such 
Canada on the one side and Mexico on the other side.
    Mr. Smith. Yes, sir.
    Mr. Baca. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Smith, there have been news reports lately about 
Members of Congress, including Senators, calling for releases 
of oil from our Strategic Petroleum Reserve and more money to 
help folks pay for their high energy bills. It seems to me that 
those who get the most press about releasing oil from the SPR 
and increasing aid to the poor to cover energy expenses are the 
same people who oppose increasing home-grown energy in places 
like ANWR, and even off the coast with renewable energy, like 
windmills. It kind of reminds me of a teenager who wants to 
borrow your car and brings it back with no gas in it, and never 
wants to do anything to put more gas in the tank.
    I was just wondering if you have any comment about this 
inconsistency in terms of policy that has come out of Congress 
in recent weeks.
    Mr. Smith. Mr. Chairman, I am hopeful that the new energy 
bill will solve a lot of these problems that you have 
enumerated, and can bring together for the first time, at least 
in my memory, probably in my adult lifetime, a true and 
comprehensive addressing of the energy problems that our 
country faces. I am convinced--and I see Chairman Tauzin to 
your right--that the bill that will emerge from the Congress 
will be balanced and comprehensive and will address our needs 
from a fossil fuel standpoint, a renewable fuel standpoint, 
conservation and environmental protection, all of these things 
that we visited about today. I think it's long overdue.
    I applaud you and your colleagues, Mr. Chairman, for the 
hard work that you have done on that. I am always optimistic, 
and I'm optimistic that we will have a truly comprehensive 
bill.
    The Chairman. Mr. Tauzin.
    Mr. Tauzin. Thank you, Mr. Chairman.
    I wanted to give this Committee a report. As you know, the 
Energy Committee is beginning markup today on the comprehensive 
energy package, and will rely very heavily upon the Resources 
Committee to supplement that package with a good set of 
recommendations for the wise and environmentally sensitive 
development of domestic energy resources to complement the work 
of the Energy Committee.
    Chairman Barton has begun the markup this morning and has 
recessed for the security briefing, but will begin again at 12 
noon. We hope, frankly, to finish that markup in Subcommittee 
by tomorrow.
    I also wanted to report to the Committee on Resources, as I 
did in a ``Dear Colleague'' letter, that our oversight of the 
SPR indicates several things. One, it is nearly full to 
capacity, with 600 million barrels of the 700 million capacity. 
Second, it is in the flow mode; that is, it is prepared to flow 
if this country needs it to flow, if and when hostilities 
should break out and disruptions indicate that, at the 
President's call, we should start the flow. It is capable of 
flowing at 4.1 million barrels per day.
    Indeed, if you recall back, Mr. Chairman, to 1991, 
President Bush the first actually called for release and there 
was a release on the first day of hostilities of the last 
Persian Gulf conflict, primarily as a signal to the traders not 
to get crazy and to bid up the future prices in a way they 
might find would hurt them. It was a correct signal then and it 
worked very well, and the President obviously has that option 
this week and the weeks to follow.
    Thirdly, if you recall, there was a disruption that 
occurred from Venezuela that affected, at least temporarily, 
the conditions of the market. And while the SPR did not flow 
any oil into the marketplace when that disruption occurred, it 
did choose to stop taking oil that was due the SPR--that is, 
oil that was due to be filled into the Reserve from obligations 
previously entered into.
    The result of simply not taking oil out of the market 
during that period had a good effect, I believe, upon the 
stability of crude oil supplies to refiners in this country. I 
think it was an appropriate and a very reasoned response by the 
SPR. So the SPR is ready to flow, if we need it, at the 
President's call.
    I am told that the major refiners of the country tell us 
that they are well supplied for the next 40 days, at current 
levels, that while private supplies are in a state of flux 
because we're moving from winter production to summer driving 
production--we're in that particular cusp, if you will, between 
those two production streams, and that is probably why you're 
seeing some of the impacts upon the gasoline markets today--
nevertheless, supplies are adequate. They're tight but 
adequate, and the President is keeping a very close eye upon 
any future disruptions.
    I should make one further report, Mr. Chairman, that the 
President has negotiated, I think, an understanding with the 
Saudis that, should real disruptions occur in the course of any 
hostilities, that the Saudis have indicated they were prepared 
to increase production to world supplies to balance off any 
disruptions from Iraqi conditions.
    On the ominous side, of course, we know that Saddam, from 
our intelligence sources, has loaded up the oil fields, some 
1500 wells in Iraq, with explosives. That is one thing that our 
forces are going to have to deal with, hopefully effectively, 
or else we see some of the conditions we saw in Kuwait, where 
700 wells, you remember, were ignited in the course of the 
Iraqis retreating from Kuwait. So we're facing some rather 
tenuous times in the next few days.
    But the good news is that the SPR is at near full capacity, 
it is prepared to flow, and according to our oversight of the 
management of the SPR, it is in prime condition to respond 
should the President call upon it to flow at any point if 
disruptions call for that for the Nation's good.
    One final thought, Mr. Chairman. You're exactly right. 
There is an extraordinary--I'm going to use a strong word, but 
it's a correct word--hypocrisy in some of the policy that comes 
out of Washington, D.C., when it comes to securing our country 
from overdependence upon people who obviously we cannot depend 
upon, and sources we cannot depend upon. There is a certain 
amount of hypocrisy in policy that pushes us to alternative 
sources and then finds a convenient way to oppose those sources 
when we try to develop them.
    What we will try to produce, as Mr. Smith has correctly 
indicated, is a balanced approach in the Energy Committee, and 
with the help of this great Committee, Mr. Pombo, we hope to 
have in it some reasoned and responsible new measures to make 
sure that, again, reasonable and environmentally sensitive 
production of resources available in this country have some 
favor in government policy, and that those who want to make the 
investment see some certainty in that policy as we move 
forward. That's a big challenge, but we're going to try to do 
that.
    Mr. Chairman, I thank you for giving me this time, and I 
thank the two of you for your many contributions to the ongoing 
legislative effort that I hope will result in a very positive 
and comprehensive energy bill for the Nation and for the 
President to sign.
    Senator Pete Dominici is as committed as I to a successful 
conference, which he will Chair, and I have every expectation 
that the Resources Committee will play a vital and important 
role in helping us develop that policy.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Tauzin. And as we have 
discussed in the past, it is the intention of this Committee to 
help you and your Subcommittee Chairman, Mr. Barton, to produce 
a balanced energy bill that effectively tries to deal with our 
energy needs today and into the future. So I thank you for your 
comments.
    I would like to thank our panel. I know that you have had a 
lot of questions that have been thrown at you, but there are 
other questions that members have that they would like to ask 
and those will be submitted to you in writing, if you could 
answer those in a timely manner so that they may be included in 
the hearing record in writing as well. Those will be forwarded 
to you.
    Thank you all very much for your testimony, and for your 
answers to all of the questions that were thrown at you. Again, 
thanks for your help in crafting this bill and trying to deal 
with one of our very real problems and challenges that we have 
in this country.
    I would like to call up our second panel of witnesses: the 
Honorable Hunt Downer, Raj Gupta, David N. Parker, Mary Novak, 
and Robert Santistevan.
    Before our witnesses get comfortable, if I could have you 
rise and raise your right hand. It is the policy of the 
Committee to swear in all of our witnesses.
    [Witnesses Sworn.]
    Let the record show they all answered in the affirmative.
    Before I recognize our first witness, I would like to 
recognize Mr. Tauzin.
    Mr. Tauzin. Thank you, Mr. Chairman.
    It is my extraordinary honor and privilege to introduce one 
of the witnesses who is here today to discuss with us the 
condition primarily of oil and gas developments in Federal 
lands, inside and outside the State of Louisiana.
    He comes to us with an extraordinary background in public 
service. He has not only served as a State representative for 
many years, representing his home town of Homa, Louisiana, 
which is right adjacent to Thiboaux and Chackbay where I was 
born and raised, but his service in the State legislature was 
preceded by service in the State Senate for former State 
Senator Harvey Pelchie, Jr., whose father, by the way, was a 
law partner of Huey Long. Louisiana history is extraordinary, 
as you know, in its political ramifications.
    But Mr. Downer, who I will present in just a minute, 
actually took my place as the assistant in the State Senate to 
then Senator Harvey Pelchie, so we go back as far as those 
early days of education at LSU law school and our work in the 
State Senator together for an extraordinary man, Harvey 
Pelchie, Jr.
    As I said, he went on with election to the State House of 
Representatives, and even that wasn't enough for Mr. Downer. He 
went on to become later on the Speaker of the House of 
Louisiana, where he served with extraordinary honor and 
courage, I might add, through some difficult periods of 
Louisiana history.
    What is also extraordinary about Mr. Downer that you should 
all know is that just recently the Senate approved his 
extraordinary achievement and he has since gone through the 
ceremony of pinning in Louisiana as he has been elevated to 
Brigadier General status of the Louisiana National Guard.
    So we have before us a witness who not only has served 
many, many years in public service in the State Senate and 
Louisiana legislature, and Speaker of the House, but has also 
served his country and continues to serve his country in a 
period of great national need as a Brigadier General in the 
National Guard of the State of Louisiana, and as an officer who 
works with the National Guards of all our country. He has 
volunteered his time away from public service to serve the 
Guard in times of Guard relocation and service in other parts 
of the world.
    He again brings to this Committee a great wealth of 
knowledge about the energy business of Louisiana, as he 
represents one of the core areas, the only offshore oil port 
loop of our State, and right next to Port Fourchon, which is 
the fastest growing offshore jumping off place, if you will, in 
the entire country, an area served by a two-lane highway that 
is often flooded as storms are increasingly moving in and the 
land is increasingly sinking.
    As I said, Mr. Downer brings this wealth of information and 
I think will educate this Committee about the status of one of 
the most important oil and gas production regions of our 
country.
    Mr. Downer, you have been my friend a long time. I know you 
also bring with you Representative Loulan Pitre who represents 
the area of Port Fourchon. I want to welcome you, Loulan, to 
this hearing as well. I know of your extraordinary interest in 
that port and the sad access we have to it and the efforts 
we're trying to do to change that.
    I also wanted to let everyone in this room know that Hunt 
Downer was my room-mate when I served in the Louisiana State 
Legislature, and if ever there was an ``odd couple'', it was 
Hunt Downer and I. He was the neat one. He's an extraordinary 
individual, a great public servant, a great American, and a man 
I am proud and honored to call my friend. Welcome, indeed.

                STATEMENT OF HON. HUNT DOWNER, 
                 LOUISIANA STATE REPRESENTATIVE

    Mr. Downer. Thank you, Congressman Tauzin.
    Thank you, Mr. Chairman, for giving me that opportunity to 
testify here today. Of course, please don't hold against me my 
prior affiliation with Congressman Tauzin. Probably the 
greatest challenge I had in my early career in politics was to 
follow in his footsteps, and as the assistant to the late 
Senator Harvey Pelchie, to clean up what Billy had left behind.
    [Laughter.]
    Because the Congressman and I were truly the ``odd 
couple''. But we had a great time and he was a great mentor.
    Mr. Chairman and members of the Committee, of course, my 
name is Hunt Downer. I am pleased to appear before you today to 
discuss America's energy security and our efforts to enhance 
that. I don't think at any time in our Nation's history have we 
faced a greater vulnerability to our critical energy 
infrastructure, and I applaud the Committee for looking into 
this and taking testimony.
    I have submitted written testimony, which I would like to 
offer to the Committee at this time, and then speak from that, 
with your permission, Mr. Chairman.
    The Chairman. The written testimony for all of the 
witnesses, in its entirety, will be included in the record. 
Your oral statements are limited to 5 minutes, but for your 
written testimony, the entire thing is included.
    Mr. Downer. If you would just give me a high sign when I 
have about a minute to go, I'll do a fast wrap up, or if 
someone could do that.
    The Chairman. In front of you, if you see the lights, the 
green light is when the 5 minutes begin, the yellow light is 
when you have 1 minute left, and then the red light comes on 
when your time has expired.
    Mr. Downer. Thank you, sir.
    By way of background--and Congressman Tauzin briefly 
touched on this--I have 27 years experience in the Louisiana 
Legislature, a Brigadier General in the Army National Guard, 
Assistant Adjutant General, and have served in the legislature, 
was former Speaker of the House, and I hail out of south 
Louisiana, where I was born and raised. I worked my way through 
school in the oil fields of south Louisiana, offshore, 
roughneck, roust-about. So I have first hand experience in the 
industry, and as an attorney, have represented many of those 
oil and gas companies, and have family who still work in the 
oil and gas industry. It is the lifeblood of our economy in 
that area.
    With my experience in the National Guard, almost 30 years 
service, some enlisted service and then direct commission as an 
engineer, later a JAG officer, a military policy background, 
and the Assistant Adjutant General. As such, I have been 
involved in our homeland security, which by the way I think you 
know--I just wrote my notes as we got our brief and it has now 
been dubbed, what we're now going through, as Operation Liberty 
Shield. So I have been involved in that. So it's very 
appropriate that at this time this Committee have hearings in 
the area of energy, energy security, and its impact on our 
national interests, our vital national interests.
    With that, of course, we now know that, in particular--What 
I thought I would do is, with your permission, touch on the big 
picture of the oil and gas industry in the Gulf of Mexico, 
focus it to Louisiana and its coast, and then narrow it to what 
I call Port Fourchon, a vital limit to what I call one of the 
most significant oil and gas ports in the country.
    The focal point, of course, of this hearing is the Federal 
Outer Continental Shelf, or the OCS, as we call it, as opposed 
to what we would call inland waters, which is one the shelf, 
and then within the boundaries of the State of Louisiana's 
water.
    The area in particular that I refer to is Port Fourchon, 
which in my humble opinion--and I believe that of Congressman 
Tauzin, anyone who has seen it--is the area's and America's 
most significant energy port. And it's at the end of a winding, 
narrow, two-lane road.
    Louisiana has embraced, unlike many other States, the 
offshore oil and gas industry, and we do it very well with very 
little fanfare. In fact, the Gulf of Mexico itself is the 
source of 30 percent of our Nation's domestic energy supply. 
For example, Tropical Storm Isadore, Hurricane Lilly, which I 
was activated for with the Guard because of the National 
Guard's response to those, during that time period, those 8 
days that the oil and gas industry in the Gulf was shut down, 
this country lost a billion dollars of oil and gas that was not 
available for U.S. consumption--one billion dollars in 8 days. 
That shows you the significance.
    Now, those storms came through the heart of the oil and gas 
industry, and that heart was Port Fourchon. That interrupted 
all services, not just domestic production, but right near Port 
Fourchon, of course, is LOOP, Louisiana Offshore Oil Port, 
which handles about 13, 15, 18 percent of the Nation's imported 
oil for this country's consumption.
    On the other end of the State which was also interrupted is 
a place called the hub, which has about 40 percent of the 
Nation's natural gas coming in from offshore through Louisiana 
and its coast. For example, in 1997, there were 16 deepwater 
projects. By the end of 2002, this past year, there were 64 
deepwater projects. What an increase. Between 1995 and 2001, 
oil production was 500 percent increased, gas production up 550 
percent. We are now relying more and more on our own. And 
that's great. That eases the pressure on the other States, 
because we have embraced it. It is off of our coast and we have 
it out there.
    Now, that also presents challenges. Operation Liberty 
Shield, securing our own homeland defense. Well, Port Fourchon, 
as a major port, has, guess what, terrorists. It has a risk of 
terrorism. As we all know, in any business, any industry, as we 
do with our own government infrastructure, we have to evaluate 
the risk and our vulnerabilities, and then we have to devise a 
plan for their security.
    Well, there are two risks that Port Fourchon and our OCS 
oil and gas are exposed to. The first one is obvious, 
terrorism. We are addressing that as best we can, and I will 
touch on those.
    Let me surprise you with the second risk that no one is 
really realizing. It's our delicate infrastructure, our 
inadequate infrastructure. To Port Fourchon is one narrow, 
winding, two-lane road of 17 miles, that goes underwater with 
high tide now because of our eroding coastline. So enhancing 
that risk and part of that second risk is our eroding 
coastline, our vulnerability, our loss of our greatest natural 
asset. The last time I checked, we were not manufacturing any 
new land. So we have to protect and preserve that which we've 
got.
    Now, Port Fourchon was specifically designed to support the 
offshore--Oh, it says stop already? Boy, 5 minutes flies when 
you're having fun.
    Let me just say this. We have a domestic threat. We're at 
the jugular. If you're a terrorist and you want to attack, 70 
percent of the oil and gas industry is right off that coast, 
600 rigs. Now, you can pinpoint each one of those rigs and take 
them out, but under a recent--Let me hurriedly read this. Some 
recent intelligence information in a threat warning said that 
we have to be watching our targets who are subject to attack, 
targets that offer the best combination of mass casualties, 
symbolism, economic damage, and psychological impact. They 
specifically mention ports and waterways.
    Well, guess what? Six hundred individual rigs right in a 
40-mile radius off the coast of Louisiana, each one is an 
individual target. But do you know what is a significant target 
of economic opportunity? Not one rig, but where they all come 
together at that port. It is subject to the risk of terrorist 
attack as well as the war against Mother Nature. Mother Nature 
is silently working against us, to knock us in by eroding us 
away, and we can't support it with that narrow, winding, in 
lane infrastructure.
    Seven point eight billion dollars comes from Federal OCS 
lands nationwide. Five billion of that 7.8 billion comes off 
the coast of Louisiana. Do you know what our return is for 
that? Thirteen point four million dollars. The State of New 
Mexico got $384 million, and it is not threatened by just 
terrorism, it does not have the erosion problems that we have 
in Louisiana, not the narrow, winding, two lanes.
    Thank you, Mr. Chairman. Subject to your questions, I would 
like to invite you all to come and actually see it. As a good 
commander, you always invite your troops to come out and take a 
firsthand look, and you will see what we're talking about.
    [The prepared statement of Mr. Downer follows:]

 Statement of The Honorable Hunt Downer, Louisiana State Representative

    Mr. Chairman and Members of the Committee, my name is Hunt Downer, 
and I am pleased to appear before you today to discuss Enhancing 
American's Energy Security. At no time in our Nation's history have we 
faced greater vulnerability to our critical infrastructure, and I 
applaud this Committee for taking the initiative to discuss this issue.
    As a Louisiana state legislator for 27 years, former Louisiana 
Speaker of the House, Brigadier General in the Louisiana National 
Guard, rough-neck and roust-about in the oil and gas fields of South 
Louisiana, I have an understanding of the significant role Louisiana 
plays in helping to meet this Nation's energy needs, and the threats 
facing our energy supply. I would like to focus my remarks on a 
specific area in South Louisiana that has become the focal point of the 
Federal Outer Continental Shelf (OCS) leasing program.
    That area is Port Fourchon, Louisiana. Far removed from the 
limelight of the California energy crisis or the ANWR drilling issues, 
this little dot on the map at the end of a winding two-lane road is 
now, by far, America's most significant energy port.
    Unlike many states, Louisiana has embraced the offshore oil and gas 
industry, and we do it well and with very little fan-fare. The Gulf of 
Mexico is the source of 30% of our Nation's domestic energy supply. In 
fact, when the Gulf activity was shut down in the fall of 2002 for 
eight days due to Tropical Storm Isodore and Hurricane Lilly, 22.4 
million barrels of domestic oil and 88.9 billion cubic feet of gas were 
not available for the U.S. market. This represents $1 billion of oil 
and gas not available for U.S. consumption.
    The path of these storms was roughly through the heart of the Gulf 
Oil Fields, the same area that relies on Port Fourchon for its 
services. A disruption of Port Fourchon's services would yield similar 
impacts.
    The growth in the Gulf energy activity has been in Federal waters 
deeper than 1000 feet, in the Outer Continental Shelf. This dramatic 
increase was the direct result of the passage of the Deepwater Royalty 
Relief Act in 1995. The impact of this landmark legislation has been 
remarkable.
     In 1997, there were only16 deepwater projects. By the end 
of 2002, there were 64;
     From 1995 to 2001, oil production was up 500%, and gas 
production was up 550%,
     The Minerals Management Services currently estimates 
deepwater reserves of 71 billion barrels with 56 billion barrels yet to 
be discovered;
     By contrast, the entire Continental Shelf has only 15 
billion barrels left to be discovered. Clearly, the future of our 
Nation's energy needs rests largely on continued, efficient and cost 
effective energy exploration on the Outer Continental Shelf.
    This domestic OCS activity is more important then ever before, with 
the threats in the Persian Gulf region, the troubles in Venezuela, and 
oil prices at an all time high.
    Port Fourchon, the major port that services most of this activity, 
and the only port which can service this activity in a cost-effective 
and efficient manner, faces two primary categories of risks. The first 
risk will come as no surprise to this Committee--terrorism. The second 
risk will likely surprise you--an entirely inadequate highway 
infrastructure servicing Port Fourchon. Permit me to briefly address 
both topics.
    Located on the mouth of Bayou Lafourche in Lafourche Parish, Port 
Fourchon is Louisiana's only port on the Gulf of Mexico. Port Fourchon 
is strategically located in the central portion of the Gulf, and due to 
its location and state-of-the-art facilities and equipment specifically 
designed and constructed to service offshore activity, it has become 
the focal point of deep-water oil and gas activities in the Gulf.
    Within a 40-mile radius of Port Fourchon, there are 600 platforms. 
A staggering 75% of the deep-water drilling rigs working in the Gulf 
are supported by Port Fourchon. In a recent Environmental Impact 
Statement on offshore lease-sales, the Minerals Management Service 
identified Port Fourchon as a focal point of deep-water activity. It is 
estimated that Port Fourchon accommodates approximately 16 to 18% of 
the entire U.S. domestic crude oil, natural gas production, and 13% of 
the U.S. imported crude oil.
    As these numbers reveal, and as numerous Federal agencies have 
documented, Port Fourchon is a vital link to our Nation's energy 
supply. And I am sure I do not need to remind this Committee of 
connection between our Nation's energy supply and National Security. 
While Port Fourchon's proximity to the Gulf and its somewhat remote 
location makes it an ideal place to service the vast majority of 
domestic and OCS activity in the Gulf, it also makes the Port's 
facilities and all of the service vessels vulnerable to terrorist 
attacks. To that end, the Port has been very diligent in working with 
local, state and Federal agencies to maintain a high level of security 
at the Port and its surrounding complex. Recently, the Port applied to 
the U.S. Maritime Administration for seaport security grants, for which 
Congress has twice provided funding. We are hopeful that MarAd will 
provide the necessary funding to enable the Port to install state-of-
the-art surveillance and communication equipment to further enhance 
security measures already in place at the Port. If there was one 
message that I would leave with the Committee today, it would be to 
encourage you to continue to provide funding for seaport security, both 
in the form of grants directly to ports, and adequate funding for the 
Coast Guard, Transportation Security Administration and other Federal 
agencies involved with seaport security.
    The next threat that Port Fourchon faces is domestic. Simply put, 
the highway infrastructure connecting Port Fourchon to the Interstate 
Highway System can be compared to that of a third-world country. The 
Port is connected to the mainland by a 17-mile stretch of winding road 
that runs through the most rapidly eroding estuary in the country. It 
is often inundated by flooding and subject to being washed out. This 
highway, appropriately named LA1, is the only land link to the Port 
that services 75% of this Nation's deepwater oil and gas activities. 
This same highway is the only means of access to this country only 
offshore oil port (LOOP), which takes in 13% (one million barrels per 
day) of our imported crude oil and is connected to 35% of this nation's 
refinery capacity. In sum, the threat I speak of now is not from a 
rogue nation, but from this Nation's failure to address coastal 
impacts.
    I have with me today, State Representative Loulan Pitre, whose 
district encompasses the port and the southern part of LA1. This 
highway has been identified as 1 of 44 ``high priority corridors'' by 
Congress--it is strategic to our energy supply, at risk, and there is 
no relief in sight.
    There exists a tremendous inequity here of recognized but 
uncorrected impacts. This critical energy corridor and the communities 
that support it are faced with a deteriorating highway, with truck 
traffic increases of as much as 24% some years and twice as many deadly 
accidents as similar roads in the state. These impacts--and numerous 
others--are all to support the Federal leasing programs.
    In 2002, MMS generated $7.8 billion nationally. Over $5 billion, 
more than 2/3, came from offshore Louisiana. Louisiana received $13.4 
million, or 1/4 of one percent of what was generated off it's coast, 
while in contrast, New Mexico received $387 million, or 50% of what it 
generated in its state!
    To add insult to injury, 50% of the 13,000 workers that use this 
port to access their offshore jobs don't even live in Louisiana, and 
like the Federal Government they take their paychecks home with little 
benefit to the state.
    This inequity must be cured if our landside infrastructure is to 
sustain the level of offshore leasing this country is demanding of us. 
MMS has identified huge impacts to this focal point area in its 
environmental impact statements for Federal lease sales in the Gulf-yet 
Congress has not provided a mechanism to mitigate these impacts and 
secure this nation's energy supply. For the past several years, 
Congress has attempted to pass legislation designed to help address 
these inequities. Regretfully, the Conservation and Reinvestment Act--
``CARA''--has yet to be passed. I would encourage Members of this 
Committee to redouble your efforts to have meaningful legislation 
passed to enable the State of Louisiana and its coastal resources to 
benefit from the oil and gas activities off its coast, as does the rest 
of the Nation.
    Finally, Congress has begun the process of reauthorizing the 
Nation's highway and transit program. The South Louisiana community I 
speak of today has dedicated significant time and local funding toward 
design and engineering of a replacement highway for LA 1. These plans 
for construction of the new highway include a significant amount of 
local funding via tolls and property tax. What is needed though, is 
Federal dollars as well. We began the process of seeking Federal 
dollars more than six years ago, at the time when TEA-21 was passed. We 
have had some success, and used these dollars wisely in developing our 
plans for the highway. Now, we are ready to go. During the drafting and 
deliberation of the TEA-21 Reauthorization legislation, you will likely 
hear about our efforts to construct this new highway. I would urge the 
Members of this Committee to support the funding for this highway, as 
it not only serves as the only intermodal link to 75% of this Nation's 
deepwater oil and gas activities, but also serves as the only 
evacuation route for thousands of residents and vacationers visiting 
this bountiful area of our State. If no action is taken, I'm afraid we 
are on a collision course with disaster, and this Nation's energy 
supply will be threatened like never before.
    I again would like to thank the Members of this Committee for 
allowing me to appear before you today, and I would be pleased to 
answer any questions you might have.
                                 ______
                                 
    The Chairman. Thank you for your testimony. Mr. Tauzin has 
taken me down into the area in the past. We took a Subcommittee 
hearing down into that area. He has talked, as I'm sure you're 
aware, quite a bit about the problems in the area.
    Mr. Gupta.

    STATEMENT OF RAJ GUPTA, CHAIRMAN AND CEO, ROHM AND HAAS 
      COMPANY, ON BEHALF OF THE AMERICAN CHEMISTRY COUNCIL

    Mr. Gupta. Thank you, Mr. Chairman.
    My name is Raj Gupta. I would like to begin by thanking the 
Committee for the opportunity to testify on the subject of 
energy security.
    I am Chairman and CEO of Rohm and Haas Company. Rohm and 
Haas is a $6 billion specialty chemical company, with 43 
manufacturing sites and about 12,000 employees in the United 
States. But I am appearing here today in my role as Chairman of 
the Executive Committee of the American Chemistry Council. 
Therefore, I am testifying on behalf of 160 chemical companies, 
representing 90 percent of chemical manufacturing in the United 
States, $460 billion in sales, and employing more one million 
Americans directly and another four million indirectly.
    Mr. Chairman, we believe that the Nation faces another 
energy crisis, a crisis in the natural gas supplies. The U.S. 
chemical industry's survival depends on access to affordable 
supplies of natural gas, because in addition to the energy use, 
we are also a major user of natural gas as a critical building 
block for chemicals. We operate in a global marketplace. We 
compete with producers from Asia, the Middle East and Europe. 
Current natural gas prices have turned the U.S. chemical 
industry into the world's high cost producer, and, in fact, 
from being the largest exporter to a significant importer. It 
is not an exaggeration to say that an economic disaster is 
unfolding in this Nation because of dangerously volatile prices 
of natural gas today.
    What we are facing is not a seasonal disturbance, but a 
fundamental structural imbalance in supply and demand for 
natural gas.
    In the final analysis, the natural gas crisis is a 
political and public policy problem. Environmental policies are 
driving new demand for gas to generate electricity and heat 
homes, because it's a clean burning fuel. Other policies keep 
critically needed supplies out of reach. As a nation, we cannot 
have it both ways. We can't crave more and produce less.
    The answer lies here in Washington. Companies like mine 
will not be able to prosper or invest in this country if 
natural gas prices remain at current levels. I know that sounds 
harsh, but it is reality that is staring at us every day. It is 
in everyone's interest to reconcile the supply and demand 
dilemma and restore a healthy balance to the natural gas 
market.
    In our opinion, the Congress must take the following 
actions. First, conservation. The fastest, short-term solution 
to rebalance natural gas is to curb demand. Congress could 
direct the Federal Government to immediately reduce its energy 
consumption and provide incentives for States and consumers to 
do the same.
    However, in our view, this will not be enough. Increasing 
short-term supply. We simply must gain access to the most 
promising supply sources that are currently off limits. The 
best available supply source is in the area of the eastern Gulf 
of Mexico known as Lease 181. I believe that was referred to by 
the preceding panel. It is a rich source of gas and the 
transportation infrastructure is in place. As we heard, for 
many other sources it will take years before we get there. 
Congress can direct the Department of Interior to make all 
tracts within Lease 181 available for leasing. If Congress does 
act now, Lease 181 could be supplying new gas in time for 
heating houses this Christmas season.
    Third is clearly increasing long-term production. In the 
longer term, Congress should consider suspending all existing 
statutory and administrative moratoria on oil and gas 
productions in the waters of the United States, including 
waters of the coast of North Carolina and California.
    Congress could also direct the Department of Interior to 
make Federal lands in the Rockies available for development and 
encourage the development of the infrastructure to bring gas to 
the market.
    Natural gas storage, as we heard earlier, is at 
historically low levels, more than 50 percent below what would 
be considered normal. If new gas is not put into storage by 
this fall, some Americans will not be able to heat their homes 
this winter. Factories will close and, in fact, a number of 
chemical plants are closing down because of the very high 
prices of natural gas today. Jobs will be lost.
    I urge Congress to take the action needed to avoid a 
crisis. I appreciate the time and attention you have given us 
and our industry, and I would be happy to answer any questions.
    [The prepared statement of Mr. Gupta follows:]

   Statement of Raj Gupta, Chairman and CEO, Rohm and Haas Company, 
              on behalf of the American Chemistry Council

    My name is Raj Gupta. I am Chairman and CEO of the Rohm and Haas 
Company, one of the world's largest manufacturers of specialty 
chemicals. We make technologically sophisticated materials that find 
their way into applications in a variety of major markets. Most Rohm 
and Haas products are never seen by consumers; rather, they are used by 
other industries to produce better-performing, high quality end-
products and finished goods. The history of Rohm and Haas has been a 
series of innovative technical contributions to science and industry, 
usually taking place behind the scenes.
    Rohm and Haas has more than 17,000 employees and annual sales of 
approximately $5.7 billion. We operate more than 100 research and 
manufacturing locations in 25 countries. Our worldwide headquarters are 
located on historic Independence Mall in the heart of Philadelphia, 
Pennsylvania.
    I am also here today on behalf of the American Chemistry Council 
(ACC), a locally based trade association that represents the nation's 
leading companies engaged in the business of chemistry. ACC members 
apply the science of chemistry to produce innovative products and 
services that make people's lives better, healthier and safer. ACC is 
committed to improved environmental, health and safety performance 
through Responsible Care, common sense advocacy designed to address 
major public policy issues, and health and environmental research and 
product testing.
    The $460 billion business of chemistry is a key element of the 
nation's economy, providing the building block materials that the rest 
of the U.S. economy relies upon. It is the country's largest exporter, 
accounting for ten cents out of every dollar in U.S. exports. Chemistry 
companies invest more in research and development than any other 
business sector. Safety and security have always been primary concerns 
of ACC members, and they have intensified their efforts, working 
closely with government agencies to improve security and to defend 
against any threat to the nation's critical infrastructure.

SUMMARY OF TESTIMONY
    A hearing on enhancing the nation's energy security could not come 
at a better time. The nation is facing an energy crisis caused by 
runaway prices for natural gas. Unless Congress acts to increase 
domestic natural gas supplies our economy will continue to struggle and 
we will fall short of our goals for a cleaner environment.
    A crisis of this magnitude poses a grave threat to America's 
economic and national security. Current energy prices are making it 
impossible for the U.S. chemical industry, and other critical 
industries, to compete in global markets. Because the business of 
chemistry produces the building block materials that the rest of our 
modern economy relies upon, we are somewhat of a ``canary in the 
coalmine.'' As we go, so goes the rest of the nation.
    In particular, the U.S. chemical industry's economic survival 
depends on having access to an abundant and affordable supply of 
natural gas. Natural gas is almost exclusively a domestic energy 
source, yet we all must operate in a global marketplace. We compete 
with producers from Asia, Europe, and the Middle East. Current natural 
gas prices have turned the U.S. chemical industry into the world's 
high-cost producer. From our perspective, it is not an exaggeration to 
say that an economic disaster is unfolding in this nation because of 
dangerously volatile prices in natural gas markets. Critical 
infrastructures like the chemical industry are extremely sensitive to 
wild swings in energy prices. Without a secure supply of energy, the 
industries that contribute to the nation's economic and national 
security are deeply compromised.
    What we are facing is not a seasonal disturbance, but a fundamental 
structural imbalance in supply and demand for natural gas. America has 
developed a tremendous thirst for natural gas. It is clean. It is 
efficient. And until recently, it was abundant and cheap.
    Consumers love it for heating their homes. Environmentalists love 
it because it is clean burning. Industries, including the chemical 
industry, love it because it is an excellent raw material that makes 
its way into thousands of products that everyone one of use, every day.
    Because we love it, America is using more and more gas. Natural gas 
used to generate electricity has increased by 35 percent in the past 
five years and will nearly double in the next decade. Almost all new 
power generating capacity coming on line in the U.S. is gas fired. Half 
of new homes are now heated by gas. America is becoming an economy that 
runs on natural gas.
    Unfortunately, the nation's current natural gas supply is running 
low. Production today is below where it was 30 years ago when Americans 
were consuming far less.
    The paradox is that America has adequate reserves to meet current 
and future needs. Unfortunately, we can't access those reserves. The 
most promising--and desperately needed--sources are currently off-
limits to development. Some of the most promising supply sources are in 
areas like the eastern Gulf of Mexico, the northern Rocky Mountains, 
and off the coasts of North Carolina and California.
    In the final analysis, the natural gas crisis is a domestic 
political and public policy problem. Environmental policies are driving 
new demand for gas to generate electricity and heat homes. Other 
policies keep critically needed supplies out of reach. As a nation, we 
can't have it both ways. We can't crave more and make less.
    Appropriate Federal policies are needed to ensure a better balance 
between the supply of and demand for natural gas, and to keep prices at 
a reasonable level.
    Let me use my company as just a brief example of the impact higher 
natural gas costs can have. Rohm and Haas provides specialty materials 
that are used to help create products used by people every day--
technology that enhances the performance of house paints, home 
insulation, food packaging, computer chips and electronic devices, 
laundry detergents, sunscreens, and much more. We are a global producer 
of specialty materials and chemistry, which last year reported sales of 
$5.7 billion.
    Rohm and Haas operates more than 100 manufacturing plants and 
research centers around the world--43 plants in the United States 
alone. Natural gas is the primary energy source used to keep these 
plants running. On average, Rohm and Haas consumes about 25 million 
mmBtus of natural gas a year. Therefore, a $1 increase in natural gas 
prices increases our costs by $25 million, before hedging.
    The prices we are paying for natural gas and raw materials are 
rising at such incredible rates--and expected to continue to increase 
significantly in coming months--that we have had no choice but to 
quickly raise product prices and impose energy-related surcharges so 
that we can continue to provide customers with products they need and 
want.
    Last week I had to send hand-carried letters directly to some of 
our most important customers, telling them of our overriding need to 
raise prices immediately and to institute energy-related surcharges 
where needed. Given the outlook for continued increased raw material 
and energy costs, it is likely Rohm and Haas will have to raise prices 
further in coming months. We regret having to pass on price increases 
and surcharges of this nature, but we have no other choice if we are to 
remain profitable.

THE BUSINESS OF CHEMISTRY IS HIGHLY DEPENDENT ON NATURAL GAS
    The current price of natural gas is the chemical industry's number 
one economic issue. Natural gas is the lifeblood of the chemistry 
business in the U.S. Not only do we use natural gas as a fuel in our 
manufacturing processes, much like other industries, but we also use it 
as an ingredient, or feedstock, for many of the products we make.
    Natural gas and natural gas liquids contain hydrocarbon molecules 
that are split apart during processing and then recombined into useful 
chemical products. These products include life-saving medicines, health 
improvement products, technology-enhanced agricultural products, more 
protective packaging materials, synthetic fibers and permanent press-
clothing, longer-lasting paints, stronger adhesives, faster 
microprocessors, more durable and safer tires, lightweight automobile 
parts, and stronger composite materials for aircraft and spacecraft. 
The business of chemistry also makes many of the products that help 
save energy throughout the entire economy, including insulation, house 
wraps, lubricants, and high-strength light-weight materials, enabling 
American industries and consumers to be more energy efficient. The 
business of chemistry is the only part of the economy that adds value 
to these hydrocarbon molecules rather than combusting them for energy.
    Natural gas accounts for nearly thirty-nine percent of all energy 
consumption by the business of chemistry. Natural gas liquids that are 
derived from natural gas or refinery operations account for another 
twenty-three percent. In total, more than half of the U.S. business of 
chemistry's energy needs come from natural gas.
    On average, more than $1 of every $10 the industry spends on 
materials is for natural gas. For some petrochemical producers, natural 
gas represents nearly one-quarter of the cost of materials. And 
nitrogenous fertilizer producers spend $9 of every $10 for natural gas.
    The U.S. business of chemistry has invested billions of dollars in 
facilities that make chemical products from natural gas and natural gas 
components. These facilities do not have the ability to switch to other 
inputs and produce these products. This infrastructure was built based 
on the competitive advantage the U.S. offered through its natural gas 
supply.
    While the U.S. chemistry business is the nation's single largest 
manufacturing consumer of natural gas, we are extremely energy 
efficient in the use of that gas. Through the use of combined heat and 
power (``CHP'') generation, our facilities create two forms of energy--
electric energy and thermal energy or steam, and both are put to work. 
The efficiency rating of many of our CHP facilities is often twice that 
of traditional electric generators. This efficiency level is further 
enhanced because the generation is physically located close to where it 
is used, avoiding transmission line losses. Use of CHP technologies by 
the business of chemistry accounts for nearly a third of all CHP used 
in manufacturing. And through the use of CHP technology, the business 
of chemistry has reduced its total fuel and power energy consumption 
per unit of output by more than forty-three percent since 1974. 
Nonetheless, our industry's natural gas fuel needs remain substantial.
    Because of our industry's duel use of natural gas, as well as our 
significant presence in the U.S., the business of chemistry today 
accounts for eleven percent of domestic natural gas consumption, second 
only to electric utilities. As a result, changes in the natural gas 
market, such as constricted supply and inflated prices, have a 
particularly severe impact. In order for the domestic business of 
chemistry to remain competitive in the global marketplace and to be 
able to continue to provide employment and other benefits here at home, 
it is essential that measures be taken to increase natural gas supplies 
and to make these supplies available at reasonable prices.

NATURAL GAS DEMAND IS INCREASING, SUPPLY IS SHORT, AND PRICES ARE HIGH
    The recent history of natural gas prices is a study in commodity 
price volatility. On January 4, 2000, the average spot price of natural 
gas at the Henry Hub was $2.15 per mmBtu. On January 5, 2001, the price 
had spiked up to $9.82 per mmBtu. On January 4, 2002, the price was 
$2.36 per mmBtu and on February 26, 2003, the average spot price at the 
Henry Hub exceeded $19 per mmBtu. While this extreme volatility is 
indicative of a very tight supply situation in general, the more 
worrisome aspect of the experience of the last three years is what it 
foretells for the long-term. Historically, when gas prices began an 
upward climb, producers responded to the higher prices by drilling more 
wells, which produced additional supply and consequently lowered the 
price.
    Our experiences over the past few years have not followed this 
history. Although gas producers responded to the extraordinary high 
prices of 2001 by greatly increasing the number of wells drilled, this 
activity did not lead to a commensurate increase in supply. The supply 
of natural gas actually increased only marginally during 2001 despite 
record high levels of drilling rigs operating. The price decline from 
January 2001 to January 2002 was a result of what economists call 
``demand destruction,'' brought about by a mild spring and summer and, 
ominously, the closing or curtailment of manufacturing facilities. In 
other words prices dropped not because supply increased, but because 
demand decreased.
    The reaction of producers during this most recent price run-up is 
much more cautious. Fewer new rigs are going into the fields and gas 
production has not responded to higher prices. This ``Catch-22'' 
response of producers not placing new rigs in service because they are 
fearful that prices will drop before they can recoup their costs only 
serves to keep the price high.
    A disturbing reality of the U.S. natural gas market is that nearly 
70% of it is price insensitive. This means that 70% of gas consumers 
have no option to either stop using energy or to use a different form 
of energy and must pay whatever the price is for the gas they need. The 
remaining 30% of demand, predominantly industrial manufacturers, can 
adjust to gas price swings by switching to more reasonably priced fuels 
or by ceasing to operate their manufacturing facilities. It is in this 
30% that demand destruction occurs. In the past, this demand 
destruction generally has been temporary. Higher prices led to 
increased production and lesser demand, thereby increasing supply and 
moderating prices. Once prices returned to more economic levels, 
industrial consumers switched back to natural gas or restarted idled 
facilities.
    In light of recent trends--record numbers of working drill rigs in 
2001 did not increase supply; more stringent air quality regulations 
that limit or eliminate the ability to fuel switch; ever increasing 
demand for natural gas from price insensitive users--there is a 
significant risk that this historical pattern will not repeat itself. 
Rather, ACC is concerned that temporary demand destruction may become 
permanent demand destruction for many of its members.

THE IMPACT OF HIGH GAS PRICES
    Restricted supplies and high prices for natural gas severely limit 
the ability of U.S. chemical manufacturers to remain competitive with 
foreign competitors. The business of chemistry in the U.S. is 
concentrated in the Gulf Coast region largely because of the region's 
proximity to a traditionally abundant, low cost supply of natural gas 
resources. While about seventy percent of U.S. petrochemicals 
production uses natural gas as a feedstock, the same percentage of 
producers in Western Europe and Asia use naphtha, a crude oil 
derivative. Unlike crude oil, the price of which is set by the global 
market, natural gas is not as broadly traded, with the result that 
price increases for natural gas in North America are felt only in North 
America. For many years, the U.S. business of chemistry enjoyed the 
benefit of relatively low cost feedstocks relative to our foreign 
competitors, enabling the industry to become the global leader in 
chemical products. A tightened natural gas market and soaring natural 
gas prices, however, put this position in jeopardy. For the business of 
chemistry, experience shows that, although this number fluctuates 
depending on the price of crude oil, the price for natural gas at which 
we become unable to compete in global markets is between $3.25 and 
$4.00. Current prices are hovering around $6.00.
    High natural gas prices significantly cut into our industry's 
profitability. For every one-dollar increase in the price of natural 
gas, over the course of a year, our industry incurs approximately $4.2 
billion in additional costs. Yet, because we compete in a global 
market, U.S. companies are unable to pass these added costs for natural 
gas along to their customers if our products are to remain 
competitively priced with those produced by our foreign competitors. In 
1999, when the price of natural gas averaged $2.27, the operating 
margin for basic chemical companies was 6.8%. In 2001, when the price 
of natural gas rose to an average of $4.27, the operating margin 
dropped to 0.6%.
    High natural gas prices also negatively impact productivity and 
employment in our industry. In any industry, a company faced with 
declining profitability must evaluate whether or not to continue 
operations. During the 2000-2001 ``spike'' in natural gas prices, many 
companies idled their operations. About fifty percent of the industry's 
methanol capacity and fifteen percent of the industry's ethylene 
capacity were simply shut down during this time. Many workers were sent 
home. As natural gas prices came down plants reopened. These relatively 
short-term increases in natural gas prices led to relatively short-term 
shutdowns. However, there are serious questions regarding how these 
companies will respond over the long-term if faced with a business 
environment with sustained conditions of tightened natural gas supply 
and high natural gas prices. For our employees, demand destruction 
sooner or later becomes job destruction.
    As the largest industrial consumer of natural gas in the United 
States, the business of chemistry has been severely affected by these 
steep increases in natural gas prices. Prior to the run-up in gas 
prices in 2000 and 2001, the business of chemistry, America's largest 
export industry, contributed one of the nation's highest positive trade 
balances. Today, after two years of high gas prices, our industry is 
facing a negative trade balance for the first time ever. High U.S. 
manufacturing costs, tied to inflated natural gas prices, allow foreign 
competitors, who do not face the same elevated energy and feedstock 
prices, to become low cost producers and capture market share at our 
expense. This has resulted in thousands of jobs lost and plants shut 
down, and the movement of investment capital overseas.
    Here are some specific examples of the dramatic effect that the 
2001 spike in natural gas prices had on companies in the business of 
chemistry:
     Almost one-half of the nation's methanol capacity and 
one-third of its ammonia capacity were shut down. Five years ago, the 
U.S. was relatively self-sufficient for its methanol needs. Now, we 
import about the same amount of methanol as we do crude oil.
     Ethylene capacity dropped between ten and fifteen 
percent, with at least five percent of this drop due to plant 
shutdowns. Net trade in ethylene was at one-fifth of the 1997 level in 
2001.
     The Gulf Coast region's economy, where most of the U.S. 
petrochemical industry is located, was hit particularly hard with 
widespread job losses due to plant shutdowns. In Louisiana alone, for 
example, over 2,000 jobs have been lost over the last four years just 
in the ammonia industry.
     Historically, ethylene production based on U.S. ethane 
(from natural gas) has had the lowest cost per pound after the Middle 
East, which has abundant inexpensive natural gas resources. However, in 
2002, that low cost position was eroded. In 2002, ethylene production 
costs rose globally as the price of oil also rose above historic 
levels. Natural gas experienced higher price increases relative to oil, 
however, with the result that U.S. ethane-based production lost its 
clear low cost position.
    The recent price run-up in prices has resulted in similar problems 
for the industry which is still struggling to recover from 2000-2001. 
The Dow Chemical Company moved 1.4 billion pounds of production from 
the U.S. to Germany in large part because of high energy costs. For the 
first time in the history of our industry, energy costs in Europe our 
substantially below those in the U.S., leaving domestic industries at a 
disadvantage. Many other manufacturers are curtailing or shutting down 
production because they cannot manufacture products at a price that 
would be competitive with imports from nations with lower feedstock 
prices.
    Although the impact on our business is felt particularly hard, the 
chemical industry is not alone. For example, the U.S. fertilizer 
industry is similarly dependent upon natural gas and similarly 
affected, as are its customers, America's farmers. Imports of nitrogen 
and ammonia from Russia and elsewhere are gaining increasing market 
share as U.S. producers of these agricultural commodities are bested on 
price.
    As more and more U.S. manufacturers shut down and production moves 
overseas, not only does our nation lose those jobs, but we also become 
increasingly reliant upon other nations for the materials upon which we 
have built our modern economy, our agricultural base and our national 
defense. Further down stream, U.S. consumers also are negatively 
impacted in everything from increased home heating and electricity 
costs to higher prices on consumer goods as production costs rise. 
Those at the lower end of the income scale are particularly hard hit 
where their choices often are between heating their homes or purchasing 
food and needed medicine.

