[Senate Hearing 108-499]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-499

                        ENVIRONMENTAL IMPACTS OF
                           NATURAL GAS SUPPLY

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

                                HEARING

                               before the

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 24, 2004

                               __________

  Printed for the use of the Committee on Environment and Public Works



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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      ONE HUNDRED EIGHTH CONGRESS
                             SECOND SESSION

                  JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia             JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri        MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio            HARRY REID, Nevada
MICHAEL D. CRAPO, Idaho              BOB GRAHAM, Florida
LINCOLN CHAFEE, Rhode Island         JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas                   BARBARA BOXER, California
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
CRAIG THOMAS, Wyoming                THOMAS R. CARPER, Delaware
WAYNE ALLARD, Colorado               HILLARY RODHAM CLINTON, New York
                Andrew Wheeler, Majority Staff Director
                 Ken Connolly, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page

                             MARCH 24, 2004
                           OPENING STATEMENTS

Allard, Hon. Wayne, U.S. Senator from the State of Colorado......   115
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    10
Chafee, Hon. Lincoln, U.S. Senator from the State of Rhode Island     9
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     7
Murkowski, Hon. Lisa, U.S. Senator from the State of Alaska......    77
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......    11
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...    13

                               WITNESSES

Bailey, Dennis M., director, Energy Purchasing, PPG Industries...    93
    Prepared statement...........................................   169
    Response to additional question from Senator Jeffords........   170
Bloch, Stephen H.M., staff attorney, Southern Utah Wilderness 
  Alliance.......................................................   103
    Prepared statement...........................................   183
    Responses to additional questions from Senator Inhofe........   196
Bluestein, Joel, president, Energy and Environmental Analysis, 
  Inc............................................................    92
    Prepared statement...........................................   156
    Responses to additional questions from:
        Senator Inhofe...........................................   159
        Senator Jeffords.........................................   159
Carcieri, Hon. Donald L., Governor, State of Rhode Island........    78
    Prepared statement...........................................   124
Caskey, Michael C., executive vice president and chief operating 
  officer, Fidelity Exploration and Production Company...........   101
    Prepared statement...........................................   171
Drake, Bob, vice president, Oklahoma Farm Bureau and chairman, 
  National Grazing Lands Council.................................    89
    Prepared statement...........................................   126
Handley, George, Eclipse Exploration Corporation.................   105
    Prepared statement...........................................   196
West, Marjorie, Western Organization of Resource Councils........    90
    Prepared statement...........................................   127

                          ADDITIONAL MATERIAL

Articles:
    Anniston Star, Running on Empty..............................   245
    Chattanooga Times Free Press, The Gasoline Price Spiral......   238
    Gainesville Sun, Shock at the Pump...........................   243
    Missoulian, Revised Energy Bill Thinner, Not Better..........   247
    News Record:
        Canadian Firm Plans Pipeline to Chicago..................   180
        Pipeline Project is Put on Hold..........................   181
    Star-Telegram, Fuel for Thought, Gasoline Prices Have Jumped 
      Through the Pump in Recent Weeks...........................   246
    The Arizona Republic, Mirror, Mirror . . . On the Pump, What 
      was it Made Those Prices Jump?.............................   241
    The Birmingham News, Saving Gas, Congress Should Turn to CAFE 
      to Lessen Pain at the Pump.................................   237
    The Buffalo News, Tied to Mideast Oil........................   248
    The Clarion-Ledger, Gas prices...............................   244
    The New York Times, Pinch at the Pump........................   240
    The Wall Street Journal:
        Another Power Play.......................................   239
        Natural-Gas Costs Hurt U.S. Firms--High Prices are 
          Prompting Companies to Conserve and Move Work Overseas.    20
    The Washington Post:
        Chemical Industry in Crisis--Natural Gas Prices are Up, 
          Factories are Closing, and Jobs are Vanishing.........18, 122
        Slicing Up Energy........................................   242
Charts:
    Bureau of Land Management/Forest Service, Leasing and 
      Permitting Process.........................................     6
    Federal Onshore Oil and Gas Leasing and Permitting Process...     6
    Indigenous Resources Are Not Fully Utilized..................     4
    Natural Gas Consumption, 1990-2025...........................    17
    Natural Gas Consumption versus Production, 2001-2025.........    18
    Natural Gas Costs............................................   170
    The Fertilizer Institute....................................161-169
    Total Consumer Cost Savings (2005-2014) If BLM Achieves 
      Permitting Goals...........................................     5
Maps............................................................198-203
News Releases:
    Alaska Wilderness League, Dark Anniversary: Exxon Valdez Oil 
      Spill......................................................   234
    National Environmental Trust (NET):
        Editorials Warn Against Using Record Gas Prices as Reason 
          to Pass the 2004 Version of the Energy Bill............   235
        Energy Bill not the Answer to High Gas Prices............   249
    Union of Concerned Scientists, fact sheet, Renewable Energy 
      Can Help Ease Natural Gas Crunch...........................   232
    U.S. PIRG, Budget-Busting Energy Bill Fails to Reduce Energy 
      Consumption, Prices or Imports: New EIA Report.............   251
Statements:
    American Chemistry Council...................................   223
    American Forest & Paper Association..........................   220
    American Gas Association (AGA)...............................   210
    Cicio, Paul N., executive director, Industrial Energy 
      Consumers of America.......................................   204
    Greenspan, Alan, Chairman, Board of Governors of the Federal 
      Reserve System.............................................   120
    Kelly, Martin, president and CEO, Moraine Molded Plastics, 
      Inc........................................................   116
    National Environmental Trust (NET), editorial................   235
    National Petrochemical Refiners Association (NPRA)...........   207
    Southern Utah Wilderness Alliance............................   253
Survey by Lexecon, on behalf of Cinergy Corp., The Link Between 
  Air Quality Policies, Electric Power and Natural Gas Markets, 
  and Macroeconomic Impacts: Clear Skies versus The Clean Air 
  Planning Act, March 2004....................................... 23-76
Text of bill, H.R. 3698.........................................130-150

 
                        ENVIRONMENTAL IMPACTS OF
                           NATURAL GAS SUPPLY

                              ----------                              


                       WEDNESDAY, MARCH 24, 2004

                               U.S. Senate,
                 Committee on Environment and Public Works,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m. in 
room 406, Senate Dirksen Building, Hon. James M. Inhofe 
(chairman of the committee) presiding.
    Present: Senators Inhofe, Jeffords, Chafee, Thomas, 
Murkowski, Carper, Voinovich, and Allard.

 OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM 
                     THE STATE OF OKLAHOMA

    Senator Inhofe. The meeting will come to order.
    Welcome, Governor. If you would, take your place at the 
table. We appreciate very much your being here. We want to 
welcome the witnesses. We are pleased that the Governor is here 
to share his views on the environmental impacts of the U.S. 
natural gas supply.
    Although the United States is a world leader in natural gas 
supply, we pay more for it than anywhere on the globe. For the 
last several years, natural gas prices have been volatile. They 
have caused manufacturing production costs to increase 
dramatically. Factories are closing. High paying and 
irreplaceable manufacturing jobs are leaving the country. 
Consumers are hurting the most. The tragedy, of course, is that 
it is completely unnecessary.
    Tactics employed to stop exploration in the production of 
new natural gas sources under the pretense of environmental 
protection are costing this country dearly and will only get 
worse if we do not act. There are those who are simply opposed 
to drilling anywhere, anytime, and will go to all lengths to 
prevent it from occurring. But we can explore and produce while 
protecting the environment.
    I would like to read a quote,

          ``The U.S. oil and gas industry has integrated an 
        environmental ethic into its business culture and operations. 
        The industry has come to recognize that high environmental 
        standards and responsible development are good business.''

    It may surprise some of my friends that that quote came 
from a Clinton administration DEQ report entitled, 
``Environmental Benefits of Advance Oil and Gas Exploration 
Protection Technology.'' At least someone in the Clinton 
administration understood that it did not harm the environment.
    Natural gas makes up 24 percent of our energy supply. It is 
used to provide 19 percent of the Nation's power generation, 
and 40 percent of U.S. industries rely on natural gas for 
energy or use it as a necessary feed stock to produce a variety 
of products from chemicals to fertilizer to glass.
    This morning, I had Senator Larry Craig before the Senate 
Prayer Breakfast. I am the chairman of that group. He was there 
as a presenter. When he heard that we were having this hearing, 
Governor, he said that in his State of Idaho, the cost of 
fertilizer has doubled in the last 6 months.
    Environmental policies, particularly the Clean Air Act 
Amendments of 1990 and the regulatory uncertainty of the new 
source review have contributed to a significant increase in 
demand for natural gas-based electricity generation. The 
increased demand for natural gas without any increase in supply 
has translated to high and volatile prices. Because we have 
vast natural gas resources, our supply problem is one of our 
own making.
    In the chart that is being shown, they are showing the 
restrictions. The National Petroleum Council's most recent 
report stated, there are policies promoting the use of natural 
gas as an environmentally attractive fuel that are in conflict 
with the laws and regulations that limit access to gas-prone 
areas where gas can be explored for and produced in an 
efficient and environmentally friendly manner. The brown shaded 
areas represent the amount of gas that is effectively off-
limits from exploration and development. Under these policies, 
it is as if we had turned our pride-strong Nation into a man 
starving to death, complaining about it, and then simply 
refusing to eat.
    What is astounding is that those who are promoting these 
policies that limit our access to natural gas are also pushing 
for changes in the Clean Air Act that would dramatically 
increase the demand for natural gas, further increasing pricing 
and volatility. I am speaking specifically to people who are 
trying to regulate carbon dioxide. Experts agree that 
traditional domestic gas sources are being depleted and are 
insufficient to meet future demands. They point to the Rocky 
Mountain area as a premier future gas supply in the lower 
States.
    Unfortunately, according to the NPC, much of the mountain 
areas are effectively off-limits to production because of 
regulatory uncertainty. Producers, like any business, require 
certainty to operate successfully. They must be able to plan 
their investments and have a reasonable certainty of return. 
The uncertainty is the result of an obstruction pattern played 
out by radical environmental groups who rely on regulatory and 
legal challenges to constantly impede and delay until the point 
where exploration dies. They work hard to put more laws on the 
books with which producers must comply in order to stop 
production or delay it indefinitely. Their obstructionist 
agenda has been working and the increases result in a 
volatility of natural gas pricing, and has cost this country 
jobs. It is only going to get worse if it continues.
    The NPC report concluded that 69-trillion cubic feet, or 29 
percent of the area's technical base, is effectively off-limits 
to exploration and development. Further, an additional 56 TCFs 
of potential gas faced significant costs in delays to develop.
    The next chart takes three to hold it. It shows what a 
producer must go through in order to obtain a Federal lease and 
permit on BLM or Forest Service areas. You remember on the 
previous chart we had that center brown area. That is primarily 
what we are talking about here. There are huge reserves and 
huge opportunities. This is what they have to go through. They 
are not willing to do it. If they do it, it is expensive.
    Again, this chart just shows the leasing and permitting 
process before any exploration or production. We probably could 
not make a big enough chart that would capture the delays in 
building new pipelines to get a supply into the area which 
needs it the most, such as the Northeast.
    Having a clean and safe environment is critical, but 
contrary to the opinion of the radical environmentalists and 
their supporters, we can have a clean environment without 
sacrificing U.S. competitiveness and jobs.
    I come from a gas-producing State, the State of Oklahoma. 
We are going to have a witness here from the State of Oklahoma, 
Bob Drake. We have vast reserves. We have the ability to 
explore for gas. But in the areas where the reserves are the 
largest, we do not. This is an old thing called supply and 
demand. The demand for natural gas is there, but the 
environmentalists have stopped us from being able to produce 
it.
    That is what this hearing is all about. I will recognize 
Senator Jeffords for his opening statement.
    [The prepared statement of Senator Inhofe follows:]

         Statement of Hon. James M. Inhofe, U.S. Senator from 
                         the State of Oklahoma

    I want to welcome our witnesses, and I am pleased that Governor 
Carcieri of Rhode Island is here to share his views on the 
environmental impacts of U.S. natural gas supply.
    Although the U.S. is a world leader in natural gas supply, we pay 
more for it than anywhere on the globe. For the last several years, 
natural gas prices have been volatile--they have caused manufacturing 
production costs to increase dramatically; factories are closing, high 
paying and irreplaceable manufacturing jobs are leaving the country, 
and consumers are hurting the most. The tragedy of course is that it is 
completely unnecessary. Tactics employed to stop exploration and 
production of new natural gas sources under the pretense of 
``environmental protection'' are costing this country dearly and will 
only get worse if we don't act. There are those who are simply opposed 
to drilling anywhere, anytime and will go to all lengths to prevent it 
from occurring. But we can explore and produce while protecting the 
environment.
    I would like read a quote:

          ``The U.S. oil and gas industry has integrated an 
        environmental ethic into its business culture and operations. 
        The industry has come to recognize that high environmental 
        standards and responsible development are good business.''

    It may surprise some of my friends that the quote is from a Clinton 
Administration DOE report titled ``Environmental Benefits of Advanced 
Oil & Gas Exploration & Production Technology.'' While the former 
President's policies did not encourage oil and gas exploration, at 
least someone in his Administration understood that it didn't harm the 
environment.
    Natural gas makes up 24 percent of our energy supply--it is used to 
provide 19 percent of the nation's electric power generation (used in 
over 60 million households), and 40 percent of U.S. industries rely on 
natural gas for energy or use it as a necessary feedstock to produce a 
variety of products from chemicals and fertilizer to glass.
    Environmental policies, particularly the Clean Air Act Amendments 
of 1990 and the regulatory uncertainty of New Source Review have 
contributed to significantly increased demand for natural gas-based 
electricity generation. The increased demand for natural gas, without 
any increase in supply, has translated to high and volatile prices. 
Because we have vast natural gas resources, our supply problem is one 
of our own making.

[GRAPHIC] [TIFF OMITTED] T4599.001


    The National Petroleum Council's most recent report stated that our 
policies promoting the use of natural gas as an environmentally 
attractive fuel are in conflict with laws and regulations that ``limit 
access to gas-prone areas where gas can be explored for and produced in 
an efficient and environmentally friendly manner.'' The shaded areas 
represent the amount of gas that is ``effectively'' off limits from 
exploration and development. Under these policies, it's as if we have 
turned our proud, strong Nation into a man starving to death, 
complaining about it, and then simply refusing to eat. What is 
astounding is that those who are promoting these policies that limit 
our access to natural gas are also pushing for changes in the Clean Air 
Act that would dramatically INCREASE our demand for natural gas, 
further increasing pricing and volatility, and I am speaking 
specifically to people who are trying to regulate carbon dioxide.
    Experts agree that traditional domestic gas sources are being 
depleted and insufficient to meet future demand. They point to the 
Rocky Mountain area as the premier future gas supply in the lower 48 
states.
    Unfortunately, according to the NPC, much of the mountain areas are 
``effectively'' off-limits to production because of regulatory 
uncertainty. Producers, like any business, require certainty to operate 
successfully. They must be able to plan their investments, and have a 
reasonable certainty of a return. The uncertainty is a result of an 
obstructionist pattern played out by radical environmental groups who 
rely on regulatory and legal challenges to constantly impede and delay 
until the point where exploration dies. They work hard to put more laws 
on the books with which producers must comply, in order to stop 
production or delay it definitely. Their obstructionist agenda has been 
working and the resulting increase and volatility of natural gas 
pricing has cost this country jobs--and its only going to get worse if 
it continues.

[GRAPHIC] [TIFF OMITTED] T4599.002


    The NPC report concluded that 69-trillion cubic feet or 29 percent 
of the area's technical base is ``effectively'' off-limits to 
exploration and development. Further, an additional 56 TCF of potential 
gas faced significant costs and delays to development.

[GRAPHIC] [TIFF OMITTED] T4599.003


[GRAPHIC] [TIFF OMITTED] T4599.004


[GRAPHIC] [TIFF OMITTED] T4599.005


    This chart shows what a producer must go through in order to obtain 
a Federal lease and permit on BLM or Forest Service land. Again, it 
depicts the process before any actual disturbance of land occurs. By 
the way, the nine red stop signs are opportunities for legal 
challenges.
    Again, this chart just shows the leasing and permitting process, 
BEFORE any exploration or production. We probably couldn't make a big 
enough chart that would capture the delays in building new pipelines to 
get the supply into areas which need it the most, such as the 
Northeast.
    Having a clean and safe environment is critical, but contrary to 
the opinion of the radical environmentalists and their supporters, we 
can have a clean environment without sacrificing U.S. competitiveness 
and U.S. jobs. Pursuing environmental policies that force natural gas, 
while preventing increased supply through obstructionist tactics is 
irresponsible and hurts our workers, our consumers, and our nation.

    Senator Inhofe. Senator Jeffords.

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. Thank you, Mr. Chairman. Thank you for 
holding this hearing, and a sincere thanks to all of the 
witnesses, many of whom have traveled across the country to 
provide testimony to this committee.
    The committee will be examining several very important 
issues today as we take testimony on the environmental effects 
of natural gas supplies. The first issue is obtaining a better 
understanding of the environmental effects of natural gas use. 
Natural gas is the least carbon-intensive fossil fuel. On a 
full life-cycle basis, from the time it is produced at the 
wellhead to the time that it is burned, natural gas contributes 
at least 20 percent fewer greenhouse gas emissions than oil, 
and at least 50 percent less than coal to our environment.
    In relation to other fossil fuels, natural gas also results 
in lower emissions of sulfur, volatile organic compounds, and 
particulate matter. All of these reduce the emissions support 
efforts to improve our local air quality.
    This is important because as the chairman knows I feel that 
the country has a long way to go in improving its air quality. 
As we do so, and as we seek to address climate change, natural 
gas will continue to play a very important role. In combination 
with energy conservation, natural gas will help us bridge our 
current energy needs with a non-carbon emitted and renewable 
energy sources that will become more and more a part of our 
generation mix.
    I look forward to hearing from witnesses about whether and 
how our currently high gas prices are driving renewables and 
conservation in the short term. I also want to hear about 
whether this committee should be doing more to encourage the 
Environmental Protection Agency's Natural Gas Efficiency 
Program to step up their efforts and assist the gas industry in 
implementing short-term measures to address high prices.
    The second issue that we must examine is the effective 
environmental laws, if any, on various sectors of the economy, 
including energy industries, like the production of natural 
gas. Of course, this committee's first and foremost 
responsibility is to assure that the Nation's laws are 
protective of public health and of the environment. It is also 
our job to set performance standards for industries, such as 
the gas industry, which are adequately protective and whenever 
possible, fuel neutral. These standards should not be skewed to 
protect any one industry, but should encourage sustainable 
economic development.
    Finally, the third issue we must examine are the effects of 
the environment of natural gas production and sufficiency of 
our country's environmental laws to address any adverse 
impacts. We must be mindful that as beneficial as the use of 
natural gas has been to generate electricity, heat our homes, 
and produce commodities, it has also had real environmental 
impacts on our country's public and private lands.
    I feel that a good understanding of these issues is 
extremely important. I think that even more the case now is 
that the energy bill that the Senate has before it, that would 
exempt natural gas and oil production sites from Clean Water 
Act, Storm Water permits, and would exempt hydraulic fracturing 
from the Safe Drinking Water Act. Therefore, I am pleased that 
we will hear from witnesses, both from natural gas producers 
and individuals, who have examined drilling sites about the 
efficiency of these laws and protecting the environment.
    Covering the issues, I have outlined will provide a 
comprehensive outlook in this particular sector. I look forward 
to hearing the witnesses, Mr. Chairman. I thank you for holding 
these hearings.
    [The prepared statement of Senator Jeffords follows:]

    Prepared Statement of Hon. James M. Jeffords, U.S. Senator from 
                          the State of Vermont

    Mr. Chairman, thank you for holding this hearing, and a sincere 
thanks to all the witnesses, many of whom have traveled across the 
country to provide testimony to the Committee.
    The Committee will be examining several very important issues 
today, as we take testimony on the environmental effects of natural gas 
supplies. The first issue is obtaining a better understanding of the 
environmental effects of natural gas use.
    Natural gas is the least carbon intensive fossil fuel. On a full 
lifecycle basis, from the time it is produced at the wellhead to the 
time it is burned, natural gas contributes at least 20 percent fewer 
greenhouse gas emissions than oil and at least 50 percent less than 
coal to our environment.
    In relation to other fossil fuels, natural gas also results in 
lower emissions of sulphur, volatile organic compounds and particulate 
matter. All of these reduced emissions support efforts to improve local 
air quality. This is important, because as the Chairman knows, I feel 
that the country has a long way to go to improve air quality. As we do 
so, and as we seek to address climate change, natural gas will continue 
to play an important role.
    In combination with energy conservation, natural gas will help to 
bridge our current energy needs with the non-carbon emitting and 
renewable energy sources that will become more and more a part of our 
generation mix.
    I look forward to hearing from witnesses about whether and how our 
currently high gas prices are driving renewables and conservation in 
the short term. I also want to hear about whether this Committee could 
be doing more to encourage the Environmental Protection Agency's 
natural gas efficiency programs to step up their efforts and assist the 
gas industry in implementing short-term measures to address high 
prices.
    The second issue that we must examine is the effect of 
environmental laws, if any, on various sectors of the economy, 
including energy industries like the production of natural gas.
    Of course, this Committee's first and foremost responsibility is to 
assure that the nation's laws are protective of public health and the 
environment. It is also our job to set performance standards for 
industries, such as the gas industry, which are adequately protective 
and wherever possible, fuel neutral. These standards should not be 
skewed to protect any one industry, but should encourage sustainable 
economic development.
    Finally, the third issue we must examine are the effects on the 
environment of natural gas production and the sufficiency of our 
country's environmental laws to address any adverse impacts.
    We must be mindful that, as beneficial as the use of natural gas 
has been to generate electricity, heat our homes, and produce 
commodities, it has also had real environmental impacts on our 
country's public and private lands. I feel that a good understanding of 
these issues is extremely important.
    I think this is even more the case now that the Senate has before 
it an Energy Bill that would exempt natural gas and oil production 
sites from Clean Water Act stormwater permits, and would exempt 
hydraulic fracturing from the Safe Drinking Water Act .
    Therefore, I am pleased that we will hear from witnesses, both 
natural gas producers and individuals who have examined drilling sites, 
about the sufficiency of these laws in protecting the environment.
    Covering the issues I have outlined will provide a comprehensive 
look at this particular sector. I look forward to hearing from the 
witnesses.

