[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
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
or
Committee address: http://resourcescommittee.house.gov
______
85-771 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
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)
______
[GRAPHIC] [TIFF OMITTED] T5771.005
[GRAPHIC] [TIFF OMITTED] T5771.006
[GRAPHIC] [TIFF OMITTED] T5771.007
[GRAPHIC] [TIFF OMITTED] T5771.008
[GRAPHIC] [TIFF OMITTED] T5771.009
[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.