POLICY RECOMMENDATIONS
    The U.S. economy, especially the manufacturing sector, is in the 
midst of the ``other energy crisis,'' brought on by dangerously 
volatile natural gas prices. The nation's chemical industry, as the 
largest industrial user, is particularly hard-hit, with plants being 
closed and jobs being lost.
    As the House Resources Committee prepares its part of the 
Comprehensive Energy Bill, it should consider these three solutions:
     Increase Production Now--It's unarguable that the country 
is facing a fundamental structural imbalance in supply and demand for 
natural gas. For example, natural gas use to generate electricity has 
increased by 35 percent the past five years and will nearly double in 
the next decade. Production, on the other hand, is below levels of 30 
years ago when we were using much less. We need more gas and the most 
promising supply source is in the area in the eastern Gulf of Mexico 
known as Lease Sale 181. The gas is there and the transportation 
structure is in place. Congress should direct the Department of 
Interior to make available for leasing all tracts within Lease 181. Gas 
from the area could be flowing to homes and manufacturing plants within 
18 months and have a significant downward impact on today's high 
prices.
     Provide for Long-Term Production--Congress should suspend 
all existing statutory and administrative moratoria on oil and gas 
production in the waters of the United States, including waters off the 
East and West Coasts. In addition, the Department of Interior should be 
directed to make Federal lands in the Rockies available for development 
as soon as possible and Congress should take the appropriate steps to 
encourage the construction of infrastructure needed to bring that gas 
to market.
     Conservation--Natural Gas storage levels are at an all-
time low. If the water supply was at a comparable level, a drought 
would be declared and use restrictions would be put in place. The 
fastest short-term solution to re-balance natural gas and to fill the 
reserve that's needed for next winter is to curb demand. Congress 
should direct the Federal Government immediately reduce its energy 
consumption and provide incentives for states and consumers to do the 
same.
     Energy Diversity--Natural gas is an excellent fuel 
source, but our over reliance in the absence of adequate supplies set 
us the course that resulted in last months record high prices. America 
must utilize its resources strengths and continue to make responsible 
use of all available energy sources including coal, nuclear and 
renewable energy.
    For the U.S. chemical industry, economic survival depends on having 
access to an abundant and affordable supply of natural gas. Every 
recession since World War II has been proceeded by a steep increase in 
energy prices. In the past it's been the cost of oil. This time, it may 
by natural gas, the ``other'' fuel and the hidden energy crisis.
    The time has come to pay the piper. The nation can't have it both 
ways--if we want to use more natural gas for environmental and other 
socially responsible reasons, we need to produce more. This is not a 
usual supply and demand problem that will be fixed by market forces. 
Congress created the problem, and is the only body that can solve it.
    Thank you again for giving us the opportunity to present our views 
and concerns. We stand ready to discuss these issues and potential 
legislation, and to assist the Committee in any way we can.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Tauzin.
    Mr. Tauzin. I apologize, Mr. Chairman. I have been notified 
the Subcommittee is about to go back into markup and I will be 
needed to make the votes. I understand Mr. Waxman has an 
amendment and I probably need to go over there and protect the 
Committee against that amendment. So I have to take my leave.
    I simply wanted to thank you all again in advance of 
hearing your oral testimony. Again, I thank Mr. Downer. Hunt, I 
don't know if you knew it, but there has been a recent report 
that the road to Fourchon you talked about has now dropped one 
foot; that is, it sunk one foot. Dr. Gagliano has reported that 
that process is continuing along the coast. The damage and 
danger to that resource is enlarging rather than diminishing. I 
think you have made a strong case for increased attention to 
more protection and security, not only for that port but for 
that entire infrastructure. I thank you for that.
    I beg my leave of this Committee. Again, I want you all to 
know that I am counting, and I know the Congress is counting, 
on the leadership of Chairman Pombo to deliver from this great 
Committee a major portion of the comprehensive energy package 
that we're producing in the other Committee. I want to thank 
Chairman Pombo in advance for what I know will be a great 
product.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Tauzin.
    Mr. Parker.

  STATEMENT OF DAVID N. PARKER, PRESIDENT AND CHIEF EXECUTIVE 
               OFFICER, AMERICAN GAS ASSOCIATION

    Mr. Parker. Thank you, Mr. Chairman.
    I am David Parker, the president of the American Gas 
Association. The American Gas Association represents 191 
natural gas utilities that deliver 83 percent of the natural 
gas that goes to the 64 million homes and businesses in 
America. Roughly speaking, 175 million Americans depend on 
natural gas.
    Let me also emphasize that, as my remarks will show, the 
interest of the natural gas utility and the American consumer 
are almost perfectly aligned. High natural gas prices have an 
adverse effect on both the consumer and the utility. You should 
know that the utility buys natural gas for its customers, but 
only makes money through the delivery of natural gas. Utilities 
make no money on the commodity itself. They only make money 
when they flow the natural gas through their gas lines.
    High gas prices hurt our residential customers. High gas 
prices hurt commercial and industrial customers, making their 
products uncompetitive. High prices have forced some industrial 
plants to shut down, and in some cases, move overseas, taking 
their jobs with them. And high gas prices also hurt the local 
utilities, because we make no money on the commodity. High 
prices do not increase our profits. On the contrary, high 
prices dampen demand which negatively affects our bottom line. 
High prices decrease our profits because many customers can't 
pay. Uncollectibles go up.
    High prices affect the utility's reputation for service, 
and when prices go up, our customers, our regulators, our 
elected representatives, all complain directly to us.
    Price volatility hurts consumers as well as the utilities. 
Today, supply and demand are now in balance, but it is a tight 
tightrope that we're talking about. The gas bubble no longer 
exists. Today, 25 percent of the U.S. energy needs are 
currently being met by natural gas. Demand will increase 50 
percent over the next 20 years.
    I would like to make mention, too, that great credit needs 
to go to the American residential customer. Our records show 
that the residential home, the average residential home in 
America, between 1990 and the year 2000 reduced their 
consumption of natural gas by 16 percent. So great credit needs 
to go to the American consumer for doing their part for energy 
conservation.
    Are we concerned? You can certainly bet we are. Existing 
sources of supply are not enough to meet future demand. 
Producers must have access to new areas of supply, many of 
which are currently off limits or have severe Federal 
regulation.
    You may think it's unusual for the natural gas utility 
retailers to get involved in the supply issues, but the growing 
mismatch between supply and demand is an increasing concern for 
the gas utilities and the consumers that we represent. New 
technologies, which in the past have allowed us to keep up with 
demand, are no longer the magic bullet because most of the 
existing natural gas fields today are mature and are playing 
out. Unless new areas of supply are opened for exploration and 
development, the production needed to meet the projected demand 
will be gone by the year 2015.
    So what must we do? The large areas of the West under 
public ownership--that is, the nonparklands--that are closed or 
severely restricted must be looked at. Productive areas must be 
opened up for exploration and development if we are to meet 
America's future energy needs with affordable natural gas.
    One of the best things is we can thank today's 
technologies, that we can explore for and produce natural gas 
without the negative environmental impacts that we had with 
earlier drilling technologies. How ironic it is that so many of 
our laws and policies in place that promote the use of natural 
gas for environmental reasons are also the similar laws that 
restrict the areas that we have for the production of natural 
gas.
    So what should we do and when should we do it, you may ask. 
The answer is now. We are running out of time. To meet demand 
in the future, we need you to ease the ability to produce 
natural gas from the prolific fields that are known but 
untouched at this time. Lead times are long in the exploration 
and production business, as are the lead times to construct the 
infrastructure to get the gas to the consumer.
    We all know that energy is the lifeblood of the American 
economy, and now it is time to ensure that that is available in 
the future.
    Mr. Chairman, I would like to enter both my full statement 
as well as two recent studies by the American Gas Foundation 
into the record. That concludes my remarks.
    [The prepared statement of Mr. Parker follows:]

 Statement of David N. Parker, President and Chief Executive Officer, 
               American Gas Association, Washington, D.C.

Executive Summary
    The American Gas Association represents the nation's local gas 
utilities. AGA member companies acquire gas supply for, and distribute 
it to, their residential and commercial customers. As a result, the 
availability of adequate supplies of competitively priced natural gas 
is of critical importance to AGA and its member companies.
    The natural gas industry is currently at a critical crossroads. The 
``gas bubble'' of the 1980s and 1990s disappeared prior to the winter 
of 2000-2001. Supply and demand is now in balance. The industry today 
no longer basks in prodigious supply; rather, it treads a supply 
tightrope, bringing with it often unpredictable economic and political 
consequences--most importantly high prices and higher price volatility. 
Both consequences harm natural gas consumers--residential, commercial, 
and industrial.
    Energy is the lifeblood of our economy. High, volatile natural gas 
prices put America at a competitive disadvantage, cause plant closings, 
and idle workers. Government must take prompt and appropriate steps to 
ensure the nation of adequate supplies of natural gas at reasonable 
prices. Moreover, it is expected that natural gas demand will increase 
by 50 percent over the next two decades. This growth will occur because 
natural gas is the most environmentally friendly fossil fuel and 
because natural gas is an economic and reliable source of energy. It is 
in the national interest that natural gas be available to serve the 
demands of the market.
    Many of the fields from which natural gas is currently produced are 
mature. Over the last two decades, technological advances have greatly 
enhanced the ability to find natural gas as well as to produce the 
maximum amount possible from a field. However, if America's needs for 
energy are to be met, there is no choice except for exploration and 
production activity to migrate into new areas. The nation's natural gas 
resource base is rich and diverse. It is simply a matter of taking 
exploration and production (E&P) activity to the many known areas where 
natural gas is found or thought to exist. Regrettably, many of these 
areas are either totally closed to exploration and development or are 
subject to so many restrictions that timely and economic development is 
not possible. The E&P business is, as a result of technological 
improvements, enormously more environmentally sensitive today than it 
was 25 years ago. As a result, current restrictions on land access need 
to be reevaluated given the nation's energy needs.
    The most important step Congress can take to address these issues 
is to ensure that lands where natural gas is believed to exist are 
available for environmentally sound exploration and development. 
Additionally, it is appropriate to create incentives to seek and 
produce this natural gas.

Testimony
    Good morning. I am David N. Parker, President and Chief Executive 
Officer of the American Gas Association (``AGA''). AGA is grateful for 
the opportunity to share its views with you on the critical importance 
to the nation of ensuring ample natural gas supplies at competitive 
prices. Doing so is necessary for the nation, both to protect consumers 
and to address the energy and economic situations we currently face.
    AGA is composed of 191 natural gas distribution companies, which 
deliver gas throughout the United States. Local gas utilities deliver 
gas to more than 64 million customers nationwide. AGA members deliver 
approximately 83 percent of this gas.
    Our members are charged with the responsibility, under local law or 
regulation, of acquiring natural gas for the majority of their 
customers. Having available adequate supplies of natural gas at 
reasonable prices is thus a critical issue for AGA and its members. 
Accordingly, AGA members and the consumers they serve share both an 
interest and a perspective on this subject.
    I would like to make clear that the bread and butter business of 
AGA members is acquiring and delivering natural gas to residential, 
commercial, and industrial consumers across America. Our members remain 
economically viable by delivering natural gas to consumers at the 
lowest reasonable price, which we do by operating our systems--over a 
million miles of distribution lines--as efficiently as possible. 
Exploring for and producing natural gas is the business of our energy-
industry colleagues in the oil and gas business, whether they are 
major, independent, or ``Mom and Pop'' operators. We are not here to 
speak for them today, but their continued success in providing natural 
gas to America's consumers is of great importance to us as well.
    AGA is encouraged that Congress is coming to grips with this 
important issue. Adequate natural gas supply is crucial to all of 
America for a number of reasons. It is imperative that government take 
significant action in the very near term to assure the continued 
economic growth, environmental protection, and national security of our 
nation. The tumultuous events in energy markets over the last two years 
serve to underscore the importance of adequate and reliable supplies of 
reasonably priced natural gas to consumers, to the economy, and to 
national security.
    The natural gas industry is presently at a critical crossroads. For 
the past three years gas production has had to operate full-tilt to 
meet consumer demand. The ``surplus deliverability--or ``gas bubble'' 
of the late 1980's and 1990's is simply gone. No longer is demand met 
while unneeded production facilities sit idle. No longer can new demand 
be met by simply opening the valve a few turns. The valves are wide 
open.
    The supply tightrope has brought with it several inexorable and 
unpleasant consequences--prices in the wholesale market have gone up 
and that market has become much more volatile. During the 2000-2001 
heating season, for example, gas prices moved from the $2 level to 
approximately $10 and back again to nearly $2. Such volatility hurts 
consumers, puts domestic industry at a competitive disadvantage, closes 
plants, and idles workers. The winter of 2000-2001 made it abundantly 
clear to us (and to you as well) that consumers do not like these price 
increases and they do not like the market volatility that is now an 
everyday norm. Unless significant actions are taken on the supply side, 
gas markets will remain tumultuous, and 64 million gas customers will 
suffer the consequences. As gas utilities, we have a number of programs 
in place to insulate consumers, to some extent, from the full impact of 
wholesale price volatility, but consumers must still ultimately pay the 
price.
    The demand for natural gas in the U.S. is expected to increase 50 
percent by 2015-2020. Growth seems inevitable because gas is a clean, 
economic, domestic source of available energy. It does not face the 
environmental hurdles of coal and nuclear energy, the economic and 
technological drawbacks of most renewable energy forms, or the national 
security problems associated with imported oil.
    The challenge for both government and industry is quite 
straightforward: to ensure that the current need for natural gas is met 
and that the future need for natural gas will be met at reasonable and 
economic prices. There can be no responsible question that facilitating 
this result is sound public policy. Natural gas is abundant 
domestically, and natural gas is the environmentally friendly fuel of 
choice. Ensuring adequate natural gas supply will lead to reasonable 
prices for consumers, will dampen the unacceptable volatility of 
wholesale natural gas markets, will help keep the economy growing, and 
will help protect the environment.
    America has a large and diverse natural gas resource; producing it, 
however, can be a challenge. Providing the natural gas that the economy 
requires will necessitate: (1) providing incentives to bring the 
plentiful reserves of North American natural gas to production and, 
hence, to market; (2) making available for exploration and production 
the lands where natural gas is already known to exist so gas can be 
produced on an economic and timely basis; (3) ensuring that the new 
infrastructure that will be needed to serve the market is in place in 
timely and economic fashion.
    Natural gas--our cleanest fossil fuel--is found in abundance 
throughout both North America and the world. It currently meets one-
fourth of the United States' energy needs. Unlike oil, about 99 percent 
of the natural gas supplied to U.S. consumers originates in the United 
States or Canada.
    The natural gas resource base in the U.S. has increased over the 
last several decades. In fact we now believe that we have more natural 
gas in the U.S. than we estimated twenty years ago, notwithstanding the 
production of between 300 and 400 trillion cubic feet of gas in the 
interim. This is true in part because new sources of gas, such as 
coalbed methane, have become an important part of the resource base.
    Natural gas production is sustained and grows only by drilling in 
currently productive areas or by exploring in new areas. Over the past 
two decades, a number of technological revolutions have swept across 
our industry. We are able today to drill for gas with dramatically 
greater success and with significantly reduced environmental impact 
than we did twenty years ago. We are also much more efficient in 
producing the maximum amount of natural gas from a given area of land. 
A host of technological advances allows producers to identify and 
extract natural gas deeper, smarter, and more efficiently. For example, 
the drilling success rate for wells deeper than 15,000 feet has 
improved dramatically. In addition, gas trapped in coal seams, tight 
sands or shale is no longer out of reach.
    While further improvements in this regard can be expected, they 
will not be sufficient to meet growing demand unless they are coupled 
with other measures. Regrettably, technology alone cannot indefinitely 
extend the production life of mature producing areas. New areas and 
sources of gas will be necessary.
    Notwithstanding the dramatic impact of innovation upon our 
business, the inevitable fact today is that we have reached a point of 
rapidly diminishing returns with many existing natural gas fields. This 
is almost entirely a product of the laws of petroleum geology. The 
first ten wells in a field may ultimately produce 60 percent of the gas 
in that field, while it may take forty more to produce the balance. In 
many of the natural gas fields in America today, we are long past those 
first ten wells and are well into those forty wells in the field. In 
other words, the low-hanging fruit have already been picked in the 
orchards that are open for business.
    Drilling activity in the U.S. has moved over time, from onshore 
Kansas, Oklahoma and Arkansas to offshore Texas and Louisiana, and then 
to the Rocky Mountains. Historically, we have been quite dependent on 
fields in the Gulf of Mexico. But recent production declines in the 
shallow waters of the Gulf of Mexico have necessitated migration of 
activity to deeper waters to offset this decline. These newer, more 
expensive, deepwater fields also tend to have short lives and 
significantly more rapid rates of decline in production than is the 
case with onshore wells.
    In short, America's natural gas fields are mature--in fact, many 
are well into their golden years. There is no new technology on the 
horizon that will permit us to pull a rabbit out of a hat in these 
fields. These simple, and incontrovertible, facts explain why we are 
today walking a supply tightrope and why the winter of 2000-2001 may 
become a regular occurrence, particularly at the point the economy 
returns to its full vigor. Having the winter of 2000-2001 return every 
year will undoubtedly put a brake on the economy, once again causing 
lost output, idle productive capacity, and lost jobs.
    If we are to continue to meet the energy demands of America and its 
citizens and if we are to meet the demands that they will make upon us 
in the next two decades, we must change course. It will not be enough 
to make a slight adjustment of the tiller or to wait three or four more 
years to push it over full. Rather, we must come full about, and we 
must do it in the very near future. Lead times are long in our 
business, and meeting demand years down the road requires that we begin 
work today.
    We have several reasonable and practical options. And, as I hope 
you do understand, continuing to do what we have been doing is simply 
not enough.
    First, and most importantly, we must look to new frontiers within 
the United States. Further growth in production from this resource base 
is jeopardized by limitations currently placed on access to it. For 
example, the natural gas resource base off the East and West Coasts of 
the U.S. is off-limits to development, while much of the Eastern Gulf 
of Mexico is currently closed to any exploration and production 
activity. Moreover, access to large portions of the Rocky Mountains is 
severely restricted. The potential for increased production of natural 
gas is severely constrained so long as these restrictions remain in 
place.
    In this vein, the Rocky Mountain region is expected to be a growing 
supplier of natural gas, but only if access to key prospects is not 
unduly impeded by stipulations and restrictions. Two separate studies 
by the National Petroleum Council and the U.S. Department of the 
Interior reached a similar conclusion--that nearly 40 percent of the 
gas resource base in the Rockies was restricted from development to 
some degree, some partially and some totally. On this issue the 
Department of the Interior noted that there are nearly 1,000 different 
stipulations that can impede resource development on Federal lands.
    One of the most significant new gas discoveries in North America in 
the past ten years is located just north of the US/Canada border in 
eastern Canada coastal waters on the Scotian Shelf. Natural gas 
discoveries have been made at Sable Island and Deep Panuke. Gas 
production from Sable Island already serves Canada's Maritimes 
Provinces and New England through an offshore and land-based pipeline 
system. This has been done with positive economic benefits to the 
region and without environmental degradation. This experience provides 
an important example for the United States, where we believe the 
offshore Atlantic area to have similar geology.
    In some areas we appear to be marching backward. The buy-back of 
Federal leases where discoveries had already been made in the Destin 
Dome area (offshore Florida) of the eastern Gulf of Mexico was a step 
back in terms of satisfying consumer gas demand. This action was 
contrary to what needs to be done to meet America's energy needs.
    Geographic expansion of gas exploration and drilling activity has 
for the entirety of the last century been essential to sustaining 
growth in natural gas production. Future migration, to new frontiers, 
to new fields, in both the U.S. and Canada will also be critical. 
Without production from geographic areas that are currently subject to 
access restrictions, it is not at all likely that producers will be 
able to continue to provide increased amounts of natural gas from the 
lower-48 states to customers for longer than 10 or 15 years. We believe 
that the same is true in Canada as well.
    Quite simply, we do not believe that there is any way other than 
exploring for natural gas in new geographic areas to meet America's 
anticipated demand for natural gas unless we turn increasingly to 
sources located outside North America.
    We do not advance this thesis lightly. Over the past two years, 
both the American Gas Association and the American Gas Foundation have 
studied this important issue vigorously. We believe it is necessary for 
policy makers to embrace this thesis so that natural gas can continue 
to be--as it has been for nearly a century--a safe and reliable form of 
energy that is America's best energy value and its most environmentally 
benign fossil fuel.
    When the first energy shock transpired in the early 1970s, the 
nation learned, quite painfully, the price of dependency upon foreign 
sources of crude oil. We also learned, through long gasoline lines and 
shuttered factories, that energy is the lifeblood of our economy. Yet 
thirty years later we are even more dependent upon foreign oil than we 
were in 1970. Regrettably, the nation has since failed to make the 
policy choices that would have brought us freedom from undue dependence 
on foreign-source energy supplies. We hope that the nation can reflect 
upon that thirty-year experience and today make the correct policy 
choices with regard to its future natural gas supply. We can blame some 
of the past energy problems on a lack of foresight, understanding, and 
experience. We will not be permitted to do so again.
    Meeting our nation's ever-increasing demand for energy has an 
impact on the environment, regardless of the energy source. The 
challenge, therefore, is to balance these competing policy objectives 
realistically. Even with dramatic improvements in the efficient use of 
energy, U.S. energy demand has increased more than 25 percent since 
1973, and significant continued growth is almost certain. Satisfying 
this energy demand will continue to affect air, land and water. A great 
American success story is that, with but five percent of the world's 
population, we produce nearly one-third of the planet's economic 
output. And energy is an essential--indeed critical--input for that 
success story to both continue and grow.
    It is imperative that energy needs be balanced with environmental 
impacts and that this evaluation be complete and up-to-date. There is 
no doubt that growing usage of natural gas harmonizes both objectives. 
Finding and producing natural gas is today accomplished through 
sophisticated technologies and methodologies that are cleaner, more 
efficient and much more environmentally sound than those used in the 
1970s. It is unfortunate that many restrictions on natural gas 
production have simply not taken account of the important technological 
developments of the preceding thirty years. The result has been 
policies that deter and forestall increased usage of natural gas, which 
is, after all, the nation's most environmentally benign and cost-
effective energy source.
    Natural gas consumers enjoyed stable prices from the mid-1980s to 
2000, with prices that actually fell when adjusted for inflation. 
Today, however, the balance between supply and demand has become 
extremely tight, creating the tightrope effect. Even small changes in 
weather, economic activity, and world energy trends result in wholesale 
natural gas price fluctuations. We saw this most dramatically in the 
winter of 2000-2001. In the 1980s and ``90s, when the wholesale 
(wellhead) price of traditional natural gas sources was around $2 per 
million British thermal units, natural gas from deep waters and Alaska, 
as well as LNG, may not have been price competitive. However, most 
analysts suggest that these sources are competitive when gas is in a 
$3.00 to $4.00 price environment. Increased volumes of natural gas from 
a wider mix of sources will be vital to meeting consumer demand and to 
ensuring that natural gas remains affordable.
    Increasing natural gas supplies will boost economic development and 
will promote environmental protection, while ensuring more stable 
prices for natural gas customers. Most importantly, increasing natural 
gas supplies will give customers--ours and yours--what they seek--
reasonable prices, greater price stability, and fuel for our vibrant 
economy. However, without policy changes with regard to natural gas 
supply, as well as expansion of production, pipeline, and local 
delivery infrastructure for natural gas, the natural gas industry will 
have difficulty meeting the anticipated 50 percent increase in market 
demand. Price increases, price volatility, and a brake on the economy 
will be inevitable.
    Second, we can increase our focus on non-traditional sources, such 
as liquefied natural gas (LNG). Reliance upon LNG has been modest to 
date, but it is clear that increases will be necessary to meet growing 
market demand. Today, roughly 99 percent of the U.S. gas supply comes 
from traditional land-based and offshore supply areas in North America. 
But, during the next two decades, non-traditional supply sources such 
as LNG will likely account for a significantly larger share of the 
supply mix. LNG has become increasingly economic. It is a commonly used 
worldwide technology that allows natural gas produced in one part of 
the world to be liquefied through a chilling process, transported via 
tanker and then re-gasified and injected into the pipeline system of 
the receiving country. Although LNG currently supplies less than 1 
percent of the gas consumed in the U.S., it represents nearly 100 
percent of the gas consumed in Japan. LNG has proven to be safe, 
economical, and consistent with environmental quality. Due to 
constraints on other forms of gas supply and increasingly favorable LNG 
economics, LNG is likely to be a more significant contributor to U.S. 
gas markets in the future. It will certainly not be as large a 
contributor as imported oil (nearly 60 percent of U.S. oil 
consumption), but it could account for 10-15 percent of domestic gas 
consumption 15-20 years from now if pursued aggressively and if 
impediments are reduced.
    Third, we can tap the huge potential of Alaska. Alaska is estimated 
to contain more than 250 trillion cubic fee--enough to satisfy U.S. 
natural gas demand by itself for more than a decade. Authorizations 
were granted twenty-five years ago to move gas from the North Slope to 
the Lower-48, yet no gas is flowing today nor is any transportation 
system yet under construction. Indeed, every day the North Slope 
produces approximately 8 billion cubic feet of natural gas that is re-
injected because it has no way to market. Alaskan gas has the potential 
to be the single largest source of price and volatility relief for U.S. 
gas consumers. Deliveries from the North Slope would not only put 
downward pressure on gas prices, but they would also spur the 
development of other gas sources in the state as well as in northern 
Canada.
    Fourth, we can look to our neighbors to the north. Canadian gas 
supply has grown dramatically over the last decade in terms of the 
portion of the U.S. market that it has captured. At present, Canada 
supplies approximately 15 percent of the United States' needs. We 
should continue to rely upon Canadian gas, but it may not be realistic 
to expect the U.S. market share for Canadian gas to continue to grow as 
it has in the past or to rely upon Canadian new frontier gas to meet 
the bulk of the increased demand that lay ahead in the United States.

Recommendations
    To promote meeting consumer needs, economic vitality, and sound 
environmental stewardship, the American Gas Association urges the 
Congress as follows:
     Current restrictions on access to new sources of natural 
gas supply must be re-evaluated in light of technological improvements 
that have made natural gas exploration and production more 
environmentally sensitive.
     Federal and state officials must take the lead in 
overcoming the pervasive ``not in my backyard'' attitude toward energy 
infrastructure development, including gas production.
     Interagency activity directed specifically toward 
expediting environmental review and permitting of natural gas pipelines 
and drilling programs is necessary, and agencies must be held 
responsible for not meeting time stipulations on lease, lease review, 
and permitting procedures.
     Federal lands must continue to be leased for multi-
purpose use, including oil and gas extraction and infrastructure 
construction.
     Tax provisions such as percentage depletion, expensing 
geological and geophysical costs in the year incurred, Section 29 
credits, and other credits encourage investment in drilling programs, 
and such provisions are often necessary, particularly in areas faced 
with increasing costs due to environmental and other stipulations.
     Economic viability must be considered along with 
environmental and technology standards in an effort to develop a 
``least impact'' approach to exploration and development but not a 
``zero impact''.
     The geologic conditions for oil and gas discovery similar 
to that in eastern Canada extend to the U.S. mid-Atlantic area.
      * Although some prospects have been previously tested, new 
evaluations of Atlantic oil and gas potential should be completed using 
today's technology--in contrast to that of 20 to 30 years ago.
      * The Federal Government should facilitate this activity by 
lifting or modifying the current moratoria regarding drilling and other 
activities in the Atlantic Offshore to ensure that adequate geological 
and geophysical evaluations can be made and that exploratory drilling 
can proceed.
      * The Federal Government must work with the Atlantic Coast 
states to assist--not impede--the process of moving natural gas 
supplies to nearby markets should gas resources be discovered in 
commercial quantities. Federal agencies and states must work together 
to ensure the quality of the environment but they must also ensure that 
infrastructure (such as landing an offshore pipeline) is permitted and 
not held up by multi-jurisdictional roadblocks.
     The Federal Government should continue to permit royalty 
relief where appropriate to change the risk profile for companies 
trying to manage the technical and regulatory risks of operations in 
deepwater.
     Coastal Zone Management (CZMA) is being used to threaten 
or thwart offshore natural gas production and the pipeline 
infrastructure necessary to deliver natural gas to markets in ways not 
originally intended. Companies face this impediment even though leases 
to be developed may be 100 miles offshore. These impediments must be 
eliminated or at least managed within a context of making safe, secure 
delivery of natural gas to market a reality.
     The U.S. government should work closely with Canadian and 
Mexican officials to address the challenges of supplying North America 
with competitively priced natural gas in an environmentally sound 
manner.
     Renewable forms of energy should play a greater role in 
meeting U.S. energy needs, but government officials and customers must 
realize that all forms of energy have environmental impacts.
     Construction of an Alaskan natural gas pipeline must 
begin as quickly as possible.
      * Construction of this pipeline is possible with acceptable 
levels of environmental impact.
      * The pipeline project would be the largest private sector 
investment in history, and it would pose a huge financial risk to 
project sponsors.
      * The project will not be undertaken without some form of 
Federal support--loan guarantee, accelerated depreciation, investment 
tax credit and/or marginal well tax credit.
      * These forms of support are not unprecedented and they would 
reduce project risk thereby reducing transportation charges that are 
ultimately borne by the consumer.
     The Federal Energy Regulatory Commission (FERC) announced 
in a new policy in December of 2002 that it would not require LNG 
terminals to be ``open access'' (that is, common carriers) at the point 
where tankers offload LNG. This policy will spur LNG development 
because it reduces project uncertainty and risk. Other Federal and 
state agencies should review any regulations that impede LNG projects 
and act similarly to reduce or eliminate these impediments.
     The siting of LNG offloading terminals (currently four 
operable are in the U.S.) is generally the most time consuming 
roadblock for new LNG projects. Federal agencies should take the lead 
in demonstrating the need for timely approval of proposed offloading 
terminals, and state officials must begin to view such projects as a 
means to satisfy supply and price concerns of residential, commercial, 
and industrial customers.
                                 ______
                                 
    The Chairman. Thank you, Mr. Parker.
    Miss Novak.

STATEMENT OF MARY H. NOVAK, MANAGING DIRECTOR, ENERGY SERVICES, 
                      GLOBAL INSIGHT, INC.

    Ms. Novak. Good morning. My name is Mary Novak, and I am 
the managing director of Global Insight. Global Insight is the 
new name of the merger of Data Resources International and 
WEFA, Wharton Econometric Forecasting Associates, long time 
forecasters of both energy and the economy. I am here today to 
discuss our outlook for natural gas.
    I want to briefly summarize my remarks. But just to put it 
in a little context here, natural gas prices have recently 
reached new highs, after experiencing extreme volatility over 
the last few years. Henry Hub cash prices have soared from less 
than $2.50 per million Btu in January of 2000 to over $9 in 
January of 2001, and fell back below $2.50 in January of 2002. 
They have since recovered to the $3.50 to $4 range for the 
remainder of 2002, and exceed that at this moment.
    The volatility of the last few years reflect traditional 
short-term influences on prices, including drilling and 
pipeline capacity, which affect deliverability, and 
fluctuations in weather and the economy, which influence 
demand. However--and this is a very significant ``however''--
the recent rise in prices reflects a more fundamental 
tightening of deliverability that was masked by short-term 
factors over the last few years. It is those short-term factors 
masking the long-term supply picture that is of critical 
concern to this Committee.
    The power sector has been expanding its use of natural gas 
dramatically over the last 10 to 15 years. We have chosen a 
path of using natural gas in power generation as one of the 
means to meet our environmental goals. However, about one-third 
of natural gas is still used by our industrial sector. In fact, 
it is about six major energy intensive industries that use more 
than 85 percent of that industrial demand for natural gas. And 
it is those industries that are now at risk because of the high 
price of natural gas that is expected to be sustained over the 
next 20 years.
    So while we have experienced over the last three or 4 years 
an extreme volatility of prices, moving from $2 up to $4 and 
back to $2 again, our long-term outlook is that prices will now 
settle in at somewhere between $3.25 and $3.75 per million Btu.
    The energy-intensive industries within the United States, 
which are critical to long-term economic growth, are suffering 
extreme price pressure when we compare those domestic natural 
gas prices to prices of other gas-rich economies. For example, 
Trinidad and Tobago, right across the Gulf from us, has very 
low natural gas prices and is attracting much of the industrial 
chemical industry away from the United States.
    Why is that of concern to us as economists? Well, we might 
say there are primary chemical suppliers here in the United 
States that could move to Trinidad and Tobago. However, we also 
know that within a short period of time, within the next 10 to 
15 years, all the derivative chemical manufacturers will also 
move offshore. So a brief, short-term loss of some chemical 
producers is going to lead us into a period of long-term 
movement of our entire chemical industry offshore.
    So can we sustain somewhat lower gas prices, should we 
sustain that? The question is our access to domestic supplies. 
For the last 15 years, we have been basically living off of the 
supplies that were put in place in the 1980's. But within my 
testimony I have some pictures that show we have actually 
achieved 95 percent deliverability off of that supply base. So 
we are now looking at developing new supplies to try to even 
maintain our current natural gas supply picture, or to increase 
it. And to do that, we really need to go to new areas. Our 
forecast is saying we're going to have to go to deep offshore 
and into the Rockies and develop the Alaskan gas and develop 
the pipeline to maintain gas at 20 to 22 TCF of natural gas. 
We're going to have to continue to call upon our neighbors, 
Canada, to develop its McKenzie Delta gas, and build facilities 
to help us sustain our gas.
    So, to meet both the needs of our industrial base and to 
meet the needs of our power generation requirements, to meet 
our environmental goals, we are going to have to continue to 
search for ways to make sure the natural gas supply is there at 
a fairly reasonable price.
    With that, I would like to conclude my remarks.
    [The prepared statement of Ms. Novak follows:]

     Statement of Mary H. Novak, Managing Director, Energy Services

Introduction
    Natural gas prices have recently reached new highs after 
experiencing extreme volatility over the last few years. Henry Hub cash 
prices soared from less than $2.50 per million Btu in January 2000 to 
over $9.00 in January 2001, fell back below $2.50 by January 2002, and 
then recovered to the $3.50-$4.00 range for the remainder of 2002. The 
volatility of the last few years reflected traditional short-term 
influences on prices including drilling and pipeline capacity, which 
affect deliverability, and fluctuations in weather and the economy, 
which influence demand. However, the recent rise in prices reflects a 
more fundamental tightening of deliverability that was masked by short-
term factors over the last few years.
    A look at the underlying forces of supply and demand suggests that 
the pressures for price increases will be much stronger in the future 
than during the last decade. Key factors in long-term natural gas price 
trends include the size and nature of the gas resource base, 
technological change, and the pace of natural gas demand growth. 
Accelerating decline rates and shrinking reservoir sizes, on the supply 
side, and a strong rate of growth in gas demand, especially from the 
power generating sector, are expected to maintain real gas prices in 
the $3.00-3.50 range over the next 20 years. This represents some 
downward correction from recent levels, which are being affected by 
cold weather and lags in supply response, but a significantly higher 
level of prices than was experienced through most of the 1990s.

Power Sector Is Key to Strong Demand Growth
    Natural gas consumption is expected to surpass 30 trillion cubic 
feet (tcf) by 2020, about 9 tcf above recent levels. This increase 
represents an average growth rate of nearly 2% per year. Nearly half of 
the expected increase will result from strong growth in the power 
generation sector, where a large proportion of new generating plants 
will be fueled by natural gas. The rest will result from steady but 
slow growth in the residential and commercial sectors. Growth in these 
traditional gas-consuming sectors, where gas already possesses high 
market shares, will be limited by modest expected increases in 
population.
    Natural gas is used in the industrial sector both as a feedstock 
and as a fuel for direct heat, steam and power generation. As a 
feedstock, gas is used primarily in the production of ammonia, with 
hydrogen and methanol accounting for smaller shares. Approximately 50% 
of industrial natural gas consumption is included in the chemicals and 
petroleum products industries. Six industries account for 85% of total 
industrial consumption. Excluding natural gas used for power 
generation, industrial natural gas consumption was approximately 29% of 
total consumption.

[GRAPHIC] [TIFF OMITTED] T5771.001


    Natural gas demand in the near term is being subdued by weakness in 
key industries and tough competition with residual fuel. Growth in 
natural gas demand is expected to average 1.5% per year between 2001 
and 2020. The low rate of growth of industrial gas consumption is due 
to improved efficiency and the move of gas-intensive industries to 
countries with low-cost indigenous industries. There is over 2 billion 
cubic feet per day (Bcfd) of gas consumption in industries that already 
face competition from other countries. Approximately 1.6 Bcfd of 
natural gas is used for the production of ammonia hydrate. If gas 
prices stay high long enough, much of the fertilizer industry in the 
United States could be shuttered. There is also increased potential for 
more applications of combined heat and power in natural gas-consuming 
industries. Production of power by industry would reduce the need for 
power generation because of lower transmission losses, and waste heat 
recovery would improve combined efficiency of fuel use. Lost industrial 
consumption could amount to more than 2.5% of total current U.S. 
natural gas consumption over the next decade, if these responses to 
high gas prices take place.
    The strong growth in natural gas use for power generation is driven 
by the low capital cost, relative speed of development and 
construction, and the attractive environmental qualities of natural gas 
generation. Nevertheless, the rate of future growth is highly 
uncertain. Because gas will be the marginal fuel for power generation, 
gas consumption will be highly sensitive to slight changes in the 
growth rate for electricity demand, as well as to developments in coal 
and nuclear generation. On the one hand, refurbishment of existing 
coal-fired plants could increase utilization of those plants. On the 
other hand, tighter environmental regulations could force the closure 
of several coal stations, depending upon the shape of future 
regulations and legislation, significantly increasing the power sectors 
demand for natural gas.

Gas Resources Are Adequate, But More Effort is Needed to Exploit Them
    Natural gas deliverability has been declining for over a decade. 
Most U.S. production growth has occurred from increasing the 
utilization of excess deliverability that was developed during the 
early 1980s. This is no longer possible as deliverability is at its 
maximum level. Consequently, increasing production will require 
substantially greater effort in the future than in the past. Also, many 
gas fields are maturing, implying that new reservoirs are smaller. With 
discoveries likely to average smaller, more exploration efforts will be 
required to increase gas production capacity. Moreover, the productive 
capacity of wells has been declining faster; decline rates have risen 
steadily from 14% in 1990 to 28% in 2001.
    The natural gas resource base of the United States is large enough 
to meet projected demand growth. The question is whether prices will be 
adequate to attract the level of drilling needed to exploit the 
resources at the required rate. Drilling activity depends on how 
confident exploration and production companies are of the expected 
price level; concerns about downward volatility can inhibit activity. 
The reference case gas price is expected to be high enough to attract 
sufficient drilling and supplemental gas imports, but there is a risk 
that exploration and development of the supplies may be inhibited by 
price volatility or restrictions on access to new supplies.
    The long-term outlook for natural gas supply depends on the 
coordination of many facets of the industry. A constraint in one of the 
links in the supply chain can restrict total production. The following 
questions summarize the supply outlook:

Are there adequate resources to meet demand growth?
    Yes. The natural gas resource base of the United States exceeds 
1000 Tcf, or nearly 50 years of supply at current rates of consumption. 
Many of these resources are in areas closed to development. 
Nevertheless, an accelerated leasing program and the creation of an 
Alaskan gas transportation system to bring gas to the Lower 48 would 
allow a large share of the resources to be developed. Leasing is 
important to the level of drilling as the quality of prospects has 
decreased.

What are the required production trends and how do they differ from 
        recent history?
    A multitude of recent data--EIA production data, Texas onshore gas 
well production, drilling activity, information from company reports, 
spending plans--all point to a significant domestic gas production 
decline in the last half of 2002 that is most likely continuing well 
into 2003. All of the major producing states are reporting decreases in 
production, with the exception of Wyoming--where pipeline construction 
is failing to keep up with supply development. Over the next decade, 
these trends are projected to turn around in key regions--Gulf 
offshore, Rocky Mountains, coal seams--as demand rises. Recent 
evidence, however, highlights the risk to this outlook if greater 
efforts to develop supplies are not made.

Where will imports be sourced from and at what price and volume?
    LNG will add numerous new suppliers to the United States with an 
expansion up to 5% of U.S. demand in the Reference Case by 2020. 
Imports from Canada are expected to increase, particularly with 
development of the East Coast and Arctic gas supplies. The U.S. is 
becoming a major exporter to Mexico but this could be reversed with 
extensive drilling in the Burgos basin and as LNG terminals are added 
in the Baja, Altamira and west coast regions of Mexico. Alaskan and 
Canadian arctic gas are included in the long-term forecast, but are by 
no means assured.

What Will It Take To Grow Domestic Supply?
    The U.S. production responded to the extremely high prices of over 
$4 per MMBtu in 2000 and 2001 by growing by only 1.7%, and much of that 
growth was from in-fill drilling. The reserves are small and the first 
year decline rate on many of these wells will be over 50%. As the graph 
below shows, the effort required to increase U.S. production has 
increased sharply. The annual growth rate in U.S. production over the 
last five years has only been 0.5%, while the rig count has grown an 
average annual rate of 38%.

[GRAPHIC] [TIFF OMITTED] T5771.002


    In part a surge of in-fill drilling and a focus on shallow wells 
caused the poor response of production to an increase in the rig count. 
However, U.S. production has shown little growth since 1995. This slow 
growth in production reflects:
     The excess productive capacity developed in the 1980s is 
now fully utilized.
     Fields in the U.S. and Canada are more mature and, 
consequently, require much more drilling activity to increase natural 
gas supply.
     There are insufficient prospects for development 
drilling.
    One reason for the greater activity required to grow U.S. gas 
production is that during the last decade most U.S. production growth 
came from increasing the utilization of existing productive capacity 
that was developed during the early 1980s. This is no longer possible 
as deliverability is at its maximum level.
    Another force that will make it difficult to grow natural gas 
production is that many gas fields are maturing. Consequently, 
reservoirs are smaller. The smaller reservoirs means that gas wells' 
initial productive capacities are smaller and their productive capacity 
declines faster than large reservoirs.
    Another factor in aggregate production statistics is the increasing 
share of coalbed methane wells. Powder River Basin wells produce at 
rates of about 0.050 mmcf/day--or a small fraction of the average new 
conventional well. There are nearly 10,000 of these coalbed methane 
wells already producing in Wyoming. Also, the large discoveries in the 
deep Gulf of Mexico may take several years to bring on-line. The 
Thunder Horse discovery, reportedly the largest in Gulf of Mexico 
history, may not begin production until 2005. In other regions such as 
the Rockies, pipeline capacity is lagging production.