    Senator Inhofe. Thank you, Senator Jeffords.
    We will take in the order of their arrival our members who 
wish to have opening statements. You were the first to arrive, 
Senator Chafee. Do you have an opening statement?
    After the opening statements, I will recognize you to 
introduce Governor Carcieri.
    You are recognized.

OPENING STATEMENT OF HON. LINCOLN CHAFEE, U.S. SENATOR FROM THE 
                     STATE OF RHODE ISLAND

    Senator Chafee. Thank you, Mr. Chairman. I just have a very 
brief opening statement.
    First of all, I want to thank you for holding this hearing, 
and as you mentioned, to also welcome Governor Carcieri here 
this morning, the Governor of my State.
    I will say that to some extent natural gas is suffering 
from its own success, recognizing the many benefits of natural 
gas. Its popularity has caused increased demand which, in turn, 
has driven up the price. As we discuss the problems associated 
with high natural gas prices, I would like to make sure that we 
do not lose sight of diversity and conservation. Ensuring that 
the Nation employs a diverse range of fuel supplies, and 
ensuring that we do as much as we can to conserve energy can 
only make the country and the economy stronger in the long run.
    I do believe that the reserves of natural gas, both 
domestic in Senator Murkowski's home State and foreign, are 
still strong. We must work harder at delivery systems of this 
natural gas to the consumer, either by pipeline or by LNG.
    I look forward to introducing Governor Carcieri later.
    Senator Inhofe. Good. Senator Carper, did you have an 
opening statement?
    Senator Carper. I do have just a quick statement, if I 
could. Governor, what is it like being a Governor these days?
    Governor Carcieri. It is a little different than it was a 
few years ago.
    Senator Carper. Senator Voinovich and I are what we call 
``recovering Governors.''
    Governor Carcieri. You had the good years. You avoided the 
budget problems.
    Senator Carper. We did. We were very, very fortunate.
    Senator Inhofe. Your time has expired.
    [Laughter.]

 OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM 
                     THE STATE OF DELAWARE

    Senator Carper. It probably has. Thank you for joining us 
today.
    I just want to piggyback on the comments of Senator Chafee. 
It is important that we find places where we can bring natural 
gas where it does exist to our markets and for us to be able to 
use, particularly in this country. We are facing these huge 
deficits and trade deficits, many of which are related to the 
import of oil and the reliance on foreign sources of energy.
    This past couple of weeks I have asked some of you to 
consider signing onto a letter to the President. A number of 
you have, and I just want to thank you for doing that. The 
letter focuses on what Senator Chafee was mentioning there, and 
that is conservation. In 2000, the Energy Department 
promulgated a regulation calling on the adoption of something 
called ``SEAR 13'' standards dealing with energy efficiency for 
air conditioning systems. A SEAR 13 standard was adopted which 
basically said that by 2006 our air conditioners need to be 
about 30 percent more energy efficient.
    The long and short of that is that what flows from that 
higher standard is the emission of about 2.5 million tons less 
of carbon dioxide, but maybe more importantly, about 48 to 50 
electric power plants will not have to be built between now and 
2020. Let me say that again. What flows from simply raising the 
air conditioning standards to a SEAR 13 not only means about 
2.5 million tons less of CO-2 that we would generate 
in this country, but it also means close to 50 power plants 
that we are not going to have to build.
    As you all know, most of the power plants being built these 
days are powered by natural gas. To the extent that we do not 
have to build those power plants, then that is a good thing for 
our environment and for the supply of natural gas. As we use 
less natural gas, hopefully we will be able to see the prices 
moderating.
    Many of our colleagues have signed the letter and I thank 
you for doing that. The letter is simply a letter to the 
President that says, ``Mr. President, we have had a difference 
of opinion. We will have 30 percent more efficient air 
conditioners by 2006.'' The Administration has sought to 
replace that with a more modest standard, a SEAR 12, which is 
20 percent more energy efficient.
    We fought it out in the courts and the Second District 
Court said that the higher standard should stand. The air 
conditioning industry said last week that they felt that they 
could live with the higher standard. We are delighted with 
that. The majority of our colleagues have now signed the 
letter.
    It says, ``Mr. President, please do not appeal the decision 
of the Second District Court. Let it stand.'' If the industry 
says they can comply with the higher standard, by golly, we 
should support that and applaud that.
    So I would just say to my colleagues that we will look for 
ways to find extra natural gas. That is important. But let us 
also find ways to use less of it, which is also important.
    Thank you.
    Senator Inhofe. Thank you, Senator Carper.
    Senator Thomas.

 OPENING STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE 
                        STATE OF WYOMING

    Senator Thomas. Thank you, Mr. Chairman. I think it is 
interesting. I am very much involved in the energy policy, 
which we have not been able to get passed. We need to move on 
that. Actually, interestingly enough, it has been opposed by 
some of the folks who are now talking about the needs that we 
need to fill. Certainly we do. But you can coordinate energy 
and environmental policy. That is part of what we are trying to 
do with the bill.
    One of the things I disagree a little with, my friends, is 
that if you are going to have a policy in the future, coal has 
to be part of that. We need to do more research so that it is 
clear. But we have more supply of fossil fuel of coal than we 
do of gas. Furthermore, gas is much more flexible and can be 
used for many things. This idea that we are going to try in the 
future to generate electric totally with gas I think is a 
mistake in terms of policy. But we need some diversity here. 
Certainly we need conservation and efficiency. We need to work 
on that. But with respect to what we are talking about here 
today, we need to expedite permitting and procedures. Some of 
these permits that you talk about, even though they may need to 
be there, they do not need to take 6, 8, or 10 months to 
accommodate. We found that in many instances. We are trying to 
do that on public lands with the BLM permitting. Without 
changing the result, you can have a much more efficient system 
of doing the permitting and causing those things to happen.
    If we can do that, we have to have access to some of the 
more economic reserves. They are obviously off limits. I am one 
who thinks there ought to be some public land set aside and not 
used for that. But for the most part, particularly BLM land 
should be available for multiple use. I think it is very good 
that we take a look at what impediments there are that could be 
changed with respect without reducing the effectiveness of the 
environmental protection. I think we can do those things.
    I guess that is what we are talking about here today, Mr. 
Chairman.
    Senator Inhofe. Well, those are the sentiments I tried to 
express. I think during the course of this hearing it would not 
hurt to put the original chart back up so we can see what areas 
he is talking about and where the capacity is.
    [The prepared statement of Senator Thomas follows:]

    Prepared Statement of Hon. Craig Thomas, U.S. Senator from the 
                            State of Wyoming

    Energy demand is on the rise--be it oil, natural gas, nuclear, 
coal, or renewable resources. Domestically, predictions show only coal 
sector production to increase but even that might cause some to pause 
given the uncertainty surrounding environmental regulations. Bottom 
line is that the U.S. will be importing more energy than ever before. 
What happened to the talk about energy and national security? It's time 
to seriously look at our policies.
    It is the policies of the past that got us here today. For example, 
let's take natural gas. In the 80's and 90's there was a surplus of 
supply and weak demand. This kept prices low. The market was influenced 
by certain legislative and regulatory measures. Two measures that 
impacted gas development included the Powerplant and Industrial Fuel 
Use Act of 1978 (PIFUA) and the Natural Gas Policy Act of 1978 (NGPA). 
While the PIFUA placed restrictions on industrial and power generation 
uses of natural gas, the NGPA set in motion a process that encouraged 
gas supply growth. Amendments in 1987 to the PIFUA removed restrictions 
on the use of gas in power generation, and the Natural Gas Wellhead 
Decontrol Act of 1990 removed wellhead price controls.
    Capability of natural gas continues to increase. Growing demand and 
limited supply has resulted in tighter markets, higher prices and 
greater volatility. This will continue until we can bring additional 
supplies to the market. In addition, with the current world oil supply 
situation and the flurry of environmental regulations facing refiners, 
we can expect to see gasoline prices remain high as well.
    We must focus on the policies of today so we can have a plan for 
the future. We have to coordinate energy and environmental policies. 
For example, the electric industry has made a lot of changes. We no 
longer have just the vertically integrated utilities. In fact, close to 
40 percent of generation comes from marketers--most of these new 
merchant generators are powered by natural gas.
    Our government policies particularly, environmental polices, 
encourage the use of natural gas but do not address the corresponding 
need for additional natural gas supplies. Companies are switching from 
coal to natural gas. Why is this? Coal is our most abundant fuel source 
and should be used for electric generation and we can do this an 
environmentally responsible way. Natural gas is more flexible and can 
be used for different things such as heating homes and businesses. If 
we are to restore some kind of fuel diversity to our electricity 
sector, we need to provide a regulatory environment that will enable 
investors to consider coal plants. Right now, with the uncertainty 
about new source review, mercury, visibility and a host of other 
issues, building a new coal plant is just ``too hard'' even in a State 
like mine.
    Mr. Chairman, it is my hope that we can pass the energy bill so we 
don't continue, willy-nilly, down a path with no plan and pass a law 
here, a regulation there with no clear thoughts of coordination or 
where these policies lead us into the future.

    Senator Inhofe. Senator Voinovich.

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. Thank you, Mr. Chairman, for having this 
hearing today. The natural gas crisis that has plagued this 
Nation for the last 46 months has caused the hemorrhaging of 
thousands of jobs and has severely impacted the way of life for 
millions of Americans who struggle each day to pay their 
utility costs. These folks are not even on most people's radar 
screens, but I am sure that the Governor knows in his large 
urban areas that there is the demand for live heap than has 
been more than any time in the history of this country.
    Alan Greenspan has said ``I am quite surprised at how 
little the natural gas problem has been getting because it is a 
very serious problem.'' The people of Ohio get it. I welcome 
Dennis Bailey from PPG Industries who will testify today on the 
effective natural gas crisis on the company's operations in 
Ohio and throughout the country.
    I also thank Morane Molded Plastics in Ohio for submitting 
testimony. I would ask that it be inserted in the record, Mr. 
Chairman.
    Senator Inhofe. Without objection, so ordered.
    Senator Voinovich. Manufacturers are a key ingredient of 
our Nation's economy and the backbone of Ohio. They rely on 
natural gas heavily for fuel and power as a raw material. It 
also plays an important role in another significant part of our 
economy that people forget about it, and that is agribusiness. 
U.S. natural gas prices are the highest in the developed world. 
Since 2000, natural gas has been hovering between $5 and $6 per 
thousand cubic feet, roughly twice its historical level.
    During this time Ohio has lost about 200,000 manufacturing 
jobs. These jobs are simply not migrating to another region. 
They are going overseas, or the businesses are just going out 
of business.
    Let me quote from a Washington Post article that ran last 
week. I would ask that the entire article be inserted in the 
record.

          ``Across the country one in every 10 chemical-related jobs 
        has vanished in the past 5 years, nearly 100,000 workers. The 
        chemical industry's eight-decade run as a major exporter has 
        ended with a $19 billion trade surplus in 1997, becoming a $9.6 
        billion deficit this year.''

    That is a dramatic change.
    Senator Inhofe. Without objection, so ordered.
    Senator Voinovich. According to a February 17th Wall Street 
Journal, which I would also ask to be inserted in the record, 
``Almost all new production of chemicals and plastics will take 
place in the Middle East and Asia. Charles O. Halliday, 
chairman and chief executive of the DuPont Company, told 
investors in December that `High energy costs will prompt the 
company to shift its center of gravity overseas.' '' The DuPont 
Company is going to shift its center of gravity overseas.
    Senator Inhofe. Without objection, so ordered.
    Senator Voinovich. High natural gas prices have resulted in 
the permanent closure of almost 20 percent of the United 
States' nitrogen fertilizer production capacity and the idling 
of an additional 25 percent. In Ohio the chemical company, 
Lubrizol, has indicated that they will move operations overseas 
because of natural gas price volatility. Last year their gas 
price was up $50 million over what it was the year before.
    This only tells part of the story. The natural gas crisis 
has also caused all consumers over $130 billion over the past 
46 months. It is estimated that the increased natural gas 
prices in 2004 will cost Ohio households $543 million than in 
2002. Think about that. These are just ordinary citizens.
    In my own case, my gas bill is up 100 percent over what it 
was 2 years ago. Prices are so high because over the last 
decade the use of natural gas has risen while domestic supplies 
have fallen. The reason for these trends lies in our 
environmental policies. Basically what we have done is that we 
have limited the supply, and we have exacerbated the demand. 
Now the chickens have come home to roost. We are paying for it 
dearly because in establishing our environmental policies, we 
have not harmonized our environment, and our energy, and our 
economy, but we have been very narrow-minded in terms of 
putting these policies together.
    I have a chart here from the Energy Information 
Administration which shows the trend to continue. Natural gas 
consumption increases across all sectors, especially for 
electric generators. It is going off the chart.
    I might make an editorial comment that that presumes that 
the economy keeps growing. The disastrous part of this is that 
we will not reach this consumption because businesses are going 
to go out of business. The demand will not be as much because 
the customers are not there for it.
    Chart 2 shows what will happen if we do not start 
increasing our supply of natural gas. The top line shows the 
Energy Information Administration's, which is a part of the 
Energy Department, prediction that natural gas consumption will 
continue to increase again. We hope they are right.
    My concern is that this consumption will not increase 
because of the jobs we are losing to other countries. The 
bottom line is that predicted production for North America, 
Canada, and Mexico, EEI predicts that the shortfall between 
consumption and production will be met by a substantial 
increase in liquefied natural gas. By the way, do you know 
where that is coming from? Qatar, Algeria, Nigeria, Australia, 
Indonesia, and the United Arab Emirates.
    Here we go again. We have 60 percent of our oil coming from 
overseas. Now we are going to do natural gas. Right now, LNG 
represents about 1 percent of our use. It will be up by 2025 by 
15 percent to meet the demand.
    We have a very serious crisis today. We have to do 
something about it. I come from a State that sees it every 
single day. We have to get with it. We do not have time to go 
through 2 or 3 years of debate, as we did last time. Those of 
us Republicans and Democrats have to get together and do 
something about this problem. It is already too late in some 
sectors of our economy.
    Thank you, Mr. Chairman. I would ask that the chairman put 
my entire statement into the record.
    Senator Inhofe. Without objection, so ordered.
    [The prepared statement of Senator Voinovich follows:]

     Prepared Statement of Hon. George V. Voinovich, U.S. Senator 
                         from the State of Ohio

    Mr. Chairman, thank you for calling this hearing on the 
environmental impacts of U.S. natural gas supply. High natural gas 
prices present a serious challenge for our nation. The natural gas 
crisis that has plagued this Nation for the last 46 months has caused 
the hemorrhaging of many jobs and the bleeding will not stop until 
people start taking notice of the situation and we start doing 
something about it. It has also severely impacted the way of life for 
millions of Americans who struggle each day to pay their utility costs.
    The fact of the matter is that people just don't seem to understand 
the severity of the situation. Federal Reserve Chairman Alan Greenspan 
testified for Congress several times last year on this matter and 
stated: ``I'm quite surprised at how little attention the natural gas 
problem has been getting, because it is a very serious problem.''
    Unfortunately, it is a very serious problem that the people and 
businesses in my State of Ohio know all too well. Mr. Dennis Bailey 
from PPG Industries, which is a global manufacturer, will testify today 
on the effect natural gas prices are having on the company's operations 
in Ohio and throughout the country. I thank him for coming and look 
forward to hearing his testimony. I also thank another Ohio 
manufacturer--Martin Kelly with Moraine Molded Plastics Inc.--for 
submitting testimony on this important matter and ask that it be 
inserted into the record.
    As I have explained many times before this Committee, manufacturing 
is a key ingredient of our nation's economy and is the backbone of 
Ohio. Manufacturers rely on natural gas heavily for fuel and power and 
as a raw material. In fact, natural gas accounts for more than 40 
percent of commercial energy consumption. Additionally, natural gas 
plays an important role in another significant part of our nation's and 
Ohio's economy--agribusiness.
    This reliance on natural gas by the core of our economy means that 
increases in natural gas prices have a very pronounced and negative 
effect. Since 2000, natural gas has been hovering in the U.S. between 
$5 and $6 per thousand cubic feet. This is roughly twice its historical 
level!
    During this time, Ohio has lost about 200,000 manufacturing jobs. 
These jobs are not simply migrating to another region--they are going 
overseas and they aren't coming back. This is because other countries 
do not have the high costs that we place on our industry, such as 
rising health care costs, litigation, regulatory burdens, taxes, unfair 
competition from China, and escalating natural gas costs.
    The natural gas prices in the United States are the highest in the 
developed world. As a result, many companies are becoming less 
competitive on a global scale and are being forced to cut costs or move 
operations overseas. There are numerous examples of this and I will 
name a few.
    Just last week, on March 17, the Washington Post ran an article 
entitled: ``Chemical Industry in Crisis; Natural Gas Prices are up, 
Factories are closing, and Jobs are Vanishing.'' I will read a few 
lines but ask that the entire article be submitted into the record:

          ``Across the country, 1 in every 10 chemical-related jobs has 
        vanished in the past 5 years--nearly 100,000 workers . . . The 
        chemical industry's eight-decade run as a major exporter has 
        ended, with a $19 billion trade surplus in 1997 becoming a $9.6 
        billion deficit last year . . .''

    That is horrifying. The chemical industry is the second largest 
consumer of natural gas, and they simply cannot pass these higher costs 
on to consumers because they compete in a world marketplace. Instead, 
they pick up and move overseas.
    Zaclon, Inc. is a chemical manufacturer based in Cleveland, Ohio. 
Last year, Zaclon's president testified before this Committee that its 
natural gas costs increased 63 percent between 1999 and 2002.
    Lubrizol Corp., a chemical company located in Wickliffe, Ohio that 
employed 1,778 people in 1999 and now employs 1,522, has indicated that 
they may consider moving operations overseas because of natural gas 
price volatility.
    Due to high natural gas prices, the Dow Chemical Company, which is 
head-quartered in Midland, MI, is shutting down several plants and will 
eliminate 3 to 4,000 jobs.
    High natural gas prices have resulted in the permanent closure of 
almost 20 percent of the U.S. nitrogen fertilizer production capacity 
and the idling of an additional 25 percent. The Potash Corporation, one 
of the world's largest fertilizer producers who spends $2 million per 
day on natural gas, has announced layoffs at its Louisiana and 
Tennessee plants due to high natural gas prices.
    According to a February 17, 2004 Wall Street Journal article 
entitled ``Natural Gas Costs Hurt U.S. Firms'', which I also ask be 
entered into the record:

          ``Almost all new production of chemicals and plastics will 
        take place in the Middle East and Asia . . . Charles O. 
        Holliday Jr., chairman and chief executive of DuPont Co., told 
        investors in December that high energy costs will prompt the 
        company to shift its `center of gravity' overseas.''