[GRAPHIC] [TIFF OMITTED] T5771.003


    In the year 2001, the U.S. had to replace 28% of its productive 
capacity. This compares to 14% in 1990. Consequently growing U.S. 
production will require substantially greater effort and access to more 
prospects in the future than in the past.

[GRAPHIC] [TIFF OMITTED] T5771.004


    The chart above shows where Global Insight expects new natural gas 
supplies to come from. The major areas for domestic supply growth are 
the Gulf Offshore and the Rocky Mountains, offsetting declines in the 
Gulf onshore region. If offshore success fails to live up to high 
expectations as development moves into deeper, costlier zones, then 
demand for coalbed and conventional gas in the West will be even 
greater, testing the limits of existing regulatory access to these 
supplies. Imported gas, from Eastern and Western Canada and LNG, is 
also expected to increase. It is assumed that 1 Bcfd of production 
comes from the McKenzie Delta in 2010. In the reference case, it is 
also assumed that 2 Bcfd of gas of Alaskan gas supply is piped to the 
Lower 48 by 2011, and 4 Bcfd by 2013.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Santistevan.

 STATEMENT OF ROBERT SANTISTEVAN, EXECUTIVE DIRECTOR, SOUTHERN 
                  UTE INDIAN TRIBE GROWTH FUND

    Mr. Santistevan. Thank you. My name is Robert Santistevan. 
I'm the Executive Director of the Southern Ute Indian Tribe's 
Growth Fund. I would like to testify about the importance of 
the natural gas industry to the Southern Ute Indian Tribe.
    The Southern Ute Indian Tribe has worked aggressively to 
maximize the benefits that its members derive from this non-
renewable resource since 1980. Today, the tribe is reaping the 
benefits of a long-term energy program that has been carefully 
planned and developed from the beginning. The tribe has 
distributed over $90 million in direct cash benefits to its 
membership since the adoption of the tribe's financial plan in 
March 1999. Almost all of these funds came from the tribe's 
energy resources. In addition, most of the profits of the 
tribe's energy businesses have been reinvested in order to 
ensure the future economic health of the tribe.
    The tribe's energy strategy has four parts. First, the 
tribe developed a comprehensive data base of all activity and 
all available technical data on the reservation to monitor the 
operations of the operators on the reservation in order to 
ensure that they were prudently developing the tribe's 
resources and that they were living up to all of their 
contractual obligations. This effort started in 1980 and has 
resulted in improved royalty and severance tax payments due to 
its improved operations on the reservation. This is one of the 
reasons that over 40 percent of the royalties and royalty 
related revenues collected on all Indian lands in Fiscal Year 
2002 were paid to the Southern Utes. The tribe's Department of 
Energy is responsible for this continuing effort.
    Second, the tribe works actively with the Minerals 
Management Service to ensure full payment of the royalty 
obligations of the operators. Under a contractual agreement 
with the MMS, the tribe's staff actually performs the audits of 
the energy companies and works with the MMS to collect the 
audit findings. We have generated $119 million in collections 
and audit findings since signing a cooperative audit agreement 
with the MMS in 1982. The tribe's department of energy 
accounting manages this effort.
    Third, the tribe developed and implemented business plans 
to buy energy assets on the reservation as they became 
available. We have several companies that buy these assets at 
market value and increase their value through an aggressive 
program of reinvestment and optimization. We have earned an 
average rate of return of over 40 percent per year on this 
investment program since its inception in 1992.
    Red Willow Production Company is the tribe's wholly owned 
exploration and production company. Red Willow started buying 
back these leases in January 1993, and now owns nearly a half-
trillion cubic feet of gas, with a market value of a half-
billion dollars in the ground.
    Red Cedar Gathering Company is a joint venture, which the 
tribe owns 51 percent of, that was started in 1994 to gather, 
compress, treat and transport natural gas on the reservation. 
Red Cedar now gathers more than 730 million cubic feet of gas 
per day and generates $50 million per year in earnings.
    Fourth, as part of its financial plan, the tribe began 
purchasing energy assets outside the reservation. Our 
experience on the reservation convinced us that our management 
and technical expertise are superior to that of the majority of 
energy companies. We can outcompete them outside our 
reservation.
    Our long-term investment philosophy also gives us a huge 
competitive advantage over public companies that must sacrifice 
good management practices to satisfy stock analysts. Red Willow 
is investing in exploration and production opportunities in 
coalbed methane in Canada and northwestern Colorado, the 
Barnett shale of east Texas, and a 3-D seismic oil play on a 
neighboring Indian reservation, and in the Offshore Continental 
Shelf in the Gulf of Mexico.
    A new, wholly owned subsidiary, Aka Energy, is purchasing 
and building midstream energy assets throughout the Rockies. 
Aka now owns a gathering system in the Denver Julesberg Basin 
and is contracted or negotiating to build several gathering 
systems in western Colorado.
    The Southern Ute Indian Tribe has taken control of the 
management of its resources and finances in order to ensure the 
financial future of its membership. While this has not happened 
overnight, the results show that the tribes can successfully 
manage their energy resources. At the end of Fiscal Year 2001, 
the tribe's net worth, excluding trust assets, was $1.44 
billion. Both Fitch and Standard and Poor's have issued a bond 
rating of AAA for the tribe.
    Thank you.
    [The prepared statement of Mr. Santistevan follows:]

         Statement of Robert Santistevan, Executive Director, 
                 Southern Ute Indian Tribe Growth Fund

    Mr. Chairman and members of the Committee:
    For many decades, the Southern Ute Indian Tribe has worked 
aggressively to maximize the benefits that its members derive from the 
Tribe's non renewable energy resources. Today the Tribe is reaping the 
benefits of a long term energy program that has been carefully planned. 
Since adoption of the Tribe's Financial Plan, in March of 1999, the 
Tribe has distributed over $90 million to its members through a variety 
of programs, including: scholarship and education funds, retirement 
benefits, per capita distributions, and dividends on investments. 
Almost all of distributions are associated with energy activities. In 
addition, most of the profits of the Tribe's energy businesses have 
been reinvested in order to ensure the future economic health of the 
Tribe.

The Southern Ute's energy strategy has four parts:
    First, the Tribe developed a comprehensive database of all activity 
and all available technical data on the reservation to monitor the 
operations of the operators on the reservation in order to ensure that 
they were prudently developing the Tribe's resources and that they were 
living up to their contractual obligations. This effort started in 1980 
and has resulted in improved royalty and severance tax payments due to 
improved operations on the reservation. This is one of the reasons that 
over 40% of the royalties and royalty related revenues collected on all 
Indian Lands in Fiscal Year 2002 were paid to the Southern Utes. The 
Tribe's Department of Energy is responsible for this continuing effort.
    Second, the Tribe actively works with the Minerals Management 
Service (MMS) to ensure full payment of the royalty obligations of the 
operators. Under a contractual arrangement with the MMS, the Tribe's 
staff actually performs the audits of the energy companies and works 
with the MMS to collect the audit findings. We have generated $119 
million in collections and audit findings since signing a cooperative 
audit agreement with the MMS in 1982. The Tribe's department of Energy 
Accounting manages this effort.
    Third, the Tribe developed and implemented business plans to buy 
energy assets on the reservation as they became available. We have 
several companies that buy these assets at market value and increase 
their value through an aggressive program of reinvestment and 
optimization. We have earned an average rate of return of over 40% per 
year on this investment program since its inception in 1992. Red Willow 
Production Company is the Tribe's wholly owned exploration and 
production company. Red Willow started buying back leases in January of 
1993 and now owns nearly half a trillion cubic feet of gas with a 
market value of half a billion dollars in the ground. Red Cedar 
Gathering Company is a joint venture (the Tribe owns 51%) that was 
started in 1994 to gather, compress, treat, and transport natural gas 
on the reservation. Red Cedar now gathers more than 730 million cubic 
feet of gas per day and generates $50 million per year in earnings 
(EBITDA).
    Fourth, as part of its financial plan, the Tribe formed 
subsidiaries that began purchasing energy assets outside the 
reservation. Our experience on the reservation convinced us that our 
management and technical expertise are superior to that of the majority 
of energy companies, and our subsidiaries compete directly with other 
companies off ``reservation. Our long term investment philosophy gives 
us an advantage over public companies that must sacrifice good 
management practices to pander to stock analysts. The tribe has 
invested in exploration and production opportunities in coalbed methane 
in Canada and northwestern Colorado, in the Barnett Shale in East 
Texas, in a 3D seismic oil play on a neighboring Indian reservation, 
and in the Offshore Continental Shelf in the Gulf of Mexico. A new, 
wholly owned subsidiary, Aka Energy, is purchasing and building mid 
stream energy assets throughout the Rockies. Aka now owns a gathering 
system in the Denver Julesberg basin and is contracted or negotiating 
to build several gathering systems in western Colorado.
    The Southern Ute Indian Tribe has taken control of the management 
of its resources and finances in order to ensure the financial future 
of its membership. While this has not happened overnight, the results 
show that Tribes can successfully manage their energy resources. At the 
end of Fiscal Year 2001 the Tribe's net worth, excluding trust assets, 
was $1.44 billion. Both Fitch and Standard and Poor's have issued a 
bond rating of AAA for the Tribe.
    [The graphs listed below and attached to Mr. Santistevan's 
statement follow:]
     RWPC well count
     RWPC reserve growth
     RWPC EBITDA (annual)
     RWPC EBITDA (cumulative)
     Red Cedar EBITDA (annual)
     Red Cedar EBITDA (cumulative)
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    [Mr. Santistevan's response to questions submitted for the 
record follow:]

Attention: Nancy Laheeb
Deputy Chief Clerk
Committee on Resources
United States House of Representatives
1324 Longworth House Office Building
Washington, D.C. 20515

Re: Additional Committee Questions; Oversight Hearing on Enhancing 
America's Energy Security

Dear Ms. Laheeb:

    Following my testimony before the Committee on March 19, 2003, I 
received a total of seven additional questions, five from the Committee 
without an attributed source and two from Congressman Nick J. Rahall, 

II. My answers to each of those questions is provided below:

QUESTIONS FROM THE COMMITTEE:

1. What recommendations would you make to the Committee to improve 
        opportunities for tribes to develop non-renewable energy 
        resources in Indian Country?
    First, I recommend eliminating those legislative and regulatory 
obstacles that impede the development of tribal non-renewable energy 
resources by those tribes that desire to develop them. Second, I 
recommend that Congress lend financial support to programs that permit 
tribes to evaluate their non-renewable energy resources from a 
technical perspective. Third, I recommend legislative assistance in 
addressing problems that have grown over long periods of time in Indian 
Country that complicate the development of tribal non-renewable energy 
resources. Fourth, I recommend that Congress reform tax policies in a 
manner that eliminates disincentives to development of tribal resources 
and encourages that development. Each of these recommendations requires 
additional explanation.
    My initial recommendation involves legislative and regulatory 
revision. Under existing law, an Indian tribe may lease its minerals 
for development only if in conformity with several leasing statutes. 
The general prohibition against such leasing without congressional 
authorization is found in the Nonintercourse Act (25 U.S.C. Sec. 177), 
and the two most significant leasing statutes are the Indian Mineral 
Leasing Act of 1938 (25 U.S.C. Sec. 496a-g) and the Indian Mineral 
Development Act of 1982 (25 U.S.C. Sec. Sec. 2101, et seq.) (``IMDA''). 
Both leasing acts call for substantial Federal supervision and approval 
as conditions to valid leasing. By far the more flexible of the 
enactments is IMDA, which permits tribes to negotiate leasing 
contracts, joint ventures, or other forms of development agreements 
directly with industry, subject to ultimate Federal approval.
    The process of IMDA review and approval often results in inordinate 
delays between the completion of contract preparation and the actual 
date of approval. Statutorily, such review is supposed to take no 
longer than 180 days following submission to the Secretary. Even then, 
however, favorable review does not result in immediate approval because 
IMDA also includes an additional 30-day cooling off period between the 
date of notification of the Secretary's intent to approve and the 
actual date of approval. The 30-day cooling off period serves no 
apparent purpose other than to add delay and to create contract 
uncertainty. All of these time periods are subject to additional 
extension because IMDA also mandates an evaluation by the Bureau of 
Indian Affairs (BIA) under the National Environmental Policy Act (NEPA) 
as to whether the Federal approval of the tribe's contract is or is not 
a major Federal action. If the approval is not a major Federal action, 
then approval of the contract may proceed with somewhat streamlined 
evaluation of the impacts and alternatives to the contract 
(Environmental Assessment). If the approval is deemed a major Federal 
action, then contract approval will require public notification, 
comments, and the development of an elaborate evaluation of the 
proposed contract, its impacts and alternatives (Environmental Impact 
Statement). It should be noted that public review or evaluation of a 
tribe's IMDA contract appears fundamentally at odds with other IMDA 
provisions designed to maintain strict confidentiality protections 
regarding IMDA contract terms and related information (25 U.S.C. 
Sec. 2103(c)). The NEPA compliance provisions of IMDA can effectively 
convert the Federal Government's review and approval of a tribal 
resource decision from one that takes months to one that takes years. 
Correspondingly, an adjacent non-Indian landowner could complete the 
contract negotiation and signature process in a matter of days or 
weeks.
    Perhaps some tribes gain some comfort or a sense of protection from 
the lengthy approval process. We have no desire to impose a faster or 
more efficient process on those tribes that may want to retain the 
lengthy statutory approval processes. However, for those tribes with a 
demonstrated record of success and proficiency in commercial energy 
transactions there should be a mechanism for opting-out of the 
Secretarial approval process, if the tribe is willing to assume 
principal responsibility for its business decisions. If Federal 
approval is not involved, then the procedural delays associated with 
NEPA would also fall by the wayside; however, we also recognize that 
tribes and their contractors would still have to comply with the 
substantive provisions of environmental laws of general application. 
Proposed legislative language regarding this suggestion is included in 
my response at page 10, below.
    The Committee should also evaluate how the recent restructuring of 
the Bureau of Indian Affairs will affect delays in contract approval in 
Indian Country. We are very concerned that the creation of a new, 
central trust asset office, will result in the nullification of 
delegations of authority to local BIA agencies to make decisions 
regarding tribal resource development. The centralization of such 
decisions will simply add more delay to any already inefficient system 
of approval.
    The second phase of improvements involves the critical need for 
tribes to know more about their resources in making leasing and 
development decisions. Between 1974 and 1984, the Southern Ute Indian 
Tribe self-imposed a moratorium on mineral leasing. During that time 
period, they spent thousands of hours and hundreds of thousands of 
dollars collecting historic lease and geological information about 
their lands and minerals. They hired highly-qualified experts to assist 
in evaluating their resource potential and in building data and mapping 
systems. When the tribe resumed leasing, under the more flexible 
provisions of IMDA, it did so from a point of knowledge that was far 
greater than most tribes. Further, new lease provisions required the 
transfer to the tribe (under mutually acceptable confidentiality 
protections) of both raw and interpretive data generated from new 
operations. Based on our experience, we cannot stress enough the 
importance of constant review by tribes of data and information 
regarding their resources. Tribes generally lack the financial strength 
and the internal expertise to perform this invaluable aspect of 
resource management. We would urge the Committee to consider effective 
ways to supplement existing tribal resource evaluation programs so that 
tribes can learn more about the extent and potential of their 
resources.
    The third element of my recommendations relates to several specific 
conditions that have arisen over time in Indian Country that complicate 
the way in which third parties can conduct business with tribes. We 
believe that Congress can provide ways to improve those situations 
while also being sensitive to tribal sovereignty. One problem relates 
to the land records system in Indian Country. The Bureau of Indian 
Affairs maintains Land Titles and Records Offices in accordance with 
Part 150 of the Code of Federal Regulations. These offices are 
recording offices in the sense that they serve as depositories of 
records that evidence transactions that affect title to or the 
encumbrance of interests in Indian lands. There are no clear directives 
on how one might record a document in this system; however, practice in 
our region generally requires that the document be accompanied by a 
written recording request signed by a representative of the local BIA 
agency. Additionally, the effect of recording or not recording is not 
clear, particularly with respect to the establishment or perfection of 
commercial security interests. The absence of clearly defined effects 
of recording complicate everything from the processing of commercial 
loans by tribes and third parties in Indian Country to priorities in 
bankruptcy proceedings. Further, access to recorded information is 
limited, and, particularly given the confidentiality protections on 
IMDA agreements imposed by 25 U.S.C. Sec. 2103(c), a third party may 
have great difficulty gaining access to the records offices in order to 
determine the status of title. This difficulty further discourages 
potential interaction with a tribe or another leasehold interest holder 
about potential transactions. Finally, there is no integration of the 
Federal recording system with the state or local recording systems. We 
believe that there may be large potential cost savings and improved 
efficiencies associated with integration of the recording systems of 
the BIA with those of local clerk and recorder offices. We further 
believe that the Committee should investigate the possibility of 
permitting individual tribes to elect to merge such systems by 
encouraging the negotiation of intergovernmental agreements and by 
considering ways in which funding for such programs could be 
accomplished.
    Another difficulty in Indian Country relates to the way that 
Congress, the courts, tribes and third parties approach the efficacy of 
tribal courts to resolve disputes in Indian country. Congress has 
consistently embraced a policy that encourages tribes to establish and 
improve tribal court systems in Indian country. Federal and many state 
courts have deferred to tribal courts, at least initially, in 
determining the scope of their civil jurisdiction involving disputes 
occurring in Indian Country and in deciding such cases. The Supreme 
Court has issued a number of recent rulings undercutting the authority 
of tribal courts to hear cases involving non-members. Many third 
parties, including commercial institutions, energy companies, and 
others, perhaps fearing that tribal courts lack sophistication or 
fairness, refuse to conduct business with tribes unless exhaustion of 
tribal court remedies is waived. Tribes generally believe that the 
development of effective court systems with jurisdiction over most 
matters occurring in Indian Country is a critical aspect of 
sovereignty. These conditions have left the tribal courts in a state of 
limbo, have slowed the process of legitimizing tribal courts, and, 
correspondingly, have delayed the improvement of tribal court systems.
    Unless Congress intervenes legislatively, we doubt that tribal 
courts will ever evolve into the significant and effective institutions 
that they could be. Such legislative intervention must involve a 
respect for the individual decisions of each affected tribe, and, thus, 
should be an optional program. Tribes must accept the reality, however, 
that, unless tribal court decisions are subject to appeal within the 
Federal judicial system, institutional third parties (e.g., banks, 
energy companies, utility companies) will oppose using tribal courts as 
judicial forums. If, however, Congress established a system of Federal 
judicial review of tribal court decisions, would it not also be 
advisable to discourage avoidance of tribal courts as the forums for 
initial resolution of disputes in Indian Country? I believe that the 
Committee, in conjunction with other Committees of jurisdiction, should 
evaluate the status of tribal courts and should explore ways to 
strengthen them while also providing options for independent appellate 
review of tribal court decisions.
    The fourth aspect of my recommendations relates to Federal tax 
policy. The principal tool employed by Congress to encourage investment 
on Indian reservations has been the acceleration of Federal income tax 
depreciation that a third party may claim for interests in facilities 
located in Indian Country. At the same time, as a result of the Supreme 
Court decision in Cotton Petroleum, energy companies operating on 
tribal lands are subject to dual taxation by tribes and states 
associated with the severance of tribal minerals. Congress should act 
to mitigate the adverse impacts of the Cotton Petroleum decision in 
Indian Country. On a prospective basis, we believe that Congress should 
prohibit states from taxing non-Indians conducting business in Indian 
Country, unless an intergovernmental taxation compact has been entered 
into between the tribe and the state. Such intergovernmental agreements 
could set forth the services that would flow from states to tribes 
associated with the taxation of production from tribal lands. For 
example, funding from that source might well help defray the costs of 
integration of real property recording systems.
    Further, we believe that Congress should explore granting tax 
incentives to those who produce minerals in Indian Country. The 
effectiveness of tax credit programs under Section 29 of the Internal 
Revenue Code has been well documented with respect to non-conventional 
resource development for tight sands and coal seam gas. Inclusion of 
development of Indian minerals as a category of non-conventional 
resource development, and extension of the Section 29 tax credit 
program for such development would be an effective way to encourage 
such development.
    In conclusion, we hope these suggestions assist the Committee in 
considering ways to improve development of tribal energy resources.

2. You stated in your testimony that your ``management and technical 
        expertise are superior to that of the majority of energy 
        companies.'' Will you please explain to the Committee how your 
        experience has brought you to that conclusion?
    Gladly. My statement is based on results. The simple fact is that 
the Southern Ute Indian Tribe's energy enterprises have earned an 
average investor's rate of return in excess of 30% for over ten years. 
Only a tiny minority of energy companies have surpassed that economic 
performance. Our success has not been the result of a series of lucky 
breaks. Rather those achievements are attributable to the tribe's 
management and the technical ability of the tribe's staff.
    Tribal management has consistently improved the performance of 
energy assets acquired by the tribe from prior operators. For example, 
in 1995 we took over the operation of 54 coalbed methane wells located 
on the Southern Ute Indian Reservation as part of a bankruptcy workout. 
Within nine months we had nearly quadrupled the production rate of 
those wells to nearly 80 million cubic feet of gas per day. We improved 
that well performance by thoroughly understanding the physical 
characteristics of the complex coalbed methane reservoir and by 
aggressively investing in improvements designed to maximize economic 
return from the reservoir. We corrected improper well completions, 
redesigned and rebuilt surface production facilities, and upgraded 
transportation and compression systems.
    In 1992, the tribe invested $8 million in Red Willow Production 
Company, its wholly owned exploration and production company. It was a 
startup, with one employee and no energy assets. Today, after a long 
series of successful acquisitions, Red Willow owns nearly 500 billion 
cubic feet of natural gas with a market value of approximately $500 
million (in ground). Red Willow generates annual earnings approaching 
$100 million and is free from debt. During the same period that Red 
Willow was successfully expanding, thousands of independent oil 
companies went out of business.
    In 1995, the tribe invested $11 million in a joint venture to buy a 
small gathering and treating company on the Reservation, which became 
known as Red Cedar Gathering Company. Since that acquisition, the 
amount of coalbed methane volumes treated through Red Cedar has 
increased from 125 million cubic feet per day to 750 million cubic feet 
per day. The tribe's 51% share of that joint venture is currently worth 
approximately $200 million. Red Cedar's operating improvements have 
caused operator/customers to shift their business from less aggressive 
competitors to Red Cedar.
    Recently we formed a new venture called Aka Energy. Its mission is 
to evaluate, acquire and operate underperforming mid-stream energy 
transportation and treating assets in the Rockies outside the 
Reservation. We have found almost limitless opportunities to do this. 
The well-publicized mismanagement of industry giants has created 
extraordinary opportunities for Aka Energy. When those large companies 
quit focusing on their core businesses, stranded natural gas producers 
desperately needed an aggressive, well-managed gathering company to 
treat and transport their gas. We intend to oblige them.
    In sum, over many years, we have monitored the performance of 
scores of companies on tribal lands within the Reservation. Some were 
good at raising money, others were good at acquiring assets, and others 
had an aptitude for befuddling stock analysts, but very few were good 
at getting gas out of the ground. Our success has been achieved in part 
by our having consistently witnessed crucial technical or operational 
errors by other companies. For example, the short-term budgetary 
considerations of major companies often result in poor resource 
management decisions. Our view is a longer view, and we have 
consistently out-performed our competition. We would be happy to host 
any representatives of the Committee on a field tour of our operations, 
which are now among the finest in the industry.

3. Why do you believe that a tribe that takes control of the management 
        of its resources and finances is better able to ensure the 
        financial future of its membership?
    The assumption by tribes of management control by itself does not 
guarantee financial success; however, prudent and disciplined 
management by tribes will almost certainly improve their financial 
performance. Although there are dedicated employees of Federal agencies 
that currently manage the resources of many tribes, their incentive for 
generating success is less immediate than that of tribal personnel 
managing a tribe's resources. In our experience, the risks of failure 
and the potential fruits of success drove us to secure the services of 
highly qualified individuals to assist in making sound decisions and in 
instituting effective management systems. Our tribe's leaders were 
convinced that, armed with quality information and advice, tribal 
management would outperform Federal Governmental management, and those 
tribal leaders withstood the internal political heat that resulted from 
hiring that outside expertise. Their wisdom in this regard is being 
constantly confirmed and reconfirmed; however, there is also no 
question that the existence of valuable resources under our tribe's 
lands (a favorable condition not shared by all tribes) provided a 
springboard to the opportunities that the tribe has realized.

4. In your testimony you mentioned that the tribe has been able to 
        distribute over $90 million to its members through a variety of 
        programs. Will you please explain further how the success of 
        the tribe's energy resource development has made the tribe 
        self-sufficient?
    The tribe's goal is been to become economically self-sufficient, 
and, while we are well on the way to meeting that goal, we still have 
many challenges before us. The development of the tribe's energy 
resources has been the most significant aspect of its success. In that 
regard, the tribe realized that its non-renewable energy resources 
were, by definition, finite. Each molecule of gas leaving the 
Reservation was gone forever, and only if the tribe took advantage of 
multiple opportunities to extract value from that molecule would the 
tribe be able to maximize the value of that resource. It is for that 
reason that the tribe expanded from simply owning a passive royalty 
interest, to imposing its own tax on the severance of the resource, to 
acquiring working interests in tribal leases, to performing well 
operations with regard to its leases, to investing in gathering and 
treating businesses, and engaging in marketing activities. The success 
of the tribe, even in these somewhat diversified areas, was nonetheless 
tied to that finite universe of depleting molecules.
    After extensive review of that situation, the tribe's leaders came 
to realize that the only way to assure perpetual prosperity for the 
tribe was to take the surplus from successful on-Reservation energy 
development and diversify that investment into off-Reservation assets 
that are not depleting. The extensive process of developing asset 
allocation strategies and execution of sound investment decisions 
should be a never-ending process for the tribe.
    Merely making money for money's sake, however, does not meet the 
needs of the tribe's members. The tribe's financial success must be 
felt directly by the members in order to maintain the system that has 
been developed. Without the return of some portion of the tribe's 
earning to its members, the temptation to change the system and 
distribute all of the tribe's savings would be difficult to resist. The 
return of earnings to the tribe has manifested itself in several ways. 
First, the tribe has invested millions of dollars in improved community 
infrastructure, including: a regional waste water treatment plant, a 
tribal school, a state-of-the-art recreational center, and a judicial 
complex, all of which positively affect the members and non-members who 
benefit from these facilities. Tribal housing programs, improved group 
life insurance and health coverage, and extensive scholarship programs 
also touch many of the members directly. Additionally, all tribal 
members either receive or are allocated per capita payments in an 
amount of approximately $520 per month. Tribal members who are 60 years 
of age or older also receive tribal retirement payments of 
approximately $54,000 per year. Tribal members between the ages of 26 
and 59 receive dividend payments based upon the success of the tribe's 
investments. Those dividend payments have amounted to approximately 
$14,000 per year.
    The objective of the tribe, as evidenced in its financial plan, is 
to accumulate enough money so that the earnings from conservative 
investments will sustain the tribe's core government (current levels 
plus 3% inflation per year) and pay per capita payments at current 
levels, plus inflation, in perpetuity. Further, once that amount of 
capital has been accumulated, the business arms of the tribe will 
continue to invest significant percentages of the tribe's surpluses in 
aggressive, growth investments, the earnings from which fund retirement 
payments and dividends for individuals, as well as other discretionary 
programs.
    The tribe's goals and the means for achieving those goals are 
reasonably well-defined. The tribe's financial plans and forecasting 
have been designed to be flexible enough, however, to adjust to 
changes, such as modifications in the blood quantum requirement for 
membership (currently 1/4 Southern Ute).
    We believe we have demonstrated that prudent and disciplined 
management of resources by tribes can improve their economic condition. 
At some point in time, successful economic development may become 
financial self-sufficiency. That is certainly one of the tribe's goals.

5. What, in your view, are some of the impediments to non-renewable 
        resource development in Indian Country, and how do you propose 
        that the Congress address them?
    Please see response to Question No. 1.

QUESTIONS FROM CONGRESSMAN NICK J. RAHALL, II

A. The testimony states that in some cases the Tribe has added 
        provisions to contracts which waive its sovereign immunity from 
        suit. Would you please expand on this issue for us and tell me 
        how well it has worked for you? Do you think we should include 
        a requirement for Indian tribes to include similar provisions 
        in contracts or should it be left up to the individual Indian 
        tribe to decide?
    In many situations tribes possess relatively little bargaining 
power in the world of contracts and commercial transactions. As a 
tribe's need for services becomes more acute, or as the size (and, 
thus, alternatives) of the other party increases, contract negotiations 
include detailed discussions about sovereign immunity and dispute 
resolution mechanisms. Our tribe has long recognized that banks and 
major energy companies, for example, will not enter into contracts with 
tribes unless they can be assured that the agreements will be subject 
to effective enforcement. As everybody dealing with tribes knows or 
should know, under existing law, tribes, like state governments, may 
not be sued unless they expressly consent to such suits or unless 
Congress has expressly waived that aspect of tribal sovereignty. Our 
tribe has issued waivers of sovereign immunity from suit on countless 
occasions; however, such waivers are generally limited to the 
contracting party, its successors or assigns.
    The more difficult question frequently involves the question of 
designation of the forum for dispute or the laws governing such a 
dispute. Many companies simply refuse to subject themselves to the 
jurisdiction of tribal courts, at least for purposes of contract 
dispute resolution. As mentioned above in my response to Question No. 
1, we believe that such reluctance is not justified and, in fact, 
frustrates the public policy of enhancing the vitality of tribal 
courts. Nonetheless, we also recognize that there may be a practical 
need for some independent Federal review of tribal court decisions 
before third parties with power or critical services will subject 
themselves to tribal court jurisdiction.
    We definitely feel that the decision to waive or not waive 
sovereign immunity is one that each tribe has the right to make in 
light of the facts and circumstances. Legislation should not compel 
tribes to waive this critical aspect of sovereignty. Rather, that 
decision should be made by the individual tribe, through its governing 
body, in accordance with existing law. As indicated above, the decision 
to waive or not waive sovereign immunity from suit, is often only the 
starting point in contract negotiations regarding dispute resolution. 
Would Congress, also require, for example, that lawsuits brought 
against tribes must be brought in the first instance in tribal courts? 
Like the United States Government, some tribes may be willing to expose 
themselves for monetary damages, but only in accordance with their own 
laws or in their own courts. The careful balancing of individual tribal 
interests and needs inherent in such decisions is not one that easily 
lends itself to a simple legislative fix.
    Some who advocate in favor of eliminating tribal sovereign immunity 
do so under the banner of ``contract sanctity.'' We have found that 
some major companies who proudly raise the standard of contract 
sanctity are, in fact, the most litigious when it comes to avoiding 
their obligations to tribes and the Federal Government under mineral 
leases, especially with respect to royalty valuation, payment and 
reporting. Notions of contract sanctity involve considerably more than 
a desire to improve bargaining positions through legislation.

B. The success of the Southern Ute Tribe in managing and controlling 
        its energy resources is very impressive. In the coming weeks 
        Congress will be looking at legislation affecting energy 
        development across the country. Can you tell the Committee, 
        from your experience, what you think we can do to help Indian 
        Tribes develop their energy resources and reap the financial 
        benefits from such development?
    We believe that the Committee should develop legislation that 
allows tribes to petition the Secretary for exemption from the current 
approval requirements contained in the Indian Mineral Leasing Act and 
IMDA. The suggested exemption would be granted only if the Secretary 
determined that a tribe were qualified to make such decisions in an 
informed and effective manner based, in part, on statutory criteria. We 
also recognize that a tribe obtaining such an exemption should be 
willing to assume principal responsibility for the business decisions 
it makes in entering into mineral development agreements without 
Secretarial approval. This result would, in our minds, be one of the 
factors a tribe would need to consider in seeking such an exemption. 
Suggested legislative language for this proposal is provided as 
follows:

SEC. __. SECRETARIAL DETERMINATION OF MANAGEMENT CAPACITY

    (A) Regulations and Application considerations. Within 180 days of 
enactment of this Act, the Secretary of the Interior shall adopt 
regulations permitting any Federally recognized Indian tribe to apply 
to the Secretary for a determination that the applying tribe has the 
capacity to enter into leases and other agreements, including any 
``Minerals Agreement'' as defined in section 3(a) of the Act of 
December 22, 1982, Public Law 97-382, without the necessity of approval 
of such agreements by the Secretary of the Interior, the Assistant 
Secretary of the Interior for Indian Affairs, or their authorized 
delegates. Among other factors to be considered in making the 
determination of capacity, the Secretary shall consider:
    (a) the historical experience of the tribe in entering into mineral 
leases and other related agreements;
    (b) whether the tribe has established an internal department or 
division with designated responsibility to assist in the negotiation of 
or the monitoring of compliance with the provisions of mineral leases 
or other related agreements;
    (c) the technical expertise of individuals appointed by or employed 
by the tribe in the internal department or division;
    (d) the retention by the tribe of legal counsel with experience or 
expertise in matters involving mineral leasing;
    (e) other factors identified by the Secretary indicative of the 
applying tribe's capacity to make prudent decisions with respect the 
development of its mineral resources.

    (B) Application process. Following adoption of the regulations 
establishing the application process, those Indian tribes so choosing 
shall be permitted to submit applications described in this Section. 
Within ninety days of submission of any such an application, the 
Secretary shall issue a written determination to the applying tribe 
either recognizing or not recognizing the capacity of the tribe to 
enter into mineral leases and other related agreements without the 
approval of the Secretary of the Interior. The Secretary shall provide 
written findings supporting either a positive or negative 
determination; however, the determination by the Secretary shall not 
appealable or subject to judicial review. Between the date of receipt 
of a tribal application and the date of determination, the Secretary 
may request from an applying tribe such additional information in 
support of a favorable determination as deemed necessary by the 
Secretary. Receipt of a negative determination by a tribe shall not 
preclude that tribe from submitting subsequent applications seeking a 
positive determination.

SEC. __. EFFECT OF SECRETARIAL DETERMINATION
    Any tribe receiving a favorable determination of capacity shall be 
authorized, subject to any limitation or provision contained in its 
constitution or charter, to enter into binding mineral leases or other 
related agreements without the necessity for additional review or 
approval by the Secretary. Such an Indian tribe may continue to seek 
advice, assistance, and information from the Secretary during and after 
the negotiation process, which shall be provided to the extent allowed 
by available resources.
    (A) No Form Prescribed. Any such lease or other related agreement 
to which an Indian tribe is a party shall be in writing and, to the 
extent determined applicable by the parties thereto, shall address:
     (1) the identity of the parties to the lease or agreement; the 
legal description of the lands, including, if applicable, rock 
intervals or thicknesses subject to the lease or agreement; and the 
purposes of the lease or agreement;
     (2) the duration of the lease or agreement;
     (3) indemnification of the Indian tribe and the United States from 
all claims, liabilities and causes of action that may be made by 
persons not a party to the lease or agreement;
     (4) the obligations of the respective parties;
     (5) methods for disposition of production;
     (6) methods of payment and amount of compensation to be paid;
     (7) accounting and mineral valuation procedures;
     (8) operating and management procedures;
     (9) limitations on assignment of interests, including preferential 
rights;
    (10) bond requirements;
    (11) insurance requirements;
    (12) audit procedures;
    (13) dispute resolution;
    (14) force majeure matters;
    (15) termination or suspension procedures;
    (16) abandonment, reclamation and restoration activities;
    (17) production and sales reporting requirements;
    (18) unitization, communitization, and conservation and efficient 
utilization measures;
    (19) drainage and diligence;
    (20) record keeping;
    (21) taxation.
    In addition, the mineral lease or other agreement may incorporate 
regulations, including reporting, auditing and enforcement procedures, 
of the Bureau of Indian Affairs, the Bureau of Land Management, and the 
Minerals Management Service, or their successor agencies, to the same 
extent that such incorporation would otherwise be permissible under the 
Act of December 22, 1982, Public Law 97-382, and the regulations 
implementing that Act.
    (B) Submission to Bureau of Indian Affairs. The executed mineral 
lease or agreement, together with a copy of the tribal governmental 
resolution authorizing tribal officers to execute the same, shall be 
forwarded by the tribe to the appropriate Superintendent of the Bureau 
of Indian Affairs, or in the absence of a Superintendent, to the Area 
Director, and shall be maintained as a record of that agency. 
Notwithstanding any other law, all projections, studies, data or other 
information possessed by the Department of the Interior regarding the 
terms and conditions of a mineral lease or other agreement entered into 
under the provisions of this Act, the financial return to the Indian 
tribe, or the extent, nature, value or disposition of the Indian 
mineral resources, or the production, products or proceeds thereof, 
shall be held by the Department of the Interior as privileged 
proprietary information of the affected Indian tribe.
    (C) Nonliability of United States; continuing obligations. The 
United States shall not be liable for losses sustained by a tribe under 
any mineral lease or other related agreement entered into pursuant to 
this Act; Provided, That the Secretary shall continue to have a trust 
responsibility to ensure that the rights of a tribe are protected in 
the event of a violation of the terms of any such lease or agreement by 
any other party to such lease or agreement; Provided further, That, 
except as otherwise provided herein, nothing in this Act shall absolve 
the United States from any responsibility to Indians, including those 
which derive from the trust relationship and from any treaties, 
Executive orders, or agreement between the United States and any Indian 
tribe.
    (D) Regulations regarding duration of determination. The Secretary, 
after consultation with national and regional Indian organizations and 
tribes with expertise in mineral development, shall promulgate rules 
governing the conditions under which a determination of capacity may be 
reviewed and revoked. No revocation of a determination of capacity 
shall serve to invalidate a mineral lease or other agreement entered 
into pursuant to the provisions of this Act.
    In conclusion, I hope that the information provided is helpful to 
the Committee. We are available to the Committee to answer additional 
comments or questions, and we renew our invitation to members of the 
Committee or the staffs to visit our facilities on the Southern Ute 
Indian Reservation.

Respectfully submitted,

Robert Santistevan
Executive Director

cc: Chairman Howard D. Richards, Sr.
   Thomas H. Shipps, Esq.
                                 ______
                                 