    Although these businesses are all severely impacted, this only 
tells part of the story. The natural gas crisis has cost all 
consumers--residential, commercial, and manufacturing--over $130 
billion over the past 46 months and this is only direct costs. So while 
high prices are causing people to lose their jobs, it is also 
increasing the costs of simply living. It is estimated that increased 
natural gas prices in 2004 will cost Ohio households $543 million more 
than in 2002.
    Home heating prices are up dramatically--forcing folks on low and 
fixed incomes to choose between heating their homes and paying for 
other necessities such as food or medicine.
    Donald Mason, a commissioner on the Ohio Public Utilities 
Commission testified last year that:

          ``In real terms, the home heating cost this winter will 
        increase by at least $220 per household. That might not sound 
        significant, but during the winter season of 2000-2001, one gas 
        company in Ohio saw residential nonpayment jump from $10 
        million a year to $26 million.''

    I could go on and on about the devastating impacts of high natural 
gas prices, but I will now move on to the very important question for 
today's hearing--WHY? Why are natural gas prices so high in this 
country?
    The answer is pretty simple and anyone who has taken Economics 101 
will understand. Over the last decade, use of natural gas has risen, 
while domestic supplies have fallen. The reason for these trends lies 
in our environmental policies.
    In regards to supply, we have greatly restricted our ability to 
explore and produce natural gas because of the barriers enacted in our 
environmental laws. We must enact an energy policy that knocks down 
some of these barriers and opens up some of our public lands and new 
frontier areas to development. As I have done often over the past few 
years, I implore my colleagues to move past their partisan bickering 
and enact an energy policy for the good of this country.
    In regards to demand, Congress has enacted environmental policies 
over the past few decades that have encouraged increased use of natural 
gas for electricity generation. In fact, nearly 88 percent of the new 
power plants that have been built since 1992 are natural gas fired. We 
must harmonize our energy and environmental policies to make sure that 
we maintain a diverse fuel mix for electricity generation and do not 
further exacerbate the natural gas problem.
    If we do not take action today, the result will be overwhelming to 
our nation's economy. [CHART 1] As you can see from this chart, the 
Energy Information Administration (EIA) predicts that natural gas use 
will continue to increase across all sectors, especially for 
electricity generators.

[GRAPHIC] [TIFF OMITTED] T4599.006


    Regrettably, some of my colleagues--many of them on this 
Committee--have offered legislative proposals that would further 
increase the use of natural gas for electricity generation and cause 
more fuel switching from coal to natural gas by placing a cap on carbon 
dioxide emissions. These proposals would put coal out of business 
although it is our most plentiful energy source and the least costly. 
We simply cannot and should not place a cap on carbon dioxide 
emissions.
    [CHART 2] This second chart shows what will happen if we don't 
enact an energy policy and start increasing our supply of natural gas. 
The top line shows EIA's prediction that natural gas consumption will 
continue to increase. My concern is that this consumption won't 
increase because all of the jobs will be in other countries.

[GRAPHIC] [TIFF OMITTED] T4599.007


    The bottom line is the predicted production from North America 
(U.S., Canada, and Mexico). EIA predicts that the shortfall between 
consumption and production will be met by a substantial increase in 
Liquid Natural Gas (LNG) imports (from Trinidad and Tobago, Qatar, 
Algeria, Nigeria, Oman, Australia, Indonesia, and the United Arab 
Emirates).
    EIA predicts that LNG, which only accounts for 1 percent of current 
U.S. natural gas supply, will have to increase to 8 percent by 2010 and 
15 percent by 2025 to meet demand. If this is the case, we will soon be 
talking not only about our country's dependence on foreign oil but also 
foreign natural gas. Further, there have been recent reports that LNG 
facilities are receiving stiff resistance from communities on both 
coasts from Maine to California.
    In conclusion, I think it is important to note that rising energy 
prices have preceded every economic downturn during the post-World War 
II period. I know firsthand that it has been a significant factor in 
Ohio's current economic situation. Unless we stop artificially 
increasing demand and decreasing supply for natural gas through 
irresponsible environmental policies, our Nation will only continue to 
lose jobs.
    The past 46 months have been a trying time for businesses and 
families alike, and we must act now to harmonize our energy, 
environment, and economic needs by passing the energy bill and enacting 
common sense environmental laws.
    Mr. Chairman, I again thank you for calling this hearing, and I 
look forward to hearing from our witnesses.
    Thank you.
                                 ______
                                 

               [From the Washington Post, March 17, 2004]

 Chemical Industry in Crisis--Natural Gas Prices Are Up, Factories Are 
                    Closing, And Jobs Are Vanishing

                          (By Greg Schneider)

    Washington.--Soon after the Flexsys chemical plant celebrates its 
75th anniversary this month, demolition crews will tear it down.
    ``Nothing over three inches high is going to be left here,'' plant 
manager Jon McKinney said.
    The former explosives factory gave the town its name, and its 
demise will eliminate 205 jobs and yet another piece of the once-
powerful U.S. chemical industry.
    Chemicals are an unglamorous part of the manufacturing world, with 
products that have unpronounceable names and often hazardous qualities. 
But they are essential to a host of industries, from automaking to 
textiles to agriculture. Hardeners make tires more durable. Polymers 
put the spring in athletic shoes, and nitrogen fertilizers increase 
crop yields.
    As the nation's manufacturing base seems to shrink daily from 
factories closing or relocating overseas, the health of the chemical 
sector is a crucial measure of how deep the problem goes. And chemicals 
are in crisis, squeezed not only by cheap foreign competition but also 
by soaring energy costs.
    Across the country, 1 in every 10 chemical-related jobs has 
vanished in the past 5 years--nearly 100,000 workers--and that number 
would be worse if not for a surge in one segment, pharmaceuticals.
    The chemical industry's eight-decade run as a major exporter has 
ended, with a $19 billion trade surplus in 1997 becoming a $9.6 billion 
deficit last year, according to the American Chemistry Council.
    Governors and chemical executives have appealed to the White House 
and Congress for help. They argue that the chemical problem is making 
the nation's broader manufacturing meltdown even worse, pushing 
factories to relocate offshore not only for cheap labor but to be near 
chemical suppliers.
    ``It's a very trying time in the nation's manufacturing base,'' 
said Mark Zandi, chief economist for Economy.com Inc. Ultimately, 
little can be done to stop the drain of jobs as companies cut costs and 
use technology to improve productivity, he said.
    ``Workers in the chemical industry are really getting hit hard, 
much harder than the companies themselves,'' Zandi said.
    The Flexsys plant in Nitro is closing because a sister plant in 
Belgium costs less to operate. In nearby South Charleston, Union 
Carbide Corp. has cut its workforce in half, to about 1,200 people, in 
the past 3 years. Bayer AG is shutting one of its two Charleston-area 
plants.
    It's the same story in other chemical-heavy regions of the country, 
such as the Gulf Coast.
    ``Right now we've got big operations just shutting down because 
they cannot compete on the world market,'' Louisiana Gov. Kathleen 
Babineaux Blanco (D) said in a telephone interview. ``We've had 
shutdowns before but they've always been temporary. We've not seen 
anything like this before.''
    Troubles began over a decade ago with the fall of communism, when 
countries of the former Soviet Union--as well as China--discovered they 
could compete in the world market for chemical products. Cheap labor 
and a freewheeling attitude toward safety and the environment helped 
them keep prices low.
    As the global economy slowed, industries that consume chemical 
products came to depend on those lower prices to offset declining sales 
and profits. U.S. chemical makers struggled to cut costs and keep up. 
Then, around 2000, an unexpected problem hit: Natural gas prices went 
up.
    Chemical plants are especially sensitive to natural gas prices 
because they use it both as a fuel and as a ``feedstock'' or ingredient 
in making plastics, resins, fertilizers and more. In the past 5 years, 
U.S. natural gas prices have roughly doubled as more and more 
electrical plants consume the clean-burning fuel but supplies stay 
stagnant. Other parts of the world--including Western Europe--pay far 
less.
    ``We have the highest natural gas prices in the industrialized 
world,'' said R. William Jewell, vice president for energy for Dow 
Chemical Co. in Houston. In the past 2 years, Dow has closed four major 
chemical factories in North America--one in Louisiana, two in Texas and 
one in Alberta, Canada--and replaced them with production from Germany, 
the Netherlands, Kuwait, Malaysia and Argentina, he said.
    ``These jobs didn't leave the U.S. because of labor costs, they 
left the U.S. because of uncompetitive energy costs,'' Jewell said. 
``It's very hard to have vitality in manufacturing and it's very hard 
to have strong growth in jobs if you don't have a competitive 
infrastructure anymore. . . . You can't just wish these jobs back.''
    Chemical jobs tend to be so well-paying--in the $50,000 to $70,000 
range--that they're virtually impossible to replace in the communities 
that lose them, said David E. Dismukes of the Center for Energy Studies 
at Louisiana State University. Every time a factory cuts back or shuts 
down, the impact ripples out through the suppliers, restaurants and car 
dealerships that surround it.
    ``For a small State like Louisiana that is so dependent on those 
facilities, this really is a tough one for us,'' Dismukes said. ``When 
they go away it has a devastating impact on small rural communities up 
and down the river where many of these are located.''
    The problem is similar to the death of steel mill towns in the 
Midwest and Pennsylvania in the 1970's and 1980's, said Michael Hicks 
of the Center for Business and Economic Research at Marshall University 
in Huntington, W.Va. In 24 months, from January 2001 to December 2002, 
West Virginia's chemical workforce declined nearly 17 percent, to 
12,000 people, Hicks said.
    ``It's a story that West Virginia has continued to feel for well 
over two decades now, with the decline in coal mining and steel 
production now followed by these challenges to the chemical industry,'' 
he said.
    Even plants that stay in operation are providing fewer jobs.
    For example, Bayer Polymers LLC operates a plant on an island in 
the Kanawha River in South Charleston. Barges bring long cylindrical 
tanks of liquid propylene oxide to a pumping station on the north 
shore. The material flows under the river to a maze of pipes, valves 
and vats on the island--nearly a mile long--where it goes through 
chemical reactions to become a polymer used in foam cushions for car 
seats, mattresses or athletic shoes.
    The entire facility is operated by two people sitting in a control 
room watching computer monitors, aided by a team of eight technicians 
that handles repairs and maintenance.
    In less than 4 years Bayer has increased the plant's output by 20 
percent without adding any employees. The plant also has cut energy 
consumption by 9 percent since last year. Nonetheless, its costs are up 
25 percent over the past 5 years, said site manager Glenn Kraynie.
    It's a dangerous cycle. Rising costs cut into profit and make it 
harder to continue investing in improvements, which in turn makes it 
harder to compete with ever more efficient overseas rivals, said Attila 
Molnar, president and chief executive of Bayer Corp., the German 
company's U.S. arm.
    ``It is a very, very serious issue,'' Molnar said. ``You shift 
manufacturing or production [to] where you produce the cheapest. . . . 
Production in the U.S. is in danger today.''
    ``There are at least two basic solutions,'' Molnar said. Do 
something about energy prices, such as burning more coal or drilling 
for more natural gas, and use technology to continue to make chemical 
factories more efficient. That means producing more with fewer 
employees.
    ``There's nothing there that says the jobs you have today will be 
the same jobs we have 10 years from now. That cannot be,'' he said. 
``Be prepared for change. That's the only way we can survive, the only 
way I can see we will be successful in the future.''
    That's a hard prescription for towns like Nitro, population 6,824, 
which stands to lose a chemical plant that once employed 900 people. 
The 202-acre riverfront facility started as a World War I explosives 
plant for making nitrocellulose, and the town was built to support it. 
Monsanto Co. bought the site in 1929 and has been making rubber 
additives ever since, today in a joint venture with Akzo Nobel NV 
called Flexsys. But with worldwide prices for its products down 42 
percent, the company decided last fall to shut Nitro's factory down at 
the end of this month.
    ``I'm 45 years old and I've lived in this Kanawha Valley my whole 
life,'' said Dave Hardy, a lawyer and Kanawha County commissioner 
representing both Nitro and Charleston. ``This valley was built on the 
chemical industry, and now in my adult lifetime . . . the chemical 
industry is contracting literally year by year. There is nothing that 
is filling the void.''
    ``Instead, the State is promoting tourism and gambling,'' he said. 
But West Virginia hasn't given up on the industry. Its statewide 
Chemical Industry Committee, a trade association, has been working to 
attract companies by touting the state's long embrace of an industry 
scorned in some places as environmentally undesirable.
    It doesn't help the cause, though, that the committee's chairman is 
McKinney, the Flexsys manager, whose own company couldn't afford to 
stay in business there.
                                 ______
                                 

           [From the Wall Street Journal, February 17, 2004]

Natural-Gas Costs Hurt U.S. Firms--High Prices Are Prompting Companies 
                   to Conserve and Move Work Overseas

                           (By Russell Gold)

    High natural-gas prices in the U.S. are taking an increasing toll 
on a range of companies, forcing them to change how they operate and 
even to shift work to parts of the world where energy prices are lower.
    Some companies are updating or retuning older equipment and fixing 
minor leaks they used to ignore. Others are switching packing materials 
or looking to overseas sources for plastic wraps, fertilizer and other 
basic goods that are made from natural gas--moves that ultimately will 
mean the loss of U.S. jobs.
    For manufacturers already dealing with rising health-care costs for 
their workers, high natural-gas prices mean another unavoidable cost 
that can't be passed on to customers. Much of what these companies 
produce vies for customers in a global market with many lower-cost 
overseas rivals. The squeeze between cost and pricing pressures means 
less money for capital investment and for hiring new workers--and 
potentially a drag on economic recovery. Higher natural-gas prices also 
undermine U.S. efforts to reduce the nation's dependence on overseas 
sources of energy.
    Manufacturing companies say they realize they can't ignore the 
problem any longer. ``The high spikes we saw in natural-gas prices were 
a wake-up call to management,'' says Jim Pease, corporate energy 
manager for Unilever, the Anglo-Dutch food company that has increased 
its spending on energy-efficiency measures since 2001. ``The old days 
of stable, cheap energy prices are over.''
    After decades of being cheap and plentiful, U.S. natural-gas prices 
left the range of $2 to $3 per million British thermal units of the 
latter 1990's and hit two sharp spikes in the past 4 years before 
settling in to an average weekly spot price above $4 per million BTUs, 
where they have remained for an unprecedented 15-month run. U.S. 
natural gas is the most expensive in the industrialized world, 
averaging $5.50 per million BTUs for the past year.
    At Amazon.com Inc. of Seattle, higher natural-gas prices have 
raised the price of air pillows used to buffer its products while in 
transit. Last year, air pillows made up 40 percent of the packaging 
cost of each Amazon box, up from 30 percent a year earlier. The plastic 
pillow that contains the air is made from natural gas.
    The Internet retailer said it is considering using fewer air 
pillows or turning to more wraparound cardboard boxes, which it dubs 
``ravioli'' wrap. Customers prefer the air pillows, but the rapidly 
inflating cost ``affects our ability to keep prices low,'' says 
spokesman Chris Bruzzo.
    The root of higher natural-gas prices is a Federal policy that 
promotes use of the relatively cleaner-burning fuel without providing 
incentives or means for natural-gas companies to increase production. 
So while demand soared in recent years, especially from a raft of new 
gas-fired power plants, producers have struggled with supply. Most 
North American gas fields are years past their prime, and environmental 
restrictions prevent drilling on many of the most promising areas.
    The chemical industry, which uses natural gas as a fuel and as a 
raw material, has been hit hardest. The rising cost of U.S. natural gas 
began battering these manufacturers at the same time the weak economy 
was damping demand for commodity chemicals and foreign producers were 
increasing their share of the U.S. market for chemical-based products 
such as plastic shopping bags.
    U.S. chemical makers have lost an estimated 78,000 jobs since 
natural-gas prices began to rise in 2000. Louisiana, a hub of chemical 
production, lost 4,400 chemical-related jobs over the same span, or 
about 15 percent of that workforce.
    Almost all new production of chemicals and plastics will take place 
in the Middle East and Asia, where natural gas is more plentiful, 
producers say. Charles O. Holliday Jr., chairman and chief executive of 
DuPont Co., told investors in December that high energy costs will 
prompt the company to shift its ``center of gravity'' overseas.
    Last month, Mr. Holliday joined top executives of Dow Chemical Co., 
Eastman Chemical Co., Rohm & Haas Co. and others in a letter asking 
President Bush and congressional leaders to lower royalties on some gas 
production, to allow more drilling in the U.S. and to reduce the 
incentives that promote the use of natural gas for electricity 
generation. If nothing is done, they warned, ``investments and jobs 
will increasingly go to Asia and the Middle East.''
    Owens Corning, which ran ads in the 1970's urging customers to buy 
its pink insulation to cut their dependence on foreign oil, now finds 
itself scrambling to find new ways to cut its dependence on pricey U.S. 
gas. The company is operating under bankruptcy-law protection while it 
works out its asbestos liabilities, and high 
natural-gas prices are squeezing its margins and eroding profits.
    ``It's still our energy source of choice, but the big issue is the 
economics of natural gas in the U.S. relative to the rest of the 
world,'' said Mike Thaman, chairman and chief financial officer.
    The company has begun to import more materials from overseas. Last 
fall, Owens Corning moved a top executive to Shanghai to find cheaper 
sources of polypropylene bags used to package rolls of insulation. By 
the end of this year, the company expects to import as much as half of 
its packaging material, lowering costs by 20 percent to 25 percent. In 
the past, all packaging material came from North American producers.
    In a couple of years, the company expects 30 percent of its nearly 
$1 billion a year in purchases of minerals, chemicals and packaging to 
come from outside North America, up from 10 percent today, company 
officials say.
    Last year, the Toledo, Ohio, company also began to experiment with 
an insulation factory in Waxahachie, Texas, that was burning as much as 
$4 million to $5 million in natural gas a year.
    The company installed four meters on each of the three enormous 
production lines to measure natural-gas usage by the minute. 
Consultants figured out settings for the incinerators and meters that 
would cut usage without sacrificing product quality. With adjustments, 
natural-gas use in the third quarter of 2003 was 18 percent below the 
year before, even though production has increased. The plant is now 
approaching $1 million in annual energy savings.
    Even the smallest adjustments matter. One day last summer, Gary 
Chastain, the plant's energy guru, saw that the steam boilers overnight 
had begun using more than double the normal level of gas. He dispatched 
maintenance workers, who searched for nearly 2 months to find the 
culprit: a leaking valve that was costing Owens Corning about $460 a 
day.
    The Waxahachie experiment has been so successful that the changes 
will be replicated in 10 other North American insulation factories and 
two composite-fiber factories by the end of this year.

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    Senator Inhofe. Thank you.
    Senator Murkowski.

OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM THE 
                        STATE OF ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I appreciate 
your calling this hearing this morning and really putting the 
focus on the natural gas supply in this country and the 
environmental impacts of this supply.
    I am glad that I am following Senator Voinovich on this. I 
think you have very aptly summed up the impact to this country, 
and the fact that it is a crisis in this country, and we 
certainly are not doing enough at this point to avert the 
crisis. To say that the sustained high prices of natural gas 
are a problem, truly underestimates the situation that we are 
currently facing. In your State, with the manufacturers, the 
petrochemical industry, and the fertilizer production, you know 
it all too well.
    We have a Federal policy that is encouraging the 
consumption but is not doing anything or have not sufficient 
activity on the domestic production. I appreciate your 
statement again, Senator Voinovich, that we are going in the 
same direction that we currently are with our oil. When we are 
57 percent or 58 percent dependent on foreign sources of oil, a 
resource that we recognize, we have to have, if not for our 
vehicles, certainly for those other consumer products, whether 
they are Band-aids, or CDs, or cosmetics, we rely on petroleum 
products.
    To go into this with eyes wide open saying we will allow 
ourselves to be again dependent on foreign sources for natural 
gas is not a place that I think that this country needs to go. 
We need access to a new supply, but we need to encourage the 
domestic access.
    It is probably not going to be any surprise to you, Mr. 
Chairman, or to the members of the committee, but I want to 
talk about the availability of Alaska's natural gas supply. We 
have 35-trillion cubic feet of known proven reserves and of the 
unknown but expected reserves, we are looking at massive 
quantities of natural gas.
    In the energy bill which we recognize is still stuck, and 
not moving, we have provided for regulatory and judicial 
streamlining, as well as financial incentives, for the Alaska 
Natural Pipeline. We anticipate that we will be able to bring 
up to 4.5-billion cubic feet per day of desperately needed 
natural gas to the markets in the lower 48.
    We recognize that this is a huge project, and for a project 
of this size we cannot snap our fingers and get the gas to 
market today. It does take years to bring on-line, but what we 
will be able to do is stabilize the volatile natural gas market 
by the anticipation of the vast new supplies coming down. 
Alaska will be able to supplement the supply from the declining 
basins in the lower 48 and Western Canada, as well as the 
expected imports of LNG from the foreign sources.
    The Energy Information Administration predicts that the 
United States will import over 4-trillion cubic feet of gas in 
2004. By the year 2025, without Alaskan natural gas coming on-
line, imports could total nearly 11-trillion cubic feet. This 
worsens our energy and our national security, as well as the 
balance of payments deficit.
    EIA also predicts that by 2025 without natural gas from 
Alaska, the wellhead price in the lower 48 States will be 20 
cents higher, costing the economy approximately $6.14 billion. 
So not only will the Alaska Natural Gas Pipeline bring needed 
natural gas out of America to meet the domestic demand, the 
project itself will create thousands of jobs throughout the 
United States.
    So again, Mr. Chairman, I appreciate your focus here this 
morning. I look forward to the testimony from our witnesses as 
we pursue this issue, and hopefully are able to work together 
to craft a positive direction for this country when it comes to 
our natural gas consumption.
    Thank you.
    Senator Inhofe. Thank you, Senator Murkowski. That is an 
excellent statement.
    We have a cloture vote at 11:30, which means that we 
probably would have to leave here at around 11:45 to do it. It 
would be my intention, if we have not started the third panel 
at that time, to recess until 2 o'clock and have the third 
panel at 2 o'clock. I do not know how else we can arrange this. 
Is there objection to that in the event that we are not further 
along at that time?
    With that, I would recognize Senator Chafee to introduce 
our guest. The first panel is Governor Carcieri. We will have 
only one round of questioning after he completes his remarks.
    Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman. It is a pleasure 
to introduce the Governor of Rhode Island, Governor Donald 
Carcieri. The Governor is exceptionally qualified to be here 
today.
    Prior to his election in 2002, the Governor was a highly 
successful businessman. In 1983, he joined Cookson America, 
rising through the ranks to the position of chief executive 
officer and joint managing director of Cookson Group Worldwide. 
He was instrumental in developing the company into a major 
manufacturer, employing over 12,000 people worldwide. The 
company grew from an organization doing $30 million in sales to 
over $3 billion at the time he retired from his position.
    I am proud to have the Governor here to testify before the 
committee. I know we will all benefit from his testimony.
    Welcome, Governor.

STATEMENT OF HON. DONALD L. CARCIERI, GOVERNOR, STATE OF RHODE 
                             ISLAND

    Governor Carcieri. Thank you, Senator.
    Mr. Chairman, and Ranking Member Jeffords, distinguished 
members of the committee, especially Senator Chafee from my 
home town, I want to thank you for having me here today to 
testify about the energy needs of my State, my region, and our 
Nation. In my judgment, there is no more important domestic 
economic issue today than this issue.
    I would like to speak today about the problem my State is 
facing with respect to the tightening supply and resulting high 
cost of natural gas. As Governor of a Northeastern State, I 
understand the importance of plentiful, accessible energy 
supplies. New England, as you know, has no natural resources of 
fossil fuel. As a result, all of our energy supply must come 
from some other region or nation. Meanwhile our cold winters, 
elderly population, and highly concentrated urban centers 
produce a large and growing demand for energy resources.
    Before the people of Rhode Island elected me Governor, I 
spent almost two decades, as the Senator indicated, working in 
the private manufacturing sector. As CEO of Cookson America, I 
managed the energy needs of a thriving manufacturing business. 
In fact, I remember, Senator Carper, meeting your wife when she 
was at DuPont. If I recall, she worked at DuPont.
    Senator Carper. Mr. Chairman, I can tell you my wife works 
at DuPont. She has been there 27 years. Over the years, I have 
had thousands of guys say to me, ``I know your wife.'' I have 
had it.
    [Laughter.]
    Governor Carcieri. I will only say in reference to a 
possible business deal.
    Senator Carper. I am glad you got that on the record.
    Governor Carcieri. In any case, that experience taught me 
that our needs will only increase in the coming years. As 
Governor of a New England State, and a former CEO, I have a 
good understanding of both the energy needs of the Northeast 
region generally, and the particular needs that a competitive 
manufacturing base puts on a reliable, cost-efficient, energy 
supply.
    Federal and State policy, as has been noted, has encouraged 
the use of natural gas because it is clean burning and there is 
an abundance of known supply. Consequently, it has become the 
work horse of the energy sector and is expected to provide 35 
percent of the fuel supply for electric generation in New 
England this year alone. According to the Federal Energy 
Regulatory Commission, in the next 4 years 50 percent of all 
electricity will be generated in New England by natural gas.
    Unfortunately, natural gas supply has not kept up with this 
burgeoning demand. In fact, New England was recently on the 
verge of an energy supply crisis. Key-Span, the largest local 
distribution company in the Northeast, had record-breaking 
send-outs during that cold spell that some of you may have 
noticed, and at one point were forced to shut off service to a 
number of customers in order to preserve the remaining base. 
Had temperatures remained that cold for another few days, we 
would have had a real crisis.
    One would think that this combination of high demand and 
intermittent supply shortages would create an outcry for more 
natural gas production. It does not seem to have. 
Unfortunately, it may take a disaster before someone in our 
Nation gets serious about this problem. As Federal Reserve 
Chairman Alan Greenspan pointed out in testimony before a 
Senate committee last summer, ``We have embraced the benefits 
of natural gas, but at the same time have restricted the 
ability to get more supply.'' He pointed to the inconsistency 
of our policy.
    Soon the Northeast may no longer be able to offer industry 
a competitive venue unless the rising cost of energy is 
addressed. As Senator Voinovich pointed out, what is happening 
in Ohio now, we had faced this actually probably years ago in 
the Northeast, but the trend is accelerating. While the costs 
remain relatively stable through the mid-1980's at around $2 in 
million BTUs, prices have recently spiked at times to upwards 
of $10 per million BTUs. These dollar amounts are often much 
higher in Rhode Island because we sit at the end of two 
pipelines and consumers must pay the costs associated with 
transporting gas such long distances.
    In my judgment, this is the hidden jobs issue today, beyond 
labor-intensive issues that you hear so much about. This is a 
little bit of an aside, with all of the jobs that are going to 
China and the Asia Pacific of a high-labor content. The hidden 
issue today in the jobs is the energy costs issue. I hear it 
time-and-time again. These are what is driving business today 
in jobs overseas.
    Some of Rhode Island's largest employers and oldest 
companies are already grappling with the consequences of this 
looming energy crisis. Considerations of layoffs and job 
relocation are beginning to manifest themselves. Electric Bolt, 
which is the producer of the hulls for our Navy's submarines, 
switched to natural gas for heating several years ago. Now the 
price is skyrocketing, and since the region's electric 
generation is increasingly fueled by natural gas, EB can expect 
a further rise in their electric bill. This company employs 
more than 2,000 people in Rhode Island and many more in 
Connecticut.
    The story is the same with a company called Arkwright 
located in Coventry, RI. Their 300 employees coat and covert 
paper and films for specialty imaging devices. Arkwright's 
natural gas bills have nearly doubled in the past year, 
jeopardizing their profitability and competitiveness. As the 
company struggles with this issue, it has lost bids for 
contracts. They were already forced to lay off some employees, 
and cut out bonuses last year.
    Another example is a company called Cranston Print Works, 
an old company in the textile business with facilities in Rhode 
Island and Massachusetts. The per unit price they pay for 
natural gas has already increased 40 percent this year. 
Electric costs another 19 percent, and oil another 6 percent. 
They will spend several hundred thousand more this year than 
last year to keep their plants operating without any increase 
in overall energy usage.
    Similarly, their neighbor in North Kingstown, a Japanese 
company, TORAY plastics, extrudes plastic film for food 
wrapping, saw energy costs rise more than $1.6 million last 
year. They employ approximately 700 people in our little State 
and are absolutely panicked about what they are going to do 
with the energy costs and the impact it is having on their 
business. It is an energy-intensive business. It is an 
extrusion business, which I know many of you are familiar with. 
It runs 24 hours a day, 7 days a week. It is critical that they 
be able to manufacture products competitively, and they are 
having a struggle.
    This story can be told over and again with many of the 
other manufacturing companies in our little State that employ 
tens of thousands of workers and contribute so much to the 
quality of life in our State.
    Senator Inhofe. Governor, I would like to ask you to wrap 
it up. Your entire statement will be made a part of the record.
    Governor Carcieri. I would just add to that, Senator, that 
with the same issues, the costs today, the competitive impact, 
the effect it is having on jobs--which I think is the major 
idea--LNG is significant for us. That is an issue that I think 
needs to be dealt with. We are dealing with the fact that we 
need more of that.
    I think from my perspective, as I said earlier, just to sum 
it up, this, I believe, is the issue today for the domestic 
economy. I would encourage the State that we need a coherent 
policy that is consistent and that deals with an energy supply. 
I am talking mostly energy production in terms of electric 
generation capacity, separating that from automobile. That is 
the impact that you see today on businesses.
    I want to thank you for allowing me to testify. I will 
answer any questions you may have. I would ask that my full 
statement be placed in the record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    We appreciate very much your being here. We will now have 
one round of questioning for the Governor, not to exceed 5 
minutes. We do have two other panels to get to.
    Governor, you spoke about the need for additional supply. 
But your State, and the Northeast region in general, also have 
inadequate infrastructure. You mentioned Key-Span. I guess Key-
Span is a distributing operation.
    Governor Carcieri. That is right.
    Senator Inhofe. They had sufficient gas but not sufficient 
infrastructure to deliver; is that the problem?
    Governor Carcieri. Yes, it is both. Key-Span right now is 
the midst of a proposal for an expansion of LNG capacity. Yes, 
the most recent problem was an infracture issue and the 
sufficiency of the gas line itself. They had reserves in the 
form of LNG that could have been fed in.
    Senator Inhofe. Would a very large percentage of your gas 
be LNG?
    Governor Carcieri. It is growing. I do not have that with 
me today. I cannot remember, but it is growing dramatically. 
There is a large LNG facility in Everett, MA, outside of 
Boston. We have what is called a peak breaking facility in 
Providence, RI, that is looking at actually becoming a 
principal source.
    Senator Inhofe. It is expanding nationwide. As Senator 
Voinovich pointed out, this is coming from Trinidad/Tobago, 
Qatar, and Algeria.
    Last week there was a lead editorial in one of your 
newspapers, the ``Providence Journal'':

          ``The region urgently needs a supply of clean fuel in Fall 
        River, as well as Providence and Somerset, are well suited for 
        terminals to store it in the form of LNG. These terminals would 
        be economic boons for southeastern New England in particular, 
        and the whole six-State region in general.''

    Do you agree with the Journal's assessment? What do you say 
to those who oppose expanding the LNG terminal capacity in 
Southeastern New England?
    Governor Carcieri. Yes, I do agree with the Journal's 
assessment on that, Senator. Thirty-five percent of the energy 
on cold days is LNG. I do agree with that, Senator. I think the 
issue right now is with homeland security. People are concerned 
about safety. I think that is the biggest issue that I hear 
being discussed time-and-time again with it regarding LNG 
tankers. It is a question of safety and their movement in and 
out of our ports.
    I have met with the Key-Span people. I have told them that 
I am supportive of this. It is critical to our economy in terms 
of the immediacy. It is a supply that we can increase.
    Senator Inhofe. Governor, you are a very persuasive person. 
You have credibility. I know in your State there are many 
people who will form groups and come to you and say that this 
is not a problem. What do you say to the groups that are really 
creating a problem for you in terms of expanding your capacity?
    Governor Carcieri. Well, I think in the short time that I 
have been in this business, Senator, I think we put ourselves 
into the situation of false choices. We postulate things 
against one another. I believe that the environmental concerns 
can be handled entirely consistent, and we can develop energy 
sources and energy supplies. They somehow are postulated as 
opposites and are unable to be integrated. I do not believe 
that for a moment. They can be. We have done it successfully. I 
have all the confidence we can do it going forward.
    The issue for me, as I talk with these people is a 
pragmatic one. We build roads and bridges. We build airports. 
We build all these things. Yet we do not have an energy supply 
that is consistent, accessible, and reasonable in terms of 
price. We do not have a policy to generate that. Without that, 
everything else is for naught.
    My logic, if you will, is this is not a problem that is 
going away. It has to be dealt with. I believe it can be dealt 
with in the context of assuring those people that are concerned 
about the environment. We call it the Ocean State, Rhode 
Island. I am very, very environmentally orientated. I think it 
is an artificial juxtaposition, if you will, in pitting these 
things against each other.
    Senator Inhofe. Thank you, Governor.
    Senator Jeffords.
    Senator Jeffords. Governor, that was excellent testimony. 
You mentioned a study by the Federal Energy Regulatory 
Commission in your testimony. It is my understanding that the 
Pipeline Safety Improvement Act of 2002 required FERC and the 
Department of Energy to evaluate the ability of New England's 
natural gas infrastructure to meet the demands of the electric 
power generation. FERC's report, released in December 2003, 
concluded that there was adequate natural gas infrastructure to 
meet natural gas demand in New England through 2005, but that 
additional infrastructure would likely be needed to meet the 
region's demand through 2010.
    The development of some of that infrastructure is in 
progress. Several entities have announced proposals to 
construct new marine import facilities. Included are Key-Span 
in Providence whose storage facility now receives liquefied gas 
by truck from Everett, MA.
    What is the status of these proposals? Will they include 
additional storage?
    Governor Carcieri. I can only speak to the Key-Span project 
in Providence, Senator. Whenever I see a policy statement that 
says we are OK through 2005, when we are in 2004, I say we have 
a big problem. The idea that if we do some things we will be OK 
in 2010, to me is a kind of shortsightedness that is 
inexcusable on an issue that is critical.
    Senator Jeffords. I agree with you.
    Governor Carcieri. This needs to be a policy, if you will, 
for the balance of the century, or at least half of that 
century.
    The Key-Span project is moving. It is moving ahead. As 
Senator Inhofe said, there is support for it. There is concern 
about the safety of LNG tankers. I believe these can be dealt 
with. They are being dealt with currently, but that is an 
education issue. People are fearful, particularly in the 
aftermath of 9/11. You know that in terms of anything like 
this. We need to be practical and deal with that and try to 
assure the public that this can be handled.
    That facility would become, instead of a peaking facility, 
actually a principal supply storage facility. The other 
projects I cannot speak to in the Northeast.
    Senator Jeffords. Thank you.
    Thank you, Mr. Chairman.
    Senator Inhofe. Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman. Once again, 
Governor, very well said. As we all know, we want to keep our 
citizens employed. We all know the difficulties facing the 
employers, whether it is health care or labor costs, and now it 
is, of course, energy costs. I do believe we are going to hear 
later in the testimony that the worldwide resources are still 
robust of natural gas. We, of course, all want to have our own 
domestic supply for security reasons, but the practical facts 
of the matter are we have to depend on the world for these. 
Even if we are going to get natural gas from Alaska, it has to 
come through Canada. It is always going to be working with our 
international partners as we address the shortage of natural 
gas here, particularly in the Northeast.
    You mentioned the LNG issue. Of course, the delivery of 
natural gas is either by pipeline or by truck or by liquefying 
it, and then by tanker. A tremendous amount can be delivered by 
tanker once it is liquefied and then deliquified to get to the 
consumer. That is what we are wrestling with, of course. Mr. 
Chairman, you mentioned the editorial and using Narangansett 
Bay as a depot in the delivery system for the entire six-State 
Northeastern area.
    Governor, as you deal with Key-Span, which is the company, 
what are the hurdles there as we look at this, if we are going 
to look at liquefied natural gas as part of the solution? What 
are the hurdles to go forward to get through the permitting 
process?
    Governor Carcieri. I think as I see it right now, Senator, 
I think frankly the economic case is compelling. The need for 
these kinds of facilities is compelling, particularly in our 
region. Right now we have the facility in Boston that is the 
principal source of LNG for the region. I think the case is 
pretty compelling. I think the issue for us, as I said earlier, 
is the fear right now in the public's mind about LNG and large 
tankers. Most people are not aware that we have tanker trucks 
going to that facility daily that are replenishing it now. But 
somehow a truck or two or three or four is different than a 
large tanker. We need help. I met with the Coast Guard. They 
assure me that there are protocols in place that will assure 
the safety of these. As you all know, the record of LNG tankers 
in terms of safety is good as well.
    Frankly, I think the biggest issue right now is the public 
perception, a fear that somehow we are endangering the public 
and we are creating an unnecessary hazard. I think that can be 
dealt with. It needs to be dealt with because frankly somebody 
has to bring this energy supply in.
    The other thing I would comment on is this. As you know, in 
the Northeast, we have a get-together with the Eastern Canadian 
premiers once a year. We have a good relationship there. Our 
last meeting was last summer. This is a big issue for them. 
They know that they have reserves and they are anxious to get 
those developed and supply us. For those of us in the 
Northeast, that can be an important source. We have the summer 
meeting coming up this summer in Newfoundland where they tell 
me they are convinced they have large reserves. There is the 
Sable Island Pipeline to be completed.
    I think there is a natural affinity between ourselves and 
our Canadian neighbors, obviously as well as Alaska. I listened 
to your Dad at the NGA talking about the opportunities there, 
Senator. I had a number of conversations with him. I think with 
Alaska at one end and the Eastern Canadian provinces at the 
other, we could probably be in pretty good shape, from a 
natural gas standpoint, let alone what we have domestically.
    Senator Jeffords. Thank you, Governor. We are both strong 
environmentalists. We come from a strong environmentally 
conscious State. Of course, the environmental population does 
want this because of the clean air issues and as we look at the 
siting, as you mentioned earlier, it does not necessarily have 
to be tension and conflict trying to provide energy sources and 
doing what is environmentally sound.
    Again, I congratulate you on your testimony.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Chafee.
    Senator Thomas.
    Senator Thomas. Thank you. Welcome, Governor. We are glad 
to have you here.
    Governor Carcieri. Thank you, Senator.
    Senator Thomas. The purpose of this oversight hearing is to 
examine the environmental impacts on the U.S. gas supply. What 
do you think they are?
    Governor Carcieri. Well, again I am new to this business. I 
came out of the private sector. I remember back in the 1970's 
when the pipeline was being developed in Alaska. There was much 
concern at the time about the environmental impact that that 
pipeline would have. I have not been back to Fairbanks since 
the mid-1970's, but I think we would conclude that we have 
successfully tapped an enormous source of energy for us. We 
have done it in a fashion that has not had an enormous negative 
impact on the environment.
    I think sometimes, as I said earlier, these things get 
juxtaposed unnecessarily. I believe we can do this from the 
technologies, as I understand the technologies available today, 
to drill and source, they are improved light years from the 
1970's. I am confident that those, including myself, that are 
concerned about the environment, will be comforted, if you 
will, that this can be done. I think we just need to get on 
with it.
    As I said earlier, I think we are on the verge of an 
enormous problem as a Nation when we are watching our 
manufacturing industry decline.
    Senator Thomas. Well, we have to deal with this. There is 
quite a little bit of difference in view, apparently, from 
States like yours that are not in the production business from 
States like mine which are. That is part of the problem. If we 
had a policy that talked about alternative sources, that talked 
about conservation, that talked about more efficiency, and that 
talked about more research on using clean coal and domestic 
production, do you think people from the Northeast would 
support that kind of a policy?
    Governor Carcieri. I cannot speak for all the people in the 
Northeast.
    Senator Thomas. We do not have the support. It sounds like 
you were now complaining.
    Governor Carcieri. That is a very sensible approach. You 
will not hear me complaining about that approach. I think just 
as you say you do all of those things. I believe this can be 
dealt with. I was at the Department of Energy 2 weeks ago. We 
are the recipient, unfortunately, of some bad air quality that 
is coming from old coal-fired plants in the Midwest. We are 
doing our part in our plants, but we are inheriting atmosphere 
from the Midwest.
    One of the things I said to the Department of Energy was 
that we ought to be looking at some way to assist the financing 
for these power companies. Right now they are fragile 
themselves. I think there is possibly a role for the Federal 
Government to play here in the assisting and in the financing. 
They are not opposed to upgrading those plants. I am sure it is 
a question of the capital and the cost of the capital and how 
they get a return.
    Again, we build roads, we build bridges, and we build 
airports. It would seem to me that there is an appropriate role 
for the Federal Government here to assist somehow in the 
financing of these things. It is in our national interest to do 
so.
    I am supportive of a whole series of things, Senator. I 
cannot speak to others, but I will try my best to convince 
them.
    Senator Thomas. I understand. But my point is, and I think 
you will understand that, is that there is somewhat of a 
different view between the production areas and the consumption 
areas. We are going to have to get a little more clear 
understanding of how those two things fit together and be able 
to move forward.
    Thank you, sir.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Thomas.
    Senator Voinovich.
    Senator Voinovich. Governor, often the Northeast and the 
Midwest seem to be on opposite sides of this whole 
environmental issue. You just talked about the air moving into 
your area. However, your testimony today expresses many of the 
concerns that I stated in my opening statement.
    Recently, Lexicon, a Harvard research company, conducted a 
study on competing multi-emission proposals.
    Mr. Chairman, I would ask that the Lexicon study that was 
done at Harvard University be inserted in the record.
    Senator Inhofe. Without objection, that will be entered 
into the record.
    Senator Voinovich. I do not know if you are familiar with 
them or not, but for the last couple of years, we have been 
talking multi-emission proposals. Senator Carper has one, 
Senator Jeffords had one. I have the President's plan on Clear 
Skies. We looked at President Bush's Clear Skies Act in 2003, 
and Senator Carper's, and the study found that Senator Carper's 
bill would cause natural gas prices to be between 5 percent and 
6 percent higher on average from 2005 to 2010, or about $117 
billion more than our Clear Skies proposal.
    The reason I bring this up is that part of the reason why 
the demand is exacerbated is that utilities companies in my 
part of the country is this. For example, the former president 
of AEP, Lynn Draper, said, ``I am not going to build another 
coal-fired facility. It is going to be gas.'' So all of the new 
facilities have been gas powered. That just drives up the 
demand for it.
    We have two problems. One of them is to try to lessen the 
demand by using other energy sources to get the job done, and 
at the same time, increase the supply. The feasibility of 
increasing the supply in the next couple of years is going to 
be pretty difficult. So we have a real problem.
    They are lucky to have you as a Governor because you have a 
good perspective on things. I would ask you if you could get 
with Raysha Pock and with the Governors Association and really 
get into this whole issue of where we are going on a pollution-
control bill that will limit the amount of NOx and 
SOx and mercury. We have a debate over carbon. This 
would allow us to come up with some numbers where we can 
continue to use clean-coal technology to burn coal, and at the 
same time, do a much better job of eliminating your problem of 
the stuff coming to your State, but at the same time also help 
you in the other direction and that is to not increase the 
demand for natural gas as we try to figure out how we can get 
more natural gas out on the street.
    You have both sides of this. I would be interested in your 
comments.
    Governor Carcieri. Well, I think you have articulated the 
issue extraordinary well, Senator. If I were the head of a 
power generating facility today in your State or anywhere that 
was coal-fired, and I am under all kinds of pressure for the 
emissions, I would be thrilled to clean it up faster. It is a 
question of the capital and the investment. This is where I was 
going with Senator Thomas.
    I think from your perspective, or from an energy policy 
standpoint, from the Nation's perspective, there needs to be 
help there. As we have deregulated the power utilities, we have 
actually made them more fragile, if you stand back and look at 
what has happened. We have squeezed a lot out in the process, 
but we have created a system that is very fragile from a 
capital standpoint and a financing capability.
    I think we need to think about how to assist those. If you 
or I were the CEO of one of those plants, we do not want all of 
that aggravation and all of those problems. We would be happy 
to do it. It is a question of what we have to spend to do it.
    Senator Voinovich. That is a very good point. AEP has 
plants in Ohio and they have them in West Virginia. We 
deregulated electricity in Ohio and West Virginia has not. So 
where is AEP going to be putting on the pollution control 
devices in the State of West Virginia. They can capture their 
costs for doing that in Ohio because of the situation that 
makes it more difficult. So you have these plants trying to 
figure out how we are going to get the job done. At what stage 
is it economically feasible for us to do this or to tear them 
down and build something new.
    Governor Carcieri. I know we are talking about natural gas 
right now. We have the same problem with transmission capacity. 
Last summer we had the black out in the Northeast. The New 
England Governors had a whole session on this in the summer. I 
did not realize that we have significant weaknesses, 
particularly in the area of western-southern Connecticut in the 
transmission lines. They are old lines. We have not upgraded 
the capacity there.
    Here again, we created a whole grid structure and it 
depends on these transmission lines. Again, it is who is going 
to spend the money and how can they afford to spend the money. 
What you said is absolutely true. They could recover that cost 
in the rate structure in the old model. Much of that is gone.
    I think there is a real financing issue here that needs to 
be looked at as well. I think it would moderate, if you will, 
the kind of problem that those of us on the East Coast are 
worried about which is the emissions coming our way.
    In addition, I think all of these things are good things to 
do, but they are a stopgap. They are not the solution for an 
energy policy for our Nation for the next 50 years. We cannot 
survive that way. I think that this is a multi-headed, and 
needs to be dealt with.
    Senator Voinovich. I am out of my time, but I would say 
this to you, Governor. I would really urge you to sit down with 
your colleagues in the Governors Association. We have not been 
able to reconcile our differences here at this table. You are 
the ones that are suffering in terms of your loss of jobs and 
the high cost of energy for your low income and elderly people. 
Perhaps maybe your going to the table could help us get 
direction so we can get on with this problem because there is 
an urgency to it.
    Governor Carcieri. I will take up the charge.
    Senator Voinovich. Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Voinovich.
    Governor, when you mentioned the Alaskan pipeline, I can 
recall when they were developing that idea that some of the 
alarmists were saying that it would destroy the caribou in that 
region. You go up there in the summer time, the only shade that 
is available for the caribou is the Alaskan pipeline. They are 
all gravitating to that.
    With that, I will introduce the Senator from Alaska.
    Senator Murkowski.
    Senator Murkowski. Thank you for that nice lead-in, Mr. 
Chairman.
    I would just like to followup a little bit where Senator 
Thomas left off. I appreciate your comments, Governor. We 
recognize, certainly in Alaska, that technology changes and the 
technology advances when it comes to energy exploration and 
drilling in Alaska. A natural gas pipeline is going to look 
very much like what our 800-mile oil pipeline looks like now. 
We figured out 30 years ago how to move this pipe through 800 
miles of massive mountain ranges and permafrost and earthquake 
zones. We did a pretty good job, given what we had at that 
time.
    Thirty years later I am extremely confident that that 
technology is even further advanced, but even more so than just 
the line. It is the technology for the drilling and for the 
extraction of this resource. What we have at Prudhoe that we 
built 30 years ago is a much larger footprint than we are 
finding in our new fields today. With the directional drilling 
that we have, we can extract oil and truly have minimal impact 
to the environment and to the surrounding areas. We know that 
we can do the same with the natural gas.
    It goes back to some of the fears or some of the myths that 
may surround energy production in this country. Much of it goes 
back to the way it used to be. We have some serious issues with 
coal, but with the clean coal technology that we now have, we 
are able to do it better. We are able to do it in a more clean 
manner. We are able to utilize that technology.
    But what we are dealing with is still some of the hangover, 
the fear factor. It is important as we recognize that we will 
continue to be dependent, to a certain extent, on our 
fossilized fuel, that we figure out the way that we utilize it 
so that we cause no harm and that the environment is protected 
to the fullest extent possible.
    But part of it is an education effort, educating people 
that the technology is changed, that we can do it better, we 
will do it better, and we will be responsible for it. This is 
more of a statement than a question to you, Governor.
    We fight the education issue every day in Alaska. We are 
coming up on the anniversary of the Exxon-Valdez. It was a 
terrible tragedy, an accident, in our State. That single 
accident that was caused by an individual that should not have 
been in control of a tanker, has literally set back oil 
development in my State for years as a consequence of that. So 
we fight the education issue all the time. Anything that you 
can do in your State, so far away from Alaska, to educate your 
consumers about how we can provide and how we can meet our 
energy needs and still provide for the care of the environment 
would be most appreciated.
    Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Murkowski.
    We appreciate very much your being here, Governor. We are 
going to rush things along here because of the voting schedule. 
Thank you so much for your leadership. I join Senator Voinovich 
in saying that we are depending upon you to help us out here in 
this problem.
    Governor Carcieri. It has been my pleasure. Thank you.
    Senator Inhofe. I would ask the second panel to come up as 
quickly as possible. As you are being seated, I would make the 
comment that Senator Murkowski makes a good point. I was around 
there during the Exxon-Valdez incident. It should never have 
had any impact on exploration or production because that was a 
transportation problem and not an exploration problem.
    Senator Murkowski. That is right.
    Senator Inhofe. Senator Jeffords.
    Senator Jeffords. Mr. Chairman, I would like to ask 
unanimous consent to place two items in the record today. The 
first is the Center on Global Climate Change, the summary of 
MIT's analysis of the Lieberman-McCain Climate Storage 
Proposal. The second item is the MIT analysis itself.
    Senator Inhofe. Without objection, so ordered.
    We are going to limit your opening remarks to 3 minutes. It 
will be particularly difficult for Mr. Drake from Oklahoma, but 
he will just have to live with it, like everyone else. Your 
entire statements will be made a part of the record.
    We appreciate all of you being here today. It is our 
intention to get one line of questioning before we have to go 
for that vote. Then we will come back at 2 o'clock for the 
third panel. I recognize my dear old friend, who one day 5 
years ago gave me the tie I am wearing today.
    Mr. Drake.

 STATEMENT OF BOB DRAKE, VICE PRESIDENT, OKLAHOMA FARM BUREAU, 
            CHAIRMAN, NATIONAL GRAZING LANDS COUNCIL

    Mr. Drake. Thank you, Mr. Chairman. I can hardly say hello 
in 3 minutes.
    My name is Bob Drake. I raise Angus cattle in Oklahoma. I 
am currently vice president of the Oklahoma Farm Bureau and 
serve as chairman of the National Grazing Lands Conservation 
Initiative. I am also past president of the National 
Cattlemen's Beef Association. On behalf of the American Farm 
Bureau Federation and the Oklahoma Farm Bureau, thank you for 
allowing us to be here.
    First, let me say that today's agriculture is more energy 
efficient than ever before, producing more economic benefit 
with less energy. For example, on corn fields across this 
Nation, farmers are producing 30 percent more crop using 30 
percent less energy-
related inputs, including fertilizer, than we did a generation 
ago. Even though energy efficiencies have been realized in 
agriculture, no one should expect a growing U.S. economy and 
population to need less energy security in the future.
    Natural gas is one of the most important energy feedstocks 
to production agriculture and associated manufacturing 
industries. In the last year, the United States has experienced 
prolonged natural gas price volatility, along with an overall 
elevation in price.
    One of the industries that has been mentioned already by 
the Senator, is the fertilizer industry. Natural gas is the 
primary feedstock for this product. According to The Fertilizer 
Institute, the 2000 planting season saw ammonia fertilizer at a 
cost of around $100 per ton. Last year, when you could get it, 
it was $350 a ton. Our domestic fertilizer production, as was 
already stated by the Senator, capacity has experienced a 
permanent loss of 25 percent over the past 4 years, and an 
additional 20 percent is currently shut down due to high 
natural gas prices.
    The current price volatility threatens the existence of 
what remains of our domestic fertilizer industry, and will 
exacerbate America's dependence on foreign sources of energy 
and fertilizer. I sat down last week with a group of producers 
that reported that the cost of running their natural gas-
powered irrigation pumps increased more than 70 percent in 
2003.
    The current natural gas crisis is a prime example of the 
need for a clear and consistent energy policy. On one hand, the 
Federal Government has encourage expanding the use of natural 
gas as an environmentally friendly alternative for electrical 
generation, home heating, and 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, the Gulf of Mexico, and Federal lands.
    Similar restrictions have been and continue to be 
experienced on other traditional energy resources such as oil, 
coal, and nuclear. In Oklahoma, oil and gas exploration on 
private lands has been severely hampered by the U.S. Fish and 
Wildlife Service's habitat rules for the burying beetles. We 
have a lot of those little fellows.
    The Service has delayed drilling, gathering, and other 
activities of oil and gas producers. If left unaddressed, U.S. 
energy policy as a whole will certainly result in the loss of 
even more of our energy independence tomorrow.
    The natural gas instability being experienced today should 
not be allowed to grow into a more serious energy crisis in the 
future. Nor does America need to become as dependent on foreign 
sources of natural gas as we now do with crude oil, one 
terrorist away from no telling what is going to happen.
    Energy-rich repositories now off limits must be 
reconsidered for environmentally safe oil and gas drilling. 
Advancements in these technologies have resulted in the most 
environmentally sound and responsible capturing of energy 
stocks ever conducted.
    My time is up. I thank you for inviting me here today. I 
would ask that my full statement be placed in the record in its 
entirety.
    Senator Inhofe. Without objection, so ordered.
    Wow. Thank you, Mr. Drake.
    [Applause.]
    Senator Inhofe. Ms. West.

 STATEMENT OF MARJORIE WEST, WESTERN ORGANIZATION OF RESOURCE 
                            COUNCILS

    Ms. West. Mr. Chairman, and members of the committee, my 
name is Marjorie West. Thank you for the opportunity to address 
you regarding the environmental impacts of natural gas 
production.
    My husband and I own a ranch on Spotted Horse Creek in the 
Power River Basin of Wyoming where we grow dry land wheat and 
raise cattle. We have lived on this land for 50 years. The 
ranch was homesteaded by my husband's father, and expanded by 
the family over the generations.
    As a landowner, farmer, and rancher, I want to share with 
you what is happening on the ground in Wyoming and in other 
parts of the West, and to talk about what it will take for the 
oil and gas industry to develop natural gas responsibly.
    Mr. Chairman, I want you to know that the organizations I 
represent here today and landowners support responsible natural 
gas development. But our ability to protect the environment, be 
good stewards of the land, and earn a living, is threatened by 
irresponsible gas development practices.
    For several years now, we have been asking industry, State, 
and Federal agencies, and Congress, to develop natural gas 
responsibly. I wish we could say they are listening. The 
experiences my husband and I have had with coal-bed development 
are not isolated. There are many landowners who have lost water 
wells or have had companies come on their land without an 
agreement, building roads and well pads or discharging water 
that has killed soil and vegetation. These problems are 
becoming widespread.
    The last 5 years have been the most difficult and 
destructive years my husband and I have ever experienced. We 
have been through droughts, grasshopper invasions, and bad 
wheat and cattle prices, but nothing holds a candle to 
irresponsible coal-bed methane gas development.
    We have suffered the deceit of over a dozen land-men. Each 
one was able to look us in the eye, shake our hand, and lie 
like a trooper. We believed them, but now I realize that we 
were naive. Out of six companies, Devon, Marathon-Penaco, 
Yates, Williams, CMS, Lance and Redstone, not one has lived up 
to their word. The so-called regulators have not only allowed 
the damages to occur, but they continue to permit activities 
that are in violation of their own regulation.
    My husband, Bill, now takes high blood pressure medication, 
and I take a prescription medication for severe headaches. 
Because of CBM development, we have lost all three of our 
artisan wells and our domestic water well due to groundwater 
dewatering. This is presently, and will continue to be, a long-
term problem for us. For now we are using some of the coal-bed 
methane water that is being pumped out to water our livestock. 
But that will be gone in a few years. And then what? Where will 
we get our water, and at what expense?
    The company, Marathon-Penaco, has told us outright that 
they do not intend to leave us with an operating livestock well 
when they are finished developing the gas. We had to haul our 
household water for 6 or 7 months. The coal-bed methane company 
finally drilled us a 1,400-foot domestic well. We could not 
drink this water without getting diarrhea, and I could not wash 
clothes without having them turn orange.
    Senator Inhofe. Ms. West, we will have to stop you here. 
Your time has expired, but you will have an opportunity to 
respond to questions.
    Ms. West. Thank you, Mr. Chairman. I would ask that my full 
statement be placed in the record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    Mr. Bluestein.

      STATEMENT OF JOEL BLUESTEIN, PRESIDENT, ENERGY AND 
                  ENVIRONMENTAL ANALYSIS, INC.

    Mr. Bluestein. Thank you, Mr. Chairman, and members of the 
committee for the opportunity to testify today. My name is Joel 
Bluestein. I am the president of Energy and Environmental 
Analysis, Incorporated, in Arlington, VA, where we have been 
providing energy and environmental consulting services since 
1974.
    My very quick testimony today will address two areas. 
First, our outlook of natural gas prices, and, second, the 
effects of current prices and trends related to gas prices in 
industrial and power generation markets.
    Our quarterly 20-year forecast of North American natural 
gas prices currently shows an outlook for gas prices at the 
Henry Hub of about $5.75 per million BTU for this year, a 
little higher at about $6 per million BTU for 2005, and then 
moderating somewhat in the $4.50 to $5 per million BTU range in 
the medium to longer term.
    Delivered gas prices will be higher in areas of local gas 
delivery restraints, like New England. Extreme weather will 
also cause temporary price spikes. We do not expect to see 
future gas prices returning to pre-2000 levels.
    This outlook assumes significant development of new LNG 
import terminals in the United States and eventual gas imports 
from Arctic Canada and Alaska. It does not assume any changes 
in policies regarding where gas can be produced in the United 
States Overall, we believe that the market will function and 
find ways to bring new gas to the market. If that does not 
occur, we would expect gas prices to be roughly 50 percent more 
than this forecast.
    Regardless of any changes in policy, there is widespread 
agreement that it will take a significant amount of time to get 
new gas supplies in place and in the interim, the most readily 
available option to stabilize gas prices is increased 
efficiency and natural gas consumption. This was one of the 
primary conclusions of the recent National Petroleum Council's 
study which stated that, ``Greater energy efficiency and 
conservation are vital near-term and long-term mechanisms for 
moderating natural gas price levels and reducing volatility.''
    Last year a study by the American Council for an Energy 
Efficient Economy looked at the effects on gas prices of 
aggressive application of energy efficiency and renewables. To 
summarize quickly, they found a range of 1 to 5 percent 
reduction possible in the next 1 to 5 years.
    More importantly, in our analysis of these changes, we 
found 20 percent reductions in gas price resulting from these 
changes in demand. This nonlinear result occurs because we are 
in a very steep part of the gas supply curve where changes in 
demand can result in large changes in price, either up or down.
    I would also like to refer to the February 17th article 
that Senator Voinovich referenced earlier about the response of 
the U.S industry in increasing efficiency. That article talks 
about the efforts of the Owens-Corning Company in which they 
were able to reduce gas consumption at one of their facilities 
by 18 percent last year, saving $1 million per year in gas 
costs which they plan to replicate at 12 other North American 
facilities.
    Finally, there has been concern about the increase in gas-
fired generation in the United States. It is important to point 
out that our share of gas generation today is lower than it was 
in 1970. Coal still accounts for 70 percent of generation, and 
is expected to maintain approximately that level. Moreover, 
many of the new gas plans are in areas of the country that are 
already heavily gas dependent. These new, more efficient gas 
plants, are largely replacing older less-efficient gas plants. 
So the net result is that the construction of these new gas 
plants is actually reducing gas consumptions in some of the 
most gas-intensive markets.
    Thank you, Mr. Chairman. I would ask that my full statement 
be placed in the record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    Thank you, Mr. Bluestein.
    Mr. Bailey.