    The Chairman. Thank you. I thank the entire panel for your 
testimony.
    Let me start with Miss Novak, if I could. One of the things 
that struck me in your testimony, you talked about the part of 
our business, the chemical business, is leaving and moving 
production to Trinidad Tobago because of gas prices.
    Can you explain to the Committee why gas prices are so much 
cheaper there that it would make them competitive to move their 
business to that area?
    Ms. Novak. Well, Trinidad and Tobago have large reserves. 
They have no domestic requirement, or little domestic 
requirement, for that gas. They have been investing in 
essentially ways to export natural gas. Typically, you can 
export natural gas through an LNG facility, liquify it, and 
then ship it to the United States or elsewhere where it's 
gasified.
    But another way to do it is actually to turn it into a 
product and export that product. So, within the last 10 years, 
they have built a variety of industrial chemical facilities to 
essentially convert the gas into a saleable product. That way 
they not only get the value of the gas returned to them, but 
also the markup associated with selling a higher valued 
product.
    This is a technology or a way of moving that. I mean, when 
you look at the recent discoveries in gutter, they are actually 
not only looking at expanding their petrochemical facilities, 
moving into higher derivatives, they are also liquefying 
natural gas. So all of the major natural gas resources 
throughout the world are looking at extending their way to 
transform that gas into a moveable product, saleable as a 
global commodity.
    So the value of that gas to that country is virtually nil, 
but it has great value if it's transformable and transportable. 
So converting it to chemicals, converting it to LNG, are two of 
the ways that can happen.
    The Chairman. Would the same not be true for the U.S., if 
we developed our gas fields and had a greater supply within our 
borders? Would not the economic impact be the same, where you 
would drive down the price and possibly keep some of those jobs 
and those companies in this country?
    Mr. Gupta. Mr. Chairman, could I answer that question?
    I think, in addition to what Mary Novak spoke, there is 
also the big competition here from the Middle East, where gas 
has essentially flared at zero cost, so a lot of the petro-
chemical complexes are moving there--including a country like 
Germany, that has a direct cheap gas pipeline with Russia as a 
cheap gas source. In fact, historically, when the gas prices 
were at $2 or below, around the $2 level, the U.S. chemical 
industry enjoyed a significant advantage and really built a 
major industry, a very competitive industry, on a global scale. 
When the price approaches over $3.50, $4 level, it clearly 
makes the U.S. industry, at best, marginally competitive 
relative to its peers, not only in the Middle East, but 
Trinidad/Tobago, and in a country like Germany, which has not 
been a preferred destination for chemical investment.
    So I think there's really two issues here. One is the wide 
fluctuations of the gas prices, which really doesn't help us in 
terms of forecasting what to expect in the future, and the even 
longer term question clearly is adequate supply that will make 
the market mechanism work better.
    The Chairman. I would then again restate my question. Would 
not it make us in a more competitive position if we were to 
develop our resources here in this country?
    Go ahead, Mr. Downer. This is kind of your bailiwick here.
    Mr. Downer. Yes, sir. And the supplies are on the OCS. They 
are definitely out there. What we need to do is improve the 
infrastructure that supports that continued exploration and 
increase it.
    For example, I gave you those statistics of the growth 
between 1997, 1998, and the current time, a 500 percent 
increase. What is there physically in place, the physical 
infrastructure--for example, Port Fourchon, that road cannot 
handle any increased activity with any degree of efficiency. A 
17-mile stretch of road, right now, winding, narrow, that is 
sinking and under water, subject to the ebb and flow of the 
tide, and with our coast eroding. Ten thousand vehicles a day 
travel that narrow, winding, two-lane road, a thousand trucks. 
To where? To Port Fourchon, to support the offshore oil and gas 
infrastructure. It is there. With increased lease sales on the 
OCS, we can expand that oil and gas production and afford the 
supply, the domestic supply.
    Louisiana has the largest concentration of gas and oil 
pipeline off of its coast feeding the nation. At that hub that 
I referred to, 40 percent of the Nation's natural gas, 
domestic, comes through that hub. Now, with that, we have to 
have the infrastructure improvements. To do that, we need a 
partnership, some help with the Federal Government, in a 
partnership to improve that infrastructure.
    We got back $13.4 million last year. To replace that 17-
mile stretch of road with a bridge, that is four lanes, would 
cost $500 million. You can't do it with $13 million. But we 
could if we had an increased revenue share. With an increased 
revenue share from the OCS royalties--which by the way, as you 
know, beyond the six-mile limit, we get nothing off of the 
Federal lands. We would get 50 percent if it were Federal lands 
within our borders. However, each one of these people who 
testified today, their gas that supplies and fuels their 
plants, is with us.
    Along the Mississippi River corridor in Louisiana is the 
greatest concentration of petro-chemical industries in the 
country. And yes, you could get a high value product, if we 
could get more gas in to convert that product. And what do we 
do when we do that? We stimulate our economy. But they're 
correct. By doing it overseas, they can't import natural gas as 
efficiently as they can oil, because it just doesn't tanker as 
easy. But if they can convert it to a product and they're 
sending us the product, we're losing.
    If we don't pay attention to our infrastructure and help 
those States who are willing to explore for their oil and gas, 
who have the increased oil and gas off of our shares, we lose.
    The Chairman. Obviously, Louisiana and the Gulf states have 
a tremendous resource, which is one of the reasons why this 
Committee believes that has to be part of our long-term energy 
solution. But I would also say that other states, like Alaska, 
have a huge resource that, for the most part, is going 
untapped. And then we have our other public lands as well as 
our tribal lands that have the possibility of helping to solve 
this problem over the long term. That's really why we're trying 
to move toward this.
    Unfortunately, my time has expired. I will recognize the 
Subcommittee Chairman, Miss Cubin.
    Ms. Cubin. Thank you, Mr. Chairman.
    I don't know whether the audience has been apprised, that 
the reason we have a Chairman and Subcommittee Chairman here is 
because today there was called a classified briefing on 
homeland security, so it isn't that Members aren't caring about 
what is going on here today. We care very much, but they are 
tied up doing that.
    Speaking of security, in your testimony, Mr. Downer, you 
cautioned about security.
    Mr. Downer. Yes, ma'am.
    Ms. Cubin. What resources are you most optimistic about 
producing in the Gulf over the coming years, and what resources 
might be the most difficult to develop?
    Mr. Downer. I believe, if I recall, you have visited Port 
Fourchon in coastal Louisiana, so you are somewhat familiar 
with what you a call a bird's eye view of the geography. As I 
mentioned, for example, within that 40 mile radius of Port 
Fourchon, having 600 of those offshore oil platforms dotting 
out there, we all know it is almost physically impossible to 
secure each one of them.
    As you got your briefing on homeland security and what our 
country must do, we know they're going to look for targets of 
opportunity that have a significant economic impact, as well as 
a loss of lives. To target one of those 600 platforms would be 
very simple and very easy. It would be a simple and easy task 
to target. However, they do not get a significant impact from 
one rig or one platform with 599 still functioning. They're 
going to go for the jugular. The jugular is where all that 
comes together, at that port. That means enhanced security for 
the port and for its facilities.
    But in addition to that, we are fighting, as you saw when 
you came down there in south Louisiana, a silent war. It's 
mother nature. As we talk, we can have all of the security out 
there. We can have anti-aircraft missiles, we can have the 
Coast Guard, the Navy, with a circle around it, where nobody 
gets in and out. But they can't stop the erosion.
    I was activated during and prior to the hurricane and 
tropical storm in the fall. I was the first one up in the air 
following that. The first thing we did, we had to check our oil 
and gas infrastructure, our coast. It was washing out. As the 
tide went out, it was taking Louisiana with it. We need help 
there, because that infrastructure, that domestic 
infrastructure, is what supports the oil and gas exploration on 
the Federal lands beyond the six mile limit. By enhancing and 
working in a partnership with the State and with private 
industry, we are able, or would be able to give the additional 
land-based, domestic infrastructure to bring in and support the 
additional offshore or OCS oil and gas exploration that the 
rest of the country so desperately needs.
    Have I answered your question, or would you like more 
specifics?
    Ms. Cubin. No, you have exactly answered my question.
    I, for one, am very committed to seeing that Louisiana gets 
some resources to shore up its shore, if you will. I was so 
appalled when I saw the road. I can't say ``Port Fourchon'' 
like you can. I just love the way people from Louisiana say 
that.
    Mr. Downer. Thank you, ma'am.
    Ms. Cubin. I didn't go to see those platform.
    Mr. Downer. You learn well. You're communicating with your 
hands, and that's also how we talk. So thank you.
    [Laughter.]
    Ms. Cubin. Anyway, I am very committed to that. I was 
opposed to CARA because it did way too many things. But I will 
be working with the Louisiana delegation to do what we can.
    Mr. Downer. Thank you, ma'am.
    Ms. Cubin. Because I see that absolutely as a national 
security problem, as well as what is fair to the State of 
Louisiana.
    I am going to go on and ask Mr. Gupta, I want to ask about 
natural gas prices. Are high natural gas prices and other 
regulations moving the United States chemical industry 
offshore? I know a lot of other industries are moving offshore 
because of regulations, because of an unfriendly business 
environment. How much of an impact would you say the energy 
aspect is causing chemical companies to move offshore?
    Mr. Gupta. Well, I would say you have to almost separate 
the chemical industry from the building block industry and the 
downstream industry. The building block industry is really 
facing a major crisis, because for the building block industry, 
natural gas is not only a source of energy but it is also a 
source of raw material. When the gas prices were in the $2 
range, the U.S. chemical industry, especially what we call the 
ethylene chain, the large crackers, had a significant advantage 
vis-a-vis the rest of the world. Today, this advantage has not 
only disappeared but it has really turned negative. In fact, 
the balance of payments of our industry has really turned 
around. This used to be the largest exporting industry.
    So that industry is definitely moving. In fact, a lot of 
capacity is being shut down in the United States, especially in 
Texas right now. Whether it's temporary or permanent would very 
much depend on what we see as the trend for natural gas.
    There is also the downstream industry. I would say the 
downstream industry is facing challenges not only with respect 
to regulation and raw materials and energy, but also relative 
to competing from other offshore production. So our objective, 
and our best defense, really, is to have a gas policy in the 
United States which is unique. I mean, gas is really unique to 
the United States. The rest of the world does not use natural 
gas as a building block. This is a domestic issue. We have 
ample availability of these raw materials, and if we really do 
our job here, with the help of the Congress, and the policy 
change, we could rebuild very quick the advantage for the U.S. 
chemical industry.
    Ms. Cubin. Do you have any idea, rough idea, on what 
percentage of businesses in your industry have moved offshore?
    Mr. Gupta. I would say--you know, the chemical industry in 
the U.S. has been a very powerful driver, and it's an industry 
which is truly a basic infrastructure industry. It serves every 
end use market you can imagine--from electronics, to chemical, 
to automobiles, detergents. It's a very, very widely used 
industry.
    The migration of the U.S. chemical industry offshore is 
really driven by two things: either customers moving, or they 
are becoming much more competitive because of lower cost of 
energy and raw materials. So I would say the migration of the 
U.S. chemical industry is a slow process. What has happened and 
is happening today, it is accelerating because of the 
uncertainty of the natural gas pricing and the volatile nature 
of it and availability of it. This is accelerating today. It 
started probably, I would say, 2 years ago, when we had a big 
surge in the natural gas price in the fall of 2001, and it 
really is being questioned right now. Facilities are shutting 
down and jobs are being lost.
    Ms. Cubin. Thank you.
    Mr. Parker, in your testimony you mentioned that inner-
agency activity for directing the environmental review that 
everyone has to go through, pipelines and drilling programs, 
would be beneficial. Do you have any specific ideas about how 
that would work?
    Mr. Parker. Let me state that one of the problems that the 
producers tell us they have, in terms of accessing areas of 
supply--and let me state that there is ample supply of natural 
gas resources in the United States, both onshore and offshore. 
For example, over the last 10 years, 200 trillion cubic feet of 
natural gas has been used in the United States. Yet, our 
resource base has not diminished at all. As a matter of fact, 
our identifiable resource base has actually increased.
    But the problem is in terms of the producers trying to 
access many of the Federal lands, whether they're OCS lands or 
whether they're onshore lands, they run into a myriad of 
regulations and legislation, both at the State level and at the 
Federal level, and getting through that permitting process and 
going through those environmental statements that need to be 
filed, takes longer than it does to secure the resources to 
actually do the drilling. We would suggest that the Congress 
has an obligation to really take a look at streamlining that 
process between agencies. To give you one example, between the 
Department of Interior and the National Oceanographic agency at 
the Commerce Department.
    Ms. Cubin. And the Forest Service and the Park Service, and 
on and on and on. Thank you very much.
    Miss Novak, without exploring in new basins, do you think 
we have a viable natural gas future in this country?
    Ms. Novak. No.
    Ms. Cubin. In the lower 48, we just don't?
    Ms. Novak. In the lower 48, the Gulf onshore, and the 
traditional areas that we have been working in, actually we 
were able to sustain for quite a while, the deliverability from 
those areas. However, since 1992-93, they have been on kind of 
a slow decline. And now what we're seeing over the last year-
and-a-half, 2 years, is an increase in the rate of decline, so 
that we're actually going to be falling off pretty quickly.
    So what the forecast is calling for is essentially filling 
in that gap with supplies from new areas, increasing volumes 
that are going to have to come from deep, the Gulf deep, and 
we're going to have to be increasing, significantly 
increasing--our forecast calls for very large increases in 
Rocky Mountain gas, coalbed methane.
    We have been importing an increasing amount of our supplies 
from Canada's western sedimentary basin. That also is mature. 
It has also started a long-term decline. It's in a fairly--it's 
still in a shallow decline, but it is anticipated by the 
Canadian energy organizations to essentially hit a steeper 
decline in about 5 years. That is why we're looking to McKenzie 
Delta gas and our gas from the Alaska North Slope to come 
through the pipeline.
    But, without deep gas, without significant increases in 
Rocky Mountain gas and coalbed methane, we're going to be in a 
very tight natural gas position to the point where not only is 
all of our gas-intensive industry going to have to move 
offshore, but we're going to have to pull back from some of our 
use of natural gas in the power sector, because the decline in 
our traditional areas is becoming quite significant.
    Ms. Cubin. So do you think we could, if we were able to 
produce where we know there are reserves, like in the Rocky 
Mountains, which would make my State treasury healthier and the 
Federal treasury healthier, and we would have lower gas prices 
and more business, do you think we could ever be gas 
independent?
    Ms. Novak. As Mr. Parker just said, we have 50 years of 
supply, so it's not a question of not having the gas. It's a 
political will to develop that gas resource. So we have 
competing needs, competing goals, within the United States. 
It's really coming to some rationalization that, recognizing 
that some of the gas resources that we had very high 
expectations for and great hopes for, some of the shallow 
offshore that would play out better than it has played out. We 
are reaching the requirement to move into more environmentally 
sensitive areas--the Rockies, some of the northwest areas--much 
sooner. That's what it is really coming down to. We're at that 
point now where we're going to have to move into that.
    Both our forecast and the one from the Energy Information 
Administration are basically saying we're going to need to be 
producing about 4 TCF of natural gas from those unconventional 
areas by the end of the decade.
    Ms. Cubin. Do they consider the Rocky Mountains 
unconventional areas?
    Ms. Novak. Unconventional formations, yes. I mean, it's 
just a term.
    Ms. Cubin. It is so amazing to me why we have to fight for 
an energy policy that allows us to produce enough energy that 
we could be even semi-independent. People on the other side are 
always crying that we need renewable energy, you know, we need 
to conserve. There is a proposal for a wind farm off of 
Nantucket Sound which would be an excellent investment. I'll 
have a hearing out there. But at this point in time, it seems 
like it's a real good thing to do. You can't believe how the 
folks who have been complaining about fossil fuels are fighting 
that wind farm, because--you know, not in my back yard.
    Ms. Novak. Well, I'm from Massachusetts, so I--
    Ms. Cubin. You understand.
    Ms. Novak. I do want to clarify that we need it all.
    Ms. Cubin. We do need it all.
    Ms. Novak. We need it all.
    Ms. Cubin. That's exactly right.
    Ms. Novak. It's not a question at this point of being able 
to trade one against the other. We need it all.
    Ms. Cubin. Right. I think my point was that it seems to me 
sometimes that the people on the other side of this issue just 
want to make it an issue. They want to enjoy the benefits of 
energy, but they--never mind.
    Mr. Santistevan, what recommendations would you make to the 
Committee to improve opportunities for tribes to develop 
nonrenewable energy resources?
    Mr. Santistevan. I would say that probably an overhaul or a 
look at the Indian Minerals Development Act of 1982. The 
Southern Ute Indian Tribe at one point in time had the majority 
of all Indian agreements in the Indian country in the United 
States. We have been real successful at working under that Act 
and being able to produce gas. But I think there are provisions 
in that that need to be looked at, so that tribes can go out 
and develop that a little easier without all the hurdles that 
are imposed by that Act and previous acts that grant access to 
minerals on Indian reservations.
    Ms. Cubin. But you've had a good experience in dealing with 
them?
    Mr. Santistevan. We have, because we've been involved in 
the oil and gas industry for such a long time. Gas was first 
discovered on our reservation like in the 1940's. We were 
passive royalty owners from the forties until the eighties, and 
it wasn't until we were allowed to negotiate directly with oil 
and gas companies through the Indian Minerals Development Act 
that we were able to kind of be involved in that process at 
all. I think that was a good thing for tribes, but I think that 
needs to be looked at to make it even easier.
    Ms. Cubin. Well, I surely agree with you. We have a 
reservation in Wyoming, a large reservation, with two tribes on 
it. You know, they are always trying to find a way to build 
their economic base. They are some of the poorest tribes in the 
country, and yet we have reason to believe that there is energy 
under their ground. We just simply haven't been able to help 
them work through the morass of regulations and agencies and 
what not. I appreciate it. Maybe we can get in touch with you 
at a later time and get some suggestions on how I could help 
them work through that.
    Mr. Santistevan. That would be great. We would make 
ourselves available for that.
    Ms. Cubin. Thank you.
    Mr. Chairman, I have other questions but I will just submit 
them.
    The Chairman. Thank you.
    Before I dismiss this panel, I would just say there are a 
number of members who had hoped to make it back to the 
Committee before we adjourned this panel and excuse this panel. 
Because they were not able to make it, there will be questions 
that will be submitted to you in writing. I would ask that you 
answer those in writing so that they can be included as part of 
the hearing record.
    I will say that there seemed to be general agreement 
amongst the panelists that, although improving and adding to 
our existing gas resources is extremely important, that the 
effort that is being made to have a balanced bill to go after 
all of the different energy resources is extremely important.
    Mr. Santistevan, if you could provide for the Committee 
some of those suggestions and give us an opportunity to look at 
how we go in and look at some of the nonrenewable sources and 
how that can help, this is something of large concern to the 
Committee as a whole. So we would greatly appreciate any 
suggestions that you would have, or anything you could give the 
Committee on that.
    Mr. Santistevan. I would be happy to submit those.
    The Chairman. Thank you.
    I am going to excuse the panel and thank you for your 
testimony and answers to the questions.
    I will call up our third panel. We have Mr. Diemer True, 
Wayne Wood, Patrick Sweeney, and Karl Gawell. I would ask this 
panel to stand and raise your right hand.
    [Witnesses sworn.]
    Let the record show they answered in the affirmative.
    I want to thank the panel for your patience in sticking 
with us. I'm going to recognize my Subcommittee Chairman to 
introduce our first witness.
    Ms. Cubin. Thank you, Mr. Chairman.
    It is my honor today to introduce our first witness. I 
welcome him and his wife to Washington and to this hearing.
    Diemer True and I grew up together in Casper. We have known 
each other and served on the student council together since 
junior high school, so we know each other very well. Diemer and 
I served in the Wyoming State legislature. He served 4 years in 
the House and then 16 years in the Senate, retiring as Senate 
President. I was just a rookie then, so even though we were in 
school at the same time, it's obvious he's a lot older than I 
am.
    It is also obvious he's a lot older than I am because he 
has 14 grandchildren...?
    Mr. True. Fifteen.
    Ms. Cubin. Fifteen grandchildren, and I have none.
    [Laughter.]
    Anyway, Diemer is here today to testify on behalf of the 
Independent Petroleum Association of America. I welcome you and 
look forward to your testimony.
    Mr. True. Thank you.
    The Chairman. You're welcome. If you're ready, you can 
begin.

              STATEMENT OF DIEMER TRUE, CHAIRMAN, 
          INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

    Mr. True. Thank you, Mr. Chairman. I have to admit that's 
the kindest introduction Mrs. Cubin has ever given me, so I 
appreciate that.
    Ms. Cubin. And don't forget it. It might be the last time.
    [Laughter.]
    Mr. True. I am Diemer True, a partner in True Companies and 
Chairman of IPAA. Today I am testifying on behalf of nine 
national trade associations and 33 cooperating state and 
regional oil and gas associations.
    The role of Federal lands in meeting future domestic oil 
and natural gas demand is a critical one. While access issues 
affect both oil and natural gas development, the North American 
nature of the natural gas market makes the consequences of 
access limitation more clear cut and definable for natural gas. 
The challenge facing natural gas producers is two-fold, and 
this is one of the key messages that I want to bring today to 
the Committee.
    Maintaining existing natural gas supply is a problem in and 
of itself, in addition to increasing that supply to meet future 
demand. Over the past decade, producers have seen an average 
depletion rate climb to 28 percent per year. The significance 
of that, Mr. Chairman, is that producers must initiate new 
production equal to a quarter of existing production each year 
just to stay even. Most estimates now show that domestic 
production actually declined in 2002.
    Not only must current rates of production be maintained, 
but the industry must also increase natural gas supply to meet 
the future increased demand. Natural gas consumption is 
projected to grow by 30 percent over the next 15 years. This 
cannot be done without access to and development of government 
controlled resources.
    The western and central Gulf of Mexico has proven to be a 
world class area for natural gas, now accounting for over 25 
percent of domestic natural gas production. Future production 
increases in these areas is essential to meet projected demand. 
However, future production increases will hinge on Federal 
offshore policies. The most significant of these relate to 
royalty policies; that is, creating incentives to encourage 
effective development in the areas.
    Developing the substantial domestic natural gas resources 
in most of the eastern Gulf of Mexico, the Atlantic Ocean and 
offshore California is prohibited by moratoria. These policies 
are predicated on events that occurred 30 years ago. Federal 
policy needs to be reconsidered and to be based on a sound 
understanding of today's technology.
    Much of the onshore natural gas resource base is located in 
the Intermountain west, where both the National Petroleum 
Council and the recent Interior Department EPCA study have 
demonstrated that Federal policy limits access to natural gas 
resources.
    There is no simple or single solution to this mosaic of 
regulatory limitations. What is required is a commitment to 
develop these access policies with a full recognition of the 
importance of developing the natural gas resource. Instead, the 
Intermountain west has become a battleground between producers 
and those who oppose development.
    My written testimony addresses a number of the problems we 
now confront. However, I would like to discuss one that has 
drawn considerable attention recently, the so-called ``split 
estate'' problem. With energy development activity, there are 
always opportunities for differences between producers and 
landowners or land users. Oil and natural gas producers 
understand the need to address this important problem. 
Producers are actively initiating efforts in States like New 
Mexico, Colorado and Wyoming to develop better ways to address 
these relationships.
    For example, during the last 18 months, the New Mexico Oil 
and Gas Association has had a working Committee with the 
ranching industry in the San Juan Basin. This Committee, which 
meets monthly, has been identifying problems and working on 
solutions of surface use issues. It has, to date, formed 13 
separate road districts that are being individually addressed, 
along with other areas, including fencing and access roads, as 
well as the issue of erosion.
    NMOGA has agreed to form a cooperative alliance with the 
New Mexico Cattle Growers Association. The purpose of this 
alliance is to work on identifying and implementing solutions 
to issues regarding split estate, ranching, and private 
landowners. We have a similar initiative moving forward in 
Wyoming called the Wyoming Split Estate Initiative.
    The fundamental consistency between these efforts is the 
recognition by responsible producers that their working 
relationship with surface owners and users must be continually 
improved. Both parties have a right to reasonable access to the 
land, and both must find ways to accommodate these rights. But 
it is also clear that these tensions present opportunities for 
development opponents to try to drive a wedge between users of 
Federal lands. Congress needs to approach these issues 
cautiously. Legitimate issues are being intertwined with 
political agendas to thwart access to the natural gas resource 
base. Congress should certainly encourage resolution of 
legitimate conflicts, but it should avoid being pulled into the 
political use of these conflicts.
    The question becomes what energy legislation can improve 
access to and development of Government controlled land, both 
onshore and submerged. In my written testimony I have 
summarized several of those issues which should be addressed.
    Thank you very much, Mr. Chairman, for the opportunity to 
provide this testimony.
    [The prepared statement of Mr. True follows:]

 Statement of Diemer True, Chairman, Independent Petroleum Association 
   of America, on behalf of the Independent Petroleum Association of 
   America, the American Petroleum Institute, the Domestic Petroleum 
  Council, the International Association of Drilling Contractors, the 
   National Ocean Industries Association, the National Stripper Well 
    Association, the Natural Gas Supply Association, the Petroleum 
 Equipment Suppliers Association, the Us Oil and Gas Association, the 
 Association of Energy Service Companies, and, California Independent 
  Petroleum Association, Colorado Oil and Gas Association, East Texas 
 Producers and Royalty Owners Association, Eastern Kansas Oil and Gas 
 Association, Florida Independent Petroleum Association, Illinois Oil 
 and Gas Association, Independent Oil and Gas Association of New York, 
 Independent Oil and Gas Association of Pennsylvania, Independent Oil 
    and Gas Association of West Virginia, Independent Oil Producers 
 Association Tri-State, Independent Petroleum Association of Mountain 
 States, Independent Petroleum Association of New Mexico, Indiana Oil 
   and Gas Association, Kansas Independent Oil and Gas Association, 
  Kentucky Oil and Gas Association, Louisiana Independent Oil and Gas 
Association, Michigan Oil and Gas Association, Mississippi Independent 
  Producers and Royalty Association, Montana Oil and Gas Association, 
 National Association of Royalty Owners, Nebraska Independent Oil and 
Gas Association, New Mexico Oil and Gas Association, New York State Oil 
     Producers Association, Ohio Oil and Gas Association, Oklahoma 
  Independent Petroleum Association, Panhandle Producers and Royalty 
Owners Association, Pennsylvania Oil and Gas Association, Permian Basin 
Petroleum Association, Petroleum Association of Wyoming, Tennessee Oil 
    and Gas Association, Texas Alliance of Energy Producers, Texas 
   Independent Producers and Royalty Owners, and Wyoming Independent 
                         Producers Association

    Mister Chairman, members of the Committee, I am Diemer True, 
Chairman of the Independent Petroleum Association of America (IPAA). 
This testimony is submitted on behalf of the IPAA, the American 
Petroleum Institute (API), the Domestic Petroleum Council (DPC), the 
International Association of Drilling Contractors (IADC), the National 
Ocean Industries Association (NOIA), the National Stripper Well 
Association (NSWA), the Natural Gas Supply Association (NGSA), the 
Petroleum Equipment Suppliers Association (PESA), the U.S. Oil and Gas 
Association (USOGA), and 33 cooperating state and regional oil and gas 
associations. These organizations represent petroleum and natural gas 
producers, the segment of the industry that is affected the most when 
national energy policy does not recognize the importance of our own 
domestic resources.
    This hearing addresses the need for legislation to better manage 
Federally owned energy resources underlying Federal lands. For example, 
the role of Federal lands in meeting future oil and natural gas demand 
is a critical one and this hearing is a timely opportunity to address 
that role, the general issues surrounding oil and natural gas supply in 
the United States, and opportunities to improve the current processes.
    Initially, it is important to put the current supply and demand 
situation in some perspective. The United States will remain 
principally dependent on oil and natural gas for the foreseeable 
future. Recent projections by the Energy Information Administration 
(EIA) show the oil and natural gas will provide for about 65 percent of 
domestic energy over the next several decades. Domestic import levels 
of oil continue to exceed 50 percent and remain a significant national 
security issue. While supply and demand of natural gas remains a 
largely North American market, without adequate access to the resource 
base, domestic natural gas will not be able to meet its potential. This 
testimony will primarily focus on the natural gas implications of the 
current supply, demand, and regulatory framework which affects its 
development. However, the access issues are the same for both oil and 
natural gas.

The Supply Challenge
    Today's natural gas price and supply constraints are the 
consequences of past decisions. Going back to year-end 2000, we briefly 
saw the results of natural gas supply shortages. As storage dwindled, 
prices soared and consumers had to deal with the consequences. The 
initial phase of that supply-demand imbalance reflected the effects of 
low gas prices and unusually low oil prices in 1998-99 on capital 
availability to develop domestic natural gas supply. These historically 
low petroleum prices resulted in capital expenditure budget cuts for 
domestic producers exceeding 30 percent in 1999. The natural gas 
drilling rig count dropped by over 40 percent at its lowest point. In 
1999, new wells failed to replace existing reserves.
    The petroleum price recovery and the industry's recognition that 
future natural gas demand would increase led by more and more 
electricity generated by gas powered turbines triggered a robust 
rebound in drilling for natural gas. Rig counts went to record levels. 
But, the lag in new production caused by the low petroleum prices left 
a tight market by the end of 2000. Higher prices resulted in more 
drilling rigs searching for natural gas, but production still declined. 
U.S. natural gas production today is lower than it was five years ago.

[GRAPHIC] [TIFF OMITTED] T5771.010


    The higher prices also reduced short-term demand. In reality, the 
abatement of high natural gas prices resulted from significant demand 
decreases not from supply increases.
    In the latter months of the 2001, prices had fallen to levels 
comparable to the first part of 1999 and rig counts began to fall as 
well. By year-end 2001 rig counts had fallen to April 2000 levels. 
While rig counts rose to around 700, they were well below the 1000 rate 
that was achieved in the fall of 2001. The implication of these lower 
rig counts was clear--supply levels would not be sustainable.
    Now, in early 2003, the implication has become reality. Natural gas 
supplies have been stressed by a cold winter and natural gas prices are 
in the range of $6.00 per thousand cubic feet. Natural gas drilling rig 
counts are in the range of 750. Estimates suggest that domestic natural 
gas production fell by around 2.8 percent in 2002. Clearly, the 
challenge facing natural gas producers is twofold--maintaining existing 
natural gas supply and increasing that supply to meet future demand. 
Access to Federal resources play a significant role in meeting this 
challenge as well as barriers to development, which also adversely 
affects production. This remains complicated and new events suggest a 
worsening situation.

Maintaining Existing Supplies
    While analyses like the 1999 National Petroleum Council Natural Gas 
study and the newly released EPCA study by the Bureau of Land 
Management have focused on the resources that need to be developed to 
meet future demand--particularly with regard to Federal lands--the 
challenge of maintaining existing supply has not received the attention 
it deserves.

[GRAPHIC] [TIFF OMITTED] T5771.011


    The first and perhaps most compelling challenge to maintaining 
existing supply is coping with increasing rates of depletion. 
Conventional natural gas wells begin to deplete as soon as they begin 
to produce. But over the past decade, producers have seen average 
depletion rates climb from 16 percent per year to 28 percent per year. 
In somewhat simplified terms, this means that producers must initiate 
new production equal to over a quarter of existing production each year 
just to stay even. New technologies like 3-D seismic enable 
explorationists to find smaller reservoirs. Enhanced production 
technologies like horizontal drilling are allowing better and more 
environmentally effective development of reserves. But finding smaller 
reserves and producing them more effectively makes the challenge of 
maintaining existing natural gas supply more difficult.
    Second, it is important to understand the extent of development of 
the existing resource base. Some opponents of accessing additional 
Federal lands suggest that the current resource base should be the 
first focus. In reality, it already is. Developing the current resource 
base for both conventional and unconventional natural gas is the source 
of existing supply. When the rig count grew to 1000, this is where it 
had to grow. But this resource base has supplied natural gas for the 
past 50 plus years. These mature reserves are harder and more costly to 
develop. New reserves in these areas are smaller and deplete faster or 
are deeper and more costly to develop. But, there is no doubt that 
these resources will continue to be developed as quickly as access is 
provided, natural gas prices justify development and capital is 
available to do so.
    Policymakers need to understand these implications clearly. Lower 
rig counts and higher depletion are adversely affecting available 
supply. These are the conditions that are defining the current supply 
and demand balance. Not only must they be addressed, but the industry 
must also be capable of increasing natural gas supply to meet future 
increased demand.

Future Supply Challenges
    Despite the economic slowdown over the past year and despite the 
capital limitations that are devastating the merchant power industry 
that must invest in future electricity generation, natural gas demand 
will grow. Natural gas remains the most abundant and reliable clean 
burning fuel to meet national environmental objectives while enhancing 
the use of stable domestic fuel sources. National energy policy must 
recognize the importance of accessing the natural gas resource base. 
The National Petroleum Council (NPC) in transmitting its 1999 Natural 
Gas study concluded:
        The estimated natural gas resource base is adequate to meet 
        this increasing demand for many decades. However, realizing the 
        full potential for natural gas use in the United States will 
        require focus and action on certain critical factors.
    Natural gas consumption is expected to grow by almost 50 percent by 
2025. While recent events may have slowed the pace of this growth--an 
issue that is being assessed again by the National Petroleum Council--
future natural gas consumption will likely grow at a pace that will 
require an energy policy that allows the full potential of natural gas 
to be developed. This cannot be done without more access to, and 
development of, government-controlled resources. However, development 
of these resources remains a substantial challenge.

Offshore--Western and Central Gulf of Mexico
    These portions of the Gulf of Mexico have proven to be a world-
class area for natural gas as well as petroleum production, accounting 
for over 25 percent of domestic natural gas production. Production 
comes from the continental shelf, the deepwater, and the emerging 
ultra-deepwater. The NPC study projects that future production 
increases in these areas is essential to meet projected demand. 
However, future production increases will hinge on Federal offshore 
policies. The most significant of these in the Western and Central Gulf 
of Mexico relate to royalty policies. However, improvements to coastal 
zone management review policies could also help avoid costly delays in 
developing new supplies.

[GRAPHIC] [TIFF OMITTED] T5771.012


    Offshore production is particularly suited for royalty-in-kind 
(RIK)--paying the royalty with production instead of dollars. It is a 
more economical and fairer approach. Recent actions to fill the 
Strategic Petroleum Reserve could utilize 80 percent of this offshore 
royalty oil. RIK should be encouraged for natural gas. Second, the 1995 
Deepwater Royalty Relief Act was extremely successful promoting 
activity in the deepwater Gulf. However, the 1995 program expired. 
Since its expiration, the Minerals Management Service (MMS) has 
provided more limited, but useful, royalty incentives in recent lease 
sales. The National Energy Policy recognized that offshore regulatory 
policies could inhibit the sound development of these resources. Its 
recommendations should be implemented and further incentives for 
drilling in the deepwater, deep drilling for natural gas on the shelf 
(including drilling on existing leases), subsalt and highly deviated 
drilling should be examined.
Offshore--Eastern Gulf of Mexico, Atlantic Ocean, and California
    Developing the substantial domestic natural gas resources in most 
of these three areas is prohibited by moratoria. President Clinton 
extended these moratoria for another ten years in 1998 saying, ``First, 
it is clear we must save these shores from oil drilling.'' This is a 
flawed argument ignoring the state of current technology; it results in 
these moratoria preventing natural gas development as well as oil. In 
fact, both the Eastern Gulf and the Atlantic resources are viewed as 
gas resource areas, not oil--those coasts are not at environmental 
risk. Too often, these policies are predicated on the events that 
occurred 30 years ago. For example, no Eastern Gulf of Mexico sale 
occurred from 1988 to 2001. The recent sale took place only under 
greatly reduced conditions.

[GRAPHIC] [TIFF OMITTED] T5771.013


    However, this year another ominous step was taken when the Federal 
Government decided to purchase leases that have not been developed, 
primarily due to regulatory limitations, in the Eastern Gulf of Mexico. 
This action led to calls for similar purchases off the coast of 
California and on other government controlled land. While the merits of 
each case should be reviewed, following such a course also serves to 
limit the available resource base at a time when it needs to be 
expanded.
    Federal policy needs to be reconsidered. It needs to be based on a 
sound understanding of today's technology. When the NPC analyzed 
natural gas resources that were being inhibited by regulation of these 
areas, it concluded that over 70 trillion cubic feet of natural gas in 
these areas are precluded from development.

Onshore Restrictions--A Mosaic of Regulations and Prohibitions
    Much of the onshore natural gas resource base is located in the 
Intermountain West. Yet, much of this resource base is constrained. 
And, it is clear that this area is a critical battleground between 
those who seek to develop domestic natural gas and those who seek to 
prevent development. Not only must energy producers navigate through a 
mosaic of regulatory constraints, we must now deal with a series of 
strategic efforts to delay and prevent the necessary use of these 
national resources.
    The regulatory framework to obtain permits to develop energy 
resources on Federal lands is layered with complex and sometimes 
conflicting requirements. Federal Land Managers must operate through 
Resource Management Plans (RMPs) that require extensive Environmental 
Impact Statements (EISs). These address a wide variety of impacts 
regarding the use of the land. Formulating these RMPs and EISs requires 
consultation and, in some cases, concurrence with other Federal 
agencies and the states. These agencies, such as the U.S. Fish and 
Wildlife Service, are tasked with implementing laws, like the 
Endangered Species Act (ESA), that do not consider the balance needed 
between their wildlife management objectives and national energy needs. 
Yet, the Federal Land Manager is developing a plan in most cases for 
multiple use Federal lands.
    This process creates delay, confusion, and conflict. It produces a 
series of access and development limitations. Collectively, the effects 
are significant. The NPC's Natural Gas study estimated that access to 
137 trillion cubic feet of natural gas in the Intermountain West was 
limited by regulation. Taking a different approach, the Bureau of Land 
Management (BLM) released its EPCA access report and reached a 
conclusion that roughly 40 percent of the natural gas resources in the 
Federal lands it studied was restricted. Moreover, these studies were 
largely focused on constraints that exist at the leasing phase of the 
process. Even in those areas where the EPCA study suggests that there 
are no stipulations, that assessment applies only at the leasing level. 
When Applications for Permits to Drill (APDs) are sought, stipulations 
can still be required. Such stipulations can be extensive. For example, 
at one southwestern Wyoming site that was analyzed, stipulations 
effectively limit operations to only about six weeks per year.

[GRAPHIC] [TIFF OMITTED] T5771.014


    There are no simple answers to this issue or a single solution that 
will address the problems. What is required is a commitment to develop 
these access policies with a full recognition of the importance of 
developing the natural gas resource. The National Energy Policy 
recognized the magnitude of these limitations. Executive Orders to 
consider energy supply implications in Federal decision making and to 
convene a task force to improve permitting are important first steps in 
developing a response. These early efforts have resulted in specific 
tasks within various Executive Branch departments that should improve 
the permitting process.
[GRAPHIC] [TIFF OMITTED] T5771.015


    Adequate agency funding and staffing is needed at the key field 
offices responsible for permitting and it needs to be directed toward 
the permitting process. Lack of funding has limited the ability of the 
agencies to permit, to monitor permits, and to enforce permit 
requirements--leading to consequences that encourage conflicts between 
the different users of Federal land. It has resulting in shifting the 
Federal responsibility for developing EISs and other National 
Environmental Policy Act (NEPA) requirements to private parties where 
it was never intended to reside.
    But the direct permitting aspect of addressing these access issues 
is only one part of a much larger debate. Besides these issues, energy 
producers are also confronting broad and aggressive efforts to 
otherwise delay or prevent access--strategies of misdirection, of 
litigation, and of division. Congress needs to recognize these efforts 
for what they are and react accordingly.
    Prior to the EPCA study, development opponents consistently used a 
strategy of misdirection. They alternated between suggesting that the 
issues of Federal land access were related to opening national 
monuments or that 95 percent of the Federal lands were open to 
permitting and there was no issue. The EPCA study has helped focus the 
debate on the real areas of concern--federal lands available for 
multiple use and the restrictive lease stipulations that inhibit their 
use. But, even with this new information, it is likely that development 
opponents will try to minimize the very significant issues associated 
with land use stipulations. Similarly, they will try to divert 
attention toward concepts such as the ``viable resources'' approach 
created by the RAND Corporation. Taken to its logical conclusion the 
RAND approach would vest in the Federal Government development 
decisions that are now--and properly so--a part of the Federal 
permitting process. The RAND approach should be rejected for what it 
is--a theoretical think tank white paper with little relevance to real 
world economic decisions. Congress needs to focus on the real issues 
and not allow these efforts at misdirection to confuse the debate.
    It is equally clear that development opponents are undertaking an 
aggressive strategy of litigation to thwart access in the Intermountain 
West. When the EPCA study was released, the reaction was quick and 
certain:
        ``If you bid on a lease on public land, you can expect 
        (environmental litigation).''--Peter Morton, The Wilderness 
        Society, Dow-Jones Newswires, January 21, 2003

    The Federal Government is now confronted with litigation threats 
and actions at every step in its process. Litigation has been filed to 
prevent exploration activities designed to identify possible resources. 
Litigation is filed over granting permits, challenging existing RMPs 
and opposing revisions to EISs. The primary result of this litigation 
is delay and more delay--and no new energy supplies. Delay is a key 
component of the strategy. Energy producers must invest capital, must 
replace and expand their production. If opponents to development can 
forestall access, it forces producers to shift their investment 
elsewhere. The longer producers are delayed, the higher the likelihood 
that they will give up on an area. This is the ultimate objective of 
this strategy of litigation, but it is ultimately a strategy that costs 
the nation domestic natural gas and impacts our energy security.
    Producers are also confronted with a strategy of division--a 
strategy designed to build on the inherent conflicts that arise from 
different parties competing for the same space. One of these conflicts 
is the so-called ``split estate'' issue. This is clearly an issue in 
the Intermountain West. With increased energy development activity, 
there are more opportunities for differences between producers and 
landowners or land users. Oil and natural gas producers understand the 
need to address this important problem. Producers are actively 
initiating efforts in states like New Mexico, Colorado, and Wyoming to 
develop better ways to address these relationships. Different 
approaches are being identified that reflect the unique circumstances 
in each state.
    New Mexico provides an excellent example of these efforts. For the 
past eighteen months, the New Mexico Oil and Gas Association (NMOGA) 
has had a working committee with the ranching industry in the San Juan 
Basin. This committee, that meets monthly, has been identifying 
problems and working on solutions of surface use issues. It has, to 
date, formed thirteen separate road districts that are being 
individually addressed, along with the other areas including fencing 
and access roads as well as erosion.
    NMOGA has also agreed to form a cooperative alliance with the New 
Mexico Cattle Growers Association. The purpose of this alliance is to 
work on identifying and implementing solutions to issues regarding 
split estate, ranching and private landowners. First, a committee will 
be formed to address the issues of historic pits and locations. This 
committee will be charged with identifying solutions and to identify 
and apply for funding mechanisms. In addition, the alliance will form 
several subject specific committees that will have the same goals as 
mentioned above and address such areas as roads, habitat fragmentation, 
erosion and reseeding.
    In Wyoming, the Petroleum Association of Wyoming (PAW) is 
finalizing plans for the ``Wyoming Split Estate Initiative,'' which is 
designed to bring land owners and oil and gas producers together to 
facilitate cooperation and minimize disputes. PAW is working with the 
Wyoming Woolgrowers Association, Wyoming Farm Bureau and Wyoming 
Stockgrowers Association to find real solutions to this important 
issue. This localized initiative holds great promise to further promote 
cooperation between landowners and oil and gas operators and is another 
example of the efforts underway to address this matter.
    The fundamental consistency between these efforts is the 
recognition by responsible producers that their working relationship 
with surface owners and users must continue to improve. Both parties 
have a right to reasonable access to the land and both must find ways 
to accommodate those rights. But, it is also clear that these tensions 
present opportunities for development opponents to try to drive a wedge 
between users of Federal lands. Congress needs to approach these issues 
cautiously. The Intermountain West has become a battleground over the 
framework for domestic energy development; it has become a ``no holds 
barred'' fight. Legitimate issues are being intertwined with political 
agendas to thwart access to the natural gas resource base. Congress 
should certainly encourage resolution of legitimate conflicts, but it 
should avoid being pulled into the political use of these conflicts.

Energy Legislation Before Congress
    With these perspectives on the challenges to meet current and 
future demand for natural gas as a reference point, the question 
becomes what issues should be addressed in energy legislation. The 
House of Representatives passed a number of key provisions in its 
version of energy legislation in the 107th Congress. That legislation 
provides a sound framework to build upon. Legislation in the 108th 
Congress should include:
     Provisions for royalty incentives in the Western and 
Central Gulf of Mexico. It should parallel and extend the relief now 
being provided administratively in recent lease sales--those occurring 
after the House passed its bill.
     Provisions to address deep drilling for natural gas on 
existing leases
     Provisions to better assess the resource base in the 
offshore and possible mechanisms to access those resources.
     Provisions to improve the efficiency of state consistency 
reviews for Outer Continental Shelf plans under the Coastal Zone 
Management Act.
     Provisions for the Secretary of the Interior and the 
Secretary of Agriculture to jointly undertake a study of the 
impediments to efficient oil and gas leasing and operations on Federal 
onshore lands in order to identify means by which unnecessary 
impediments to the expeditious exploration and production of oil and 
natural gas on such lands can be removed. Such an analysis could 
provide policymakers with the information needed to address some of the 
key problems associated with the leasing process.
     Provisions to ensure timely action on leases and permits 
reflecting the importance of the resource base underlying these lands 
on national security.
     Provisions to create additional authority to develop RIK 
programs that will allow for more effective use of the highly desirable 
approach. RIK eliminates the complexities of determining the royalty 
value thereby saving both the government and the producer from the 
convoluted determinations that are now necessary and are frequently 
questioned--sometimes years after the sales occur.
     Provisions for royalty relief for marginal wells on both 
Federal onshore and offshore properties for both oil and natural gas. 
This relief encourages the continued production of these wells in times 
of low oil and/or natural gas prices. Retaining production from these 
wells is in the national interest and the provision should be included 
in the final bill.
     Provisions for the reimbursement through royalty credits 
when a private party pays for NEPA documents that are the 
responsibility of the Federal Government to prepare. Given the 
challenge of developing these key resources and the potential that 
adequate appropriations are not available, this is a common sense 
approach to meet the dual objectives of developing sound environmental 
documents and moving forward on permitting.
    Collectively, these provisions would address many significant 
access and development issues. Final legislation needs to include them. 
Similarly, Congress needs to continue to work with the Administration 
to facilitate its efforts to improve the permitting process and to 
update its resource management plans. Money will be an important 
component of the Administration's efforts, but other authority may be 
necessary as well.
    Thank you for the opportunity to provide this perspective on the 
challenges facing natural gas production in the United States.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Wood.

 STATEMENT OF WAYNE WOOD, PRESIDENT, MICHIGAN FARM BUREAU, ON 
         BEHALF OF THE AMERICAN FARM BUREAU FEDERATION

    Mr. Wood. Thank you, Mr. Chairman.
    My name is Wayne Wood. I am president of the Michigan Farm 
Bureau, but today I am speaking to you on behalf of the 5.3 
million member family of the American Farm Bureau Federation. 
In addition to the written statement before you, I would like 
to highlight some of the key components of that statement.
    According to the Department of Energy, America currently 
imports 56 percent of its total oil needs. If we don't change 
our policy, that percentage will rise to 64 percent by 2020.
    As has been said here many times, another key energy 
feedstock, which is natural gas, has a high level of importance 
to agriculture. The price spike that we have seen in natural 
gas futures in recent weeks would equate to paying over $12 for 
a single gallon of milk, or over $9 for a single loaf of bread.
    The current price of diesel fuel is over 30 percent more 
when compared to this time last year. The cost of fertilizers 
will be up significantly as well. Overall, the U.S. agriculture 
sector is bracing to pay between one and two billion more this 
year than last to put the crop in the ground this spring.
    These factors, as well as others, point to the need for a 
balanced approach as a means of reducing this country's need to 
import oil and energy feedstocks from foreign sources and for 
America to become more energy independent.
    The American Farm Bureau urges the following actions to 
accomplish this needed balance. Congress must utilize the 
renewable energy sources. Renewable energy sources play a vital 
role in enhancing any energy future in America. The renewable 
fuel standard, as agreed upon by the Senate in the last 
Congress, over the life of the bill would displace some 66 
billion gallons of crude oil from foreign sources, and replace 
it with clean-burning ethanol and biodiesel.
    The environmental benefits of ethanol and biodiesel, as 
well as other renewable sources such as the wind farms, 
biomass, hydroelectric and solar energy of electricity, cannot 
be overstated. In addition to those benefits, an aggressive RFS 
would also lower our dependence of foreign oil while serving as 
a significant rural economic stimulus.
    Congress must also renew America's commitment to domestic 
oil and gas production. Energy rich repositories, such as the 
Arctic National Wildlife Refuge and the Outer Continental 
Shelf, must be reconsidered for oil and gas exploration and 
production immediately. The environmentally sound domestic 
production in ANWR, coupled with the lifting of moratoriums in 
the Outer Continental Shelf and Gulf of Mexico, would help in 
stabilizing the energy crisis of the future.
    This Congress must also continue to provide incentives for 
energy use efficiency. Through proper incentives, further 
economically viable efficiencies can and will be made both in 
the public and private sector. While efficiencies alone will 
not displace this country's need for the development of new 
domestic energy sources, they would complement the above-
mentioned strategies in lowering our dependence on foreign 
sources.
    In conclusion, this Congress must take proactive steps to 
add balance to the U.S. energy equation. By acting this year, 
this Congress can strike a balance of increasing domestic 
production of conventional energy sources with the development 
of renewable energy sources, and this action certainly will 
lower our reliance on those foreign sources and create a more 
self-sufficient, independent energy source for future 
generations.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wood follows:]

Statement of Wayne Wood, President, Michigan Farm Bureau, on behalf of 
                  The American Farm Bureau Federation

    On behalf of the American Farm Bureau Federation (AFBF), we 
appreciate this opportunity to express to this Committee how vitally 
important reliable and affordable energy is to American agriculture. 
AFBF also appreciates the opportunity to share our vision as to how the 
108th Congress can and should enhance America's energy security.
    Agriculture, along with numerous other industries, is more energy 
efficient than ever before. From the tractors used to work the fields 
and raise the crops to the industries responsible for refining raw 
commodities into the final products consumed by the public, energy 
input has decreased dramatically. More than ever before, America's 
industrial engine is producing more and more economic benefit with less 
and less energy. While these energy savings have been realized 
throughout the agricultural and industrial sectors, the U.S. economy 
and population will need more energy security in the years and decades 
to come.
    According to the Department of Energy, America currently imports 56 
percent of its total oil needs. If dramatic change is not made to our 
current policy, the percent the U.S. imports will increase to 64 
percent by 2020. The U.S. is dependent on foreign sources for our 
energy needs and a single event such as a labor strike in Venezuela or 
a conflict in the Middle East can have a dramatic effect on this 
county's energy prices.
    Another key energy feedstock, which is very important to 
agriculture and associated industries, is natural gas. The price spike 
seen in natural gas futures in recent weeks would equate to paying over 
$12 for a single gallon of milk and over $9 for a single loaf of bread. 
While prices have moderated somewhat in the last three weeks the 
current price of $6 per mcf for natural gas is three times the 
historical cost average of $2. Like the current high gasoline prices, 
the natural gas crisis is another example of the failure of today's 
U.S. energy policy. Congress along with several Federal agencies and 
programs have rightfully encouraged, via incentives, expanding the use 
of natural gas as the environmentally friendly alternative feedstock 
for electrical generation, home heating and industrial manufacturing. 
At the same time, the Federal Government has increased the regulatory 
burden on domestic natural gas exploration, drilling and production and 
placed moratoriums on many energy-rich areas such as the Outer 
Continental Shelf (OCS), the Gulf of Mexico and the Arctic National 
Wildlife Refuge (ANWR). If left unchanged, the U.S. energy policy 
toward natural gas today will certainly result in the loss of even more 
of our energy independence.
    The current price increases have increased the cost of diesel fuel 
by over 30 percent when compared to this time last year. The cost of 
fertilizers will be up significantly as well. According to a Kansas 
State University study, a one-dollar increase in the price of natural 
gas prices will increase the cost of nitrogen fertilizer by as much as 
$2 to $3 per ton. Overall, the U.S. agricultural sector is bracing to 
pay anywhere from $1-2 billion more than last year just to get a crop 
in the ground this spring.
    AFBF submits the following balanced approach as a means of reducing 
this country's need to import oil and energy feedstocks from foreign 
sources and as one way this Congress could make logical advancements in 
enhancing America's energy security.
Renew America's Commitment to Domestic Oil and Gas Production.
    Energy rich repositories such as ANWR and the OCS must be 
reconsidered for oil and gas exploration and production immediately. 
The advancements made in oil and gas-drilling technology will make it 
the most environmentally sound and responsible for the capturing of 
energy feedstocks ever conducted.
    The 2,000 acres being considered for exploration in ANWR represents 
less than one 1/100th of one percent of the 19 million acre reserve and 
would be within a portion of ANWR known as the 1002 area. The 1002 area 
was set aside in 1980 by then President Carter and Congress for future 
oil and gas exploration. Conservative estimates are that by using 
environmentally sound, advanced drilling technologies, upwards of 10.4 
billion barrels of oil and 50 trillion cubic feet of natural gas are 
recoverable from this small acreage. In terms of oil production, ANWR 
potentially represents 1.3 million gallons per day (nearly the same 
amount currently imported from Saudi Arabia) deliverable to the lower 
48 states for 25 or more years. Domestic production in ANWR coupled 
with lifting the moratoriums in the Outer Continental Shelf and Gulf of 
Mexico would assist in stabilizing the energy prices of the future.
Encourage the Utilization of Renewable Energy Sources.
    Renewable energy sources must play a vital role in securing 
America's energy future. As with drilling techniques, many advancements 
have occurred in the area of utilizing renewable energy sources such as 
ethanol, biodiesel, wind and biomass.
    The Renewable Fuels Standard (RFS), as agreed upon by the Senate in 
the last Congress, would have displaced some 66 billion gallons of 
crude oil from foreign sources and replaced it with clean-burning 
ethanol and biodiesel. The environmental benefits of ethanol and 
biodiesel cannot be overstated. Ethanol, made from renewable 
feedstocks, can be used to obtain compliance for clean air standards 
and will be used to replace Methyl Tertiary-Butyl Ether as it is being 
phased out on a state-by-state basis. Biodiesel made from vegetable 
oils and animal byproducts, is nearly sulfur-free and can reduce the 
amount of poly-aromatic hydrocarbons currently found in diesel fuel by 
up to 90 percent. In addition to the benefits of renewable fuels in 
meeting numerous clean air standards, an aggressive RFS would also 
lower our dependence on foreign oil while serving as a significant 
rural economic stimulus.
    Other renewable sources such as wind farms, biomass generation, 
hydropower and solar must also be encouraged by this Congress in a 
comprehensive energy policy. All these forms of renewable energy show 
great promise and will further reduce our reliance on conventional 
energy and foreign sources.
Continued Incentives for Energy Use Efficiency
    This Congress must provide further incentives to the public, 
private and industrial sectors to encourage even more economically 
viable energy efficiencies than what have been accomplished thus far. 
Through proper incentives, further efficiencies can and will be made in 
energy use. While efficiencies alone will not displace this country's 
need for the development of new domestic energy sources, further 
efficiencies via incentives and new technology would complement the 
above-mentioned strategies in lowering our dependence of foreign 
sources for America's energy needs.
    This Congress should take proactive steps to add balance to the 
U.S. energy equation. By acting this year, the 108th Congress can 
strike a balance of increasing the domestic production of conventional 
energy sources with the development of renewable energy sources. This 
action will result in lowering our reliance on foreign sources for our 
energy needs today and contribute to America's energy independence for 
future generations.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Sweeney.

   STATEMENT OF PATRICK SWEENEY, EXECUTIVE DIRECTOR, WESTERN 
  ORGANIZATION OF RESOURCE COUNCILS, ON BEHALF OF ERIC BARLOW

    Mr. Sweeney. Mr. Chairman, my name is Pat Sweeney. I am the 
Director of WORC, the Western Organization of Resource 
Councils. I live in Billings, MT. I appreciate the opportunity 
to submit the statement of Eric Barlow on behalf of WORC and 
the Powder River Basin Resource Council.
    Mr. Barlow, a rancher, a veterinarian from northeast 
Wyoming, was unable to attend today because of a major snow 
storm in the State of Wyoming. We pray for rain and snow, and 
we got it. But it kept Mr. Barlow home, and I appreciate the 
opportunity to present his statement. I know it will be 
submitted for the record. He certainly wanted to me give his 
regrets, but also to make sure this Committee heard his 
concerns about the future of his ranch and his family.
    As landowners and cattle ranchers, we want to talk about 
what it will take for the oil and gas and coalbed methane 
industries to do it right. Mr. Chairman, I want you to know 
that the organizations that we represent here today support 
responsible oil and gas and coalbed methane development. For 
several years now, we have been asking industry and government 
agencies and the Congress to do it right, and the results have 
often been lots of rhetoric but little action.
    The sheer scale and magnitude of coalbed methane 
development alone proposed for our neighborhood is 
unprecedented. The recent final environmental impact statements 
on Wyoming and Montana coalbed methane development called for 
over 80,000 new coalbed methane wells in our country in the 
next 10 years. In Montana alone, that will mean the pumping of 
480 billion gallons of water for this coalbed methane. Without 
meaningful government oversight, the industry has no incentive 
to operate responsibly.
    Thousands of landowners in the West face the growing threat 
to their livelihoods and quality of life from this kind of 
development, not to mention the damage that can be done to our 
air, land and water resources. These include the reduction in 
their property values, the loss of income, impairment of water 
quality and quantity, seepage of methane into drinking water 
wells under people's homes, the introduction and spread of 
noxious weeds, noise from compressor stations, generators, 
traffic, soil damage, contamination, erosion, and harm to 
wildlife.
    I know you are concerned as others about private property 
rights. There are thousands of surface owners in the West who 
do not own the minerals under their land, the ``split estate'' 
lands that you heard about today. The most common split estate 
situation involves Federally owned minerals under private 
surface. About 58 million acres of privately owned land in the 
United States are estimated to overlie Federal minerals, with 
most of that acreage in the West. In the Wyoming portion of the 
Powder River Basin, private property owners hold 75 percent of 
the surface, about six million acres, and the Federal 
Government owns approximately 63 percent of the minerals under 
this surface.
    Because mineral owners have the legal right to retrieve 
their minerals, landowners who don't own the minerals are 
largely powerless in many cases to stop or correct 
irresponsible development. The best way to ensure responsible 
oil and gas development is to empower landowners to have their 
real say in the course of mineral development on their land.
    Congress can help landowners protect their properties by 
taking several, straightforward steps in our mind: require 
mandatory surface use and damage agreements. Such agreements 
would level the playing field and allow the landowner to be 
informed and engage in the development process. By negotiating 
an agreement, the landowner can more accurately assess the 
ramification to his or her property and participate in the 
planning process.
    Requiring mandatory surface use agreements will not prevent 
the development of the mineral estate, but simply empower 
surface owners to have a real say in the course of their 
mineral development.
    Improved notification. Many surface owners are unaware that 
the Federal minerals have been leased under their land, nor do 
they have any knowledge of their input into modifications. To 
correct this injustice, the BLM needs to notify surface owners. 
We heard today that that notification is happening, but we have 
a recent letter from Director Clarke, in which she states they 
would not notify surface owners before they lease the mineral 
estate, because it would be too expensive to know who these 
owners are. In the issuance of coal leases, they have to notify 
surface owners, and I would be glad to submit the letter for 
the record.
    There are two other critical issues that need to be briefly 
mentioned relating to coalbed methane development: protecting 
our water resources and ensuring sites are cleaned up. These 
are addressed in detail in our statement, but I would like to 
just mention that, whether it is dewatering involved in methane 
production or fracturing, water resources are being impacted in 
the west. Congress must raise the bar when it comes to 
protecting our water resources by acting to replace water 
supplies affected by oil and gas, re-injector treat coalbed 
methane produced water, and require water management plans.
    The groundwater and surface waters of this Nation are a 
precious and life-sustaining resource. In the future, water 
will be far more valuable than the precious metals and fossil 
fuels that they produce. Water is truly more precious in some 
cases that coalbed methane.
    Mr. Chairman, in addition, we would like to see the 
industry held more accountable for the clean-up costs and 
damages, and we have provided in our statement some 
recommendations that include initiating a program to clean up 
idled, abandoned, and orphaned wells, which we think would be 
useful, and provide jobs, as well as cleaning up, requiring 
detailed reclamation plans, increasing bonds for the projects, 
to ensure that reclamation happens, and last, making sure that 
we have adequate funds in the BLM to do inspections and 
enforcement as we also expand the oil and gas industry in the 
west.
    Thank you for the opportunity to testify. I would be glad 
to answer questions.
    [The prepared statement of Mr. Barlow follows:]

  Statement of Eric Barlow, on behalf of the Western Organization of 
       Resource Councils and Powder River Basin Resource Council

    Mr. Chairman, my name is Eric Barlow. I am a cattle rancher from 
northeast Wyoming and a veterinarian, and my family has been in the 
ranching business for over a century. Thank you for the opportunity to 
present my views to this Committee regarding the nation's energy 
future. As a landowner and cattle rancher, I want to share with you 
what is happening on the ground in Wyoming and in other parts of the 
West, and talk about what it will take for the oil and gas industry to 
``Do It Right.''
    I am here today representing two non-profit organizations that have 
fought for responsible energy development in the West for more than 30 
years--the Western Organization of Resource Councils (WORC) and the 
Powder River Basin Resource Council (PRBRC). WORC is a network of 
grassroots organizations from seven western states that include 8,250 
members and 46 local community groups. About a third of WORC's members 
are family farmers and ranchers, many of whom are directly impacted by 
oil and gas development. PRBRC is a grassroots organization dedicated 
to good stewardship of Wyoming's natural resources, and the 
preservation of the state's agricultural heritage.
    There have been numerous changes in our ranching operation over the 
years just as there have been in the nation and world. Our ranch is 
blessed with a multiplicity of resources, and my family's goal is to be 
good stewards of the resources available to us. The soil, water, air 
and sunlight provide our fundamental resources. These combine to 
produce forage which livestock can utilize and convert into a 
marketable product. The stewardship we provide determines the health of 
the resources and their ability to provide a sustainable future.
    But our ability to be good stewards of the land and earn a living 
is threatened by irresponsible oil and gas development. Mr. Chairman, I 
want you to know that the organizations I represent here today support 
responsible oil and gas development. For several years now we've been 
asking industry, Federal agencies and Congress to ``Do It Right,'' and 
the result has been lots of rhetoric and little action. For example, 
we've asked that:
     surface owners be given more say in the course of mineral 
development on their land, but we've been stonewalled,
     the BLM strengthen its oil and gas bonding requirements, 
but draft rules have languished since January 2001,
     coal bed methane development be phased-in and the best 
technology employed, but the attitude seems to be full steam ahead.
    The sheer scale and magnitude of coal bed methane development alone 
is unprecedented. Without meaningful government oversight, the industry 
has no incentive to operate responsibly and, to no one's surprise, is 
not doing so.
    Thousands of landowners in the West face a growing threat to their 
livelihoods and quality of life from oil and gas development, not to 
mention the damage that could be done to air, land and water resources. 
Some of the damage that can occur to private surface owners from the 
development of the oil and gas estate includes:
     reduction in property values,
     loss of income,
     impairment of water quality and quantity,
     seepage of methane into drinking water wells and under 
people's homes,
     the introduction and spread of noxious weeds,
     noise from compressor stations, generators, traffic and 
drilling,
     soil damage, contamination and erosion, and
     harm to wildlife species and habitat.
    My first-hand experience is that the current direction of energy 
development is resulting in the degradation and ruination of many vital 
resources and private property rights. And it is my contention that if 
these areas are not addressed by Congress, proactively and 
aggressively, that any energy policy brought forward will neither 
enhance nor secure this nation's energy future.
    I believe it is safe to say that agriculture faces a myriad of 
challenges, and ranching in Wyoming and throughout the West faces an 
ever-increasing onslaught. Oil and gas development is now reaching an 
unprecedented crescendo and the health and security of our vital 
resources are being placed in grave jeopardy.

DEFEND PRIVATE PROPERTY RIGHTS
    Mr. Chairman, I know you are concerned about private property 
rights. The West's agricultural economy is based on strong protections 
for private property rights and water rights. Individual landowners 
steward their own land and water with a view toward long term 
productivity, which benefits the whole region. Oil and gas development, 
especially coal bed methane production, threatens this careful balance 
if not done right.
    In fact, there are thousands of surface owners in the West who do 
not own the minerals under their own land (known as a ``split 
estate''). The most common split estate situation involves Federally 
owned minerals under private surface. About 58 million acres of 
privately owned land in the United States are estimated to overlie 
Federal minerals with most of this acreage in the West.
    In the Wyoming portion of the Powder River Basin private property 
owners hold 75% of the surface land (about 6 million acres), and the 
Federal Government owns approximately 63% of the mineral rights under 
the surface. A similar percentage of split-estate lands occur in the 
Montana portion of the Powder River Basin.
    Because mineral owners have a legal right to retrieve their 
minerals, landowners who don't own the minerals are largely powerless 
to stop irresponsible development on their land. Meanwhile, mineral 
owners have little incentive to develop responsibly because, unlike 
landowners, they will not have to live with the long-term implications 
of destroyed soils, degraded water, and dried up aquifers.
    The reality is that the lessee of Federal minerals has dominance 
over the surface estate. The property rights of the surface owner, 
their hopes and dreams, and the values they place on their property are 
immediately and unequivocally superceded when a mineral lessee chooses 
to exercise their right. I can think of no other case where an innocent 
citizen's rights can be so abruptly stripped away. Nearly 80% of the 
private land on our ranch is in a split estate situation. We have been 
told several times by oil and gas companies that they can and will use 
as much of our surface as they want, while at the same time they 
purport to be our neighbors.
    The best way to ensure responsible oil and gas development is to 
empower landowners to have a real say in the course of mineral 
development on their land. Congress can help landowners protect their 
property rights by taking three straightforward, proactive steps.

1. Obtain the consent to lease of the surface owner
    Surface owner consent must be sought before Federal leases are 
issued for oil and gas resources underlying private lands. This idea 
parallels an existing provision in the Surface Mining Control and 
Reclamation Act. The coal industry has operated under this requirement 
for twenty years and appears to be very healthy. There is no reason the 
oil and gas industry couldn't do so as well.

2. Require mandatory surface use and damage agreements
    Additional measures are needed to provide a degree of relief to 
landowners. One such measure is to require mandatory surface use 
agreements between landowners and oil and gas operators prior to oil 
and gas development, with standardized terms which offer a minimum and 
consistent level of protection.
    Such agreements would level the playing field and allow the 
landowner to be informed and engaged in the development process. By 
negotiating an agreement the landowner can more accurately assess the 
ramifications to his/her property and participate in the planning 
process to minimize the potential adverse impacts to the use and 
enjoyment of her/his property. Agreements between landowners and 
companies are fairly common practice, but they are only as good as the 
company will allow. Companies have publicly described these agreements 
as ``voluntary,'' ``unnecessary'' and for ``public relations'' 
purposes.
    Requiring mandatory surface use and damage agreements will not 
prevent the development of the mineral estate, but simply empower 
surface owners to have a real say in the course of mineral development 
on their lands. It also represents true local control because it places 
power and authority in the hands of oil and gas operators and surface 
owners.

3. Improve notification to landowners regarding lease sales and 
        drilling applications
    Many surface owners are unaware that Federal minerals have been 
leased under their land, nor do they have any knowledge of or input 
into lease requirements, lease modifications and drilling permits. To 
correct this injustice, the BLM needs to notify surface owners in 
writing:
        (a) Lat least 45 days in advance of lease sales and, once 
        leases are issued, about who has leased the minerals under 
        their property,
        (b) Labout any decisions regarding the lease (such as modifying 
        or waiving stipulations, approving rights of way, etc.), and
        (c) Lwithin five working days after an Application Permit to 
        Drill (APD) is submitted to the BLM, and immediately after the 
        BLM has issued the APD.
    A recent report prepared by the U.S. Institute for Environmental 
Conflict Resolution (IECR) on split estate issues in the Powder River 
Basin states that ``many of those interviewed, especially state and 
local government officials, acknowledged that additional notice, public 
outreach and education to landowners would serve a valuable purpose and 
could reduce conflict.'' Among other recommendations, the authors of 
the report recommend that surface estate owners be given notice when 
the minerals under their land have been leased, and when permits 
related to CBM development are applied for (pgs. 53-54; emphasis 
added).
    Without the three steps described above, I am left with little or 
nothing when the government's lessee comes a-knocking. A friend and 
rancher recently questioned the sensibility of anyone who owns their 
land but not the underlying minerals. It seemed to him that there are 
only two privileges that accompany land ownership. The first is the 
privilege to pay property taxes, and the second is to provide a doormat 
for the mineral lessee. I share that sentiment.
PROTECT OUR CLEAN WATER
    If it were not enough for the land to be placed under duress, our 
clean water is also under attack. Many of the oil and gas extraction 
processes place at great peril the water resources of this nation and 
certainly our region. Both the quality and quantity of our water is 
being adversely affected. Whether it is the dewatering involved in coal 
bed methane production or the hydraulic fracturing of formations to 
enhance oil and gas production, our water resources are being 
irretrievably affected. This is another example of one resource being 
developed at the expense of another and another property right being 
victimized.
    Congress must raise the bar when it comes to protecting water 
resources by amending the Federal Onshore Oil and Gas Leasing Reform 
Act of 1987, P.L. 100-203, 30 U.S.C. 226 to: (a) replace water supplies 
affected by oil and gas operations, (b) reinject and treat coal bed 
methane produced water, and (c) require a water management plan.
    The ground water and surface waters of this nation are a precious 
and life-sustaining resource that must be protected and used prudently. 
In the future, water will prove to be far more valuable than all the 
precious metals and fossil fuels this nation has produced in its 
history.

HOLD INDUSTRY ACCOUNTABLE FOR CLEAN-UP COSTS AND DAMAGES
    Another critical issue that must be addressed by Congress is that 
of industry accountability for clean-up costs and damages. The 
exploration for and extraction of minerals can and often does cause 
damage to the land and other resources. There must be a functional and 
timely system in place which ensures that mitigation and reclamation 
occurs. This is necessary to correct the physical manifestations of the 
damage and to make whole the rights of the affected parties. Too often 
there is procrastination or the turning of a blind eye to the problems. 
This leads to a backlog and, in time, a compounding effect that is 
overwhelming. We are all taught from a young age to clean-up our 
messes, and that is all we are asking the oil and gas industry to do.
    We have been striving to achieve proper reclamation on our ranch 
for over twenty years. Whether it is ruts created in muddy conditions, 
leaking pipelines, idle wells or numerous other items, there is a 
continual need to identify and correct the shortcomings. It is my 
belief that while the BLM generally desires to appropriately address 
these issues, it is unable to do so effectively. This is partly because 
the agency has an inadequate number of inspectors and partly because it 
lacks the regulatory fortitude to ensure industry compliance. Instead, 
the BLM relies on the good faith efforts of the industry and an out of 
sight, out of mind mentality. For example, the BLM has allowed three 
oil wells to remain idle for over a decade on our ranch without proper 
reclamation.
    We have what I would characterize as a working relationship with 
our local BLM field office. However, it seems to us that it is only at 
our request that any effort is undertaken to deal with failures in 
industry performance. On the other hand, when the industry wants to 
drill more wells, the agency seems all to eager to expedite and 
streamline the permitting process.
    As a general principle, we believe that oil and gas operators must 
be required to restore the affected land to a condition capable of 
supporting the uses it could support before oil and gas activity began, 
or to higher and better uses, and establish a permanent vegetative 
cover in the area, using native vegetation. More specifically, we 
support the following three oil and gas reclamation initiatives.

1. Institute a program to clean-up idled, abandoned and orphaned wells
    We ask Congress to include a provision in Federal energy 
legislation that requires the Secretary of Interior to establish a 
program to clean-up idled, abandoned and orphaned wells, and authorize 
$10 million over two years to implement it.

2. Require detailed reclamation plans and complete and timely 
        reclamation
    Congress needs to amend the Federal Onshore Oil and Gas Leasing 
Reform Act of 1987, P.L. 100-203, 30 U.S.C. 226 to ensure complete and 
timely reclamation.

3. Add oil and gas to the list of minerals covered under subsections 
        (b) through (o) of the Stock Raising Homestead Act
    Many of the private lands in the West were acquired under the Stock 
Raising Homestead Act (SRHA) of 1916. The people who homesteaded this 
land received ownership of the surface, while the Federal Government 
retained ownership of the minerals. Subsections (b) through (o) of the 
SRHA place additional requirements on mineral developers for bonding, 
filing a plan of operation, assuring contemporaneous reclamation, and 
allowing surface owners to request an inspection. Unfortunately, 
minerals subject to disposition under the Mineral Leasing Act (in other 
words, oil and gas) are not covered under subsections (b) through (o). 
It is time for Congress to rectify this omission by amending the Stock 
Raising Homestead Act.
    Another area of accountability that is sorely lacking is current 
bonding requirements. The financial level of bonding is inadequate. The 
current bonding levels have no relation to the extent of the activities 
a company undertakes or the costs associated with plugging and 
abandoning a single well (much less multiple wells). Additionally, most 
wells are supported by numerous ancillary facilities and any 
reclamation of these sites as guaranteed by current bonding is 
unimaginable.
    Oil and gas bonding requirements must be strengthened, and the oil 
and gas industry must shoulder the burden of liability created by its 
activities, not affected landowners or taxpayers. We ask Congress to 
support one of the following approaches aimed at strengthening oil and 
gas bonding requirements.

1. Require bonds for entire fields or project areas
    Congress needs to amend the Federal Onshore Oil and Gas Leasing 
Reform Act so that a bond covers a specific oil and gas field or 
project area (such as the CX Field in Montana or the Lower Prairie Dog 
Project Area in Wyoming). As additional fields or project areas are 
developed, the operator would post additional bonds with the regulatory 
authority.
    Bonds must cover not only wells, but also all other associated 
facilities. The amount of the bond required for each field or project 
area would depend on the type and intensity of oil and gas operations, 
and reflect the probable difficulty of reclamation considering such 
factors as topography, geology, hydrology, vegetation, wildlife 
populations, and so on. The amount of the bond would be determined by 
the regulatory authority, and must be sufficient to ensure the 
completion of the reclamation plan if the work had to be performed by 
the regulatory authority in the event of forfeiture. The regulatory 
authority could adjust the amount of the bond as affected land acreages 
increase or decrease, or where the cost of future reclamation changes. 
The bond must be based on the worst-case scenario. Citizens would have 
the right to participate in bond release proceedings, attend an on-site 
inspection during bond release proceedings, and file written objections 
to a proposed bond release.

2. Impose a per well bond of $20,000
    In lieu of the first approach outlined above, Congress could amend 
the Federal Onshore Oil and Gas Leasing Reform Act to require companies 
to post a $20,000 per well bond. Such bonds must cover not only the 
costs of plugging the well and restoring the site around the well, but 
the costs of reclaiming roads, compressor station sites, produced water 
containment ponds, and all other associated facilities and impacts for 
which a bond is not otherwise provided.
    Finally, Congress needs to rectify the chronic lack of adequate 
funds for the BLM's Inspection and Enforcement Program. Inspection and 
enforcement is a critical component of the Federal oil and gas program. 
Yet, in the past, the BLM has suffered from a chronic lack of adequate 
funds for these activities. The Farmington (NM) Field Office, for 
example, conducted a technical and procedural review of its I & E 
program in July 2000 and found numerous problems, including inadequate 
personnel and failures to reclaim after resource extraction was 
complete. It took Senator Bingaman going directly to BLM Director 
Kathleen Clarke before new inspectors for this field office and for the 
rest of the state were authorized. With the Bush Administration pushing 
for expanded leasing and production from the public lands, it is 
essential that this problem not be perpetuated. We recommend adoption 
of the following statutory language:
        By October 1 of each year the Secretary of Interior shall 
        certify to Congress that available staff and budgets are 
        adequate to meet quantified inspection and enforcement needs of 
        the Federal oil and gas program. The required certification 
        shall be provided for each field office of the Bureau of Land 
        Management that is managing valid Federal oil and gas leases as 
        well as each field office that intends to issue such leases in 
        the fiscal year. The Secretary shall make all such 
        certifications, including the budgetary and other documentation 
        on which they were based, publicly available. In the event such 
        certification cannot be issued for a given field office, that 
        field office shall not issue or approve any new leases, new 
        project level or full-field development projects or 
        applications for permit to drill, unless and until the required 
        certification is provided.
    Mr. Chairman, in summary I have the following recommendations for 
this Committee based on my personal experience as a cattle rancher and 
as someone who has been intimately involved with oil and gas 
development issues for many years.
    Defend private property rights by:
     obtaining the consent to lease of the surface owner,
     requiring mandatory surface use and damage agreements, 
and
     improving notification to landowners.
    Hold the oil and gas industry accountable for clean-up costs and 
damages by:
     instituting a program to clean-up idled, abandoned and 
orphaned wells,
     requiring detailed reclamation plans and complete and 
timely reclamation,
     adding oil and gas to the list of minerals covered under 
subsections (b) through (o) of the Stock Raising Homestead Act,
     requiring bonds for entire fields or project areas or 
imposing a per well bond of $20,000, and
     addressing BLM's chronic lack of adequate funds for its 
Inspection and Enforcement Program.
    Protect our clean water by requiring:
     the replacement of water supplies affected by oil and gas 
operations,
     reinjection and treatment of coal bed methane produced 
water, and
     a water management plan.
    This leads me to my final point, which is that there has not been a 
meaningful acknowledgment that we must move beyond nonrenewable sources 
of energy. It is time for this nation to be a world leader and 
transform our energy paradigm. True security for this nation will be 
based, in part, on clean and sustainable sources of energy. It is 
reasonable to expect that fossil fuels will have a role to play, but it 
must be one of transition and not reliance. The costs to our resources 
and security are far too great to continue as we are.
Attachments:
    1. Western Energy Agenda
    2. New Mexico Cattle Growers' Association Oil and Gas Position 
Paper
                                 ______
                                 

   BIODIVERSITY CONSERVATION ALLIANCE * CALUWILD * CENTER FOR NATIVE 
 ECOSYSTEMS COLORADO ENVIRONMENTAL COALITION COPIRG * DAKOTA RESOURCE 
COUNCIL * DEFENDERS OF WILDLIFE * GREATER YELLOWSTONE COALITION * HIGH 
   COUNTRY CITIZENS' ALLIANCE * LAND AND WATER FUND OF THE ROCKIES * 
NATIONAL WILDLIFE FEDERATION * NATURAL RESOURCES DEFENSE COUNCIL * NEW 
MEXICO WILDERNESS ALLIANCE * NORTHERN PLAINS RESOURCE COUNCIL * OIL AND 
GAS ACCOUNTABILITY PROJECT * POWDER RIVER BASIN RESOURCE COUNCIL * SAN 
    JUAN CITIZENS ALLIANCE * SIERRA CLUB * SOUTHERN UTAH WILDERNESS 
 ALLIANCE * SOUTHWEST ENVIRONMENTAL CENTER * THE WILDERNESS SOCIETY * 
    U.S. PIRG * WESTERN COLORADO CONGRESS * WESTERN ORGANIZATION OF 
  RESOURCE COUNCILS * WESTERN SLOPE ENVIRONMENTAL RESOURCE COUNCIL * 
                        WYOMING OUTDOOR COUNCIL

                         WESTERN ENERGY AGENDA

Defend Private Property Rights from Oil and Gas Impacts
    On 58 million acres across the West, ranchers and other landowners 
have little say over whether and how the Federal minerals under their 
lands are extracted, and little recourse from the impacts this 
development can have on their drinking water, livelihoods and quality 
of life. Legislation should ensure basic private property rights for 
the surface owners of these ``split estate'' lands, while not 
precluding the authority of state and local governments to adopt 
stronger protections.
     Ensure Surface Owner Consent. Require surface owner 
consent prior to Federal oil and gas leasing, similar to the 
requirements of the Surface Mining Control and Reclamation Act (SMCRA) 
that provides for surface owner consent prior to Federal coal leasing.
     Require Surface Use Agreements. Require mandatory surface 
use agreements between landowners and oil and gas operators prior to 
oil and gas development. These should have standardized terms that 
offer a minimum and consistent level of protection. As much of the 
Federal oil and gas estate has already been leased (for example, 99 
percent in the Wyoming portion of the Powder River Basin), surface 
owner consent for leasing is not sufficient to protect property rights 
on split estate lands. Surface use agreements will not prevent the 
development of the mineral estate, but will give surface owners a real 
say in the course of mineral development on their land.
     Ensure Adequate Notification of Surface Owners. Improve 
notification to surface owners regarding lease sales and drilling 
applications. Many surface owners are unaware that Federal minerals 
have been leased under their land, and do not have any input into lease 
stipulations. The BLM must notify surface owners in writing: a) at 
least 45 days in advance of lease sales and, once leases are issued, 
about who owns the minerals under their property; b) about any 
subsequent decisions regarding the lease, such as modification of or 
exception from stipulations or approval of rights of way; and c) within 
five working days after an Application Permit to Drill is submitted to 
the BLM.

Safeguard America's Special Public Lands
    The majority of Federal oil and gas resources on western public 
lands are open for energy production. A recent report by the Bush 
Administration indicates that 85 percent of the ``technically 
recoverable'' oil and 88 percent of the ``technically recoverable'' 
natural gas on Federal lands in the Rocky Mountain West are currently 
available for leasing and development. Oil and gas exploration, 
drilling, production, and transportation can have enormous impacts on 
land, air and water quality, and wildlife. While care should be taken 
anywhere public minerals are extracted, some public land areas have 
unique natural values that should be safeguarded from all impacts of 
energy development.
     Protect special categories of public lands from oil and 
gas development. Bar new leasing or re-leasing in National Monuments, 
National Wildlife Refuges, National Forest roadless areas, citizen 
proposed wilderness areas on Bureau of Land Management lands (while an 
agency review for wilderness qualities is pending), Research Natural 
Areas, Wild and Scenic Rivers (including recreational, scenic, and 
study rivers and those designated as eligible by an agency), and sacred 
sites. The lands in these categories have special resource values that 
are incompatible with the impacts of oil and gas development.
     Review the suitability of energy development on other 
public lands. Require the Federal land management agencies to perform a 
suitability review before making lands available for leasing, similar 
to section 522 of the Surface Mining Control and Reclamation Act of 
1977, and in keeping with recommendations made by the National Academy 
of Sciences in its 1989 study of Federal oil and gas leasing. This 
would provide protection for other public land areas, such as wetlands, 
Areas of Critical Environmental Concern, habitat for threatened and 
endangered species, unstable soils, steep slopes, and historic sites 
where oil and gas development would be inconsistent with protection of 
surface resources.

Hold Industry Accountable for Clean-up Costs and Damages
    Current law has proven insufficient to protect public lands and 
private property interests from the many damages caused by oil and gas 
development. Legislation is needed to provide for bonding levels that 
reflect the real liabilities associated with energy extraction, to 
clean up past oil and gas development activity, improve reclamation 
standards, and strengthen inspection and enforcement activities.
     Ensure Adequate Bonding. Amend the Mineral Leasing Act to 
require that companies post a minimum $20,000 bond per well, and 
eliminate authority for statewide and nationwide bonding. To be 
adequate, bonds must cover not only the costs of plugging the well and 
restoring the site around the well, but the costs of reclaiming roads, 
compressor station sites, produced water containment ponds, and all 
other associated facilities and impacts.
     Clean Up Orphaned, Abandoned and Idled Wells. Require the 
Secretary to establish a program to address abandoned, orphaned and 
idled oil and gas wells. Authorize $10 million over two years to 
implement the program, as provided for in last year's draft energy 
conference report. Such a program is necessary to address the pervasive 
problem of abandoned, orphaned and idled oil and gas wells that 
currently litter the western landscape and are causing ongoing 
contamination.
     Strengthen Reclamation Standards. Strengthen reclamation 
standards and ensure adequate staff and funds to enforce them. 
Operators must include in their plans of operations a reclamation plan 
that describes in detail the methods and practices that will be used to 
ensure complete and timely restoration of all lands affected by oil and 
gas activities to the condition that existed prior to surface 
disturbing activities. Such reclamation plans should be made public, 
and require the operator to conduct reclamation concurrently with their 
operations.
     Ensure Adequate Inspection and Enforcement Resources. 
Address BLM's chronic lack of adequate funds for its Inspection and 
Enforcement Program by requiring the Department to halt new leasing and 
development activities unless it has provided sufficient funds for 
adequate numbers of qualified inspection personnel, adequate support to 
properly document inspection activities, and ensure improved program 
oversight and management involvement. To achieve this objective and 
remedy this serious problem, require the Interior Secretary, by October 
1 of each year, to certify to Congress that available staff and budgets 
are adequate to meet quantified inspection and enforcement needs of the 
Federal oil and gas program. The required certification should be made 
public and provided for each BLM field office that is either managing 
valid Federal oil and gas leases or intending to issue leases that 
year. If certification cannot be issued, that field office shall not 
approve any new leases, new project level or full-field development 
projects or applications for permit to drill, unless and until 
certification is provided.

Protect our Clean Water
    The rivers, streams, groundwater aquifers, and drinking water 
supplies of the West should be protected from the contamination and 
degradation that can be caused by oil and gas drilling, particularly 
coalbed methane development.
     Ensure Adequate Regulation of the Practice of Hydraulic 
Fracturing: Hydraulic fracturing involves the high-pressure injection 
of water, sand, and toxic fluids into a rock or coal formation to 
enhance oil and gas production. This practice has the potential to 
contaminate underground sources of drinking water. Congress and/or the 
U.S. Environmental Protection Agency must act to:
        a) LRequire the use of non-toxic, water-based products as a 
        substitute for diesel fuel and other hazardous materials in the 
        hydraulic fracturing process;
        b) LRequire oil and gas operators to prove that hydraulic 
        fracturing fluids are safe prior to use and that they will not 
        endanger underground sources of drinking water;
        c) LUntil all toxic components of fracturing fluids can be 
        phased out, report annually the individual hazardous components 
        used in hydraulic fracturing fluids in the EPA's Toxic Release 
        Inventory without a reporting threshold volume or weight; and
        d) LAdopt additional regulations under the Federal Safe 
        Drinking Water Act by a date certain to control hydraulic 
        fracturing. Until such regulation is in place, congress and the 
        EPA should, at a minimum, ensure that current regulation of 
        hydraulic fracturing through the Underground Injection Control 
        Program is maintained. Any efforts to exempt hydraulic 
        fracturing from regulation under the Safe Drinking Water Act 
        should be opposed.
     Regulate Coalbed Methane Development's Impacts on Water. 
Adopt the reclamation standards to address the unique impacts that 
coalbed methane development has on water resources. Specifically, 
require operators to submit proposed water management plans with their 
permit applications. Each water management plan must be approved by the 
regulatory agency, and shall ensure:
        a) Lthe quality of surface and ground water systems, both on-
        site and off-site, from adverse effects of the development and 
        reclamation process;
        b) Lthe rights of present users to such water; and
        c) Lthe quantity of surface and ground water systems, both on-
        site and off-site, from adverse effects of the development and 
        reclamation process or to provide alternative sources of water 
        where such protection of quantity cannot be assured. In 
        addition, each water management plan must:
             i) LRequire operators to replace the water supply of a 
            water user who obtains all or part of her or his supply of 
            water for domestic, agricultural, industrial, or other 
            legitimate use from an underground or surface source that 
            has been affected by contamination, diminution, or 
            interruption proximately resulting from their operations; 
            and
            ii) LRequire operators to treat produced water from coalbed 
            methane drilling and re-inject it in an aquifer of similar 
            water quality. Any remaining produced water that has not 
            been re-injected must be treated before discharge. In-
            channel disposal ponds for the storage of water produced by 
            coalbed methane are disallowed.

End Environmentally Harmful Energy Subsidies
    We oppose costly and unnecessary economic incentives that harm the 
environment, especially the Section 29 tax credit for non-conventional 
sources such as coalbed methane. This provision has led to a coalbed 
methane boom that has caused incredible damages to the lands, water 
resources, and communities of the West. Industry representatives and 
analysts indicate that the Section 29 tax credit is not needed to 
promote and sustain coalbed methane development. Section 29 is an 
unnecessary boondoggle that is bad for the environment and squanders 
scarce taxpayer dollars on an already profitable industry.
                                 ______
                                 
                 New Mexico Cattle Growers' Association
                       oil and gas position paper

                            FEBRUARY 1, 2003

    Impacts of Oil and Gas exploration, development and production have 
an obvious and sometimes intense impact on ranchers. The impacts are a 
source of conflict between oil and gas operators and ranchers on 
private land, State Lands and Federal lands. The New Mexico Cattle 
Growers' Association (NMCGA) is not anti oil and gas production and, in 
fact, understands and supports the need for domestic production. We see 
ourselves as logical allies of the oil and gas industry. However, the 
present situation coupled with some unsatisfactory history has created 
the need to make improvements. For that purpose NMCGA has a committee 
working on defining the problems and recommending solutions. The 
purpose of this position paper is to define the problem area and 
request practical solutions.
    The solutions will require cooperation and attention by Congress, 
the Bureau of Land Management (BLM), the New Mexico State Land Office 
(SLO), the New Mexico Oil Conservation Division (OCD), oil and gas 
lessees and operators, contract and service personnel as well as 
ranchers. We believe that the situation is serious enough to require 
aggressive attention and action. NMCGA believes that domestic 
production, exploration and operations can be improved and must be 
conducted in a manner that minimizes damages to the surface, aquifers 
and air regardless of ownership.

Priority Problem Issues:
    1. Excessive surface damages and disturbance
    2. Inadequate compensation and restitution for damages and adverse 
impacts
    3. Inadequate protection of watersheds and aquifers
    4. Inadequate reclamation, repairs, maintenance, clean up and 
mitigation
    5. Lack of communication with and responsiveness to landowners and 
lessees
    6. Lack of full consideration of both physical and mental health, 
safety and security issues
    7. Lack of inspection, enforcement and compliance by authorities 
having jurisdiction
    8. Worsening situation with noxious weeds and brush species 
invasion
    We believe that there are creative new ways to address all of these 
problems while not stopping domestic exploration and production. By 
finding ways to fund clean up, repairs and reclamation and ways to 
minimize damages, we can both produce oil and gas and protect the 
environment. In a time of more enlightened management surely we can do 
better than the existing situation.

Solutions:
    The following specific items should be addressed as solutions to 
the problems identified:

Surface Damages:
     Use existing roads, pads and corridors, directional 
drilling, aggressively reduce, close and/or reclaim existing pads, 
roads and pipelines
     Initiate aggressive project to clean up and repair 
historical and existing damages while preventing similar situation in 
all new development.
     Reducing the number of miles of road and reclaiming the 
unneeded roads
     Implementation of new specifications as to the size of 
pads and pits, tank battery sites and sizes, width of roads and 
pipeline right-of-ways due to new technology and equipment in use in 
the oil field

Compensation and Restitution:
     The entire process of damage payments must be revised, 
the procedure that allows the oil and gas lessee to proceed without 
settling damages is biased against the multi-use concept with the 
surface owner or lessee suffering the greatest consequences
     The involvement of and approval of the landowner and/or 
surface lessee prior to the approval and issuance of a permit to drill 
will improve this
     The entire standing of the surface as subordinate to the 
subsurface should be redefined to make them equal in status, the 
subsurface can no longer be the dominant estate
     Compensation, Damage Payments and Restitution must be 
based on the full value of personal property and the replacement cost 
or cumulative reduction in value of the real or leasehold property or 
the full cost of the adverse effects on the ranch operations
     There is not enough history in arid areas such as New 
Mexico, even after 70 or more years, to fully understand how much time 
will be necessary for the rehabilitation of the land, not to mention 
the heretofore uncompensated impacts to human health, both physical and 
mental

Protection of Watersheds and Aquifers:
     Surface Casing should be set and cemented continuously 
and through the deepest fresh water aquifer
     Wells and pipelines with leaks and other equipment 
failures must be corrected immediately
     Plugging and abandonment of non-producing and problem 
wells along with clean up of tank batteries, cement foundations, heater 
treaters, pipe connections, iron and cable, etc.
     Increased monitoring of surface and fresh water aquifers 
must be initiated and maintained
     Surface spills and leaks must be cleaned, repaired and 
reclaimed immediately
     Roads, pads and pipelines that are accelerating erosion 
and runoff must be repaired and reclaimed (entire watersheds are now at 
risk)

Reclamation, Repairs, Maintenance, Clean Up and Mitigation:
     Funding sources must be developed to supplement what the 
oil and gas operators must do
     Fund trial projects on sub watersheds through the BLM 
District Offices, the SLO and the OCD
     Increase enforcement and compliance staffing for BLM, the 
SLO and the OCD to improve the problem areas
     Agencies must place new priority on assuring and 
achieving compliance with surface stipulations by meaningful fines and/
or production penalties
     Agencies must quantify and consider the cumulative 
affects of existing damages and then initiate the necessary work to 
bring the leases into compliance with existing requirements
     The actual work of achieving compliance must be on a fast 
track to prevent further damages
     Rewriting and updating the ``Gold Book'' of surface 
management requirements to reflect more contemporary expectations 
should be initiated with the advice and consultation of landowners and 
surface lessees

Communication and Responsiveness:
     Response time to problems is too slow and must be 
improved--- immediate mandatory compliance with severe penalties 
imposed must be considered
     Agencies should develop a rapid response team and direct 
follow up action
     andowners and Lessees must be included in the process of 
permit approval, lease changes, development of plans of operation, 
damage resolution plans, unit spacing changes and any other lease 
activities that affect the surface, private or leased
     Other production activities often affect the surface 
after drilling, involvement of the landowners and lessees must be 
established and agency reviews should include coordination and 
consultation with the landowners and lessees prior to approval
Health, Safety and Security:
     Issues of noise and emissions are intensifying and 
adverse affects must now be considered on the land and residents, 
agencies and producers must have an obligation to do no harm
     Design and placement of roads, pipelines, production 
equipment and well sites must now consider the safety of the residents, 
landowners, lessees and other users, prior to approval
     Oil and gas operators have an obligation to protect the 
safety and security of the landowners and not interfere with their 
operations and peaceful enjoyment of their land and rightful uses of 
their land, therefore, the agencies as lessors and the Oil and Gas 
operators as lessees must have an obligation to limit and control 
access to private land by maintaining control of keys and other means 
of access and being fully liable for the actions of their employees, 
agents and contractors. If they do not do so, they must face both 
financial and rehabilitative penalties.

Inspection, Enforcement and Compliance:
     BLM, the SLO and the OCD must receive adequate funding to 
increase staffing to do the needed inspections and if necessary the 
enforcement to achieve compliance
     Voluntary compliance is not working and the lack of staff 
is hindering adequate action on behalf of the BLM to protect the 
surface or initiate meaningful response to existing problems
     Other regulatory agencies may need to be included in a 
more comprehensive approach
     Our preference is to develop a non-punitive effort to 
assure results but also believe that if sanctions, fines and lease 
cancellation can be applied to grazing leases then they can also be 
applied to oil and gas leases

Noxious Weeds and Brush Invasion:
     The mobility and movement of equipment and vehicle 
traffic is one of the primary vectors for movement of seed, appropriate 
control and management of the problem must become part of lease 
operation requirements and strictly enforced
     Disturbed sites and damaged sites are fertile ground for 
the establishment of weeds and brush and must be managed to eliminate 
and control invasion
     Oil and Gas operators and lessees must be responsible for 
control and treatment of weeds and brush along roads, pipelines, well 
pads and other equipment sites
     Revegetation of the pad surface and pipeline rights of 
way with native grasses is one of the best prevention methods and 
should be a requirement not an option in consultation with the surface 
owner or lessee

Conclusion:
    We believe that dramatic improvements can and must be made quickly. 
We believe there are responsible oil and gas producers that are willing 
to work cooperatively with the agencies, landowners, lessees and others 
to improve the situation. Many of the critical problems are the result 
of poor operations and lack of controls in the past and to that extent 
some of the cost should be paid by public funding. One of the critical 
needs is to find a funding source to address the existing problems on a 
large scale. Some have suggested super fund designation, we prefer some 
more positive approach such as designating funds from the Reclamation 
Fund or other Federal sources as a vehicle to share the cost and get 
work actually started. Better communication between all of the agencies 
having jurisdiction and the landowners, surface lessees and the oil and 
gas producers is necessary to initiate real improvement.
    We believe there are many new methods that can and should be 
applied to exploration, drilling, development and production that can 
minimize damages and reduce surface disturbance while producing more 
energy. Noble Energy has produced a report in conjunction with the 
Domestic Petroleum Council entitled ``Oil and Gas Exploration and 
Production Technology Update'' dated November 14, 2002. The report 
describes changes that can be made that will help accomplish some of 
our suggestions.
    Also, we fear that if improvements and changes are not made quickly 
that the alternative we can anticipate is imminent adversarial citizen 
lawsuits. We caution that no actual immediate improvements will be made 
by litigation and, in fact, scarce resources will used in court that 
should have been used on the ground. If the agencies, lawmakers, 
landowners, surface lessees, Oil and Gas lessees and other interested 
parties will work at this in a cooperative non-partisan manner much can 
be accomplished quickly. If they cannot or do not then we believe the 
situation will move into the realm of the courts within the near 
future.