STATEMENT OF DENNIS BAILEY, DIRECTOR OF ENERGY PURCHASING, PPG 
                           INDUSTRIES

    Mr. Bailey. Thank you, Mr. Chairman. Good morning. I am 
Dennis Bailey, director of Energy Purchasing for PPG 
Industries. PPG began operations more than 120 years ago in 
Pennsylvania, and has been in Senator Voinovich's home State of 
Ohio for 105 years.
    In all, about 10 percent of PPG's corporate sales is 
generated from products made in Ohio. The high cost of natural 
gas is clearly affecting PPG's operations in Ohio and across 
the Nation. For example, at our Circleville, OH plant, which 
makes resins needed in paint manufacturing, natural gas costs 
have increased 70 percent over the past several years.
    From 2002 until 2003, natural gas costs at our Cleveland 
automotive paint plant doubled, and at our Barberton, OH, 
chemicals plant increased by 50 percent. High natural gas costs 
at our Crestline, OH, automotive glass plant may result in 
elimination of more than 10 percent of that site's workforce.
    PPG has a well-earned reputation for controlling costs. But 
in spite of this, if natural gas prices increase, our 
businesses may have to make reductions elsewhere.
    On a global scale, if the price of natural gas increases to 
$7, and remains there, PPG's chlor-alkali chemicals business 
would have additional problems competing in global markets. The 
workforce at our Lake Charles, LA, chemical facility is 
shrinking by 8 to 10 jobs per month through attrition, and we 
do not expect to be rehiring. We believe that other Gulf Coast 
producers are similarly affected.
    The U.S. chemicals industry is no longer competitive 
globally because of the disparity of natural gas prices, as 
shown in the exhibit that I have entered into the record. The 
U.S. industry has evolved into a net importer of product and 
exporter of jobs.
    My company strongly believes solutions to the natural gas 
crisis are within our country's grasp. In the short-term, 
energy conservation must be a major part of the solution. 
Education is necessary, as well as increased economic 
incentives. For example, if all new residential windows sold in 
the United States were energy-efficient, it would eliminate the 
need for 20 additional power plants over the next decade and up 
to 60 power plants over the next 20 years.
    Consumers need an incentive to use energy-efficient glass, 
positioning high-performance glass as the construction material 
of choice for saving energy. As a start, the Senate needs to 
pass the Energy Conference Report which provides consumers an 
incentive to use energy-efficient glass. But consumer 
conservation alone will not fix the problem.
    There is an urgent need for increased access to domestic 
supplies, including resources in the Outer Continental Shelf, 
the Rocky Mountain region, and Alaska. We feel that all of 
these opportunities can and should be accomplished in an 
environmentally responsible way.
    Construction of an adequate delivery infrastructure, 
including for the import of liquefied natural gas, must be part 
of the solution. In addition, we need to encourage energy 
production from all sources, including coal, oil, nuclear, wind 
energy, and other alternatives. PPG strongly supports wind 
energy because, among other things, we make fiberglass that 
goes into the turbines. Unfortunately, the bill is stalled in 
Congress.
    On a final note, PPG does not support government 
intervention for price controls. Competition and free market 
forces should continue to drive prices.
    Thanks. I would ask that my full statement be placed in the 
record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    Thank you very much, Mr. Bailey. You will find agreement up 
here. We need energy from all of the above sources.
    There will be 4-minute series of questioning. Mr. Drake, 
you heard my opening statement, talking about my experience 
this morning with Larry Craig from Idaho and the cost of 
fertilizer. Your testimony showed it was consistent with that. 
This ultimately increases cost. Who ultimately pays this 
additional cost?
    Mr. Drake. I would like to say that the consumer would pay 
the additional cost, but it does not always happen that way 
because we cannot pass through all of our costs to the consumer 
as agricultural producers. But the consumer will pay an 
additional cost. When I said $350, that is when you can get it 
in certain places.
    Senator Inhofe. That is $350 up from $100?
    Mr. Drake. From $100 in 2000 to $350 in 2003, when you 
could get it. In certain areas, it was very difficult, if not 
impossible to get. Now this is in hydrous ammonia.
    Senator Inhofe. Mr. Drake, you have lived on your land for 
a long time. What kind of stewards are you folks out there in 
Oklahoma? You heard Ms. West testify that some of the things 
that are allegedly going on in Wyoming. Tell us about Oklahoma.
    Mr. Drake. Well in Oklahoma we have always had concerns 
when someone comes in and drills on our land. We have land that 
has been drilled on. We work those concerns out, though, before 
we let them on the place. We have certain agreements. Granted, 
there are people who will take advantage of those agreements.
    However, when they have taken advantage of the agreements 
that I have made, I have taxed them pretty heavily. There is 
nothing I would rather have than someone to come in and mess up 
my land because I am going to make them pay for it. Now, we are 
the environmental stewards of the world. We have the best 
environmental stewardship on our land of any other Nation in 
the world. All we have to do is have the APA and the 
environmental laws that we can do those things.
    We want to do it proper. We will do it proper when we have 
the opportunity.
    Senator Inhofe. All right. I appreciate that very much. 
That has been my experience also in working with you folks.
    Since we are rushed, is there anything in your opening 
statement you did not get to that you would like to use the 
remainder of my time in order to get to it?
    Mr. Drake. The American Farm Bureau and the Oklahoma Farm 
Bureau strongly believe that the current comprehensive energy 
legislation will lead to a diversified energy portfolio with 
increased emphasis on renewable sources while at the same time 
increase our domestic energy supply from traditional sources, 
such as natural gas, oil, and coal in a safe and affordable 
manner. We urge that Congress complete this important 
legislation this session.
    Senator Inhofe. I am certainly hoping that that will be the 
case.
    Senator Jeffords.
    Senator Jeffords. Mr. Bluestein, reflecting on the analysis 
that you have done, and their reasons, other than environmental 
regulations, would a company prefer to build a natural gas-
fired power plant rather than a coal-fired plant?
    Mr. Bluestein. Sure. Particularly over the last few years, 
what we have seen is a wave of new gas-fired power plant 
production. The capital cost of the gas-fired power plant is 
one-third to one-half of a coal plant. The footprint is smaller 
and requires less land, uses less water, which obviously is a 
very important issue in many places. It has a lower visual 
profile. Of course, the plants that have been built in the 
recent years are the cleanest and most efficient power plants 
that have ever been built anywhere in the world, which I think 
most people would see as a good thing.
    Finally, it just takes less time to build a gas-fired power 
plant because of the way that they are built and so on. 
Particularly in the last few years, that has been a significant 
advantage to be able to get the plant on the ground and running 
quickly. So there are a whole variety of reasons that were 
behind the wave of gas-fired power plant construction in the 
last 5 or so years.
    Senator Jeffords. Ms. West, do you support current 
proposals to repeal the Clean Water Act and the Safe Drinking 
Water Act requirements for coal-bed methane production?
    Ms. West. I think the Clean Water Act is fine. However, I 
think it needs to address the SAR of the water. The water that 
has been pumped down, let down the troughs, up above Spotted 
Horse Creek, and has flowed onto our hay meadows and ruined 80 
percent of our meadows. This is because it causes the soil to 
congeal. It changes the molecular structure of the soil. Last 
year we did not raise any hay crop on this 80 acres, but we had 
a wonderful crop of fireweed, which cattle will not eat.
    I hear people testifying how responsible the industry is. 
That has not been the case in my experience. They have come on 
to us with no surface agreement. They have discharged water on 
us when our lawyer had already told them that this would be 
considered trespassing. These are not little fly-by-night 
companies. These are companies like Devon, Marathon-Penaco, and 
Yates. The thing is we finally got a surface agreement with 
Devon who discharged the water that flowed onto our hay 
meadows. They were supposed to have rehabilitated our land 2 
years ago. They still have done nothing.
    So what good is a surface agreement? The only way we can 
get this agreement enforced is to take them to court. My 
husband told them, ``I guess we will have to take you to 
court.'' They said, ``Go right ahead. We have all the money and 
time in the world.''
    Senator Jeffords. Thank you. That was very helpful.
    Thank you, Mr. Chairman.
    Senator Inhofe. Your time has expired.
    Senator Chafee.
    Senator Chafee. Thank you once again, Mr. Chairman.
    Mr. Bluestein, in your prepared testimony you said that you 
predict gas prices will stabilize at $4.50 to $5.00. How do you 
come to that analysis and prediction?
    Mr. Bluestein. Well, we have quite a large staff that does 
gas price forecasting, and a variety of supply modeling and 
analysis, as well as demand and end-use modeling. It is a 
pretty big effort. It takes into account many different 
factors, again all the way from the supply and certain 
assumptions on economic growth, LNG development, and so on. It 
is a simple answer.
    Senator Chafee. With all the dire predictions of increased 
demand that you have predicted, to know that the opposite might 
be true that the price will stabilize, how so?
    Mr. Bluestein. Well, there are predictions on both sides. 
We do see a growing demand in certain sectors. Certainly power 
generation is going to be a growing sector.
    The industrial sector, we do not see much growth in gas 
demand, not that there will not be economic growth, but it 
turns out that many of the portions of industry that have been 
responsible for most of our economic growth in recent years are 
not the most gas-intensive ones. Clearly, there are some that 
are gas-intensive, but the real drivers for economic growth in 
recent years have not been very gas-intensive. So we see 
limited growth on the industrial side.
    Again, this forecast is predicated on a certain amount of 
new supply which we see much coming from LNG, as well as 
eventually some from Canada and Alaska. I think there is an 
amazing amount of agreement here that we need a multifaceted 
approach, including greater efficiency, a diversity of energy 
sources, and some sources of new supply.
    When we take all of that into the mix, that is where we 
come out.
    Senator Chafee. I see. In your analysis, do you have any 
factoring in of increased coal use, increased technology, and 
how we deal with the emissions issues on coal?
    Mr. Bluestein. We do see coal consumption in power 
generation continuing to increase, as has been historically. 
That is without any major assumptions on new clean coal 
technology. Again, I believe there is an amazing amount of 
agreement here that we can do much with technology. I agree 
that coal is a very important resource. It is a key part of our 
power generation today. I would expect that to increase, and to 
the extent that we can improve the technology, I think that 
will go even better.
    Senator Chafee. You are predicting increased coal use even 
without any necessary new technology coming on?
    Mr. Bluestein. That is right. I think almost all the 
forecasts that you look at, see coal continuing to be a growing 
part of the power generation sector.
    Senator Chafee. Does that take into consideration any of 
the Clean Air bills that have been talked about, whether it is 
the Jeffords bill or the Carper bill?
    Mr. Bluestein. It does not take into account any 
legislation that has not passed, but the existing legislation; 
that is right.
    Senator Chafee. I have a few seconds left. If either of 
those two bills--and let us say for the sake of argument, the 
Carper bill--would that change your predictions on coal use?
    Mr. Bluestein. We have not analyzed that. I can look at 
some other comparisons that have been done. I think an 
interesting point to be made is that one reason that companies 
are reluctant to build coal-fired power plants today is the 
regulatory uncertainty, and in the discussions we have had with 
large established coal-based utilities, they have said that 
that is a big impediment to invest in new coal plants, and in 
particular, the lack of certainty about CO-2. So in 
some realm, resolving that issue would allow more coal 
construction to go forward.
    Senator Chafee. Thank you, Mr. Chairman.
    Senator Inhofe. The time of the gentleman has expired.
    Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman.
    Welcome, Ms. West. I have not had a chance to talk with 
you. I did not know you were coming until very recently. We 
have had problems, and continue to have problems, of course, in 
the coal bed methane over time. We have been working on it, and 
we will continue to do that. Much of it has to do with the 
split estate where the Government owns the minerals and the 
private owner owns the surface. Those are the ones that are 
troublesome. I presume that you do not own the minerals?
    Ms. West. It is correct that we do not own all of the 
minerals underlying our land but we do own a percentage. 
Whether or not you own the minerals you still experience 
problems as a landowner either directly affected by development 
on your land or by upstream development when the impacts come 
onto your land.
    Senator Thomas. We have monitoring that is required. The 
Wyoming Department of Environmental Quality monitors. BLM 
monitors. The State engineer monitor. The Wyoming Oil and Gas 
Conservation Commission monitors. Have they been helpful to 
you? Have you called upon them?
    Ms. West. We have called upon them. No, they have not been 
helpful.
    Senator Thomas. Do you have a surface agreement?
    Ms. West. We have a surface agreement with Devon.
    Senator Thomas. And Yates?
    Ms. West. We have a surface agreement with Yates. Marathon-
Penaco came onto some of our land with no surface agreement.
    Senator Thomas. Do you have a lawyer?
    Ms. West. Yes, we do.
    Senator Thomas. Do you have hydrologists?
    Ms. West. And a hydrologist. If I were to sit down and add 
it up, all our lawyer and hydrologist costs, I would have a 
heart attack.
    Senator Thomas. One of your neighbors really had an 
agreement and has settled for $800,000. So perhaps you have an 
opportunity to do something.
    Ms. West. Well, you know, we may be forced to do that.
    Senator Thomas. What I am saying is that there is an 
arrangement. We are working at it. I sympathize with your issue 
because there are a number of people in that category. But we 
have the Farm Bureau and the Stock Growers on the one hand 
working with the producers on the other hand, to come up with 
an arrangement to work with split estates so the owner has a 
certain period of time to negotiate and to work out an 
agreement. Of course, the minerals are a property so the owner 
of the minerals has a right there.
    Ms. West. Right. He does have a right.
    Senator Thomas. But you have a right.
    Ms. West. However, in Wyoming the landowner has the least 
amount of rights of any State in the Nation.
    Senator Thomas. Well, we want to work with you. I 
appreciate your being here to do that. I think it is fair to 
say that not everybody shares your view on this.
    Ms. West. Oh, absolutely not. A lot of people are getting a 
lot of money off this industry.
    Senator Thomas. We do have now a process, which we should 
have, for landowners to have an opportunity to deal with this 
before it happens and make it work out. We appreciate your 
being here. It is a problem. But I have to tell you that it is 
much better than it was when we first started. We are aware of 
some of the problems that are there and will continue to work 
on that. Surface owners should be entitled to not be damaged.
    Ms. West. Exactly.
    Senator Thomas. Thank you.
    Thank you, Mr. Chairman.
    Senator Inhofe. Senator Voinovich.
    Senator Voinovich. Mr. Bailey, first of all, I really 
appreciate the presence of PPG in our State. When I was 
Governor we worked with you. When I was Mayor we worked with 
you on your facility over on the west side.
    In my opening statement I said that Charles Halliday, who 
is chairman and chief executive officer of DuPont told 
investors in December that ``High energy costs will prompt the 
company to shift its center of gravity overseas.'' The question 
I have for you is: Have these natural gas prices, as you are 
sitting down with your crystal ball and looking down the road, 
caused you to reevaluate your facilities and what you have to 
do in order to stay in business and compete?
    Mr. Bailey. In the United States or globally?
    Senator Voinovich. I know you are global, but the fact is 
that you have the United States. You are looking down the road 
and you are saying, ``Here are our costs.'' You have to figure 
out: ``Can we compete in the environment that we are in?''
    Mr. Bailey. Our most energy-intensive businesses are our 
chemical business where we use natural gas for generating 
electricity, largely. Then we also have our glass and 
fiberglass businesses where we are using it to heat the 
furnaces. Those businesses are largely based in the United 
States with some export. So we really do not have within the 
company, for those businesses, the ability without large 
capital investments elsewhere to produce elsewhere in the 
world. We are based here. This is where the capital is. So, we 
do not have as much of an opportunity, as some other companies, 
to move offshore. That is not really a big alternative.
    Senator Voinovich. The option is not there to move?
    Mr. Bailey. That is correct.
    Senator Voinovich. Have you calculated, if we do not deal 
with this problem, what effect it will have on your competitive 
position in the global market?
    Mr. Bailey. I am not aware of whether or not we have gone 
through that process within the company.
    Senator Voinovich. Would you say that the energy costs that 
your company is experiencing right now are more significant 
than say, labor costs?
    Mr. Bailey. Yes, for chemicals, they are. More volatile and 
they are higher.
    Senator Voinovich. Thank you.
    Mr. Bluestein, you were talking about some predictions. 
Have you analyzed the effect different environmental policies 
will have on your assumptions? You have made some assumptions. 
For example, one of the things that I think you mentioned in 
your testimony that you anticipate that we are going to have 
more liquefied gas operations. You make some assumptions about 
the fact that it is going to be available.
    Have you taken into consideration the problems that we 
might have in citing facilities to take in that liquefied gas? 
If that does not happen, what impact will that have on costs?
    Mr. Bluestein. Yes, as I said in my testimony, regardless 
of whether it is LNG or some other constraint on the supply 
assumptions that we have looked at, we see something like a 50 
percent higher gas price in our forecast. Obviously it depends 
on which specific one, but in that range is the kind of 
sensitivity that we have looked at.
    Senator Voinovich. That is 50 percent, anticipating 
something is going to happen?
    Mr. Bluestein. Right; something negative as far as supply.
    Senator Voinovich. Have you done any analysis on what 
impact that would have on the economy?
    Mr. Bluestein. No.
    Senator Voinovich. Have you studied any of the bills that 
we have been dealing with here in terms of what we call the 
emission bills or the pollution bills in terms of utilities? 
Have you looked at those?
    Mr. Bluestein. Yes.
    Senator Voinovich. Do you think there is any area of 
compromise so we can move on with some certainty? Right now, I 
will tell you, our utilities do not know where they are going. 
We have a controversy over new source review. We have more than 
126 petitions that are being filed. We are having the new 
ambient air standards for particulate and ozone coming on 
board. States are being asked in the next couple of years to 
come up with new State SIPS. Next week the EPA is going to 
announce all areas that are not meeting the current ambient air 
standards.
    There is so much uncertainty out there. It would be very 
nice if we could get some input from you on these bills that we 
have pending and perhaps see if we can work something out.
    Senator Inhofe. Senator Voinovich, I apologize. The vote is 
in progress now, but we do have time for Senator Allard's 
questions for 4 minutes.
    Senator Allard. Thank you, Mr. Chairman. Very briefly. I am 
sorry I was late. I was chairing another committee.
    I do have a full statement I would like to make a part of 
the record.
    Senator Inhofe. Without objection, so ordered.
    Senator Allard. Mr. Drake, you mentioned earlier how much 
the price of fertilizers increased. How long do you think that 
you and other producers like you can sustain that cost? I 
realize there are other factors like costs of grains. But maybe 
perhaps you can give us some idea.
    Mr. Drake. At the present time, we cannot sustain this kind 
of cost. We will use a lot less. We will try to make do with 
what we can use. We will put the figure that we are normally 
spending on fertilizer and that is what we will go up to. We 
cannot continue to pay these kinds of costs and stay in 
business. We cannot pass it on through. We have no guarantees 
for pass-through.
    The time is not definite at all. I can tell you that this 
season will be very difficult. We are coming into the planting 
season.
    Senator Allard. I am from Colorado and as you can see from 
this chart we are right in the middle of the 125-trillion cubic 
feet of natural gas. It is one of the big areas that we rely on 
here in the country to meet our natural gas needs. I have 
always been an advocate that we need to have multiple sources 
of energy. Right now we have come to rely very heavily on 
natural gas.
    One of the problems that we have in my State of Colorado is 
that we have 69-trillion cubic feet. Twenty-nine percent of 
that in the Rocky Mountain area is tied up. You cannot have 
access to it because of various designations that have been 
made on the public lands that are on the surface of that. Some 
of these public lands have sage brush. This whole western part 
of Colorado where we see so much of the natural gas. This map 
perhaps does not reflect that, but particularly in the western 
part is where we have sage brush.
    Then the other part of it is that we have a lot of rules 
and regulations. That has been of some interest because of 
environmental concerns. But we are trying to reach a balance in 
my State between renewable energy and natural gas and coal, and 
how is it that we meet these demands. We also have surface 
owner concerns in our State. Mr. Drake, I caught part of your 
concerns here. Basically it is a State issue. I hope we can 
keep that way and not become a Federal issue. This is a 
perplexing problem for all of us.
    Do any of you have a suggestion on how we can work through 
this? It seems to me ridiculous that we tie up 125-trillion 
cubic feet when we have every area being so adversely impacted. 
What is the answer? Is it nuclear energy? Is it maybe releasing 
some more of these public lands for natural gas? Do any of you 
have a suggestion on how we solve our problem? Look at what 
happened to the cost of gas in the last 2 years. It is just 
phenomenal. I do not see how we can continue to afford it, 
frankly. Does anyone want to comment?
    Ms. West. Senator, I would like to respond. I think we need 
to focus on renewable energy. This natural gas is going to be 
gone. Once it is used up, then what do we do? We are going to 
be back in the same old boat again. We have to focus on 
renewable energy.
    Senator Allard. I see my time has expired.
    Senator Inhofe. It has. Before you came, we announced that 
we are going to reconvene at 2 o'clock for the third panel. We 
would invite any of you to come back for that. I appreciate 
very much your being here.
    We only have 1 minute left on a rollcall vote. We are going 
to have to run on down there and do that. Thank you very much 
for coming.
    We are in recess.
    [Whereupon, at 11:50 a.m., the committee was recessed, to 
reconvene at 2 p.m.]
    Senator Inhofe. We will call our meeting back to order. 
Again, I apologize to the three of you, as I have done 
individually, for the inconvenience that we have caused you by 
having to come back. We deal with uncertainty in this place on 
a daily basis, but not too well. We had votes. Again, I 
appreciate your coming back.
    I have been told that Senator Jeffords is en route. His 
staff has said it is all right to go ahead. We will get a 
handle. Let us start with your opening statements. Just as a 
reward for you coming back, we are going to give you 6 minutes? 
How is that?
    Mr. Caskey.