Prepared by the
New Mexico Cattle Growers' Association
Oil and Gas Subcommittee
P.O. Box 7517
Albuquerque, New Mexico 87194
505/247-0584 phone
505/842-1766 fax
[email protected] email
www.nmagriculture.org web site

February 1, 2003
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Gawell.

STATEMENT OF KARL GAWELL, EXECUTIVE DIRECTOR, GEOTHERMAL ENERGY 
                          ASSOCIATION

    Mr. Gawell. Thank you, Mr. Chairman.
    My name is Karl Gawell and I'm the Executive Director of 
the Geothermal Energy Association, which is an association of 
about 60 companies and numerous individuals that represent sort 
of a wide range of companies, from Henry Vizotti, which is a 
one person engineering and consulting firm, to our largest 
company is probably Mid-American Energy, which is owned by 
Berkshire Hathaway and, obviously, Warren Buffet, the second 
richest person in America. So he obviously finds value in 
geothermal energy. I appreciate knowing my statement will be 
put in the record, so I'm not going to try to cover that 
ground.
    I want to thank you, Mr. Chairman. I want to thank Mrs. 
Cubin and Mr. Wise for their continuing interest in geothermal 
energy. I think it was 2 years ago when we started the last 
energy bill process, we held some hearings looking at the 
issues involving geothermal energy, and this Committee included 
provisions in the energy bill last year to address that.
    But I think many people have to understand that the issues 
we faced 2 years ago are all still here. When we started the 
energy bill, when the House started the energy bill, it was in 
response to the California energy crisis. I understand today 
the California Energy Commission is still looking at supply 
shortages this summer and down the road. then 9/11 then 
interrupted that, and I don't think I need to say much about 
where we're at since 9/11, given what may be happening in the 
next 24 hours.
    The problem is there. The problem is getting worse. I think 
this Committee is doing its best to try to address the 
situation and to adopt a national energy policy. It's a high 
priority amongst my companies and we support what you're doing.
    All the benefits of geothermal energy--I should give you 
the advertisement, but instead I will quote from my friends at 
the Department of Energy, who say ``Geothermal resources across 
the western U.S. are amongst the best sources of clean, 
reliable, domestic energy available to us today. To date, these 
resources have largely gone untapped.''
    That's really where we're at. We produce about 6 percent of 
the electricity in California. We produce a large amount of 
electricity, or a significant amount, in only four States. But 
we have resources in almost all the western States, everything 
west of the Mississippi, from the Dakotas through Texas to 
California and Alaska.
    But there have been some real impediments to getting these 
resources developed. Obviously, some of those relate to the 
market, some of those relate to the roller coaster rides we all 
face in the energy business. But a good number of them relates 
to what happens on the public lands.
    I want to say we greatly appreciate the efforts of both 
Secretary Norton and Secretary Abraham to begin to address 
these problems. We have seen a lot of positive changes moving 
forward at the Interior Department and Department of Energy, 
but particularly at the Interior Department, and we have seen 
new leasing rounds in Nevada. We have seen things start to 
break loose. We've seen even some resources applied to 
addressing the administrative hurdles which BLM has to cross 
over in dealing with leasing and permitting. But it is still 
not enough.
    It is quite clear that--We have leases in several States, 
particularly on Forest Service lands that are involved, that 
have been waiting over 10 years to even being leased based upon 
a pending application. With a business which is even riskier 
and more expensive up front than oil and gas, people don't 
invest money without some sense that they're going to have some 
legal rights to developing or some legal rights to capitalize 
on their investment that they put in the ground. So these are 
critical issues to be addressed by this Congress.
    Also, with your staff, with both the Democratic staff and 
the Senate, we have come to appreciate how much the Geothermal 
Steam Act itself is part of the problem. I know that in this 
last Congress we had some very active discussions in the Senate 
as we approached the conference Committee, and I think people 
began to realize that the Geothermal Steam Act was written at a 
time where--it's the type of law that thought the government 
knew everything, a U.S. Government that was supposed to 
designate where the high value resources were and, in its 
wisdom, it would figure out where the best places to develop 
were. The whole law was sort of written with that theory behind 
it.
    It has never happened. We don't have that knowledge and we 
don't have those resources. I think my testimony outlines 
several ways to update it, which frankly really tracks a lot of 
the changes made in oil and gas leasing laws in the Eighties 
and Nineties, which moved more to a market-driven mechanism, 
where the government had clear roles, what their roles and 
responsibilities were, and better relied upon industry to help 
drive the process and move things forward.
    I want to thank the Subcommittee, Mrs. Cubin and Mr. Wise, 
for their interest, and the full Committee, for moving this 
bill forward. I would say we hope to work with you and your 
efforts and interest in seeing geothermal energy meet its 
potential in the public lands.
    [The prepared statement of Mr. Gawell follows:]

    Statement of Karl Gawell, Executive Director, Geothermal Energy 
                              Association

    Thank you for the opportunity to present the views of members of 
the Geothermal Energy Association (GEA) regarding geothermal energy 
potential on public lands and the obstacles to developing this 
important national energy resource. GEA is a trade association that 
represents 60 companies and organizations involved in the U.S. 
geothermal industry, from power plant owners and operators to small 
drilling and exploration companies.

Geothermal Energy's Potential
    Geothermal energy provides a significant amount of the energy and 
electricity consumed in the Western U.S. Geothermal heat supplies 
energy for direct uses in commercial, industrial and residential 
settings in 26 states. Geothermal resources furnish substantial amounts 
of electricity in California, Nevada, Utah and Hawaii. Indeed, 6 
percent of California's electricity comes from geothermal energy.
    There has been renewed interest in geothermal power. A small-scale 
power facility has started operation in New Mexico, and the BLM reports 
that there is an active interest in leasing and permitting in eleven 
western states. In part this is due to the adoption in many states of 
renewable production standards to ensure a market for new renewable 
power. We believe it is also due to the interest shown in the Congress 
in expanding the Section 45 production tax credit to include geothermal 
energy through, for example, legislation introduced in the Senate by 
Senators Grassley, Domenici, Baucus and Bingaman, S. 597, as well as 
legislation introduced in the House by Representatives Duncan Hunter 
(R-CA) and Mark Udall (D-CO), H.R. 991.
    But needless to say, financial incentives and market portfolios can 
only go so far if companies interested in developing geothermal 
resources are unable to obtain leases and secure the permits necessary 
for development in a timely manner and under reasonable conditions. The 
high-level of interest shown in expediting the processing of geothermal 
leases and permits by this Committee and Federal and state governments 
has been a major contributor to renewed interest in tapping the 
undeveloped geothermal resources of our Nation. Discussions about 
amending and updating the Geothermal Steam Act have been received with 
excitement by many in the geothermal industry.
    Expanded use of geothermal resources will provide additional clean, 
reliable energy to the West. Thousands of megawatts of new geothermal 
power, and an equal amount of direct-use energy, could be developed in 
the immediate future; however, obstacles created by public land 
agencies must be removed.
    Geothermal energy contributes directly to both state and local 
economies and to the national Treasury. To date, geothermal electricity 
producers have paid over $600 million in rentals, bonus bids and 
royalties to the Federal Government. Moreover, according to an analysis 
performed by Princeton Economic Research, it would be reasonable to 
estimate that the geothermal industry has paid more than 6 times that 
amount in Federal income tax, for a combined total of over $4 billion. 
1 If the economic multiplier effects were considered, the 
total contributions of geothermal energy to the local and national 
economy would be substantially greater.
---------------------------------------------------------------------------
    \1\ Princeton Economic Research, Inc., Review of Federal Geothermal 
Royalties and Taxes, December 15, 1998. (Figures expressed in 1998 
dollars.)
---------------------------------------------------------------------------
    What is the potential for geothermal energy on public lands? What 
are the benefits of developing these resources? These questions are 
difficult to answer, in part because the efforts of the U.S. Geological 
Survey (``USGS'') and the Department of Energy to define the U.S. 
resource base have not been funded for many years. In fact, as the USGS 
pointed out in its testimony before the Energy Subcommittee in May, its 
last assessment was undertaken roughly 30 years ago.
    In order to produce a more current picture of the near-term 
potential of the geothermal resource base, GEA Executive Director Karl 
Gawell together with Dr. Marshall Reed of DOE and Dr. Michael Wright of 
the Energy and Geosciences Institute at the University of Utah, 
conducted a systematic survey of known geothermal experts from 
business, academia and government in 1999. The results of this survey 
were assessed and a brief report was released in April of that year 
entitled ``Preliminary Report: Geothermal Energy: The Potential for 
Clean Power from the Earth.''
    That report concluded that the U.S. geothermal resource base could 
support significantly increased production. U.S. geothermal electric 
capacity, now at about 2,600 MW, could triple and, with expected 
improvements in technology, could reach nearly 20,000 MW in 20 years.
    These figures would appear to be fairly consistent with the 
estimates presented to the Subcommittee on Energy and Minerals by the 
U.S. Geological Survey. Their testimony indicated a potential for 
22,290 MW of geothermal electricity production (see Attachment 1). As 
GEA's Executive Director testified before the Energy and Minerals 
Subcommittee, these figures also concur with the results of the 
planning workshop that helped produce the current DOE Strategic Plan--
an effort that brought together many of the leading experts from 
industry, laboratories and academia. At that workshop, there was a 
consensus that, with market support, as much as 10,000 MW of electric 
capacity could be brought on-line in the West by 2010 by expanding 
existing resource production and developing new facilities. 
2
---------------------------------------------------------------------------
    \2\ U.S. Department of Energy, Office of Geothermal Technologies, 
Strategic Plan for the Geothermal Energy Program, June 1998, page 21.
---------------------------------------------------------------------------
    Achieving this additional geothermal production would have 
substantial economic and environmental benefits in the western United 
States. If the goal of the DOE Strategic Plan could be reached, the 
cumulative Federal royalties from the new power plants would reach over 
$7 billion by 2050, and estimated income tax revenues would exceed $52 
billion in nominal dollars. 3 The state share in these 
royalties alone would result in an additional investment of $3.5 
billion in schools and local government facilities in the western 
states.
---------------------------------------------------------------------------
    \3\ Princeton Energy Research Inc, Op. Cit., Volume I, page 17.
---------------------------------------------------------------------------
    Expanded use of geothermal resources can also contribute to the 
President's goal of a hydrogen future. Using geothermal resources to 
drive catalytic processes is ideal for generating hydrogen. In fact, 
Iceland is expected to be the first country in the world to make a 
significant transition to hydrogen fuels, which it will achieve by 
using its geothermal and hydropower resources.
Recent Efforts To Address Barriers To Geothermal Energy Use
    We were very pleased by the Administration's interest in enhancing 
the use of renewable resources on public lands. Vice President Cheney, 
Secretary Norton, and Secretary Abraham have all shown a strong 
interest in promoting renewable energy use, and addressing the problems 
the geothermal industry has experienced.
    Vice President Cheney met with leaders of the renewable energy 
industry. The National Energy Policy release in May of 2001 by the 
National Energy Policy Development Group included several key 
recommendations. The NEPDG recommended that the Secretaries of Interior 
and Energy re-evaluate access limitations to Federal lands in order to 
increase renewable energy production. It also recommended that the 
Secretary of the Interior determine ways to reduce the delays in 
geothermal lease processing and permitting.
    Twelve days after the release of the Vice President's report, the 
President signed Executive order 13212-Actions to Expedite Energy-
Related Projects. This order established the White House Task Force on 
Energy Project Streamlining to ensure interagency collaboration.
    In response to the Vice president's report, the Secretaries of 
Interior and Energy convened at a conference entitled ``Opportunities 
to Expand Renewable Energy on Public Lands'' in November 2001. This 
meeting brought together over 200 senior executives from industry with 
state and Federal agency representatives as well as a wide range of 
other interested groups.
    This interest and initiative from the Administration has been 
supported by Congressional action. The House Resources Committee and 
its Energy Subcommittee have held hearings on renewable energy 
development on public lands, and specifically on geothermal energy 
issues. The Congress has included funding for key activities by the 
Bureau of Land Management, U.S. Geologic Survey and Department of 
Energy.
    We appreciate the interest and attention of the Senate Energy 
Committee, and hope that these hearings will build upon the progress 
being made. We are pleased to say that there is progress being made, 
although we must report that there are still problems and obstacles to 
overcome.

Geothermal Energy on Public Lands
    Whether and when the economic benefits of further geothermal 
development are realized will greatly depend upon the action, or 
inaction, of the Federal land management agencies. Today, about 75% of 
U.S. geothermal electricity production takes place on Federal public 
lands since that is where most of the resource is located. If we expect 
to see significant increases in geothermal energy production in the 
United States, we will have to access resources yet to be developed on 
public lands
    New geothermal development requires the timely and reasonable 
oversight of Federal leasing, permitting, and rights-of-way and 
environmental reviews by public land management agencies. 
Unfortunately, the previous administration's management of Federal 
geothermal resources was marked by bureaucratic delay and indecision by 
public land agencies; as a result, there has been a rapid decline in 
new geothermal energy development.
    To understand the impact that delays can have, it is important to 
recognize that all of the estimates discussed earlier are nothing more 
than that--estimates. A company interested in developing a geothermal 
resource will have to invest millions of dollars in defining the 
resource before construction of a power plant can even begin. 
Unfortunately, there are few reliable surface exploration techniques 
for geothermal energy that can provide any degree of confidence. 
Confirmation and definition of the resource involves drilling, which 
means the investment risk is high and may remain high until after 
several wells have been drilled.
    Geothermal wells are more expensive to drill than oil and gas 
wells, and if successful have a payback period substantially longer 
than oil and gas wells. They are drilled in hot, hard, fractured, 
abrasive rocks where problems are frequent and expensive. For ``green 
field'' development, resource definition work may account for as much 
as 40% of the cost of the project, and that considerable expense must 
be borne before the resource is sufficiently confirmed in order to 
secure financing for a project--making the risk to the developer even 
greater.
    Companies will not take on such a considerable expense and risk 
without assurance that if they are successful they will be able to 
develop a power plant. To begin with, they need a lease to ensure their 
rights to develop the particular resource identified.
    This brings us to bureaucratic problem number one: tens of 
thousands of acres of geothermal leases were applied for in the West, 
to which Federal agencies failed to respond. Lease applications 
languished, often for years.
    Because this Administration has made renewable energy development 
on public lands a priority, and with Congress support, we have seen 
some progress. The de facto moratorium on geothermal development on 
public lands appears to be lifting. Last year, BLM was able to make 
substantial inroads on the lease backlog in Nevada, and the Secretary 
of Interior has committed the agency to eliminating the backlog 
entirely.
    But while progress is made in some areas, BLM clearly still lacks 
the resources to eliminate the problem. In addition to a lack of 
resources to complete lease processing, and the necessary land-use 
planning and environmental reviews, BLM is still seeking the active 
cooperation of other agencies, particularly the Forest Service. Lease 
applications that have been pending for years, some for as long as a 
decade, still await action in Washington and other states. We 
understand that persistent pressure from the BLM has resulted in some 
progress being made on pending lease applications on Forest Service 
lands, but still, new leases are not being been issued.
    If you wonder why there are not more geothermal projects being 
developed in the West, these delays are a big part of the answer. If a 
company cannot obtain a lease, it will not spend millions of dollars on 
the exploration needed to determine whether or not there are adequate 
subsurface geothermal resources to support a geothermal power project.
    Furthermore, once a company obtains a lease, the administrative 
processing of permit applications and environmental reviews can be 
expected to take years. As GEA testified before the House Resources 
Committee's Energy Subcommittee, it has been our members' experience 
that ``environmental reviews have been unnecessarily extensive, costly, 
and repetitive; and in areas where an EIS has been completed, decisions 
by Federal agencies have been subject to years of delay and appeal.''
    During the House Resources Energy Subcommittee hearing in May of 
2001, an official from Calpine Corporation, the largest geothermal 
energy company in the United States, testified about his company's 
experience in trying to develop geothermal resources on Forest Service 
land in Northern California. The area in question was leased by BLM in 
the 1980s, with the approval of the Forest Service, for geothermal 
development. In fact, the area is situated in the Medicine Lake Known 
Geothermal Resources Area, one of the first KGRAs to be designated 
after the Geothermal Steam Act was passed in 1970.
    Despite the fact that BLM and the Forest Service encouraged 
development in this area for more than two decades, and the Bonneville 
Power Administration supported the project and agreed to buy the 
electric power, it took over seven years to complete the initial 
permitting and EIS on the project. The project was approved with some 
of the most extensive and onerous conditions ever imposed on a 
geothermal project. Despite approval of the project, the Calpine 
official declared in his statement before the Subcommittee ``...if 
Calpine knew in 1994 what it knows now, it is safe to say that it never 
would have invested its time and capital in the Fourmile Hill 
project.'' He continued: ``...Unless the situation changes, Calpine is 
unlikely to embark on a similar project ever again. This should concern 
this Subcommittee because many of the geothermal resources in the 
United States are located on Federal land. As long as the Federal 
permitting process remains as time-consuming and costly as what Calpine 
has experienced, private companies will be severely discouraged from 
developing these resources.''
    The message is clear: Extensive and expensive administrative 
processing is having a significant negative impact on geothermal 
development on public lands. The years of delay and uncertainty in 
moving forward at these sites sent shock waves through the geothermal 
industry. It sends the message to every company considering a new 
geothermal project on public lands--expect many years of arduous and 
expensive bureaucratic processing.

Geothermal Energy on Military Lands
    In addition, there are millions of acres of public land in the West 
that are reserved for use by the military. These lands potentially hold 
significant geothermal resources. GEA fully recognizes the importance 
of the military's use of public lands, and believes that leasing or 
development should occur on military lands only with their consent, and 
under such terms and conditions as they deem necessary and/or advisable 
to meet the military mission.
    However, where development occurs, GEA believes geothermal leasing 
and development on lands subject to military reservation there should 
be:
    (1) Uniform policies on securing and maintaining the leasehold 
estate;
    (2) Uniform royalty structures and consistency with policies 
affecting development on non-military lands; and
    (3) Centralized administration of the lease and royalty programs.
    What we are asking for is that standard, uniform policies be 
developed regarding leasing and royalties on military lands so that a 
potential developer knows what to expect. The current situation, which 
allows ad-hoc decisions to be made on a case-by-case basis, deters 
geothermal development on military lands. Essentially, we believe 
geothermal resources should receive treatment similar to other oil, gas 
and mineral activities on military lands. 4
---------------------------------------------------------------------------
    \4\ See 43 U.S.C. 158. The Engle Act of 1958 placed mineral 
resources on withdrawn military lands under jurisdiction of the 
Secretary of the Interior and subject to disposition under the public 
land mining and mineral leasing laws.
---------------------------------------------------------------------------
A New National Resource Assessment is Needed
    One of the proposals made during the last Congress was to direct a 
new national resource assessment by the U.S. Geologic Survey, and we 
strongly support this proposal. The importance of USGS resource 
assessment was affirmed by the National Research Council, which reports 
that, ``effective and timely scientific information from [the USGS] 
programs is needed to help the nation determine its energy options 
through the year 2000 and beyond. 5
---------------------------------------------------------------------------
    \5\ Energy-Related Research in the USGS, National Research Council, 
1998, National Academy Press, Washington, DC
---------------------------------------------------------------------------
    The last assessment of the U.S. geothermal resource base was 
conducted in the late 60s and early 70s. A lot has happened in thirty 
years, including our fundamental understanding of the earth's geology. 
The lack of an up-to-date resource assessment is a fundamental barrier 
to expanded geothermal development in the United States. The USGS has 
initiated a new assessment for the Great Basin; however, Congress 
funded this work only for its first year. This assessment should be a 
priority. The USGS should be authorized, directed, and funded to 
complete an entire national resource assessment over the next three 
years.

Updating The Geothermal Steam Act
    While we applaud the efforts made to date by the Administration to 
promote the development and use of geothermal resources on public 
lands, industry has begun to recognize that there are some fundamental 
problems with the Geothermal Steam Act that need to be addressed. The 
House Resources Committee proposed a series of amendments to the Steam 
Act during the 107th Congress that have been the basis for an on-going 
discussion about how to improve the underlying law. Following is a 
summary of our views on some positive amendments to the Steam Act that 
would help encourage new geothermal development.
KGRAs and Competitive Leasing:
    To begin with, the Steam Act was written at a time when government 
experts were expected to determine where the best resources were 
located. The Federal Government would determine what areas would be 
designated ``Known Geothermal Resource Areas,'' and these would be 
subject to competitive bidding. This method is not too different from 
the approach taken by the oil and gas leasing laws prior to their 
modification by Congress in the 1980s. Similar modifications should be 
made to the Geothermal Steam Act.
    We recommend that KGRAs be eliminated as a criterion for 
determining where bidding is held on a competitive basis, and that the 
law should be modified to resemble the current oil and gas leasing 
statutes where lands are offered first for competitive bidding and then 
made available on a non-competitive basis. In states where there are 
expressions of interest in bidding, BLM should hold a competitive lease 
sale at least once every two years. Prior to scheduling the sale, 
companies should be asked to submit any nominations they may have for 
specific lease blocks upon which they wish to bid.

Royalties:
    The current royalty requirements should be modified to reduce 
administrative costs and promote new power and direct use development. 
Instead of the complex and administratively expensive net back formula 
now used, royalties should be based upon a simple percentage of gross 
proceeds. We estimate that currently that would be roughly a 3-1/2% 
gross royalty. To encourage new development, Federal royalties could be 
``stepped,'' or be set at 2% of gross revenues for the first four years 
of production with an increase to 3-1/2% for the remaining term of the 
lease. Recognizing that local governments rely upon royalty payments 
for essential services, if a stepped royalty is adopted, we would 
further recommend that the state share of the royalty should be 
increased to 100% for the initial period.
    For direct use operations, there should be no royalty or a simple, 
nominal fee. Experts on direct use operations believe that the current 
royalty requirement is perhaps the major impediment to greater direct 
use of geothermal energy in commercial, mining, ranching and similar 
operations in the West. Kevin Rafferty of the Geo-Heat Center in 
Klamath Falls, Oregon states, ``The really telling statistic in my 
opinion is that we now have hundreds of direct use projects in 
operation across the West and we are only able to identify 3 that use 
resources on the public lands. The users are out there and so are the 
Federal resources but no one is using them. It seems pretty obvious 
that something is wrong.'' According to Mr. Rafferty, the high cost of 
direct use royalties was the most commonly cited problem at a recent 
meeting held to discuss how to expand geothermal energy use in the 
West. 6
---------------------------------------------------------------------------
    \6\ Email communication from Kevin Rafferty, Associate Director, 
Geo-Heat Center, Klamath Falls Oregon, February 24, 2004.
---------------------------------------------------------------------------
    Similarly co-production of mineral by-products from geothermal 
sites should be subject to no royalty or a nominal fee. Mineral 
production from geothermal sites should be treated the same as mineral 
production elsewhere on the Federal lands. It is sadly ironic that 
under the existing law a Federal lessee producing metals from the fluid 
used in a geothermal plant would have to pay the Federal Government a 
royalty on the mineral (in addition to a royalty on the power), but 
producing that same metal by open pit mining on the public lands would 
not be subject to a royalty. There is significant potential to produce 
minerals from geothermal sites that should be encouraged. Doing so will 
not only help the economy and national security but will reduce the 
overall environmental impacts of mineral production.

Royalty Revenues:
    A fundamental problem facing the Federal Governments' efforts to 
promote geothermal production on Federal lands is the lack of resources 
to support the efforts urgently needed by the BLM, USGS, and others. To 
help address the substantial backlog of leasing, permitting and related 
environmental and land-use reviews and to support a new geothermal 
resource assessment we would propose that the Federal share of 
geothermal royalties be dedicated to these efforts on a temporary 
basis.
    For the next five years, the Federal share of geothermal royalties, 
bonus bids, and rentals should be used to fund the USGS resource 
assessment above, to eliminate the backlog in BLM planning, leasing and 
permitting activities, and to complete targeted environmental reviews 
for areas with significant new development potential. These 
environmental reviews should be conducted cooperatively with state and, 
as appropriate, tribal land authorities and should seek to minimize 
subsequent permitting and related project delays. For military lands, 
the share of Federal royalties should be dedicated for their geothermal 
development efforts.

Payments/Due Dates Lease/Reinstatement for Inadvertent Lapses:
    Again, unlike the oil and gas leasing law, there is no flexibility 
in the existing geothermal statute for inadvertently late lease rental 
payments. If a payment were even one hour late, the law would impose 
termination of the lease. This is not only unreasonable, it can 
seriously disrupt lease development.
    We would recommend that a standard 30-day grace period be applied 
for all payments due to the BLM, with a penalty as prescribed by 
regulations, similar to oil and gas.

Lease Consolidation, Unitization/Pooling:
    For a number of reasons, including efficient development of the 
resource, a geothermal area should be developed under common terms and 
agreements. In some cases, this would mean lease consolidation where a 
single company has multiple leases. In other cases, this could mean 
unitization or pooling where there are multiple leaseholders or perhaps 
a mix of Federal, state or other leases.
    The current law and regulations do not facilitate these 
developments. For example, the BLM cannot unitize a group of leases 
unless they have exactly the same lease terms. Also, they do not have 
the same degree of authority to prompt pooling arrangements or unit 
agreements as they have for oil and gas leases.
    We would recommend that the law be modified to provide BLM the 
authority to consolidate leases that do not have exactly the same terms 
(issued same day, same royalty rate, etc''.) BLM should be authorized 
to renegotiate lease terms in order to have common terms for a lease 
block. BLM should also be given broader authority to initiate 
unitization or pooling agreements when it would facilitate development 
of the resource.

BLM as Lead Federal Agency:
    There continues to be significant problems with leasing and 
development of geothermal resources where there are multiple agency 
jurisdictions involved. We applaud the efforts of the BLM to work 
cooperatively with the Forest Service and the Navy, and encourage all 
parties to work together. However, the law should be amended to provide 
BLM greater authority to ensure that timely decisions are made.
    We would recommend that the Steam Act be amended to make it clear 
that BLM has lead status for all decisions under the Steam Act. BLM 
should be authorized to establish, by regulation, specific timeframes 
for actions by other agencies where their consent or consultation is 
required.

Agency Appeals Process:
    Finally, appeals of agency decisions under the Steam Act should be 
expedited. The U.S. Forest Service has a more expeditious process 
governing appeals of their actions as compared to the BLM. The BLM 
should consider modifying its regulations to be more like the Forest 
Service. Specifically--
    1) The BLM should adopt regulations similar to those of the Forest 
Service whereby only National Environmental Protection Act (NEPA) 
decisions can be appealed, such as a Decision Notice or Record of 
Decision. Implementing actions, such as the issuance of a permit or 
sundry notice, cannot be appealed. The current BLM regulations allow 
for the appeal of the NEPA decision, and then for the further appeal of 
any permit that is issued subsequently. The delays can be endless.
    2) Regulations should be modified to set a time limit for the 
Interior Board of Land Appeals (IBLA) to decide appeals. The 
regulations should provide that if the IBLA does not make a decision 
within the time limit, then the appeal is deemed denied. The Forest 
Service regulations set a 45 day time limit for deciding an appeal. In 
contrast, an appeal of the BLM Record of Decision for Calpine's 
Fourmile Hill geothermal project (referenced earlier) took 22 months 
before a decision was reached to deny the appeal.

Transmission
    Since most geothermal power facilities must be located where the 
resource occurs, they are often in rural areas. The benefits of this 
coincidence for rural economic development are substantial and 
positive. In nearly every county that currently has a geothermal power 
plant, it is the largest taxpayer in that county and provides 
substantial long-term employment as well.
    However, for the developer this adds a potentially significant 
problem--the location may or may not be near transmission lines. This 
obstacle needs to be recognized by the Federal agencies, and they need 
to place a priority on processing rights-of-way and permits for 
transmission lines. It also raises the need to plan transmission 
systems to optimize their availability for power production from 
geothermal and other renewable resources.
    Just this week, the Departments of Interior and Energy issued a 
report entitled Assessing the Potential for Renewable Energy on Public 
Lands. This is an important and positive step forward for agency land-
use planning efforts, and should provide important information for 
state, regional and Federal agencies that are undertaking transmission 
planning. When the USGS completes a new geothermal resources 
assessment, we expect its findings will provide even more reliable 
resource information for transmission planning purposes.

Conclusion
    Geothermal resources on the public lands can contribute 
significantly to our Nation's energy supplies. Solid progress is being 
made through the initiatives of the White House, Secretary Norton and 
Secretary Abraham to achieve the expanded use of our geothermal 
resources. Congress' support for these efforts, and for funding these 
efforts, will be critical to their success.
    We urge this Committee to consider amendments to the Geothermal 
Steam Act that will build upon the Administration's efforts. These 
amendments could help streamline the existing law, and ensure that the 
resources are available to eliminate the backlog of leasing and 
permitting decisions, and to complete a new national geothermal 
resource assessment.
    Geothermal energy can help address the critical energy problems of 
our Nation. With the tax, regulatory and legal changes we have 
discussed, there would be a dramatic revival in the use of geothermal 
energy use for electric power production, greenhouse heating, 
aquaculture, and other purposes. This would reduce our dependence upon 
foreign oil, reduce our spiraling demand for natural gas, and provide a 
substantial and immediate stimulus for the economy.
    Thank you.
                                 ______
                                 
    [An attachment to Mr. Gawell's statement follows:]
    [GRAPHIC] [TIFF OMITTED] T5771.016
    

    [Mr. Gawell's response to questions submitted for the 
record follows:]

    Response of Karl Gawell, Executive Director, Geothermal Energy 
Association, to questions submitted by the Committee on Resources, U.S. 
                       House of Representatives.

    Question 1: You state that delays are having major impacts on new 
geothermal projects. What have been the major sources of delay in the 
experience of your companies? What can Congress do about this?
    Reply: The cost of any project escalates when companies face 
delays, particularly delays involving years in duration. Moreover, when 
timing of project development cannot be anticipated with any accuracy, 
additional delays are incurred because contractors and equipment may 
require many months of lead-time. This latter problem is complicated 
further by the fact that when energy supplies are tight, and the need 
for new development is the greatest, drilling rigs or other equipment 
will be the most difficult to find and the most expensive.
    While GEA has not done a systematic study of these problems, it is 
clear that simply the delay in having decisions made is a common theme. 
Here are examples of what I have heard as some of the most common types 
of problems:
     PROBLEM: BLM cannot issue a lease or permit because it 
first has to conduct a land-use plan adequacy review. These reviews 
have been taking a year or more to complete, and can result in further 
delays if plan modifications or amendments are found necessary.
    To begin with, BLM needs adequate funding to complete the required 
analysis under NEPA, FLPMA and other relevant statutes. In particular, 
BLM could prepare pre-lease environmental and land-use analyses in 
areas with a high potential for development. This would be most 
successful if it was coupled with a new USGS resource assessment to 
help define these areas. These pre-lease reviews should form the basis 
for expedited action on leases and permits for areas covered by the 
analysis.
     PROBLEM: The resource cannot be developed because there 
is a lack of coordination between Federal agencies. For example, both 
the Navy and the BLM have issued leases in the Fallon area of Nevada. 
However, it appears that the resource may underlie additional lands as 
well as Native American lands. Without a coordinated leasing plan, 
there will be little development since there are now multiple parties 
with competing rights to the resource and there may possible be 
additional parties in the future.
    As indicated in our testimony, the BLM and the military services 
should have consistent and coordinated policies towards development of 
geothermal resources on the public lands.
     PROBLEM: Even in the best of cases on the public lands 
(when a project is on single agency land) there are still multi-
jurisdictional approvals required for the project. At the Federal 
level, a project would typically involve the land agency, EPA, U.S. 
Fish and Wildlife Service, and the National Trust for Historic 
Preservation. In addition, approvals for the project may involve half 
dozen or more state entities such as the state energy or land board, 
air quality control board, and water quality control board. Finally, 
local jurisdictions may require various permits or approvals for roads, 
transmission lines and related facilities.
    While by law each of these reviews may be intended to focus on 
different, specific issues, we often find that the same issues are 
raised over and over again throughout the process. For example, during 
consultation under Section 106 of the Historic Preservation Act, 
critics of the Fourmile Hill project submitted a lengthy brief that 
raised largely issues that had been raised and resolved previously 
during the NEPA or land-use planning process.
    Federal agencies should be directed to enter into Memorandum's of 
Understanding (MOUs) about geothermal leasing and development that 
clearly define each agency's role, and they should be encouraged to 
work with state and local agencies as well in achieving clear 
coordination of their processing, elimination of duplication, and 
sharing of information between themselves regarding issues addressed 
and resolved.
     PROBLEM: Of particular concern in recent years is the 
protection of Native American historical, cultural and religious sites 
through the Section 106 consultation of the National Historic 
Preservation Act. This consultation can be complicated and lengthy, but 
too often is left to late in the process.
    This consultation process should be conducted earlier and these 
issues resolved before companies have to make major financial 
commitments to site development.
    Native Americans are increasingly engaged in consultation regarding 
projects on public lands. The Congress may wish to consider whether 
Native American Tribes that operate similar to units of local 
government near geothermal projects, or that have demonstrated cultural 
and historic ties to the lands, should share in the Federal royalties 
from the project. As part of its trust responsibilities, dedicating a 
small portion of the Federal share for such purposes would appear 
appropriate, and would not reduce funding to state and local 
governments.
     PROBLEM: In some cases, particularly regarding Forest 
Service lands, leases simply are not issued because the surface 
management agency fails to give consent. It has been the policy of the 
Forest Service in the Pacific Northwest to take no action on leases, 
and as a result, lease applications have simply languished for years 
and years.
    The Forest Service should be encouraged to participate more 
effectively in achieving the clear policy goals of the Administration, 
particularly with respect to the development and use of renewable 
energy resources on public lands. Also, as noted in our testimony, BLM 
should be the lead agency for geothermal decisions. Other agencies 
should have clear timeframes to make decisions, and BLM should be given 
authority to ensure that agencies are held accountable for inordinate 
delays.
     PROBLEM: Then, even if you proceed past all of the 
hurdles, there is a final delay at the Interior Board of Land Appeals. 
The IBLA can take two years or more just to hear an appeal of an agency 
decision, unlike the Forest Service appeals process.
    As we indicated in our testimony, we believe the Department of the 
Interior should adopt appeals procedures similar to those used by the 
Forest Service to ensure expedited action on appeals of agency 
decisions.
     PROBLEM: In areas with geothermal leases, too often there 
is a complex patchwork of existing leases with different owners that 
creates its own obstacles to development. Before development will 
usually be able to occur, all parties with rights to the resource need 
to come to a common agreement about its development, financial returns, 
etc.
    While BLM could play a more constructive role in encouraging unit 
development and pooling, it lacks the resources and questions the 
extent and flexibility of its authority to do so. In the future, the 
patchwork of leases could be avoided by moving to a leasing system that 
does not depend upon the Federal Government to know where high value 
resource are through designating KGRAs, but uses industry nominations 
and competition to achieve these results.
    Question 2: You indicate your companies have been involved in the 
efforts of the Administration to promote renewable development on 
public lands. In fact, you appear to laud these efforts, but some have 
argued that they are merely window dressing. What would you say to 
these skeptics?
    Reply: We have no doubt about the commitment of Secretary Norton 
and Secretary Abraham to encouraging the greater use of renewable 
energy resources on public lands. They have personally been involved in 
the Summit meetings, and have directed changes in their agencies that 
are having real, positive results.
    For example, at the Department of Interior, the Secretary has 
roughly doubled the resources applied to BLM's geothermal program. This 
has allowed significant progress to be made in the lease backlog. One 
result is that BLM held the first major competitive lease sale in 
Nevada in many years.
    Beyond resources, they have directed their agencies to put together 
a fundamental database on renewable energy on the public lands. Their 
recent report is an important first step in advancing renewable 
development in the West. While you might look at the information it 
presents as fairly fundamental--for example identifying the areas now 
under geothermal leases in 11 Western states--it is symptomatic of the 
neglect that renewable energy resources have faced that this 
information was not systematically available previous to this effort.
    Admittedly, there is more that needs to be done to encourage 
tapping the renewable energy potential of public lands, but the efforts 
of Secretary Norton and Abraham--which were undertaken at the 
encouragement of the Vice President--deserve support and praise.
    Question 3: Your testimony indicates that the USGS resource 
assessment was conducted in the late 60s and early 70s. Is this 
information not still useful, and what would be gained by a new 
resource assessment?
    Reply: The primary motivation for the new Great Basin study is the 
critical need to update the USGS assessments produced in the late 
1970s. This is equally true for a Western U.S. geothermal resource 
assessment. Although these assessments provided invaluable information 
on the size and location of geothermal resources in the U.S., they were 
based on a relatively limited understanding of the nature of active 
geothermal systems and on incomplete data from identified geothermal 
systems. Over the past two decades many geothermal systems have been 
studied in detail and the scientific investigations of geothermal 
processes have made significant advances. At the present time, DOE 
plans to rapidly expand the use of geothermal resources, and the 
geothermal industry is making determined efforts to ensure that 
geothermal energy is an important component of the Renewable Portfolio 
Standards for electric power generation that are being implemented by 
many western states. In this rapidly changing energy environment, a new 
assessment of the moderate- and high-temperature geothermal resources 
of the Western U.S. is critical to the future development of geothermal 
resources. Specifically, a new assessment can answer some fundamental 
questions. How large are the nation's geothermal resources? Where are 
they located? What percentage of these resources is located on public 
lands, and what are the impediments to development? How much of the 
identified geothermal resource can be exploited with existing 
technology, and how much will require the commercialization of new 
technologies? What is the likely size of undiscovered resources, and 
where will they be located? Answers to these and other questions are 
needed to provide Federal, state and local governments, as well as the 
geothermal energy industry, with a roadmap for future development of a 
significant source of renewable energy.
    Unfortunately, the funding for the Great Basin Resource Assessment, 
which would have been the first steps in a new Western U.S. geothermal 
resource assessment, was not appropriated and the project is now at a 
standstill. While both the House and Senate provided some funding, no 
funds were approved during the House-Senate Conference Committee's 
consideration.
    Question 4: You discuss the need for funding or appropriations--
with respect to the USGS resource assessment. Given your background as 
a former Interior Appropriations staffer, how would you justify this to 
the Appropriations Committee?
    Reply: First, I would point out that the USGS has responsibility 
for conducting energy and mineral resource evaluations and has been 
appropriated nearly $80 million annually for energy and mineral 
geologic resource assessments. Unfortunately, their budget does not 
identify that any of these funds are supporting renewable energy 
resource assessments.
    As the USGS points out, its energy resource programs are important 
to the Nation. In the agency's own words. ``Our Nation faces the 
simultaneous challenges of increasing demand for energy, declining 
domestic production from existing oil and gas fields, and increasing 
expectations for environmental protection. The Energy Information 
Administration (2000) forecasts that worldwide energy consumption will 
increase 32 percent between 1999 and 2020 because of growth of the 
world economy. Forecasts indicate that in the same time period, U.S. 
natural gas consumption will increase 62 percent, petroleum consumption 
will increase 33 percent, and coal consumption will increase 22 
percent. The U.S. Geological Survey provides the objective scientific 
information our society needs for sound decisions regarding land 
management, environmental quality, and economic, energy, and strategic 
policy.''
    Geothermal energy has significant potential to contribute to our 
national energy supply needs, but the antiquated USGS resource 
assessment is a significant impediment. As noted in the response to 
question 3, there is a compelling need for a new geothermal resource 
assessment. If the USGS would ensure that even 5% of its energy and 
mineral resource evaluation was applied to renewable energy resources, 
and in support of the Administration's priority on utilizing renewable 
energy resources, there would be adequate funding to conduct and 
complete a new geothermal resource assessment within a few years.
                                 ______
                                 
    The Chairman. Mr. Gawell, I will just start with you. When 
you talk about the underlying act, the generic act, what are 
some of the changes or possible changes that you would propose 
that we look at in that particular act?
    Mr. Gawell. Well, in my testimony I go through several. But 
to begin with, I think the first change is to move away from a 
Federally designated KGRA system for leasing. I think the 
ultimate debacle for KRTAs is, you know, the Medicine Lake 
project, which we talk about, which was leased, one of the 
first Known Geothermal Resource Areas leased after the law was 
passed in 1970, '71. The first facilities to develop there may 
come on line in another year or two. So even in an area where 
the Federal Government, the land use plan designated as high 
priority, there is still lots of administrative problems.
    But most importantly, we have moved beyond the ability of 
the U.S. Geologic Survey to determine where the resource is. 
When you look at the resource maps being produced now in 
Nevada, you find geothermal resources all throughout the State, 
fairly high temperature ones. If the U.S. Geologic Survey and 
the BLM are going to figure out where they were, they would 
have to have a drilling program. It would sort of go back to 
quasi-socialism and government here. You would have to have a 
very major effort for them to designate it.
    This was one of the problems we ran into with oil and gas 
in the Seventies and Eighties. When we moved to a system driven 
more by industry nominations, where industry nominates tracts 
that are put up for competitive bidding, those that don't go 
for sale competitive are available, noncompetitively, and it 
has in a sense the knowledge of a wide range of people through 
industry help decide where to move things forward instead of 
waiting for government efforts, which aren't funded, which 
don't occur, and which, frankly, have also created some 
situations where we now have multiple leases within essentially 
the same resource area. So you have one basin and maybe four or 
five holders, because when it was first leased, the BLM didn't 
understand that it, in fact, was one area. So move away from 
the KGRA system.
    Also, they need enhanced authority to deal with some of the 
problems that the old law created. They need enhanced authority 
for dealing with unitization in these fractured areas, a 
pooling of resources between again fractured leases, and maybe 
there's a State lease involved.
    The Geothermal Steam Act, when you read it, is actually 
very strict. For example, it does not allow BLM to unitize 
unless every condition in the leases involved in the unit are 
identical. That has created serious problems in terms of being 
able to get production out of areas, even where we know the 
resource is.
    I think there are several areas like that outlined in my 
testimony, which I think are fundamental, and which would help 
us move forward and really gear the Act more toward developing 
these resources based upon our knowledge and science today.
    The Chairman. I'm sure that once I've had the opportunity 
to go through your written testimony in detail, we'll have some 
further questions that we can run by you.
    Mr. Wood, I would like to kind of go back to the line of 
questioning that we had with the previous panel. In that 
instance, we were talking about the impact of American business 
on the high price of gas. I know that some of those costs are 
being passed on to the farmers. Just within the last few days, 
we have had a number of conversations with the producers of 
fertilizer and what the impacts are.
    Can you go into a little bit of detail about what some of 
the impacts are that farmers in your area and throughout the 
country are facing with these increased costs?
    Mr. Wood. Thank you, Mr. Chairman. I would be glad to do 
that.
    I would like to beg of you to go back to my own farm, where 
we're looking at input costs this spring. The price of nitrogen 
fertilizer that we use very heavily on corn, last year we paid 
$285 a ton. Right now, if we could buy it, it's probably $425 a 
ton--if we could buy it.
    Now, you have to take into consideration that American 
agriculture has made several adjustments. Through the use of 
hybrid corn varieties, we now are producing--we have doubled 
the corn production in the United States while using 32 percent 
less nitrogen, because we have changed that plant so it can use 
nitrogen that much better.
    The cost of the dry fertilizer, if you will, is up at least 
15 percent. The cost to plant an acre of corn--the direct cost, 
not the indirect costs, but the costs of seed, fertilizer, 
management enhancement, materials--in our area is calculated at 
$112 an acre, as compared to about $87 an acre last year. That 
gives you a relative range of where that impact will hit. That 
would transfer probably a cost per bushel of corn, an increased 
cost per bushel of corn, at somewhere around 15 cents.
    The Chairman. As far as your ability to compete in this 
international market, there is no question that this has a 
definite impact. Your ability to compete with some of the same 
areas that our previous panel was talking about, some of the 
same markets, is going to be that much more difficult. And with 
the price of commodities in this country right now, I don't 
think our farmers can take this kind of a hit in the middle of 
all of this.
    I appreciate the Farm Bureau and your testimony. This is 
something that, being a member of the Ag Committee, I am very 
familiar with, but some of the members of the full Committee 
may not have that kind of information coming back to them. So 
it is extremely important that you share that with us. I 
appreciate that. Thank you.
    Mr. Wood. I thank you very much for the opportunity.
    The Chairman. Mr. True, in response to some of the 
testimony we've had, I would like you to kind of give me an 
idea of what the impact is on an independent oil producer of 
some of the rules and regulations and fees and things that we 
dream up here. How does that impact you, and how does it impact 
the ability of the independents to go out and produce more of 
these resources that we so desperately need?
    Mr. True. Mr. Chairman, thank you for that question. It is 
a significant impact, and it's not only on gaining access to 
the particular lease to drill; it's the whole process by which 
we have to go through in order to determine whether or not a 
lease is prospective.
    For example, the industry now is in litigation in a number 
of different areas over the simple, what we believe to be, 
almost no impact, of going in and doing seismic, where you go 
in and either use a big thumper truck, where you would simply 
do a large impact on the ground and then measure the electric 
waves as they come back up, or we go and drill shallow shot 
holes and set off an electric charge, through the entire 
process then of trying to build a road to gain access to a 
lease, and build a location.
    I recently talked to one of IPAA's members who actually 
found a gas well and then was over a year getting a permit to 
build a gas line to simply take that gas from that well and put 
it into a regional gas line and get it out. So it's this entire 
process that we're looking at that impedes significantly our 
ability to, in a timely manner, gain access to the resource and 
then bring it out.
    The fees aren't particularly damaging at this point, I 
would argue, but the cost of doing the environmental impact 
statements and those types of things, and the delays in being 
able to process those, represent a significant problem to the 
industry. We're talking about millions of dollars for EIS's 
now.
    The Powder River Basin has been mentioned several times 
today. The new EIS that has been recently completed, one of the 
environmental groups late last year said, regardless of what 
the EIS said, they were going to sue over the results of it. So 
we anticipate litigation in that regard.
    I have not confirmed this number, but I'm told that in some 
BLM offices--excuse me. I'm not even going to make reference to 
that. But the litigation issue is significant, not only to 
industry but also to government, because at every turn we seem 
to be litigating.
    So what I'm trying to do is paint the picture that it's not 
a simple solution. It's the mosaic of all of these different 
regulations that are representing now a significant barrier in 
order for us to bring the resource on line.
    The Chairman. Thank you.
    Mr. Kind.
    Mr. Kind. Thank you, Mr. Chairman.
    I want to thank the panel for your testimony here today. I 
apologize that I was stuck in another Committee hearing, as is 
usually the case around here, with dual responsibilities or 
multiple responsibilities. But we do appreciate your testimony.
    Mr. True, let's stay with you for a second, because we have 
been receiving, at least my office has, some information from 
outdoor recreationists, outdoor sports groups, in regards to 
the concerns they have with a couple of the BLM offices out in 
the Rocky Mountain area in regards to the waiver of certain 
protections as it relates to hunting and fishing and things of 
that nature. I'm not asking you to comment on the specific 
merits of those allegations, but do you think there is a 
perception problem being created out west that you're getting 
some feedback on, that is a source of concern for you and the 
industry?
    Mr. True. Congressman, I have been in the oil and gas 
business in the Rockies for 30 years. Probably a third of our 
activities or more are on public lands exploration. I think the 
opposition is growing, but I don't think the practices are 
changing on the ground. I think the industry has had a great 
working relationship with sportsmen, with agriculture. I think 
it's the influence of other groups coming in and creating a 
sense of division, where we have a history--we have decades of 
history of working together in multiple use in the Rockies.
    So in answer to your question, I think as a practical 
matter on the ground, there is no difference. The people who 
work in the oil and gas business are sportsmen. That's why they 
live in the Rockies. They like living there. They are very 
conscious of that. So I think, as a practical matter, we're 
working together well.
    Mr. Kind. Just so I understand what you're saying, from 
your perspective you think it's more a matter of the outside 
groups trying to reshape or change the public perception in the 
area, as opposed to specific decisions being made within the 
BLM offices.
    Mr. True. I agree, yes.
    Mr. Kind. That's what your testimony is. OK.
    Mr. Sweeney, let's move on to you. Since our Subcommittee 
has had numerous hearings in regards to split estate lands and 
some of the problems occurring with coalbed methane and private 
property owners out west, do you think the Federal Government 
has been remiss in not assuring that surface owners be notified 
of lease issuances?
    Mr. Sweeney. As I said in my statement and in our remarks, 
I do believe the BLM has a responsibility to notify surface 
owners of lease issuances. This has not happened. In a recent 
letter that we had from, as I said, the Director of the BLM, 
Kathleen Clarke, she stated in her letter that the BLM did not 
intend to notify surface owners prior to lease issuance because 
they didn't want to spend the time to find the ownership and 
know the surface owners, that it would cost too much money.
    I guess, in our mind, when we have the Federal Government 
owning the minerals over the private surface, that it ought to 
be the responsibility of the government to tell surface owners 
of the intention to lease when that action has and can have 
such a dramatic effect on a persons' ranch or farm. That seems 
like a reasonable request to be made.
    Mr. Kind. So no notification is going out right now?
    Mr. Sweeney. You get public notification of lease sales 
that would be issued in the record for any citizen who would 
know of a lease sale. But if you are a landowner, there is no 
record that, in fact, the lease is on or under your surface, 
directly on your surface, to you. So I think one of the issues 
is--and this goes beyond just the lease issue--is more 
consultation directly with the person whose land is going to be 
directly affected by those lease issuances, not just a general 
notice which, if you missed it, in terms of a busy time, 
calving or doing something else and didn't know that that was 
there--and this happens a lot. I mean, people don't know it's--
    Mr. Kind. Let me approach it a little differently. Do you 
think this is a matter of a policy decision being made within 
BLM, or is it a matter of lack of resources in their ability to 
do the outreach, or perhaps implement the type of landowner 
protections that you're advocating?
    Mr. Sweeney. I think there is definitely a resource issue, 
in terms of needed resources to continue to implement things 
that will help in the notification of landowners and other 
issues. So there is definitely a resource issue.
    I think also, because of the expanded nature, particularly 
in some cases of coalbed methane, you have more conflicts I 
think developing between surface landowners, ranchers and 
farmers and the coalbed methane development because of the 
extent of the development and the impact on the extraction of 
the water. Therefore, there is a greater need for outreach and 
to deal with surface owners on that question.
    Mr. Kind. Thank you.
    Mr. Chairman, has my time expired? OK. Thank you all.
    The Chairman. You heard the bells go off. We are going to 
recess the Committee. Just so the members know, we have three 
votes, so it will be about 30 minutes before we return. I 
apologize to the panel and to the next panel, but don't control 
when they call votes.
    We will return as quickly as possible. I would ask the 
members to cast your votes and return to the Committee as 
quickly as possible.
    [Recess.]
    The Chairman. I call the hearing back to order. I apologize 
to our witnesses for the delay.
    I will recognize Mr. Kildee for his questions.
    Mr. Kildee. Thank you very much, Mr. Chairman.
    First of all, I want to welcome a constituent, Mr. Wayne 
Wood, the president of the Farm Bureau of Michigan. He and I 
had breakfast together about four or 5 days ago, I think, and 
it's good to have you here, Wayne. I had a chance to tour the 
ethanol plant right after that breakfast and was very impressed 
with what they're doing there with the ethanol.
    Also, prior to that, I toured the sugar plant there, where 
a saw a great use of energy to convert the beet into sugar. So 
that area of Michigan is both producing fuel and consuming 
fuel.
    Could you answer this. The amount of ethanol which is mixed 
in with gasoline now, could that be significantly increased 
using the present engines that we have?
    Mr. Wood. Thank you, Congressman. To the distinguished 
gentleman from Michigan, it was our pleasure to have breakfast 
and take you on a tour of those facilities to see how we're 
adding value to agriculture, putting some money in farmers 
pockets, which is very important.
    We could probably raise the level of that. It's more a 
situation of getting the engines so they burn that correctly. 
I'm not sure how far we could raise it. You know, with soy 
diesel, we have been at various levels, including 20 percent, 
and sometimes 10 percent. I think it's more a cost factor, 
because of the cost of the ethanol.
    That plant that you toured in Caro is much more efficient 
than most of the ethanol plants in the United States. They're 
getting more gallons of ethanol out of a bushel of corn which 
will enhance the opportunity for ethanol as we move forward.
    Mr. Kildee. We can probably look forward to even greater 
efficiency, can't we? Aren't they way ahead of where they 
started in Minnesota?
    Mr. Wood. Minnesota and the Dakotas, yes. We certainly can 
look forward to greater efficiency. We can look forward to 
broadening the base of materials that are used to generate that 
ethanol.
    We are using the corn, and the corn is then used for 
livestock feed, as you witnessed there.
    Mr. Kildee. Right.
    Mr. Wood. There is maybe an opportunity to use the corn 
stover, which would provide for a lower cost input than the 
current grain itself that the livestock ultimately use.
    Mr. Kildee. I was impressed by the fact that nothing is 
really wasted, is it, when they--
    Mr. Wood. Nothing is wasted. They recapture the water out 
of the process. All we're wasting right now is some heat that 
goes in the air. If we can figure out how to get that, we'll do 
it.
    I would just indicate to the Committee that that's a great 
demonstration of industry and farmers working together, because 
both of those plants that you talked about have farmer 
ownership involved, and the ethanol plant also has a private 
company to enhance that efficiency, also.
    Mr. Kildee. Let me ask you this, too, Wayne.
    Is there any special or unique difficulty that agriculture 
has in passing on the increased cost of energy?
    Mr. Wood. I'm not sure whether it's unique. It's pretty 
special if we get the opportunity to pass on those costs of 
energy. So far we haven't mastered that ability. It is 
something we certainly talk about, but we've not been able to 
pass those on.
    We make decisions on how to best use those inputs when they 
cost more money, but there is no opportunity to pass it on. It 
comes out of the line that's called ``family living.''
    Mr. Kildee. Thank you very much.
    Mr. Wood. Thank you for the opportunity.
    Mr. Kildee. Thank you for all you do in Michigan.
    The Chairman. Thank you, Mr. Kildee.
    Before I excuse this panel of witnesses, I will again say 
there are other members that have questions that they will 
submit in writing to you. If you can answer those in a timely 
manner so that they may be included in the hearing record, I 
would appreciate it.
    Mr. Sweeney, if you would provide that letter for the 
record as well. I will have a conversation with the Director of 
BLM about the contents of that at my first opportunity.
    I want to thank you. I apologize to you for the delay that 
we experienced here this afternoon, but I appreciate your 
testimony and the answers to the questions. I will excuse the 
panel. Thank you.
    Our fourth panel is Jaime Steve, Dr. Rollin Sparrowe, Dave 
Alberswerth, and William H. Carlson. Before you guys get all 
settled in, if I could have you stand and raise your right 
hand.
    [Witnesses sworn.]
    Let the record show that all the panelists answered in the 
affirmative.
    I thank you all for being here. I appreciate your patience 
in waiting for your turn at the witness table. Mr. Steve, if 
you're ready, you can begin.

 STATEMENT OF JAIME STEVE, LEGISLATIVE DIRECTOR, AMERICAN WIND 
                       ENERGY ASSOCIATION

    Mr. Steve. Thank you, Mr. Chairman.
    My name is Jaime Steve and I serve as Legislative Director 
of the American Wind Energy Association, based here in 
Washington, D.C. The companies I represent include GE Wind 
Power--that's General Electric--FPL Energy, AEP [American 
Electric Power], PacifiCorp and Vestas American.
    I have a relatively short statement, but I'm going to cut 
to the chase because there have been a lot of witnesses and 
you've been patient as well. So there are only two quick points 
I want to make about wind in general.
    It used to be a California industry only. We are now in 
about 27 States, providing power for approximately a million 
homes, the equivalent of power for about a million homes. One 
of the interesting ways we can do that is because we have 
access to an existing tax credit, which expires at the end of 
this year. So it's very important to the industry that we 
extend that credit to continue the alternative energy 
development that we're doing, and to continue a situation under 
which ranchers and farmers and other landowners can gain as 
much as $3,000 in royalty payments per windmill, per year, for 
a period of 20 years. So that's pretty significant for folks 
that are having a hard time getting by right now.
    That is really important because, for a lot of farmers and 
ranchers, they have referred to this as a giant--every windmill 
is a giant 401(k) on their property that does not go down in 
value. That's particularly important because, as one Member of 
Congress I have heard in the past, who shall go unnamed, said 
in a very thick regional accent, ``Everybody's 401(k) is now a 
201(k).'' You might recognize the accent.
    During the last year, the wind industry worked 
collaboratively with the Bureau of Land Management to bring 
real world experience to the Bureau's recently released 
guidance for processing right-of-way applications for wind 
energy site testing and monitoring facilities, as well as 
applications for wind energy development projects on public 
lands administered by BLM. I am pleased to inform you that this 
was a very positive experience, almost an enjoyable experience, 
working with BLM. There's probably not a lot of people who can 
bring that testimony to you.
    During this exchange, we learned much about BLM and BLM 
officials came to understand and appreciate the practical 
concerns of wind energy developers.
    The BLM guidelines that emerged from this process included 
a call for a minimum rental payment formula under which wind 
turbines placed on Federal lands would provide about $2,300 per 
megawatt of installed power. It's $2,300 per megawatt. Most new 
wind turbines are greater in size than one megawatt. They're in 
the range of 1.5 megawatts, sometimes 1.6 megawatts of power. 
They would contribute significantly more than $2,300 per year 
to the Federal treasury for a period of at least 20 years.
    My simple reason for being here today is to ask that other 
land management entities, such as the U.S. Forest Service and 
the U.S. Fish and Wildlife Service, build on the successful 
work that has already been accomplished by the BLM in this 
area. My understanding is that the Forest Service is already on 
the road to adopting guidelines very similar to those of the 
BLM.
    That is important to us because the Forest Service operates 
in the northeast, whereas BLM most operates out west, so we 
have some developers operating in the east that would like to 
see these same kinds of guidelines applied to those areas.
    In conclusion, expanding U.S. wind development into 
appropriate areas of Federally owned land will allow 
environmentally responsible development and help our country 
meet a growing portion of our pressing energy needs with a 
clean, nonpolluting, domestically produced resource that also 
provides high-tech jobs and income to farmers and ranchers.
    Thank you.
    [The prepared statement of Mr. Steve follows:]

            Statement of Jaime Steve, Legislative Director, 
                    American Wind Energy Association

    Chairman Pombo and members of the Committee, my name is Jaime 
Steve. I serve as Legislative Director for the American Wind Energy 
Association based here in Washington, D.C. Companies that I represent 
include GE Wind Power, FPL Energy, Inc., AEP (American Electric Power), 
PacifiCorp and Vestas American.
    Increased use of clean, domestic wind energy on both private and 
public lands is a bipartisan issue with broad support in Congress and 
from the Bush Administration. For example, in both 1999 and 2001 
Congress acted to extend the wind energy Production Tax Credit (PTC)--a 
key component in financing new wind projects. An additional three-year 
extension of this tax credit was contained in last year's House energy 
bill (H.R. 4). This provision was also contained in the Bush-Cheney 
energy plan and the last two Bush budget proposals.
    This tax credit, coupled with more than 80 percent reductions in 
wind power costs since the 1980's has enabled wind to compete almost 
head-to-head with conventional energy sources in regions with good wind 
resources. In 2001 alone, Texas saw more than 900 megawatts (MW) of 
wind power come on line. This translates into more than $1 billion in 
economic activity and roughly the amount of electricity needed to power 
200,000 homes. At the same time, hard-pressed Texas farmers and 
ranchers leasing small portions of their land for wind development are 
gaining annual payments of about $3,000 per windmill, per year, for at 
least twenty years. For financially struggling landowners, high-tech 
wind turbines placed on their land are essentially giant 401K 
retirement plans that never decrease in value. In addition, these wind 
developments are contributing to the tax base of local governments. The 
simple point is that wind energy is real and it is spurring significant 
economic development in rural America.
    In the early 1980's wind energy development was essentially a one-
state business--California. Today, utility-scale wind power facilities 
are in 26 states 1 producing nearly 5,000 megawatts of 
pollution-free electricity. Most of these projects are on private land.
---------------------------------------------------------------------------
    \1\ Alaska, California, Colorado, Hawaii, Iowa, Kansas, 
Massachusetts, Maine, Michigan, Minnesota, Montana, Nebraska, New 
Hampshire, New Mexico, New York, North Dakota, Oregon, Pennsylvania, 
South Dakota, Tennessee, Texas, Vermont, Washington, West Virginia, 
Wisconsin, Wyoming I would like to address two issues specifically 
involving the proposed legislation and the ability to develop wind on 
Federal lands.
---------------------------------------------------------------------------
BLM Guidelines
    During much of last year, the wind industry worked collaboratively 
with Bureau of Land Management (BLM staff) to bring real world 
experience to the Bureau's recently released guidance for processing 
right-of-way applications for wind energy site testing and monitoring 
facilities, as well as applications for wind energy development 
projects on public lands administered by BLM. I am pleased to inform 
you that this was a positive and even enjoyable experience.
    During this exchange we learned much about BLM and BLM officials 
came to understand and appreciate the practical concerns of wind energy 
developers.
    The BLM guidelines emerging from this process included a minimum 
rental payment formula under which wind turbines placed on Federal 
lands would provide about $2,300 per megawatt of installed power. 
Because most new wind turbines are greater than one megawatt in size, 
they would contribute more than $2,300 per turbine per year for twenty 
years into the Federal treasury.
    My reason for being here today is simply to ask that other Federal 
land management entities--such as the U.S. Forest Service and the U.S. 
Fish and Wildlife Service--build on the successful work of the BLM. My 
understanding is that the Forest Service is on the road to adopting 
guidelines very similar to those of BLM.

Transitional issues
    In addition, the industry asks that any rules that may flow from 
new legislation be sensitive to any financial investments in potential 
projects made prior to enactment. Specifically, we are concerned that 
any companies now working to develop sites on Federal lands should not 
be unnecessarily delayed by requiring developers--who have already put 
in years of preparation--to start all over again under a new 
application process.
Conclusion
    Expanding U.S. wind development into appropriate areas of Federally 
owned land parts of will allow environmentally responsible development 
and help our country meet a growing portion of our pressing energy 
needs with a clean, non-polluting, domestically produced resource that 
creates new high-tech jobs while also generating revenue for the 
Federal Government. Thank you.
                                 ______
                                 
    The Chairman. Thank you.
    Dr. Sparrowe.

          STATEMENT OF ROLLIN D. SPARROWE, PRESIDENT, 
                 WILDLIFE MANAGEMENT INSTITUTE

    Mr. Sparrowe. Thank you, Mr. Chairman.
    I am pleased to be here representing our Institute, but 
would point out that I have been working with quite an array of 
both fishery and wildlife groups on assessing energy impacts 
and coming forward with some positive positions on ongoing 
work. There is so much going on all of a sudden throughout the 
Rocky Mountains that we have not been in the game, so to speak, 
and we're very pleased to be here and have a chance to share 
some thoughts.
    I have provided some fairly extensive testimony and offer 
to add more, to address the Committee's attention to a couple 
of important websites where there's lots of information on 
this.
    We do not oppose the orderly development of energy. We 
realize it's going ahead. Some of us have more than 10 years 
experience on the Upper Green in Wyoming; others of us more 
than 20 years back involved with some of the first booms in 
Colorado and Utah and other things, mostly in a research and 
evaluation capacity, trying to deal with fish and wildlife.
    We are unhappy to find that our profession, as well as 
industry and BLM and everyone else involved in this, really 
doesn't have any more answers than we had 20 years ago for a 
lot of these issues. There is a lot of unknown about the 
effects on fish and wildlife, and we are concerned that it may 
be underestimated as the pace has accelerated so quickly.
    The stakes are high for hunters and anglers. You take a 
place like the Green, which is a very important--I happen to be 
a part-time resident out there and have had quite a bit to do 
with it over the last decade. Almost 100,000 mule deer, 
pronghorn, elk, moose, some of the best remaining populations 
of sage grouse, and some very rapid expansion of development 
that has gone from traditional fields to in-fill projects, to 
now coalbed methane in the area, and quite a bit more is 
projected.
    We have tried to connect with industry and BLM, the 
Department of Interior. We held a summit last June in which 
eight of our organizations got together with about ten oil and 
gas companies, some ranchers and BLM officials, with both 
Kathleen Clarke and Rebecca Watson, and we talked about what 
our respective needs were and whether there might be some 
common ground.
    One area of common ground was that we all felt that BLM had 
inadequate resources to satisfy many needs, not just 
accelerated leasing, but also stewardship of renewable above-
ground resources.
    Just recently, on March 5th, we cosponsored, with the Isaac 
Walton League and the University of Wyoming and the Wildlife 
Conservation Society, a science-based, nonadvocacy meeting in 
Pinedale, Wyoming, to have the researchers and scientists give 
us the real scoop on what they had found in some early studies, 
some 2-year studies, that provide a baseline for information on 
those very important populations in the Green River.
    This is a key example right now, and a very timely thing. 
We had a very positive meeting, a good exchange of what we 
know, and we came to know better what we don't know. We wanted 
that to be helpful to BLM, the Forest Service, game and fish, 
the responsible agencies that now are going forward with a 
brand new resource management plan. There's a lot of attention 
to this one because of the high profile of the fish and 
wildlife involved.
    In this key time there have been some things in the early 
stage here. Some migration corridors, four to be specific, that 
are very important to the future existence of these herds. So 
there are some things that are laid out before us that could be 
done right now. In addition to what I'm sure you and others may 
be tired of is the call for monitoring and evaluation over 
time. We know that has to happen and it's important, but there 
are some real things we could do right now.
    The bottom line is that there are not resources available 
to the State wildlife agencies, and we think also to BLM as a 
management agency, to effectively deal with the large scope of 
what is going on.
    Our kinds of organizations, fish and wildlife 
organizations, not only are ready to partner on the ground and 
do some things, but I think we can be of help in support for 
BLM budgets, as well as some funding, if that can be found 
somewhere, to make it easier for the States to do their job and 
cope with the future of the sportsmen's interests in 
maintaining the herds and the fisheries.
    Thank you for the opportunity to comment.
    [The prepared statement of Mr. Sparrowe follows:]

  Statement of Dr. Rollin D. Sparrowe, President, Wildlife Management 
                               Institute

Introduction
    Mr. Chairman, I am pleased to testify on behalf of the Wildlife 
Management Institute (Institute) regarding the orderly development of 
energy resources on public lands. Our Institute, established in 1911, 
is staffed by professional wildlife scientists and managers. Its 
purpose is to promote the restoration and improved management of 
wildlife and other natural resources in North America.
    We commend your Committee for initiating this dialog and for 
attempting to address the social, economic and environmental impacts of 
energy development as we enhance our energy security. We are concerned 
that the seriousness of the impacts energy development may have on 
wildlife and other natural resources may be underestimated. We urge 
your Committee to lay the groundwork that will lead to a plan for long-
term and orderly development of energy resources with the least amount 
of impact on wildlife and other natural resources. In this time of 
significant challenge to our society, we respectfully suggest that 
stewardship of living resources is essential to our Nation's security.
    Our Institute believes exploration and development of energy 
resources may seriously impact wildlife and other natural resources. 
Though many site impacts are not fully understood, it is clear that 
energy development projects represent a major hazard to wildlife in 
some of the nation's most imperiled habitats. We have participated for 
almost a decade in public processes concerning traditional oil and gas 
development in Western Wyoming. Some of us had experience with earlier 
energy projects in Colorado, Wyoming, Utah, New Mexico, and Alaska. It 
is significant that many of the same questions about fish and wildlife 
impacts are with us twenty years later. Many of our current concerns 
are about the pace and scope of development in the Upper Green River of 
Wyoming, but other areas are growing in importance.
    For example, potential coalbed methane (CBM) deposits exist in 
widespread locations in Alabama, Arizona, Colorado, Indiana, Illinois, 
Iowa, Kansas, Kentucky, Michigan, Montana, New Mexico, Oklahoma, Ohio, 
Pennsylvania, Texas, Tennessee, Utah, West Virginia and Wyoming; and 
there are thousands of proposed CBM development projects across the 
United States. The process of extracting methane gas results in huge 
amounts of water of varying quality being brought to the surface at 
each well site. This massive amount of ground-water removal can 
negatively influence amount and quality of important underground 
aquifers, and run off can effect streams.
    For traditional oil and gas as well as CBM, infrastructure 
including roads, pipelines, and electrical power to support CBM 
extraction also threatens wildlife habitats and movements among those 
habitats. Thousands of miles of roads, pipelines and power lines are 
needed to fully develop CBM and other deposits, which increase the 
fragmentation of already modified wildlife habitats. We are concerned 
over the lack of reliable estimates regarding the impacts these 
proposed developments will have on wildlife and other natural 
resources.

Stipulations for Wildlife
    We hear from energy companies, the Administration, and many in the 
Congress that we must remove restrictions on exploration, development 
and operations and open new areas-without specifying which ones. The 
clear target appears to be seasonal and other use stipulations that 
attempt to mitigate impacts on wildlife. Please keep in mind that the 
herds of mule deer, elk, and pronghorn, and flocks of sage grouse, are 
important wildlife populations that support local businesses and 
culture. Their recovery from past over-exploitation at the turn of the 
century was paid for over the past seven decades by sportsmen's 
dollars. It is simply unfair to expect American sportsmen and women to 
foot the bill to recover wildlife populations a second time.
    We are not opposing orderly development of energy resources to meet 
our country's needs. However, we firmly believe that reasonable 
restrictions and stipulations on energy development are among the best 
tools to protect wildlife. These protective measures are the result of 
thoughtful compromises among conservationists, energy development 
interests, and public land managers at the local level. Local measures 
to protect wildlife and fish and water resources from the effects of 
energy development are not simply ``impediments'' to energy production. 
They are part and parcel of responsible multiple use management of our 
public lands. We do not agree that fish and wildlife habitat protection 
unduly limits the ability to produce energy supplies. The long-term 
protections to wildlife and fish afforded by these common sense 
measures create their own economic opportunities, and should not be 
sacrificed to produce short-term energy supplies. Neither the Congress 
nor the U.S. Bureau of Land Management (BLM) should make hasty 
decisions to roll back processes and procedures currently used to 
conserve wildlife while development occurs. In fact, further investment 
in understanding impacts on wildlife is in the Nation's interest.
    In examining the record of operations on the Pinedale Anticline in 
Wyoming, we find that as many as 85 percent of winter use stipulations 
to protect big game herds have been exempted by BLM on appeal from 
energy companies. Similar rates of exemption appear to be happening for 
sage grouse. The suggests that the stipulations are not unduly limiting 
production--in fact it raises concerns about overly liberal 
accommodation, especially for a declining species like sage grouse. 
Examples of this information is available on the BLM web site 
.
    A responsible approach to energy development must include a more 
comprehensive program to manage fish and wildlife. Neither the BLM or 
U.S. Forest Service, nor the individual states involved have the data 
or staff and money to do all the work necessary to take care of 
renewable fish and wildlife resources, considering the pace and 
magnitude of proposed and future developments. Funding for monitoring 
wildlife, fish and other resources, conducting habitat management, and 
carefully balancing production with protecting resource values is not 
currently available.

Broadening The Dialog
    Decisions on energy development should be made carefully, based on 
specific consideration of geographically distinct areas and impacts on 
wildlife populations and their seasonal ranges. Until now, fish and 
wildlife organizations have not been at the table as discussions occur 
about plans and proposals to open important lands to more exploration. 
Hearings in the Congress on developing our nation's energy reserves 
have not included invited testimony from hunter and angler interests. 
Also, planning for accelerated development with energy producers has 
not included our interests.
    To begin to bridge this gap, representatives from the fish, 
wildlife, ranching and energy communities met in Wyoming in June 2002 
to share concerns and began an overdue dialog. The Department of the 
Interior helped support the dialog, which was an orderly two-day 
exchange and discussion of where we might find some common ground. A 
summary of the dialog was prepared by Meridian Institute, which 
facilitated the meeting, and is available as a download at .
    On March 5, 2003, a science-based non-advocacy discussion was held 
in Pineal, Wyoming to focus on big game herds in the path of 
development. In a meeting cosponsored by our Institute, the Izaak 
Walton League of America, The Wildlife Conservation Society, and the 
Cooperative Fish and Wildlife Research Unit at the University of 
Wyoming, results of baseline research on big game herds was presented. 
On that basis, a discussion ensued that identified needs for longer-
term monitoring and evaluation of the herds during development, 
designed to produce information useful in management decisions. The 
audience included BLM, U.S. Forest Service, Wyoming Department of Game 
and Fish, non-governmental conservation organizations, private 
researchers, energy companies involved in local development and a 
Sublette County Commissioner.
    This meeting was facilitated by our Institute, and a summary is 
being prepared. Feedback from participants was positive, and suggested 
that future science-based meetings may be useful on sage grouse, 
aquatic resources, and perhaps others. I am including for the record a 
summary set of science-based recommendations for mule deer and 
pronghorn (refer to Appendix I). This baseline work identifies specific 
vital migration habitats that should be protected before further 
leasing occurs. More detailed reports with maps and tables showing 
critical habitats can be supplied at the pleasure of the Committee. 
This illustrates the science-based needs for work on the ground to 
evaluate resource impacts. Similar work and analysis is still needed 
for sage grouse, fisheries, sage habitats, and other species.
    Major developments have grown quickly in the Upper Green River 
Valley. New fields of coaled methane are predicted. A significant 
revision of the Pineal Resource Management Plan for the area is open 
for public scooping. The quality of the baseline information, presented 
at the March 5 meeting, is excellent, and may surpass what is 
customarily available for BLM to start such a process. An additional 
asset is that BLM has currently opened a nomination process for a 
Pineal Working Group to be appointed by the Secretary of Interior under 
the Federal Advisory Committee Act. This process can provide an 
important example of how to carefully develop energy resources in an 
environmentally sensitive manner, with citizen input. With data from 
monitoring and needed studies, adjustments in the pace and manner of 
development can occur to reduce impacts on fish and wildlife.

Wildlife and People
    The fish and wildlife resources in the Upper Green River area are 
extraordinary. More than 38,000 mule deer; 42,000 pronghorn; and 8,000 
elk live in the Basin. Many herds migrate long distances--pronghorn up 
to 150 miles and mule deer 100 miles. They cross many barriers of 
roads, fences, pipelines, towns, and other obstacles. Energy is another 
potent influence. Fisheries include blue ribbon trout streams, lakes, 
and habitat for such threatened species as Colorado cutthroat. Now that 
coaled methane has joined existing extensive oil and gas fields, 
concerns are larger for these fisheries.
    Hunter numbers are important to Wyoming communities. In 2001, 2,600 
people hunted pronghorn in the Upper Green, 7,300 hunted mule deer, and 
7,600 pursued elk. Trout fishing is a major attraction on the steams 
and lakes in the same area.
    The problems that would be caused by precipitous action on existing 
protections for wildlife are shared not only by hunters and anglers. 
For example, rural towns in the Green River Basin of Wyoming tell us a 
large portion of their annual income is collected during hunting season 
to motels, restaurants, grocery stores and the like. The U.S. Fish and 
Wildlife Service's 2001 National Survey of Hunting and Fishing 
indicates that annually $1.8 billion in retail sales and 43,000 jobs 
are realized by the states in the Northern Rocky Mountains from hunting 
alone; add fishing and observing wildlife, and the value is about three 
times that figure. It is important to note that these are long-term, 
substantial benefits that accrue regularly to local communities only if 
wildlife and their habitats are secure. Local people will need to rely 
on wildlife and fishery resources to sustain their local economy and 
culture long after energy development is gone.
    Accelerated energy development must be done with much more 
attention to detail, and careful evaluation of costs and benefits, than 
is evident in much of the recent dialogue. Importantly, organizations 
representing hunters and anglers have a lot to offer that has not yet 
been used by government or the Congress. The diverse array of wildlife 
and fishery organizations can provide evaluation and analysis of 
important resource values, and we are ready to help. The generalized 
calls to ``open things up'' must get back to reality and deal with 
specific, geographically identified areas to which we can all relate.
    We suggest a reasonable platform for the consideration of energy 
development on public lands: (1) development and production of energy 
on public lands should be conducted with as much care as such 
development on private lands; (2) renewable resources such as mule deer 
and cutthroat trout require equal consideration under law along with 
mineral extraction; (3) scarce hunter and angler dollars from excise 
taxes should not have to pay to monitor the effects of development nor 
fund remedial action, but those tasks must be done and paid for as a 
required cost of development; and (4) where development occurs, it must 
be authorized carefully on a site by site basis with specific attention 
to the fish and wildlife resources.

THE KEY QUESTION FOR THE FUTURE
    The real question is: at what cost do wildlife and fish adapt to 
further intrusions on the landscape? Neither wildlife managers nor the 
energy industry has the answer, and BLM as the responsible agency for 
energy development has not been willing to consider the large issues of 
incremental effects and habitat fragmentation. The issue in most cases 
will not be that a single road or a single development or a single 
industry should be blamed for its effects on wildlife. Our mule deer, 
elk, pronghorn and sage grouse have been affected by roads, fences, 
ranching and farming, towns, second home development and long-term 
reduction in habitat quality. Migratory herds in Wyoming live on the 
National Forest in summer where accelerated development is proposed, 
and migrate over 100 miles to the sage desert where accelerated 
development already is underway. Can they persist as we know them with 
major changes on all parts of their annual range? Herds of elk that 
previously migrated even further from Jackson Hole to the sage deserts 
along the Green River can no longer do so because of those multiple 
influences. At some point the next new activity will be the one that 
leads to a potential irreversible reduction in the ability of some of 
these herds to survive--and certainly to sustain the current level of 
public use and local economic benefit.
    A critical need for coping with these changes as they occur is for 
effective, science-based monitoring to answer specific questions. Many 
of the potential effects of accelerated energy development are subtle, 
long term in nature, and difficult to measure. This results in a 
continuing standoff where wildlife managers say ``look at those roads, 
structures and activities, they have to have an impact'', and 
development interests say ``look at those wildlife standing around the 
structures, they don't care at all''. Our wildlife and fish resources 
cannot stand this impasse while development occurs.
    Energy and mineral exploration and development involve significant 
outlays of funds by state wildlife, fish and natural resource 
management agencies for environmental studies, planning, development, 
monitoring, mitigation and management of fish and wildlife resources. 
State wildlife, fish and natural resource management agencies are 
funded primarily through permit and license fees paid to the states by 
the general public to hunt and fish, and through Federal excise taxes 
on equipment used for these activities. Revenues derived from sales, 
bonus bids, royalties, and rentals under the mineral leasing laws of 
the United States are paid to the United States Treasury through the 
U.S. Minerals Management Service of the Department of the Interior, yet 
none of these revenues are returned to the states specifically to 
manage the impacts of energy and mineral exploration and development on 
the wildlife, fish and other natural resources for which they are 
entrusted.
    We propose a wildlife and fish funding concept for your 
consideration. Revenues from energy development are substantial and 
likely to increase, and those already collected from onshore oil and 
gas producers that go into the U.S. Treasury offer a logical source of 
funding for wildlife. This wildlife and fish funding concept would not 
interfere with the revenues that go to the states or elsewhere. The 
funds--designated for wildlife and fish in proportion to the 
development activity--would go back to the states to fund programs 
designed to manage these wildlife for monitoring and evaluating 
impacts, and for habitat protection and enhancement of fish and 
wildlife populations influenced by development. In this manner, the 
long-term nature of development and necessary active management can be 
accommodated. All appropriate property rights and other concerns could 
be dealt with directly in legislation. We envision distribution of 
funds proportional to the amount of development occurring in each state 
involved in onshore production.
    In conclusion, Mr. Chairman, we urge your Committee to provide 
leadership on this important nationwide issue. A wide array of wildlife 
and fishery organizations and our hunters and anglers across America 
have a stake in the outcome of any decision to accelerate energy 
development on public lands. It is not enough to proclaim that energy 
development can occur in all areas in an environmentally sound manner. 
Some areas are so important, and the alternatives for wildlife in harsh 
climates are so few, that such sweeping statements likely are 
incorrect. There is not the current knowledge base that will allow such 
action to be taken and still assure that wildlife will be sustained, 
unless a long-term investment is made for the welfare of affected fish 
and wildlife. We suggest that implementing this funding concept would 
reflect positively on the Congress, Administration and the energy 
industry. It would bring the solutions back to the states where the 
issue arose.
    We would be remiss if we did not speak up for the needs of BLM in 
discharging its responsibilities. They lack funding for monitoring and 
evaluation, staff to manage contracts and interpret biological data, 
and have a crushing workload. We do not believe that BLM can meet the 
needs of accelerated leasing and simultaneously protect the living 
resource base, with current resources. More funds and staff are needed 
to do their part for enhancing America's energy security. This is one 
area of overlapping interests between fish and wildlife conservation 
interests and energy companies, and we think broad support can be 
gathered to get them the resources they need.
    Thank you very much for considering our view on this important 
nationwide issue. We look forward to working with your Committee on 
this matter, and we are available at your convenience to discuss our 
concerns and recommendations.
                                 ______
                                 

    APPENDIX I--An Uncertain Future: Big Game and Expanding Energy 
         Development in Wyoming's Upper Green River Valley \1\
---------------------------------------------------------------------------

    \1\ This fact sheet--and the selected recommendations--are adapted 
from detailed scoping comments on Upper Green ungulate populations and 
management issues prepared by Dale Strickland of WEST Inc. and 
submitted to the BLM in February 2003. Contact Linda Baker (307)-360-
3670 to receive a copy of this 45-page report.
---------------------------------------------------------------------------
Background: World-class Wildlife Values
    When it comes to diverse populations of large free-roaming 
mammals--pronghorn antelope, mule deer, moose, and elk--Wyoming's Upper 
Green River Valley is unmatched in the contiguous United States. 
Located south of Jackson hole, between the Wind River Mountains, the 
Wyoming Range, and the Gros Ventre Mountains, it's a land of sweeping 
vistas where great sage plains meet snowcapped peaks.
    Unlike most terrestrial mammals of the Lower 48, the big game 
animals of the Upper Green River Valley (UGRV) are highly migratory. 
Mule deer migrate between 40 and 100 miles to the north and northwest, 
summering in five different mountain ranges adjacent to the Valley. Ten 
Wyoming Game and Fish Department feedgrounds in the basin also attract 
elk from the surrounding mountains, and some pronghorn in the area 
undertake the longest antelope migration in North America--going all 
the way to Grand Teton National Park, well over 100 miles away.
    Wintertime is a crucial time for these big game animals. Because of 
roads, subdivisions, and energy development, their winter habitat is 
becoming increasingly fragmented, potentially limiting their ability to 
survive this season. The interplay of these factors are magnified in 
the UGRV, which supports more than 10 percent of all the mule deer and 
pronghorn antelope in Wyoming. In total, 32,000 mule deer and 48,000 
pronghorn utilize the Upper Green.

Energy Development with Unknown Consequences for Big Game
    The Upper Green is also rich in natural gas, and the Bureau of Land 
Management (BLM) has permitted thousands of wells in the area under its 
1988 Resource Management Plan (RMP). Additional energy development is 
planned, and conservationists are concerned that the agency has allowed 
oil and gas development to exceed the limits set in the current RMP. 
Although evidence suggests that energy development may negatively 
affect big game populations, no research has demonstrated direct 
reductions in reproduction or survival from such activity. One such 
study is under way, and in the meantime the BLM has started a multi-
year process to revise its RMP. The revised plan will lay the ground 
rules for wildlife management and future energy development here over 
the next fifteen to twenty years.

Lessons from the Existing Resource Management Plan
    In their design and implementation, the BLM's existing 1988 RMP--as 
well as the EIS it recently prepared for the Pinedale Anticline 
Project--have the following problems:
     The migratory movements of pronghorn through the UGRV 
aren't described, nor are migratory bottlenecks recognized. These are 
locales where migratory animals are squeezed into corridors as narrow 
as + mile wide.
     The designations of winter range do not consider the most 
current information and may not accurately reflect areas used by 
wintering mule deer and pronghorn.
     Although the BLM enforces seasonal restrictions on winter 
ranges, it has granted exceptions to approximately 85 percent of the 
applications for variances to winter-range restrictions during the 
2001-2002 season.
     Shrub communities are the most important habitat for 
wintering big game. But data on these communities is limited. One study 
found 60 percent of 86,590 acres to be in only fair to poor condition. 
Loss of shrub habitat to energy development could result in overuse and 
degradation of remaining communities.
     The BLM assumes each well will create 5.5 acres of 
disturbance. This may be inaccurate for the following reasons: Local 
access roads are not defined, and no data has been given concerning 
successful attempts to reclaim well sites. Although indirect 
disturbances on wildlife are mentioned, no calculations are provided of 
acres lost due to wildlife's avoidance of well sites and roads. The 
effect of development on transition ranges--heavily utilized by 
wildlife as they move between winter and summer habitats--is unknown.
     Where the effects of creating gas fields are predicted, 
the BLM has used a method called the Bayesian Habitat Model. It has 
been applied with limited data and its predictions are subjective and 
can be questioned for their ability to provide an accurate simulation 
of energy development's impacts. Moreover, the 1988 RMP doesn't 
consider the total cumulative impact from ongoing loss of habitat.
How to Ensure a Better Resource Management Plan for Wildlife:
    Energy development could have impacts on wildlife that occur 
immediately as well as over the long-term. The Pinedale RMP revision 
should incorporate recommendations that address both time horizons. 
These include:

Recommendations for Addressing Immediate Impacts:
     No surface occupancy should be allowed in areas that 
provide severe winter relief range for mule deer and pronghorn.
     Until ongoing studies are completed, a minimum buffer 
zone of 200 meters should be placed around wells and roads. In places, 
larger buffers should be considered.
     Where possible, directional drilling from a reduced 
number of pads per section should be required. Pads should be placed to 
minimize disturbance to big game.
     Based on their already well-documented importance to big 
game, four locations should be considered as Areas of Critical 
Environmental Concern: the Trapper's Point Migratory Bottleneck; the 
Cora Butte Transition Range; the Fremont Lake Bottleneck; and the 
LaBarge Creek Native Elk Winter Range.
Recommendations for Addressing Long-Term Impacts:
     Sufficient data should be collected so as to define the 
ecological and landscape conditions necessary for maintaining big game 
populations at Wyoming Game and Fish Department target levels.
     The WGFD Strategic Habitat Plan should be closely 
followed and included within the Pinedale RMP revision.
     Indirect impacts of energy development on wildlife are 
poorly understood. They should be more extensively studied and 
incorporated into a long-term cumulative effect analysis, which also 
takes into account the subdivision of private lands in the UGRV.
     Since the existing body of scientific knowledge is 
inconclusive regarding the impacts of energy development activities on 
big game populations, one of the most important recommendations the BLM 
can incorporate in its RMP revision is to adopt the principles of 
adaptive management. These include: 1) accurate delineation of critical 
habitat and corridors; 2) development of a relatively low number of 
wells, followed by an assessment of their effects through monitoring 
and research; 3) based on these assessments, modify development, and 
implement effective mitigation measures.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Alberswerth.