 STATEMENT OF MIKE CASKEY, EXECUTIVE VICE PRESIDENT AND CHIEF 
 OPERATING OFFICER, FIDELITY EXPLORATION AND PRODUCTION COMPANY

    Mr. Caskey. Thank you, Mr. Chairman, and members of the 
committee. My name is Mike Caskey. I am executive vice 
president and chief operating officer of Fidelity Exploration 
and Production Company, headquartered in Denver, CO.
    Fidelity is a subsidiary of MDU Resources Group, which is a 
Bismark company. We are an independent oil and natural gas 
company, focused on natural gas production, engaged in 
acquisition, exploration, and production activities, primarily 
in the Rocky Mountain region and in the Gulf of Mexico.
    Fidelity produces coal bed natural gas in Wyoming, and we 
are currently the only producer of this energy resource in 
Montana. I am here to discuss the obstacles we have faced in 
our efforts to produce this clean-burning natural gas on 
private and public lands. Today in the Rocky Mountains there is 
a well-funded coordinated effort underway to obstruct and delay 
the development of domestic oil and natural gas.
    This effort, orchestrated by aggressive special interest 
groups, is employing whatever means necessary, and the 
consequences of their activity are significant. The success of 
these special interest groups in delaying natural gas 
production has contributed to the higher costs that homeowners 
and employers have been experiencing for the past 2 years. 
These costs have had a negative impact on our economy and have 
led to the loss of jobs in our industrial heartland.
    Unfortunately the future does not look like it will 
improve. The Department of Energy estimates that by 2025 we 
will need 40 percent more natural gas to meet our Nation's 
demand. Some of this demand is related to our need to improve 
the air we breathe.
    Senator Inhofe. Give me that date again. By when will we 
need 40 percent?
    Mr. Caskey. 2025.
    Senator Inhofe. All right. Go ahead.
    Mr. Caskey. Today 98 percent of our domestic consumption of 
clean natural gas comes from North America. With known domestic 
natural reserves either in decline or off-limits, we must look 
to other areas to meet our needs. The Rocky Mountain region 
possesses an estimated 137-trillion cubic feet of natural gas 
which is recoverable. This represents enough natural gas to 
provide approximately 6 years of total current domestic energy 
needs without any other natural gas supply. That means 
supplying every American home, running every factory, supplying 
every plant that uses natural gas as a feed stock, producing 
all electrical power, and heating every American school with 
natural gas from only the Rocky Mountain region for 6 years.
    Unfortunately, the abuse of our legal system and a novel 
use of the National Environmental Policy Act process, have led 
to delays and the loss of production in this area. A report 
done by Mr. Bluestein's company, EEA, found that if the BLM can 
just increase its current drilling permit approval rate from 
1,000 permits per year to 3,000 permits per year, that action 
alone would have the effect of saving $88 billion over the next 
10 years for the consumers of natural gas. That is a savings of 
roughly 53 cents per thousand cubic feet of natural gas 
consumed. That would come directly off the price of gas for the 
consumer.
    Here are some examples that highlight the type of activism 
that has caused these delays. In 2000, after nearly 3 years of 
wrangling over an environmental assessment on coal bed natural 
gas production in Montana, the Government recognized the need 
for a full environmental impact statement. In addition to the 
nearly 3 years already consumed by the environmental analysis 
process, the new EIS was expected to take an additional 18 to 
20 months to complete. Instead of 18 to 20 months, the EIS took 
29 months to complete. In Wyoming a similar study was initiated 
at about the same time. This one took a total of 35 months to 
complete. Literally hours after the records of decision on the 
EIS documents in Montana and Wyoming were released, the special 
interest community filed no fewer than four lawsuits.
    My company, is the only current coal-bed natural gas 
producer in Montana, has been sued repeatedly or has to join 
regulatory agencies in defense of lawsuits against the 
environmental analysis process. In total, we currently face 12 
separate lawsuits challenging our ability to produce this 
resource.
    Defending our company against these lawsuits has certainly 
cost us significant time and money. But this unprecedented 
amount of lawsuits has also cost the Federal Government untold 
dollars in addition to diverting human resources from more 
important tasks.
    The Bureau of Land Management offices in Wyoming and 
Montana are charged with protecting habitats for threatened and 
endangered species, reducing the risk of forest fires, and 
controlling noxious weeds, along with many other 
responsibilities. As you know, energy regulation is only a 
small part of their work load. Yet if they are required to 
expend huge financial and human resources in response to each 
and every anti-development lawsuit, as frivolous as they may 
seem.
    One interesting point aside, the Northern Plains Resource 
Council recently purchased a new headquarters building in 
Billings, MT. In a local news story they complained about the 
high cost of natural gas to heat the building as well as the 
expense of alternate, non-fossil fuel-based heating technology. 
I find it somewhat ironic that they failed to recognize that 
their actions have a direct and constant impact relationship on 
these costs that they are complaining about.
    Members of the committee, my company is held accountable by 
a set of State and Federal regulations designed to allow energy 
production to proceed while protecting against environmental 
degradation. The regulations have been effective, and our 
Nation is a shining example to the rest of the world on the 
success of environmental regulation. We have the cleanest air 
of any Nation on earth.
    However, the same systems that protect our ability to 
produce energy, while protecting the environment, are being 
misused by aggressive special interest groups. The overriding 
process of this protection is defined in the National 
Environmental Policy Act. Take NEPA back to its roots of 
providing this protection while allowing energy development to 
proceed. Do not let special interest groups misuse the process 
at the expense of the American public and our energy 
independence.
    Members of the committee, thank you for the opportunity to 
present this testimony. If there are any questions, I will be 
happy to share any answers I may have. I would ask that my full 
statement be placed in the record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    Thank you, Mr. Caskey.
    Mr. Bloch.

   STATEMENT OF STEPHEN BLOCH, STAFF ATTORNEY, SOUTHERN UTAH 
                      WILDERNESS ALLIANCE

    Mr. Bloch. Thank you for your time this afternoon, 
Senators. I am Stephen Bloch, a staff attorney with the 
Southern Utah Wilderness Alliance, SUWA, in Salt Lake City, UT. 
SUWA is a founding member of the Utah Wilderness Coalition, a 
group of 240 national, regional, and local conservation 
organizations that advocate for the passage of America's 
Redrock Wilderness Act, S. 639, and H.R. 1796. That calls for 
the designation of approximately 9 million acres of Utah's 
stunning canyon lands as wilderness.
    SUWA's mission focuses solely on the preservation of the 
public lands in Utah; therefore, my testimony is only 
addressing natural gas issues on Utah's public lands and, in 
particular, the lands that are managed by the BLM.
    There are two points I would like to leave you with. First 
of all, the development of Utah's stunning canyon lands is not 
going to solve our Nation's crisis in natural gas. Second, SUWA 
and other conservation organizations advocate a balanced 
approach of the protection of our wild places as well as 
allowing natural gas extraction activities to proceed.
    First and foremost, an analysis of information from the 
Department of Energy, from USGS, and from the State of Utah 
shows, as you can see here in Figure No. 3 on the easel, that 
in Utah there are seven hot spots in our State. That is where 
95 percent of the production of natural gas occurs. 
Importantly, none of those lands are proposed for wilderness 
designation in America's Redrock Wilderness Act.
    The lands highlighted in blue are the lands that are 
producing natural gas, and the lands that are crosshatched are 
the lands that are proposed for wilderness. An analysis from 
USGS shows that the technically recoverable undiscovered 
resources in the lands that are crosshatched is less than 4 
weeks of natural gas at our current national consumption 
levels. Thus, it seems clear that by sacrificing America's 
Redrock Wilderness, there is not going to be any alleviation of 
the natural gas crisis.
    Second, far from advocating a broad no-lease or no-drill 
policy, SUWA and other members of the conservation community 
are extremely selective about filing administrative or legal 
challenges to natural gas exploration or development projects 
in Utah and throughout the Intermountain West.
    For example, in Utah from January 2000 through March 2004 
there were more than 3,200 drill permits approved. 
Conservationists challenged five of those. That is less than 
one-half of 1 percent. Likewise, in Utah there were 10 seismic 
exploration projects proposed from that same time period, from 
2000 to 2004. Conservationists challenged four of those, and 
those were only ones that crossed into lands that are proposed 
for wilderness. Thus, it is not the legal challenges that are 
an impediment to natural gas production and development. There 
is, however, little question that natural gas exploration and 
development leaves significant and lasting scars on our 
landscape including the fragmentation of wildlife habitat, 
long-term damage to fragile soils, the loss of wilderness 
values, and damage to cultural resources.
    You can see the type of damage I am talking about here. 
These are Exhibit No. 3 and Exhibit No. 4 from my written 
testimony Exhibit No. 3 is a sludge pit from the Long Canyon 
Well outside Moab, UT. Exhibit No. 4 on the bottom is a seismic 
truck that is operating outside of Arches National Park.
    Stunning places like Utah's Fisher Towers and the cultural 
resources such as those found in Utah's Nine Mile Canyon are at 
risk now from natural gas exploration and development. These 
are the resources that have now been placed needlessly in the 
cross-hairs of development and production. It is clear that 
these are not the places to find natural gas.
    I appreciate this opportunity today. I look forward to 
answering any of your questions. I would ask that my full 
statement be placed in the record in its entirety.
    Thank you, Mr. Chairman.
    Senator Inhofe. Without objection, so ordered.
    Thank you, Mr. Bloch.
    Mr. Handley.