   STATEMENT OF DAVID ALBERSWERTH, DIRECTOR, BUREAU OF LAND 
           MANAGEMENT PROGRAM, THE WILDERNESS SOCIETY

    Mr. Alberswerth. Mr. Chairman, thank you very much for the 
opportunity to express the views of The Wilderness Society this 
afternoon. I'm going to address our concerns about oil and gas 
development on Federal lands in the Rocky Mountain States, and 
I'll try to be very brief here in view of the hour and 
summarize my statement.
    Mr. Chairman, the vast majority of Federal oil and gas 
resources within the Rocky Mountain States is currently 
available for leasing and development, and has been for a long 
time. That is the inescapable conclusion to be drawn from the 
Interior Department's recently released EPCA report, which I 
brought a copy of here. You may be familiar with it.
    It concludes that 85 percent of the technically recoverable 
oil and 88 percent of the technically recoverable natural gas 
resources underlying Federal lands in this region are currently 
available for leasing and development. Interestingly, if one 
includes in the EPCA estimates of technically recoverable oil 
and gas from nonFederal lands, only about 7 percent of the 
natural gas and about 9 percent of the oil within the study 
region are unavailable for development.
    Oil, and especially natural gas development, is a robust 
activity on Federal lands within the Rocky Mountain west. For 
example, according to the BLM, there are currently over 94,000 
producing oil and gas wells on the public lands that it 
manages. In Fiscal Year 2001, the BLM permitted a record 4,850 
drilling projects on BLM lands, up from 3,400 permits issued in 
Fiscal Year 2000. The recently released Powder River Basin 
environmental impact statement projects development of over 
50,000 new coalbed methane wells within the Wyoming portion of 
the Powder River Basin alone within the next 10 years.
    The new, reasonably foreseeable development scenario 
published for the BLM's new draft Farmington Resource 
Management Plan in New Mexico projects the development of close 
to 10,000 wells during the next 20 years. That's an area that 
has already over 19,000 producing oil and gas wells. During the 
Clinton administration, leases were issued on over 26 million 
acres and 19,000 drilling permits were approved.
    These facts and trends and the recent findings of the EPCA 
report contradict claims that there are too many restrictions 
or impediments that inhibit industry access to oil and gas 
resources on public lands.
    In conclusion, in light of the new information from the 
Department of the Interior's EPCA study, that most Federal oil 
and gas resources within the Rocky Mountain region are 
available for leasing and development, the question 
policymakers should be asking is not are too many Federal oil 
and gas resources unavailable for leasing and development to 
meet our energy needs. Instead, we should be asking such 
questions as have we adequately protected the scenic, 
ecological and environmental air and water resources, wildlife 
habitat and wilderness values of our public lands and national 
forests. Are farmers and ranchers with split estates being 
treated fairly when it comes to coalbed methane development? 
Are we being careful enough to protect the precious surface and 
groundwater resources of the rural communities where the 
coalbed methane boom is in full swing? Should we be more 
careful in waiving leasing provisions designed to protect 
wildlife resources, especially when it comes to declining 
species, such as sage grouse? And are reclamation bonds imposed 
upon operators adequate to the task of assuring post operation 
clean-ups?
    Thank you again for this opportunity to present our views. 
I will be pleased to answer your questions.
    [The prepared statement of Mr. Alberswerth follows:]

         Statement of David Alberswerth, The Wilderness Society

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to present the views of The Wilderness Society on the 
subject of oil and gas development on onshore Federal lands. My name is 
David Alberswerth, and I am The Wilderness Society's Bureau of Land 
Management Program Director. My statement will focus on the Bureau of 
Land Management's onshore oil and gas program affecting the public 
lands of the Rocky Mountain States.
    The vast majority of Federal oil and gas resources within the Rocky 
Mountain Overthrust Belt states is currently available for leasing and 
development, and has been so for a long time. Despite industry claims 
to the contrary, and earlier assertions by the Bush Administration, the 
Department of the Interior's recently released ``EPCA'' report 
concludes that 85 percent of the ``technically recoverable'' oil (3.3 
Bbbl), and 88 percent of the ``technically recoverable'' natural gas 
resources (122.6 TCF) underlying Federal lands in this region of the 
country are currently available for leasing and development. 
Interestingly, if one includes the EPCA estimates of ``technically 
recoverable'' oil and natural gas from non-federal lands in the 
analysis, only 7 percent of natural gas and about 9 percent of oil 
within the study region are unavailable for development (see 
attachment). 1 The inescapable conclusion to be drawn from 
the most recent data available is that over 90 percent of the region's 
oil and gas resources, on Federal and non-federal lands, are available 
for leasing and development.
    Oil and especially natural gas development is a robust activity on 
Federal lands within the Rocky Mountain West. For example, according to 
the Bureau of Land Management, there are currently over 94,000 
producing oil and gas wells on the public lands that it manages. In 
Fiscal Year 2001, the BLM permitted 4,850 drilling projects on BLM 
lands, up from 3,400 permits issued in Fiscal Year 2000 (see 
attachment). 2 The recently released Wyoming Powder River 
Basin environmental impact statement projects the development of over 
50,000 new coal bed methane wells within the Powder River Basin within 
the next 10 years. 3 The new ``reasonably foreseeable 
development scenario'' published for the BLM's new draft Farmington 
Resource Management Plan projects the development of 9,970 new wells 
during the next twenty years within that planning area, which currently 
has over 19,000 producing oil and gas wells. 4 During the 
Clinton Administration, leases were issued on 26.4 million acres and 
19,310 drilling permits were issued (see attachment).
    These facts and trends, and the recent findings of the EPCA report, 
contradict claims by industry advocates that there are too many 
``restrictions'' or ``impediments'' that inhibit industry ``access'' to 
oil and gas resources on public lands. For example, the Bush 
Administration's ``National Energy Policy'' claimed that, ``...about 40 
percent of the natural gas resources on Federal land in the Rocky 
Mountain region have been placed off-limits'' to development. 
5 However, the EPCA report concludes that about 12 percent 
of Federal natural gas resources in the region is off-limits to leasing 
and development. 6
    Viewed from another perspective, the 15.9 TCF identified in the 
EPCA report as unavailable for development is about 1 percent of the 
1,466 TCF ``gas resource base'' within the continental U.S. (exclusive 
of Alaska) identified by the National Petroleum Council in its 1999 
study, Natural Gas: Meeting the Challenges of the Nation's Growing 
Natural Gas Demand. 7
    Because it is now established from the Bush Administration's own 
analysis of Federal onshore resources that most publicly-owned natural 
gas and oil is available for development, the industry's lobbying focus 
may shift to that category of lands identified in the EPCA report that 
is ``Available for Leasing With Restrictions on Oil and Gas operations 
Beyond Standard Stipulations.'' Just what is the nature of these 
``special and seasonal stipulations'' of such concern to industry?
    This category of available lands often encompasses areas where 
evidence indicates the presence of sensitive wildlife habitats, such as 
elk calving or winter range areas, or big game migration corridors, or 
sage grouse leks, or critical raptor habitat where oil and gas 
activities at certain times of the year could pose severe threats to 
wildlife. In such cases, the BLM may require that operations only occur 
at certain times of the year, when such areas are not in use by certain 
wildlife species. In some cases, the BLM imposes ``No Surface 
Occupancy'' leases, whereby the lessee is required to access the oil 
and gas resource from off-site. Such ``NSO'' stipulations are also 
designed to protect wildlife habitats, while making the resource 
available for extraction. The types of special stipulations imposed to 
protect environmental values can be summarized as follows:
          ``Standard Stipulations''--These are provisions within 
        standard BLM oil and gas leases regarding the conduct of 
        operations or conditions of approval given at the permitting 
        stage, such as: prohibitions against surface occupancy within 
        500 feet of surface water and or riparian areas; on slopes 
        exceeding 25 percent gradient; construction when soil is 
        saturated, or within 1/4 mile of an occupied dwelling. These 
        are generally applied to all BLM oil and gas leases, regardless 
        of special circumstances.
          ``Seasonal'' or other ``Special'' Stipulations--``Seasonal 
        Stipulations'' prohibit mineral exploration and/or development 
        activities for specific periods of time, for example sage 
        grouse strutting areas when being used, hawk nesting areas, or 
        on calving habitat for wild ungulate species. These are often 
        imposed at the request of state wildlife officials, as well as 
        in compliance with U.S. Fish and Wildlife Service requests to 
        protect sensitive species.
          ``No Surface Occupancy''--NSO leases prohibit operations 
        directly on the surface overlaying a leased Federal tract. This 
        is usually done to protect some other resource that may be in 
        conflict with surface oil and gas operations, for example, 
        underground mining operations, archeological sites, caves, 
        steep slopes, campsites, or important wildlife habitat. These 
        leases may be accessed from another location via directional 
        drilling.
    Representatives o the oil and gas industry have voiced criticism 
regarding why such provisions are imposed on Federal oil and gas leases 
at all, or why certain areas of our public lands and national forests 
are off-limits entirely to oil and gas development, when in their view 
energy extraction is such an important activity on Federal lands. The 
answer is that the Federal land management agencies' primary obligation 
is not to satisfy the wants and desires of the oil and gas industry. 
Instead, they are statutorily mandated to balance the wishes of the oil 
and gas industry with the protection of a multitude of environmental, 
ecological, scientific, and cultural values harbored by our public 
lands.
    For example, Congress mandated in the Federal Land Policy and 
Management Act that the Secretary of the Interior manage the public 
lands,
        ``...in a manner that will protect the quality of scientific, 
        scenic, historical, ecological, environmental, air and 
        atmospheric, water resource, and archeological values; that 
        where appropriate, will preserve and protect certain public 
        lands in their natural condition; that will provide food and 
        habitat for fish and wildlife and domestic animals; and that 
        will provide for outdoor recreation and human occupancy and 
        use.'' (43 U.S.C. 1701(a)(8))
    Similar statutory requirements pertain to the National Forests. The 
imposition of special, seasonal, or NSO stipulations in certain 
circumstances is the result of a policy developed in the 1980s by the 
BLM to balance the industry's desire for access to oil and gas deposits 
with the BLM's responsibility to manage the other resources and values 
enumerated in FLPMA. Although characterized as ``burdensome'' by some 
industry representatives, these stipulations can--and frequently are--
waived at an operator's request.
    Attached to my statement is a table published (but no longer 
available) on the Rawlins (Wyoming) BLM Field Office website. This area 
is subject to significant oil and gas activity. The table indicates 
that that for Fiscal Year 2001, of 128 requests for waivers from 
protective stipulations recorded, the BLM granted 103, or 80 percent of 
them (A few waivers granted were for activities other than oil and gas 
activities.). Similar data from the Pinedale Field Office for 2001 
indicates that of 40 requests for stipulation waivers, 31 were granted, 
or 77 percent. During the 2002-2003 season, of 52 requests for waivers 
received by the Pinedale Field Office, 45 were granted, or 86 percent. 
What the data from these two BLM Field Offices clearly indicate is that 
wildlife stipulations on oil and gas leases are usually waived at the 
request of the operator to accommodate activities not otherwise allowed 
during the period of the seasonal restriction, or within an area 
ordinarily set aside from oil and gas activities.
    Instead of focusing on instances where the BLM may not have issued 
a particular drilling permit application in a timely manner 
satisfactory to the operator, it seems to us that the frequency of 
stipulation waivers in areas where there is intense development raises 
the question as to the effectiveness of stipulations as a means of 
protecting key environmental values.
    For example, we know that sage grouse populations in the U.S. are 
in severe decline, in fact, their distribution has declined by about 
50%, while estimated population size has declined by about 90%. As a 
population they are very sensitive to habitat fragmentation. Given the 
frequency of the waivers indicated on the attachment for sage grouse 
habitat, it seems to us the question we should be asking is not, ``Why 
does the industry have to put up with seasonal restrictions for sage 
grouse habitat?'' Instead, we should ask, ``What impacts are occurring 
to sage grouse populations as a consequence of the BLM's frequent 
waiver of stipulations designed for their protection?''
    Finally, in our view it is entirely appropriate that some Federal 
lands should be off-limits to oil and gas leasing and development. 
Lands identified as off-limits in the EPCA Report include National 
Parks, National Monuments, designated Wilderness Areas, and Wilderness 
Study Areas. One specific area that has been placed administratively 
off-limits to future leasing and has drawn especially harsh criticism 
from the oil and gas industry is the Rocky Mountain Front area of the 
Lewis and Clark National Forest in Montana. In 1997, following an 
extensive public involvement process, the Forest Service adopted a 
Forest Plan amendment for approximately 356,000 acres of the Front that 
effectively prohibited leasing for the duration of the Plan amendment. 
The area in question--the spectacular and dramatic uplift of the Rocky 
Mountains from the Northern Great Plains--is a region of remarkable 
scenic beauty, and harbors a multitude of extraordinary wildlife, 
scenic, and recreational values. It has been the focus of preservation 
efforts by Federal, State and private entities for almost a century.
    The Lewis and Clark National Forest Plan adopted in 1986 emphasized 
management of the area in question for its special wildlife, 
recreation, and scenic attributes. The Plan Amendment adopted in 1997 
implemented that earlier management direction by prohibiting oil and 
gas leasing for the next 10-15 years. It should also be noted that the 
1997 Plan Amendment enjoys widespread support within the State of 
Montana. Although the oil and gas industry has attempted to 
characterize the Forest Supervisor's decision as essentially 
``arbitrary and capricious,'' the Supervisor's decision has been upheld 
upon administrative appeal and at the District and Appeals Court 
levels. As the Bush Administration pointed out in its brief to the 
Supreme Court in opposition to the industry's request that the Supreme 
Court review the Court of Appeals decision, ``'the Record of Decision 
approving the [1986] Forest Plan acknowledged 'people's apprehension 
over the effects of oil and gas development and their desire for the 
land to remain unchanged,' and concluded that 'management of the Rocky 
Mountain Division should emphasize wildlife, recreation, and scenic 
values.''' (Brief for the Federal Respondent in Opposition at 5, 
Independent Petroleum Association for America v. U.S., 279 F. 3d 1036 
(9th Cir.), cert denied, 123 S. Ct. 869 (2003).)
    In conclusion, in light of the new information from the Department 
of the Interior's EPCA study that most Federal oil and gas resources 
within the Rocky Mountain region are available for leasing and 
development, the question policy-makers should be asking is not, ``Is 
too much Federal oil and gas unavailable for leasing and development?'' 
Instead, we should be asking such questions as: Given the extensive 
availability of our publicly-owned onshore oil and gas resources for 
development, have we adequately protected the scenic, ecological, 
environmental, air and water resources, wildlife habitat, and 
wilderness values of our public lands and national forests? Are surface 
owners with split estate lands being treated fairly when it comes to 
coalbed methane development? Are we being careful enough to protect the 
precious surface and groundwater resources of the rural communities 
where the coalbed methane boom is in full swing? Should we be more 
careful in waiving leasing provisions designed to protect wildlife 
resources, especially when it comes to declining species, such as sage 
grouse? And, are reclamation bonds imposed upon operators adequate to 
the task of assuring post-operation clean-ups?
    Thank you again for this opportunity to present our views.

1 BLM, January, 2003, Scientific Inventory of Onshore 
        Federal Lands' Oil and Gas Resources and Reserves, etc'', pp. 
        xii-xiii, xv.
2 BLM, Budget Justifications and Annual Performance Plan, 
        Fiscal Year 2003, pp. III-116 through 121.
3 BLM, Final Environmental Impact Statement and Proposed 
        Plan Amendment for the Powder River Basin Oil and Gas Project, 
        Volume 3, Appendix A, Reasonably Foreseeable Development 
        Scenario for Oil and Gas Development in the Buffalo Field 
        Office Area, Wyoming, February 2001, p. 2.
4 Engler, Thomas W., et al., BLM, July 2, 2001, Oil and Gas 
        Resource Development for San Juan Basin, New Mexico...
5 National Energy Policy: Report of the National Energy 
        Policy Development Group, May 2001, p. 5-10.
6 Op. cit., p. 3-5.
7 Domestic Petroleum Council, December, 1999, Natural Gas--
        Meeting the Challenges of the Nation's Growing Natural Gas 
        Demand, Volume I., Summary Report, pp.7-8.
                                 ______
                                 
    The Chairman. Thank you.
    Mr. Carlson.

   STATEMENT OF WILLIAM H. CARLSON, VICE PRESIDENT, BUSINESS 
DEVELOPMENT-WHEELABRATOR TECHNOLOGIES, INC., AND CHAIRMAN, USA 
                BIOMASS POWER PRODUCERS ALLIANCE

    Mr. Carlson. Thank you, Mr. Chairman.
    The utilization of energy resources on public lands is of 
great interest to the USA Biomass Power Producers Alliance, 
who, as our name implies, are the people who produce power from 
biomass.
    The dramatic expansion of biomass energy from thinning of 
Federal forests is in the interest of national energy security 
and the health and preservation of our forests. In this case, 
unlike others, the extraction of energy provides dramatic 
environmental benefits. The inclusion in the energy bill of a 
redefined biomass tax credit and a fuel transportation 
provision are the catalysts to set such a public land program 
in motion.
    The President, in his State of the Union address, expressed 
as a national priority both the thinning of our nearly 190 
million acres of at-risk public forest and the expansion of our 
secure domestic sources of energy. The marriage of these, in a 
way that saves tens of billions of public dollars, is possible. 
This Congress, through a comprehensive energy bill, can put the 
pieces in place.
    This system of thinning with energy and product production 
has been demonstrated on over one million acres of public and 
private forests in northern California with spectacular 
results. Catastrophic wildfires are stopped in their tracks, 
wildlife habitat is enhanced, watersheds saved, rural economies 
strengthened, and forest lands returned to health, typically at 
no cost, all while protecting the largest and best of the 
forest.
    A network of small wood conversion facilities and biomass 
power plants to support cost-effective, large-scale thinning 
projects exists only in northern California, however. Our task 
is to duplicate this infrastructure throughout the west, using 
private investment, and a comprehensive energy bill can 
accomplish that end.
    Before investing in the creation of this infrastructure, 
investors need to affirmatively answer three key questions: 
one, is there an assurance that the raw material will be 
available for the capital recovery period; two, is there proven 
technology that will eliminate risk, both in the energy and 
product conversion and in the resource treatment; and three, is 
there a set of project economics that will support the 
investment with a fair return and low risk.
    Answering these three questions affirmatively throughout 
the West could trigger an investment of $30-50 billion of 
private capital supporting the thinning of perhaps five million 
acres per year, saving four billion dollars per year in 
thinning costs, while producing perhaps 10,000 megawatts of 
renewable energy.
    The assurance of long-term raw material supply was largely 
solved by the recent establishment of long-term stewardship 
contracting authority for both the U.S. Forest Service and BLM, 
allowing 10 year access in a goods-for-services arrangement.
    Technology risk is a nonissue, as burning wood for power 
has a 50-plus year history. The technology to thin, while 
protecting and enhancing the environment, is well proven with 
individual entrepreneurs continuing to lower costs, expand 
range, and soften the footprint.
    A comprehensive energy bill can assist project economics. 
Economically, maximum use must be made of all thinned material. 
Any material used for higher uses, such as wood products, paper 
or chemicals, only improve the economics of the residual fuel. 
Infrastructure to produce these products will develop with 
stable supply, as their markets are well developed and mature.
    Subcommittee Chairman McInnis has indicated he will pursue 
the inclusion of a fuel transportation provision as part of an 
energy bill. Biomass plants need a combination of a strong, 
stable revenue stream and low fuel costs to be viable, and this 
provision will allow remote fuels to be utilized.
    Any energy bill should follow the lead of several western 
States and provide opportunities for strong, stable revenues 
from renewable projects by encouraging renewable direct access, 
renewable purchase requirements, and/or emission reduction 
credits.
    The President's budget, in both the House and Senate 
versions of last year's energy bill, included definitional 
changes to the IRS section 45 biomass tax credit that would 
allow projects such as these, both existing and new, to qualify 
for the tax credit. Existing plants scattered throughout the 
West will play a key role in support of thinning. Closed 
plants, in such rural places as Afton, Wyoming, Emmett, Idaho, 
and Heppner, Oregon, could potentially be reopened because of 
this legislation.
    These changes, spelled out in Congressman Herger's H.R. 804 
would preserve and expand the biomass power infrastructure to 
support needed forest health initiatives. Though heard in the 
Ways and Means Committee, its' relationship to the work of this 
Committee is direct and important, and we would urge each of 
the members of this Committee to become a cosponsor.
    The energy bill can result in an infrastructure to allow 
thinning of five million acres per year of fire-prone western 
forests, with an acre producing 30 tons of fuel and a truckload 
of small logs. This material could fuel 10,000 megawatts of 
biomass power, and instead of costing the Treasury $80 billion 
to thin 100 million acres over 20 years, the cost may well be 
reduced to zero.
    We need a massive effort to restore our Nation's public 
forests to health to prevent repeats of the seven million acres 
that burned in 2002, and we need an environmentally sound 
program to develop domestic renewable sources of energy. We can 
accomplish both with only modest incentives provided as part of 
a comprehensive energy bill, and at only a fraction of the cost 
of conducting either effort separately.
    Thank you.
    [The prepared statement of Mr. Carlson follows:]

Statement of William H. Carlson, Vice President, Business Development, 
Wheelabrator Technologies, Inc., Chairman, USA Biomass Power Producers 
                                Alliance

    The utilization of energy resources on Federal lands is a topic of 
great interest to the USA Biomass Power Producers Alliance (USABPPA) 
given our long relationship with biomass from Federal forest lands and 
our knowledge of the condition of the Federal forests. USABPPA is an 
organization of those companies producing power for the grid from 
biomass resources, and represents the majority of such power in the US. 
We will explain why a dramatic expansion of biomass energy from 
thinning of Federal forests is in the interest of national energy 
security, economic well being, and the health and preservation of those 
very forests. Typically, any decision to increase extraction of energy, 
particularly from public lands involves environmental tradeoffs. In the 
case I will present today, that thesis is turned on its head, and the 
extraction of energy provides dramatic environmental and economic 
benefits. The inclusion in an energy bill of a redefined and 
reauthorized biomass tax credit and a fuel transportation subsidy are 
the catalysts to set such a program in motion.
    The President, in his State of the Union address, expressed as a 
national priority the thinning of our nearly 190 million acres of 
unhealthy, overstocked, at risk public forests. Likewise, the expansion 
of our secure domestic sources of energy is as important nationally to 
the President. The marriage of these two concepts in a way that also 
nets a savings of tens of billions of dollars for the Treasury is 
possible, and this Congress, through a comprehensive energy bill, can 
put in place the remaining elements to allow this to proceed. Far from 
being an unproven concept, this system of thinning with energy/product 
production has been demonstrated over 15 years on over one million 
acres of public and private forests in Northern California and the 
results are nothing short of spectacular. Catastrophic wildfires are 
stopped in their tracks, wildlife habitat is enhanced, watersheds saved 
and rehabilitated, smoky air reduced, rural economies are strengthened, 
and forest lands are returned to health typically at no cost, all while 
protecting the largest and best of the forest.
    The network of small log mills/other value added manufacturing and 
biomass power plants that is necessary to support cost effective large 
scale thinning projects, and that exists only in Northern California, 
was due to a unique set of circumstances not present elsewhere in the 
West. The trick, that we will discuss today, is how to maintain 
existing facilities that can assist in this effort while duplicating 
this infrastructure throughout the western forests using private 
investment, and we will explain how a comprehensive energy bill can go 
a long ways towards accomplishing that end.
    Before investing in the creation of this infrastructure, investors; 
be they individuals, communities or corporations, will need to 
affirmatively answer three key questions:
    One, is there an assurance that the raw material will be available 
in the necessary quantities for the period of time required to recover 
the capital;
    Two, is there a proven technology that will eliminate risk, both in 
the energy/product conversion as well as in the resource procurement; 
and
    Three, is there a set of project economics that will support the 
investment of this capital with a fair return and relatively low risk?
    If these three questions can be answered affirmatively throughout 
the West, and based on our California experience, we could see an 
investment of $30-50 billion of private capital supporting the thinning 
of perhaps 5 million acres per year, saving the Treasury $4 billion per 
year in thinning cost and $80 billion over 2 decades, while producing 
perhaps 10,000 mw of secure domestic renewable energy.
    Fortuitously, the first criteria, assurance of long term raw 
material supply, was largely solved by the recent establishment of long 
term stewardship contracting authority for both the U.S. Forest Service 
and Bureau of Land Management. By assuring ten year access to excess 
biomass in a goods for services arrangement, both wood conversion and 
power plant facility infrastructure development will benefit from this 
authority and the security it brings with it.
    The second criteria, technology risk, is largely a non-issue in 
this case as burning wood for power has a 50+ year history. While the 
technology continues to evolve, it is primarily improvements in 
efficiency and emissions, with the underlying technology remaining 
constant. Likewise, the technology to thin cost effectively while 
protecting and enhancing the environment is well proven, with 
individual entrepreneurs continuing to lower costs, increase 
production, expand range and soften the footprint.
    The third criteria, project economics, is where a comprehensive 
energy bill can assist, at least on the biomass power plant side. In 
all cases, maximum use should be made of all thinned material. Any 
material used for higher uses such as building material, paper, 
chemicals or other wood products only improve the economics of the 
residual fuel. If raw material supply is stable over time, the 
infrastructure to produce the higher valued products will develop, as 
their markets are well developed and mature. To repeat, the more 
upstream diversion that occurs, the lower the cost of thinning and the 
lower the cost of the resulting fuel for biomass power.
    Forest Health Subcommittee Chairman McInnis has indicated he will 
pursue the inclusion of a fuel transportation provision for such fuels 
as part of an energy bill, and that will be a major benefit to biomass 
power plant economics. Biomass plants need a combination of a strong 
stable revenue stream and low fuel cost to be viable, and Congressman 
McInnis' provision will allow remote fuels to arrive at the plant at a 
reasonable cost, allowing the plants to be more centrally located with 
respect to transmission. We sincerely hope that the authors of this 
Committee's piece of the energy bill will include this important 
provision.
    On the revenue side, any energy bill should encourage states to 
provide opportunities for strong stable revenues from renewable 
projects, including biomass, by encouraging renewable direct access, 
renewable purchase requirements and/or emission reduction credits. 
Several Western states ( AZ, CA, NM, NV) have recently mandated 
programs benefiting renewables, and an energy bill should continue this 
trend.
    One program unique to biomass that is included in the President's 
budget and was included in both House and Senate versions of last 
years' energy bill is the change to the IRS Section 45 Biomass Tax 
Credit. The change in definition of biomass would allow projects such 
as those described here to qualify for the tax credit, and would make 
the credit available to both new and existing plants. Existing biomass 
plants, scattered throughout the West, are expected to play a key role 
in support of thinning. Plants previously closed in such places as 
Afton, WY, Emmett, Idaho and Kinzua, OR. could potentially be reopened 
based on this legislation. Passage of these changes, spelled out in 
congressman Herger's HR804, would be the single most important thing an 
energy bill could do to preserve and expand the biomass power 
infrastructure in support of these needed forest health initiatives. 
Though Congressman Herger's bill will be heard in the House Ways and 
Means Committee, its relationship to the work of this Committee is 
direct and important, and we would hope that each of you will choose to 
cosponsor HR804.
    As I stated previously, an energy bill can be the catalyst that 
sets in motion the investment of perhaps $30-50 billion in private 
capital in an infrastructure to convert the excess biomass off perhaps 
5 million acres per year of unhealthy, fire prone Western public 
forests to products and energy. Based on our experience, an acre will 
produce approximately 30 tons of fuel and 2-5,000 board feet of small 
logs. This 150 million tons annually of excess unused material could 
fuel 10,000 mw of biomass power, more than doubling the current output 
of the industry, but still only a small percentage of western power 
needs. And not insignificantly, instead of costing the Federal Treasury 
$80 billion to thin 100 million acres over the next two decades, the 
cost may well be reduced to zero. If there was ever a program where 
environment, energy and economics are all positive, this is it.
    The situation that the U.S. finds itself in today is truly unique. 
We have a need for a massive effort to restore our nation's public 
forests to health to prevent repeats, or worse, of the 7 million acres 
that burned in 2002. And we have a need for an environmentally sound 
program to develop secure domestic renewable sources of energy to 
prevent further increases in our dependence on foreign sources of 
energy. By marrying these two efforts as described above, we can 
accomplish both with only modest incentives provided as part of a 
comprehensive energy bill, and at only a fraction of the cost of 
conducting either effort separately. And, as added benefits, 
catastrophic wildfires will be reduced, wildlife habitat will be 
enhanced, watersheds saved, air quality improved, rural economies 
strengthened and forest lands returned to health typically at hopefully 
no cost, all while protecting the largest and best of the forest.
    The membership of the USA Biomass Power Producers Alliance stands 
ready to assist you in this effort. Thank you.
                                 ______
                                 
    The Chairman. Thank you, Mr. Carlson.
    The question for you on the viability of doing this, do you 
believe that legislation such as Mr. Herger's would have to 
pass in order for this to be economically feasible?
    Mr. Carlson. Yes, I do. What we're finding is that, with 
the long-term stewardship contracting authority and the goods-
for-services arrangement, it will be likely that these Federal 
acres can be thinned for a very low cost or no cost, based on 
the value of the other products, which makes the fuel then 
relatively cheap.
    The western States, many of them are moving into an area 
where you can get, say, slightly above market cost, market 
prices, for your energy. But the missing piece that will make 
the economics work to building this infrastructure in places 
other than California is the tax credit. That's the only large 
missing piece to this equation at the moment.
    The Chairman. Because of the cost of transportation?
    Mr. Carlson. Yes. This type of fuel primarily is the 
transportation costs associated with it, which in many cases 
alone may be in the neighborhood of three cents per kilowatt 
hour produced, just for the cost of the transportation of fuel.
    The Chairman. I know I have a biomass plant in my home 
town, and it burns primarily agricultural waste, straw and 
trimmings from trees and so forth. That has continued to be 
their major problem, the cost of bringing it in.
    Mr. Carlson. Certainly there are a lot of similarities 
between forest waste and agricultural waste. Again, they're 
bulky, they're low weight materials, and the transportation 
also in the ag business--the Tracy plant that you're referring 
to--it's exactly the same issue that we deal with in the forest 
wastes.
    The Chairman. I appreciate your testimony. I think this is 
definitely something that has to be part of our future. Making 
it economically feasible is going to be an important part of 
using this type of energy in the future. But I appreciate your 
testimony.
    Let me go to Mr. Steve, if I can. First of all, I was 
looking at your calendar of all the different windmills, and I 
don't see my ranch in here.
    Mr. Steve. That's in next year's.
    [Laughter.]
    The Chairman. As you're probably aware, we have windmills, 
wind turbines, on my ranch. We have a ranch in the Altamonte in 
California. A lot of what you testified to I can verify. It has 
made a big difference for a lot of those ranchers to have the 
income off of those wind turbines. For a lot of those guys, it 
has made the difference of whether or not they continue to 
ranch and have cattle there. So it has made a big difference. I 
can verify that as absolutely true.
    Let me ask you, though, as far as leasing Federal lands, 
what system exists right now that allows companies that are 
involved in a renewable resource like this to go in and lease 
those lands and put windmills in?
    Mr. Steve. I would say that refers directly to the 
experience we had with the Bureau of Land Management--and this 
is very recent. There was nothing until just recently, until 
Secretary Norton tried to follow through, or started to follow 
through, on the President's energy plan. That's what put this 
in motion. BLM responded very quickly, worked with our industry 
to essentially set up, as I said, some guidelines, which say, 
OK, here's how you can gain access to the lands, and once you 
decide you want to develop a project there, here's how much 
you'll pay us. You know, we knew we weren't going to get by 
with not paying anything to the Federal Government because we 
already pay to private landowners, so the Federal Government 
should see some income as well. So we tried to have it very 
similar to what we're paying private landowners.
    But that's the process which was just put in place. We 
think it's a good one. We didn't get everything we wanted by 
working with the agency, but we didn't expect to get 
everything, either. We think it was a very good process and we 
would like to see it replicated with other land management 
agencies.
    The Chairman. So the Federal Government would have a lease 
similar to what you have done with private landowners?
    Mr. Steve. Correct.
    The Chairman. What about access in terms of going in and 
putting up your monitors and determining which areas are the 
best to put a project like this together? Have you had the 
opportunity to do that yet?
    Mr. Steve. I don't believe any projects have yet started 
under these new guidelines.
    The Chairman. I mean the monitoring.
    Mr. Steve. The monitoring, I believe, is going to be 
starting soon. I don't know of any specific instances that it 
has happened yet, because this is so fresh and so new.
    Currently, if a wind developer has a choice between 
developing on private lands or Federal lands, they'll 
immediately go to private lands. The hassle factor was too high 
in the past.
    The Chairman. Yeah.
    Mr. Steve. One of the important things that these 
guidelines from BLM tried to do was set up a situation where 
you didn't get speculators coming in, similar to--Remember when 
the Internet was starting up. People were buying up all these 
names, these domain names, and then selling them for ridiculous 
prices. They never had any intent of using them.
    So the BLM tried to kind of head off that same type of 
thing with wind development on Federal lands. You didn't want 
somebody coming in, locking up the land, and then having no 
intention of doing a project on that land. They wanted serious 
project developers to come in, so that somebody wasn't then 
increasing the cost of energy development by essentially being 
the middle man or middle person and charging significantly for 
somebody else to gain access to those lands. That was a key 
component of it.
    The Chairman. I know this is somewhat of a touchy subject, 
but I know in California, when wind energy was first being 
developed, there was a large environmental component to that, 
where a lot of environmental groups were very much in favor of 
doing it. After a number of those projects were put in, we 
began to hear about visual pollution and some other issues that 
some of the environmental groups had with that.
    Have you met with any kind of that resistance in terms of 
developing Federal lands?
    Mr. Steve. Not with regard to Federal lands, no. Again, we 
only think these types of wind turbines should go in 
appropriate areas of Federal lands. We're not urging that if 
BLM has tracts of land adjacent to a national park that we're 
going to have these windmills right adjacent to that national 
park. We would say that's probably not an appropriate place to 
put them. But certainly there are lots of other lands that are 
appropriate.
    The Chairman. Thank you.
    Mr. Alberswerth, if I could go to you just for a minute, 
one of the concerns that I have is that, in listening to your 
testimony, I think the vast majority of it I agreed with, in 
terms of concerns that we have in trying to make sure that we 
do this right.
    But I guess my question for you is, is there anything that 
we're going to do in this energy bill that you would support? 
If we're talking about access to public lands and development 
on nonenvironmentally sensitive lands, with all of the 
restrictions and everything that you've heard everybody talking 
about here today, do we ever get to the point where you and 
your organization actually supports it, or is that just a 
nonstarter from the beginning?
    Mr. Alberswerth. Of course, we don't know what your bill is 
going to look like, but last year--and I'm sure you're aware of 
this--we had deep concerns and objected to provisions in the 
Committee's bill that, in our view, would have weakened the 
existing environmental protections that were out there.
    I do think that, you know, if you put together a package of 
proposals that perhaps dealt with some of the concerns of 
surface owners, that surface owners have, protecting water 
quality when it comes to coalbed methane, perhaps--one proposal 
that we had was for the BLM to develop a regime of 
unsuitability criteria to apply during their land use planning 
process, to determine better what lands are available, should 
be available, for leasing and development and what not, we 
would certainly look at that sort of thing.
    Our main concern last year, as an organization, to the 
House bill, though, was what we perceived to be rollbacks of 
the existing authority, the existing regulatory regime of the 
Interior Department to take into account and protect those 
environmental values that we're concerned about. We certainly 
would object to any similar language this year.
    The Chairman. I understand what your concern is. I think 
there's a difference of opinion as to whether or not that was 
actually what was happening. That's really, I guess, at the 
root of what my concerns are.
    As that bill was being put together last year, concerns 
were raised, and a lot of work and effort was put in by the 
Committee, both this Committee and others that had 
jurisdiction, to try to address those concerns. There didn't 
seem to be, at any point, any recognition on your part or the 
organization that you represent to recognize the efforts that 
were being made, to recognize that they were trying to take 
care of what your concerns were. It was opposition from the 
beginning and all the way through the process. There was really 
very little constructive work that was coming in, in trying to 
work through those problems.
    I believe very strongly that we can protect our environment 
and have the development of energy resources. I don't believe 
that those two are mutually exclusive. In order for us to move 
forward, we need constructive work; we need constructive help 
from those in the environmental community to try to work and 
achieve that. If we are up against opposition from beginning to 
end, with absolutely no opportunity to come to consensus, then 
you destroy our ability to take care of some of those very 
problems that you've brought up.
    I think it's important that we have a constructive working 
relationship and that those of us on the Committee can see the 
opportunity of coming to consensus somewhere at the end, or 
else all of the work that we put into doing that is for 
nothing.
    Mr. Alberswerth. May I respond, Mr. Chairman?
    The Chairman. Yes.
    Mr. Alberswerth. You should know that we did, in fact, work 
closely with the Committee staffs during the conference 
Committee deliberation over the energy bill last year, and we 
actually ended up being satisfied with the public lands 
provisions of that bill. Of course, the bill never was accepted 
by Congress. But we thought that in that process actually our 
concerns about the public lands were largely addressed. We had 
constructive dialog with Committee staff people on both the 
House and Senate during that process.
    The Chairman. Well, I will look at and talk to the staff 
about that. I was not aware that at any time you supported the 
public lands sections of the bill. If I'm mistaken about that, 
I apologize for it. But I'm not aware that that ever happened.
    Mr. Alberswerth. You are correct, that we objected to H.R. 
4. That is on the record and you are correct on that, sir.
    The Chairman. Then I guess I didn't understand what you 
said about working on the conference Committee then.
    Mr. Alberswerth. Well, we worked at a staff level with 
staffs of the Senate and the House, in their deliberation over 
those public lands provisions. The final product, which, of 
course, was never voted on, we were actually satisfied that our 
concerns had been addressed in that product. So that may be 
something you would like to take a look at as you're moving 
through--
    The Chairman. Are you telling me that you supported the 
work that was done in the conference Committee, or would have 
supported it if it came to the floor?
    Mr. Alberswerth. We would have supported those provisions. 
Now, there are lots of provisions in that bill that we may have 
had problems with, but I'm fairly narrowly focused here on the 
public lands aspects of things.
    The Chairman. I want you to understand--and I'm willing to 
work with you on any part of this bill that I have jurisdiction 
over--in order for us to work together, at some point there has 
to be the opportunity that you're going to actually support the 
bill. If I don't see any opportunity to get you to support the 
bill, then I'll find someone else to work with. Because I think 
it's disingenuous to make a bunch of compromises and try to 
find that consensus with no hope of ever having your support in 
doing that. You know, that's my concern.
    Mr. Sparrowe, finally with you, do you believe there are 
any opportunities to streamline the overlapping environmental 
review process that is currently in place on Federal lands?
    Mr. Sparrowe. Yes, I'm sure there are.
    The Chairman. Are you aware of any? Can you share that with 
us? I know you've spent a great deal of time and energy on this 
issue. I'm just trying to pick your brain a little bit here, if 
I can.
    Mr. Sparrowe. Well, I haven't been thinking about it 
recently in the context of overlapping authority. I've been 
thinking about it in the way in which these developments, for 
example, that I talked about, proceeded. It seems to us there 
are some opportunities already lost to stay out of trouble on 
some of these issues because of the pressure on BLM to assist 
with acceleration of leasing. We were told just 10 days ago 
that in the Upper Green, for example, 95 percent of what they 
have available to lease is leased. Now we're dealing with some 
problems caused by some of the areas that were leased.
    I would just maintain that everyone would be--Several 
thousand wells are going in, which is very likely, in the very 
northern part of this now, as a couple of fields are fully 
developed and new ones come on. Had we been able to sit down at 
first, I could probably point on the map right now to half a 
dozen that, had they not been leased, everybody would have been 
better off, because there wouldn't be strife about the whole 
thing and there would be relief for some important wildlife 
resources in this case.
    Out of several thousand, I don't see that six or a dozen 
would really inhibit the effective development of energy to 
meet the needs of the country. In fact, some of those could be 
approached later when problems are worked out about the 
resources.
    We don't have processes like that right now. The RMP 
process that BLM uses has been so long in leading to reviews 
that we're now looking at things where lots of decisions were 
made in the last 10 years based on something that was 20 years 
old. Everybody in Interior, from Steve Griles on down, from the 
beginning, has told us yes, we realize that stuff's out of 
date. It isn't good enough and we're likely to be challenged. 
But the decisions are going ahead. So some of the overlapping 
authority is workload and a vision of what the agency's 
responsibilities are, and just the sheer capability of dealing 
with things.
    I understand the concerns about overlapping authorities. We 
have been working with Chief Bosworth and the Forest Service 
about his concerns about gridlock and the whole issue of forest 
policy. Frankly, the past 3 months are so swamped with the 
number of issues that are before everyone that I'm not sure 
we're all dealing with them totally effectively. But I think 
there certainly are some things to be done, but I think you've 
got to--I have a philosophy about a lot of things we fight 
about, and a lot of things that we keep coming to loggerheads 
about. If we can be very specific and say this rule and that 
rule, where they overlap affecting these resources, I'll bet we 
can find some ways to make that work better. The problem always 
is that when we're generalizing.
    It's like the concerns we have about saying the wildlife 
stipulations are inhibiting orderly energy development. BLM's 
own data show that 85 to 90 percent of them are being exempted 
for winter use for big game. That's one of our particular 
interests. I say where's the problem? If there's a problem 
there, it may be because of the lack of data. We're not making 
those kinds of exemption decisions based on the right 
information for everybody.
    The Chairman. In that case, I would have to actually dig 
into it a little bit deeper, but I do know in other cases that 
they use facts like 85 or 90 percent are being approved, of 
those that are applied for being approved, or that they're 
being exempted. But what that doesn't take into account is the 
ones that BLM just tells them ``you've got a major problem with 
this one; don't even bother'', and that one is pulled out. So 
using a figure like that is not--and don't take this 
personally--it's not on honest figure, because it doesn't take 
into account everything that's happened in order to get to that 
point. When you talk about a half-a-dozen that you believe 
should have been pulled out, you may be right, but we don't 
know and I don't know at this point how many they applied for 
or talked to BLM about where the Federal Government told them 
this one is in an area that you shouldn't develop. So there is 
a lot of different facts that go into this.
    At some point, I think we have to look at these overlapping 
authorities and how they all fit together, and if we actually 
use good science and we force the agencies to follow the law, 
there should be no necessity of all the overlapping 
authorities. That's where I think we need to go.
    Mr. Alberswerth. It's a big job. It's a big job.
    The Chairman. Yes, it is.
    I appreciate the testimony and the answers to the 
questions. Again, to this panel, I will say that there will be 
questions submitted to you in writing. If you can answer those 
in writing so that they may be included in the hearing record, 
it would be appreciated. I believe the hearing record will be 
held open for 10 days, so we will get that to you as quickly as 
we possibly can so you can answer them.
    I'm going to dismiss the panel. Thank you again for your 
testimony. Again, thank you for your patience in sticking with 
us all day here.
    That concludes our hearing.
    [Whereupon, at 2:46 p.m., the Committee adjourned.]

    [A statement submitted for the record by Howard D. 
Richards, Sr., Chairman, Southern Ute Indian Tribal Council, 
follows:]

            Statement of Howard D. Richards, Sr., Chairman, 
                   Southern Ute Indian Tribal Council

    Mr. Chairman and other members of the Committee:
    It is my honor to appear before you today on behalf of the Southern 
Ute Indian Tribe. Our Reservation is located in southwestern Colorado 
on the northern portion of the San Juan Basin. Our tribe has 
aggressively pursued exploration and development of energy resources 
for several decades, and our success in this area has allowed us to 
improve the financial security and the quality of life of members of 
our tribe. We believe that enhancing production of Indian resources 
serves the dual purposes of improving tribal economies and improving 
the energy security of the Nation as a whole. Our story may be of use 
to you in your deliberations.
    Oil and gas leasing of our lands commenced in the late 1940s, under 
the supervision of the Bureau of Indian Affairs (``BIA''). For 
approximately twenty-five years, we held lease sales and issued 
standard form leases approved by the BIA. Because of concerns that our 
mineral resources were not being properly managed by the BIA, the 
Southern Ute Indian Tribal Council imposed a moratorium on future 
leasing between the years of 1974 and 1984. During that ten year 
period, a number of important activities took place. First, the 
revelation that oil and gas companies were grossly neglect underpaying 
royalties due the federal government and Indian tribes, Congress 
enacted the Federal Oil and Gas Royalty Management Act of 1982. Second, 
through a combination of self-funding and assistance from the BIA 
Minerals Division, we began a disciplined evaluation of the leased and 
unleased resources underlying our lands. In order to conduct this 
evaluation we hired several non-Indian experts, and we started a tribal 
energy resource office. Our consultants and employees helped us 
understand the scope and extent of our resources, and, through their 
efforts, we established a computerized data base from which we could 
generate maps and lease information. Third, Congress passed the Indian 
Mineral Development Act of 1982, which for the first time authorized 
tribes to engage in direct negotiation of oil and gas lease contracts.
    Armed with improved technical knowledge and a new legislative 
vehicle for negotiating leases for our lands, we entered into a series 
of mineral agreements in the 1980s, primarily with major companies or 
large independents. In our negotiations, we generally included 
provisions granting the tribe preferential purchase rights or rights of 
first refusal in the event the leasing company chose to sell or assign 
its interest to others. Although we have had some disagreements, our 
relationships with industry representatives have generally been 
favorable. We have honored our contractual obligations and we expect 
the companies to do the same. We have worked hard to ensure that 
companies comply with their lease terms. By the same token, we have 
demonstrated our willingness to live. up to our contractual obligations 
by including provisions waiving the tribe's immunity from suit needed 
to interpret or enforce our negotiated agreements. As a result of the 
successful development of coal seam gas from our lands commencing in 
the late 1980s, our economy has steadily grown.
    Our experiences and the recommendations of our technical staff led 
us to create a tribally-owned oil and gas company in approximately 
1992. The purpose of the company was to acquire ownership of oil and 
gas leasehold interests on or near the Reservation and, ultimately, to 
operate wells on behalf of both the tribe and non-Indians. That 
company, Red Willow Production Company, is currently the fourth largest 
producer of oil and gas in Colorado. We also learned the importance of 
establishing sound business relationships with other members of the 
industry. For example, in 1994, we entered into a partnership with the 
Stephens Group, from Little Rock, Arkansas, and together purchased one 
of three major pipeline-gathering systems operating on the reservation 
and re-named the system ``Red Cedar Gathering Company.'' Through 
aggressive capital investment, we were able to construct pipeline 
gathering facilities in strategic locations on the Reservation to 
enhance production and development. More than 1% of Nation's daily gas 
supply flows through the Red Cedar system. Today, the Southern Ute 
Indian Tribe, through a variety of subsidiaries, also holds oil and gas 
investments in Canada,. Montana, Colorado, New Mexico, and Texas. The 
fair market value of Red Willow and Red Cedar easily exceeds half a 
billion dollars.
    During the course of our economic development, our Tribal Council 
adopted a Financial Plan, which provides separate management of our 
business enterprises, including our energy development enterprises. 
Today, I am accompanied by Robert Santistevan, the Executive Director 
of the Southern Ute Indian Tribe Growth Fund, who will provide 
additional information to you about our tribe's progress in energy 
development and the benefits that we have been able to provide to our 
members as a result of our successful efforts.
    As Mr. Santistevan will demonstrate, we have come a long way, and 
we intend to continue walking down the path of success for the benefit 
development of our tribal members.

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