             STATEMENT OF GEORGE HANDLEY, ECLIPSE 
                    EXPLORATION CORPORATION

    Mr. Handley. Thank you, Mr. Chairman. My name is George 
Handley. I am the president and only employee of Eclipse 
Exploration in Denver, CO. I appreciate the opportunity to 
speak to you today. I am glad to see the committee's interest 
in natural gas supply in America and the environmental policies 
affecting its development.
    Policies that either limit or encourage energy development 
of natural gas resources have very real consequences. Policies 
that promote the use of a particular energy source, yet fail to 
provide for the necessary and orderly development of that same 
resource are predisposed to failure.
    I have been the victim of Federal land management policies 
that allow groups that are not party to any contract with the 
BLM or State to effectively stop a project through protests, 
appeals, and litigation. I have been victimized by the 
uncertainty that is created by abuses to public involvement 
statutes. Even when I follow the laws and regulations and have 
the approval of land managers, I found that I was still subject 
to the reach of obstructionist groups that sought to halt my 
natural gas exploration project and cripple my company.
    Legal challenges severely limit oil and natural gas 
development on Federal lands. At every stage of development, 
obstructionist groups challenge agency decisions and seek to 
stop development. For example, in the State of Utah, 57 percent 
of all lease parcels offered by the BLM between 2001 and 2003, 
were protested by groups opposed to development. I experienced 
one of these legal challenges first hand in Grand County, UT, 
on a seismic project over a Federal mineral lease. This lease 
is located in the Thompson mining district, a former uranium 
mining area characterized by dry, sparsely vegetated land. It 
is not within view of Arches National Park. It is not 
wilderness. These leases were leased during 1997 during the 
Clinton administration with the expressed intent and 
responsibility to explore for oil and natural gas.
    Seismic technology has greatly increased our ability to map 
the subsurface geology, thereby allowing exploratory drilling 
in the most efficient manner. I have 30 years experience 
working on seismic projects and developing petroleum 
exploration plays around the world. I have a masters degree in 
geophysics from the Colorado School of Mines.
    In order to accurately map the subsurface geology of this 
prospect, I designed the specific seismic program. Any 
deviation from this program would have resulted in useless 
data. WesternGeco was hired to conduct the seismic activities 
on my lease. One of the employees of WesternGeco, Stuart 
Wright, is one of the foremost experts on seismic exploration 
and helped me design this program to ensure an accurate map of 
the subsurface.
    An environmental analysis was prepared following the 
guidelines of the BLM. The BLM informed WesternGeco and myself 
what was needed to comply with the law. We did what the 
Government asked. After the permit was issued, WesternGeco 
began operations. More than halfway through the project, a 
judge in Washington, DC issued a ruling that stopped the 
project based on a challenge by the Southern Utah Wilderness 
Alliance.
    My company is small and cannot afford to fight well-funded 
nonprofit groups in courts. The State of Utah and WesternGeco 
helped, but in the end, the SUWA won the court battle and has 
all but stopped my project.
    Abuse of the process delays the delivery of natural gas to 
consumers and destroys the livelihood of businessmen like 
myself. The more legal challenges, the more delays. The more 
delays, the more consumers are affected. The more consumers are 
affected, the more the economy suffers.
    I am not here to debate the factual or legal merits of my 
case. I use this example to lay blame on a process that allows 
nonprofit groups to continually halt mineral development on 
public lands. The SUWA may show you pictures and tell you 
stories of horrific damage done by the incomplete seismic 
project. It is misleading. There is no long-term damage to the 
area. It would be hard for anyone to see the path of this 
project today.
    The State of Utah, the BLM, and the Grand County Council 
fully support my project. Grand County is anxious for a wildcat 
well to be drilled here, and for the seismic program to be 
completed, as it will mean a lot to their economy. The 
Intermountain West is blessed with abundant resources of 
natural gas, a substantial portion of which is owned by the 
Federal Government. These resources cannot be developed when 
small businesses like mine face insurmountable litigation.
    Abuse of the legal process puts Americans out of work and 
sends energy development outside our borders. It costs the 
Government, in terms of litigation costs and the potential to 
pay the attorneys fees of the groups who bring the suit. I did 
what I was told by the Government, but still lost and I have no 
recourse. The American public bears the burden of this 
litigation against the Government either way.
    Thank you for allowing me to testify. I would ask that my 
full statement be placed in the record in its entirety.
    Senator Inhofe. Without objection, so ordered.
    Thank you, Mr. Handley.
    We will go ahead and have 5-minute questions.
    Mr. Handley, we always hear from some of these groups about 
the giants who have been stopped. Are you a giant?
    Mr. Handley. You are talking with the whole company.
    Senator Inhofe. Are you multinational?
    Mr. Handley. No, no. Senator, I do a lot of consulting for 
different companies. The last time I did anything for them was 
a few years ago for Quintana in Argentina, but I was just 
running a seismic crew. I do not do exploration internationally 
anymore.
    Senator Inhofe. Could you describe just very, very briefly 
the damage that you sustained as a result of the challenges?
    Mr. Handley. Well, I have provided some displays. I laid 
out the seismic program with two specific purposes. We knew 
that there was a basement fault feature that sets up an 
exploration play that looks a lot like Lisbon Field. I have 
enough information to define that fault. I should have had 
more, but I was shut down. We also knew that there is a 
structural closure over this basement feature. I did not get 
enough information to define the structural closure. So I have 
been seriously hurt in terms of delay costs, in terms of 
anticipated costs for going out there and completing the 
seismic program. It has hurt my ability to market this prospect 
because all the acres have not been defined.
    Senator Inhofe. Mr. Bloch, your website refers to our state 
of affairs as ``the fabricated energy crisis.'' What do you 
mean by ``fabricated energy crisis.'' Do you think it is not 
real.
    Mr. Bloch. No, Senator; I think SUWA and the conservation 
community is as concerned as everyone you have heard from 
already at this hearing. I think our concern is the use of the 
so-called ``crisis'' to lift some of the important 
environmental protections afforded by statutes, such as NEPA, 
to lift the protections of those statutes and to allow for an 
expedited process, starting from the leasing stage all the way 
to production. That is going to cause significant environmental 
damage as a result. So I think that is our concern.
    Senator Inhofe. Do you believe there is an energy crisis?
    Mr. Bloch. I think I would agree with the other statements 
made today that there seems to be shortages of natural gas in 
some of the places where it is needed most.
    Senator Inhofe. So there is an energy crisis? Yes or no?
    Mr. Bloch. It certainly appears that way from what we have 
heard.
    Senator Inhofe. Why would you characterize it as a 
``fabricated energy crisis'' then?
    Mr. Bloch. Well, as I said, Senator, our concern is how the 
shortages are being used by certain folks to lift, as I said 
before, some of the restrictions.
    Senator Inhofe. Mr. Caskey, is there an energy crisis?
    Mr. Caskey. Yes, sir.
    Senator Inhofe. Do you think it is fabricated?
    Mr. Caskey. No, sir.
    Senator Inhofe. Of all of the obstacles that you have that 
you have described in your testimony, special interest groups, 
the delays in any number of projects, the relative uncertainty 
related to all the delays. What does this do to your production 
capability? Are you impaired? I am thinking about the 
manufacturer worker in Ohio and maybe the little lady in Rhode 
Island trying to heat her home. What do these delays mean in 
terms of costs? Have you figured any way to quantify that?
    Mr. Caskey. I have not quantified it on a large-scale 
basis, but I can give you an example of what one instance can 
cost and what that one instance would do for the lady trying to 
heat her home in Rhode Island, for instance.
    We have been issued 87 permits to drill wells by the BLM in 
Montana. We had drilled those wells. One of the special 
interest groups decided to protest the drilling of those wells 
and the appropriateness of the BML of giving us those permits. 
They asked for a State director review of those permits. The 
State director decided that he would put a moratorium on until 
he could get through the review. Before he could even make a 
statement on whether or not the review, or what to do with the 
permits, BLM was sued by that group. He later came out and 
said, ``We need to send it back. Remand it back to the field 
office.'' The new ratification, basically, of those permits 
came out and we are back drilling.
    The problem with that is that it took 3 months for that 
process to happen. Those were 87 wells that were prevented from 
producing. The money was already spent on them. They were 
drilled to the zone and we were unable to produce. A quick 
estimate would show that that probably cost in the realm of 
anywhere from $3 million to $8 million for that 90 days for 
those 87 wells, which if you want to translate it down to 
royalty for the Nation, that is roughly $400,000 in Federal 
royalties alone, half of which goes back to the poorest 
counties in one of the poorest States in the Nation.
    So, it is a dramatic impact, not just for the company, but 
for the governments and the people who live and thrive in the 
areas that we are trying to produce the resource from.
    Senator Inhofe. Thank you.
    Senator Jeffords.
    Senator Jeffords. Mr. Bloch, there has been conflicting 
testimony on the number of leases in Utah challenged by the 
environmental community. Can you provide additional detail for 
the committee on the number of challenges that took the form of 
litigation? In how many cases were violations of Federal 
environmental law cited?
    Mr. Bloch. Senator, there have been two lawsuits. The first 
was filed in the winter of 2001 and that was later dismissed by 
SUWA. The second is a lawsuit that we filed in November 2003. 
It is for the issuance of the sale of 21 leases in the State of 
Utah. There are a series of NEPA violations that SUWA has 
alleged, as well as other statutes. These are sales of leases 
on lands that the BLM itself acknowledges are wilderness-
quality lands.
    Senator Jeffords. Also, Mr. Bloch, to what extent has 
changing the Administration's guidance on NEPA fueled 
litigation in an effort to clarify the requirements regarding 
the content of environmental impact assessments?
    Mr. Bloch. I think there has been a substantial change in 
this Administration. It seems to be flaunting the very purpose 
of the act to think first and then act. Instead of seeing a 
through assessment or an analysis of the environmental impacts 
of leasing through production, instead there is a hurried 
process that simply results in a checklist instead of a through 
analysis. That is the crux of some of our concerns; that in the 
hurry to sell these leases, for example, that the wilderness 
quality lands of Utah are being leased away and scarified, as I 
said earlier, with very little result in natural gas 
production.
    Senator Jeffords. Mr. Caskey, in one of the attachments to 
your written testimony, you provide a chart detailing 
challenges to environmental documents made by a variety of 
environmental conservation and landowner groups. Not all of 
these challenges appear to be actual NEPA legislation.
    Can you provide an updated version of this chart for the 
committee that describes the nature of these challenges and 
under which Federal law these leases were challenged?
    Mr. Caskey. Yes, sir; I will do that.
    Senator Jeffords. I would appreciate that.
    Senator Inhofe. Without objection, so ordered.
    Senator Jeffords. Mr. Caskey, in your written testimony you 
state that it is this NEPA process of evaluating land use in 
development plans, and not the law itself, which has become the 
principal tool used by obstructionists to delay or halt natural 
gas development. As the law requires the development of 
environmental impact statements, can you explain in more detail 
the distinction that you are drawing between the law and the 
EIS process? Are you saying that a change in NEPA law is not 
needed to remedy the problems you have experienced, and just a 
change in the implementation of the law?
    Mr. Caskey. I think the law itself is reasonably sound. I 
think there are always definitional issues when you start 
applying the law that can be streamlined. I do feel very 
strongly that the process, the time guidelines within the NEPA 
process, are the crux of the issue for the abuse of the law, as 
well as the process.
    The law allows for designated timing of input from the 
public from special interests groups, and from all citizens of 
the United States. That timing is designated in the law. The 
abuse comes where special interest groups sue to slow down that 
process which, as I testified to earlier, delays the issuance 
of the necessary documentation which delays realization of the 
investment made. That is the primary issue here.
    Senator Jeffords. Thank you.
    Mr. Handley, in your testimony you say that 57 percent of 
all lease parcels offered by the Bureau of Land Management 
between 2001 and 2003 in the State of Utah were protested by 
groups opposed to development. What was the nature of these 
protests? Did they all involve allegations that Federal 
environmental law had been violated?
    Mr. Handley. Senator, I do not know. It was just a 
statistic that was given to me. I do not know what the nature 
of what the protests were.
    Senator Jeffords. Were these protests all in the form of 
lawsuits?
    Mr. Handley. I do not know that either.
    Senator Jeffords. Thank you.
    Thank you, Mr. Chairman. That is all I have.
    Senator Inhofe. Senator Voinovich.
    Senator Voinovich. I had the same concern. On your website 
you mentioned ``fabricated energy crisis.'' Were you here this 
morning for the testimony?
    Mr. Bloch. Yes, I was, Senator.
    Senator Voinovich. After hearing that testimony, would you 
say that there really is an energy crisis?
    Mr. Bloch. As I stated earlier, I would agree that all the 
speakers indicated that there is a crisis.
    Senator Voinovich. The question I have is: How are we going 
to deal with the crisis?
    Mr. Bloch. I am not sure about the answer to that, Senator, 
but I do know the answer is not to sell new leases and allow 
activities, such as wildcat wells in areas that are not 
predicted by the Federal Government and its figures and its 
agencies to produce any meaningful amount of natural gas, and 
that there needs to be a balance from production and 
preservation of lands.
    Senator Voinovich. Do you have any feelings about nuclear 
energy or coal-fired power plants? What does your company feel 
about nuclear power?
    Mr. Bloch. We do not have, to my knowledge, an official 
position on either of those, Senator.
    Senator Voinovich. How about burning coal?
    Mr. Bloch. Well, I think there are several coal-burning 
plants in Utah. I think our primary concern is the expansion of 
the plants. If you have spent any time in Salt Lake City, or in 
the Salt Lake Valley, I think it is among the worst 10 airsheds 
in the country. So our concern is the effect on the air.
    Senator Voinovich. There seems to be a real problem, then, 
does it not, with dealing with this energy crisis that we have, 
the natural gas crisis, but also an energy crisis in the 
country?
    Mr. Bloch. Senator, on the first map that I showed before, 
speaking only about the State of Utah, I do not think that 
there is this type of a crisis. There are identified locations 
for coal-bed methane for natural gas. As I indicated, 95 
percent of the production now and the other proven and inferred 
reserves are in these seven hot spots. There is not a conflict 
between the extraction in those areas and the preservation of 
some of our wild lands.
    Instead, though, the focus we are seeing from this 
Administration is to target those lands that are not predicted 
to have any type of meaningful natural gas for leasing and for 
extraction.
    Senator Voinovich. I would like to have Mr. Caskey and Mr. 
Handley's response to that. Do you feel that the Administration 
and their policy of opening up some of these areas is 
irresponsible and making available areas that ought not to be 
drilled?
    Mr. Handley. The area where I am doing my exploration is 
not a wilderness. It is in Grand County, UT. Grand Country 
really has only one economy right now. It is tourism. It is 
basically out of the town of Moab and Arches National Park. 
There are a couple of parks south of there.
    I have been to the area. It is fairly desolate. It was an 
old mining district. The town desperately wants my program to 
go through. I have been out there to speak with the town and 
the management. I have spoken with the Grand County council. 
This would be a perfect use for this land. This land is not 
pristine. It is an old mining district. It would be a perfect 
place to explore and drill for oil and natural gas. It would 
mean much to their economy.
    Senator Voinovich. Mr. Caskey. The allegation is that the 
Administration has opened up a number of areas that ought not 
to have been opened up. It is my understanding that the reason 
they did it is because we have a crisis. They feel that you can 
drill in those areas and it is environmental responsible.
    Mr. Caskey. I think if it is done according to the law as 
it stands now, it is absolutely environmental responsible. I 
think it can be managed very well. We have proven we can do 
that. I also find it very interesting that the obstructionist 
community feels that 6 days, or 2 weeks, or 3 months, or 6 
years of lack of natural gas is not consequential.
    I would like to ask that same community which communities, 
Los Angeles, the whole country, is going to do without gas for 
3 months? That is a difficult question to answer. I think that 
is the one that we have to look at.
    Like some of the testimony this morning, I feel that the 
fellow who was talking about the agricultural use of natural 
gas as a basic stock for fertilizer, again what are we going to 
do? I am not so much worried about price. What are we going to 
do when we cannot get it at any price? That is the question we 
have?
    Senator Voinovich. Have you looked at the energy bill?
    Mr. Caskey. Parts of it. I have not read the whole bill 
through.
    Senator Voinovich. Have you read the parts that impact on 
you?
    Mr. Caskey. Absolutely.
    Senator Voinovich. In your opinion, are they going to help?
    Mr. Caskey. I think they will help. I think it needs to get 
done in a hurry to help because I think the hole is getting 
deeper and deeper. The supply is declining. The demand is 
increasing. The catchup is going to take longer, regardless of 
what the legislation does.
    Senator Voinovich. Would it do anything about the lawsuits 
that Mr. Bloch's group can file or anybody else's?
    Mr. Caskey. Actually, fortunately, Mr. Bloch's group has 
not filed any lawsuits against my company. The lawsuits are 
going to be there. That seems to be a pattern that the groups 
are taking these days to obstruct the development of natural 
gas and oil.
    Senator Voinovich. Mr. Handley, have you looked at the 
energy bill?
    Mr. Handley. Yes, I have. But just in parts. You have to 
remember that I am a very small piece of the picture. I am an 
independent. I have looked at the energy bill. I do not think 
it goes far enough to try to attempt to solve the problem that 
we are having in the United States.
    Senator Voinovich. But the fact is that there is more of an 
opportunity to open up areas, but it does not do anything about 
the remedies that are out there that you are contending with 
right now. So I guess the argument I would make, Mr. Bloch, is 
that even if these things are opened up, the same avenues are 
available to organizations to come in and file lawsuits and 
take advantage of the NEPA law and so forth?
    Mr. Bloch. Well, Senator, I guess that's right. Those 
avenues are still going to be available. I think there are 
certainly some efforts that are being made to curtail the 
process. I think it is important to come back to some of the 
numbers right now, as things stand.
    The Assistant Secretary of the Interior testified in front 
of the House in 2003, and she talked about how in the Rocky 
Mountain West a full 88 percent of the lands are available for 
natural gas exploration and for leasing. It is not a situation 
where there are too many lands that are off limits. I think it 
is important to have some of those facts out there and to make 
sure that that is front and center. It is not a situation that 
there are too many lands that are off limits. In fact, it is 
only the special places that are off limits. There needs to be 
that type of a balance, quite frankly.
    Senator Voinovich. I guess the problem that we have today 
is: Where do you strike the balance? From my perspective, we 
have been striking it in a way that we have been neglecting the 
reality of some of our policies. I am very interested in 
protecting the environment, but at the same time, we have to 
balance that with where this country is going. We have some 
real severe problems.
    I have looked at the energy bill. It helps, but it does not 
get at it. We are going to have this around for awhile and 
until we get the liquid gas coming here, if they are going to 
make that possible, and then hopefully we will open up and get 
that natural gas coming out of Alaska. We are in for a rough 
road right now. I think that everyone has to be aware of that 
situation and take that into consideration when you are 
developing the balance that you are trying to reach.
    Mr. Bloch, from my perspective of being here for 5 years, 
and I used to testify before this committee when I was Governor 
of Ohio, it just seems that too often when we are doing our 
environmental policies, we just ignore the impact that it has 
on the economy and our energy supplies in this Nation. I do not 
think we can keep doing that for too much longer. If we do, I 
think you are going to see a real diminishment of our overall 
quality of life, and in terms of quality of life for people who 
live in my cities. My county probably has more people than your 
State has.
    The point I am making is that there are a lot of people 
that live in our inner cities and what we might refer to as 
ghettos, that are really up against it. When they are paying 
100 percent for their natural gas costs, it is the difference 
between buying food or having clothes or maybe paying their 
rent. We just keep talking about, ``Well, it is the 
environmental issues.'' I sometimes think that probably some of 
your members do not know those people are there.
    Mr. Bloch. Senator, I am a native from your own home State. 
I grew up on the southeast side of your home city. I am from 
Chagrin Falls, OH. I think that there can be that kind of a 
balance. I think that some of the lands in Utah, my home State 
now, can be protected and that there is still an opportunity to 
increase the production of natural gas. The concern that I am 
here to tell you about is that the wild places that Ohioans 
come to visit are at risk from the energy policy of this 
Administration that is targeting these lands. It is not for 
their natural gas values.
    Senator Voinovich. But the point I am making is that even 
if I agree that is what it was, and I cannot believe it was a 
willy nilly thing, to just forget about it and open the gates 
regardless. The same remedies are still available to everyone 
in the event that if they move in the areas, you can still do 
your thing, right? We have not taken anything away from you; 
have we?
    Mr. Bloch. Not yet, sir.
    Senator Voinovich. Thank you, Mr. Chairman.
    Senator Inhofe. Thank you, Senator Voinovich.
    In my opening statement I quoted from the Clinton 
administration document praising the gas producing industry for 
their stewardship, for what they have done. Specifically they 
said it is important to tell this remarkable story of 
environmental progress and of the greater awareness of the 
industry's achievements in environmental protection will 
provide the context for an effective policy.
    I sense from some of the groups that I hear, perhaps yours 
and others, that you do not agree with the previous 
Administration, the Clinton administration, as to the 
stewardship that is provided by the gas-producing industry; 
would that be correct?
    Mr. Bloch. Senator, speaking again from the perspective of 
Utah, I think it still comes to this question of balance. When 
there are projects taking place in some of these seven hot 
spots, those are not places where you are seeing any of the 
legal fights. As far as I can tell, the stewardship that is 
being provided by industry in those places seems to be meeting 
environmental standards. If it is not, I am sure that it will 
be challenged by somebody else. But the areas that we are 
concerned first and foremost about, are these other wildlands 
that do not have the resource and yet are still in the cross-
hairs.
    Senator Inhofe. Several times you have used the term that 
the government has determined that there is not adequate 
capability or production to justify it. Each time you said that 
I thought: Is this really the role of government? Is this not a 
supply and demand thing? These people who go in, and they want 
to explore, it is a tremendous investment. They do so based 
upon the best knowledge that they have. They are not going to 
go into some place unless they feel that there is an 
opportunity to get the results; is that not correct?
    Mr. Bloch. I think that is correct for an individual such 
as a wildcatter, but I think that there needs to be a balancing 
in between the hopes of a single individual and the profit that 
he is going to make, and the protection it places by the BLM in 
a public trust for all Americans.
    Senator Inhofe. Well, how about all Americans who cannot 
heat their homes and who cannot have jobs because manufacturers 
are moving overseas?
    Mr. Bloch. That is not where the natural gas is coming 
from, Senator. That is not what the figures from the Government 
show.
    Senator Inhofe. Let me ask you a question. You are 
concerned mostly with Utah?
    Mr. Bloch. That is correct.
    Senator Inhofe. I think we have determined that we all know 
that there is a crisis right now. You heard the testimony this 
morning. The price of fertilizer has doubled in the last 6 
months. That is a crisis; is it not? Who pays the price for 
that crisis? It is the public; is it not? They are the ones 
that are trying to buy, that is passed on?
    Mr. Bloch. I think that is correct.
    Senator Inhofe. The cost of heat, the little old ladies 
that we talked about up in Rhode Island that the Governor is 
concerned about. I hope we are all concerned about that. So I 
think the crisis is here.
    I think Senator Voinovich brings up a valid point. I was 
anxious. I hope I heard you right when he said there are other 
forums of producing electricity. There are fossil fuels. There 
is burning coal. Do you have a problem with that?
    Mr. Bloch. Senator, my organization, to the best of my 
knowledge, at this point is not taking a position on a number 
of proposed expansions in Utah. I can think of three off the 
top of my head. There are expansions of existing coal-burning 
plants or new plants.
    Senator Inhofe. Well, I think that your organization is 
concerned, obviously, about having adequate electricity and the 
generating capability. Let us just say that in southern Utah 
where there is a plentiful supply of sun and wind, would you 
support construction of wind turbines and solar panels in 
southern Utah?
    Mr. Bloch. I think we are supporting those. Of course, it 
is our hope that they would be environmentally sensitive where 
they are being sited. But there are some that are being 
proposed in northeastern Utah close to the Wyoming border. I 
think we are fully on board with that, Senator.
    Senator Inhofe. Oh, you are? There are some groups, I know, 
that are now opposing some forms of renewables, wind 
specifically. I am glad to know that that is your policy. We 
will remember that. I have a feeling this may come to surface 
in the future. It is nice to know that we have an ally.
    Mr. Bloch. Let me be sure that I have explained it 
correctly. There are some proposed wind turbines in 
northeastern Utah that are close to the Wyoming border that we 
are in agreement with. As far as additional ones in Utah's west 
desert, or in southern Utah, I think we have to look at it on a 
case-by-case basis.
    We are concerned about the siting of the turbines, but as 
far as in principle, it is something that we are in agreement 
with.
    Senator Inhofe. Mr. Handley, Mr. Caskey, and Mr. Bloch, you 
have come a long way. We are not under the pressure that we 
were prior to when we had to recess. Is there anything that you 
feel that you should share with this committee that you have 
not had a chance to do up to now?
    Let us start with you, Mr. Handley.
    Mr. Handley. No, I will just give you a short summation. I 
am an independent. I took these leases from the Federal 
Government and from the State of Utah with the expressed intent 
that I was going to evaluate it for its petroleum potential. I 
had the responsibility to do that. When the Government gives 
you a hydrocarbon mineral lease, you are expected to perform on 
that lease.
    I went out there and I did everything the Government asked 
me to do. It was an arduous process dealing with the BLM. They 
were very strict. After I had my permit, I was shut down in 
Washington, DC after a judge issued a decision based on an 
appeal by SUWA. I had basically no recourse. I did everything I 
was supposed to do. It took me by great shock. This is not a 
wilderness area. This is in a county that desperately wants 
this exploration program to go forward.
    Senator Inhofe. Mr. Bloch, I was just handed a note that 
you have to catch a plane and that you have to leave in just a 
matter of minutes. Is there anything that you would like to say 
prior to that, and then, of course, you can be excused?
    Mr. Bloch. Thank you, Senator. In response to something 
from Senator Voinovich, I think, Senator, you are exactly 
right. How do we draw the line for balance? How do we arrive at 
that balance? I think that the position of my organization and 
of the conservation community that focuses on Utah, our view is 
that this Administration is out of balance in how it is 
targeting the lands that by all estimates are not predicted or 
known to contain natural gas and are, nevertheless, in the 
cross-hairs of development.
    Senator Voinovich. I would just comment that logic would 
tell me that if what you say is true, who is going to go in 
there? Why would you bother going into an area where you say 
there is nothing there? If I am a businessman, and I have to 
borrow money to go ahead and do this, I would have to be insane 
to go into an area like that and spend money when the result of 
my work would not be productive.
    Mr. Bloch. Again, Senator, the answer is, this is not the 
major companies. It is either the mid-majors, or the 
independents, or wildcatters who are going in for the profit of 
a few individuals, again at the price of the loss of a national 
landscape.
    Senator Voinovich. Thank you.
    Senator Inhofe. Mr. Caskey.
    Mr. Caskey. Thank you, Senator. I am one of those 
independents. I represent one of those small middle-sized 
companies. We have 100 people in our company. We produce about 
200-million cubic feet of gas per day. That is not a big 
producer. That is a medium-size producer. We are being stymied 
with respectively large investments. We are being stymied by 
the process, like I testified to earlier. This needs to somehow 
change. Otherwise, we are not going to have the supply that 
everybody is so worried about. And the ``crisis,'' if that is 
what we have agreed on, is what is occurring right now, will 
perpetuate itself. This is not going to get easier.
    The legislation that I have reviewed, or the pieces that I 
have reviewed, does not answer all of the questions and does 
not put us on the road to recovery. It will help, but as long 
as the process is being abused, we are going to stay in this 
turmoil and we are going to have the disparities between the 
time we can produce the gas and the time it is needed. I hope 
that does not happen when it is 40 degrees below zero in the 
Northeast. Thank you.
    Senator Inhofe. All right. Let me thank all three of you 
for coming back and having to be delayed in your testimony. We 
appreciate it. You have been very helpful. We thank you for 
coming.
    We are adjourned.
    [Whereupon, at 3 p.m., the committee was adjourned, to 
reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
Statement of Hon. Wayne Allard, U.S. Senator from the State of Colorado
    Mr. Chairman, I want to express my appreciation to you for holding 
this hearing. As I think we are all aware, increasing amounts of 
natural gas are being used strictly by power plants for energy 
production. It is also heavily utilized for home heating throughout the 
country. Demand for natural gas has increased sharply, this has put 
quite a strain on natural gas supplies.
    There are any number of reasons that natural gas demand has 
increased so dramatically. New guidelines were placed on power 
production facilities by amendments made to the Clean Air Act in 1990. 
This has resulted in the fact that virtually every power production 
facility built since passage of these amendments operates by burning 
natural gas for power production. This is one of the major contributors 
to the increase in demand for natural gas and consuming otherwise 
available gas supplies.
    During the same time period, natural gas development levels have 
remained basically flat which has driven the wholesale cost of that 
commodity up. As a natural result of increased demand and a level 
supply, we are seeing some of the highest natural gas prices in recent 
memory. Endless lawsuits, onerous ``red tape'' and regulations have 
greatly hindered new development and have made it very difficult for 
private companies to develop resources on public land--where most 
supplies that have been currently documented are located.
    These lawsuits and regulations have also made it very difficult to 
add transmission capabilities. There is a severe shortage of 
transmission throughout the country, but any attempts to site new 
pipelines are met with more resistance and additional lawsuits. The 
lack of transmission capability restricts the ability to move supplies 
even if they can be developed.
    I find it very interesting that the same special interest groups 
that encourage gas fired generation of electricity, oppose granting 
leases and permits to enable facilities to bring more natural gas on-
line. Those who mast strongly argue the need for gas fired generation 
are very often those that file the lawsuits that hold up new production 
and transmission. We simply can't have it both ways.
    The vast majority of gas supplies in the west lie under Federal 
land. It is important that we make these supplies available for 
production. Government owned, public lands were always intended to be 
available for multiple uses. Certainly there are places where one 
couldn't imagine production taking place. But land should not be 
arbitrarily made unavailable for development. These areas should be 
throughly assessed and, if they indeed qualify as areas in which 
development would severely impact the land, development can be 
restricted accordingly.
    While increased development will mean more natural gas on the 
market, gas production requires skilled workers, so it will also mean 
more jobs are available. Developers also pay local and State taxes on 
the gas that they extract. This is very helpful to residents in rural 
areas that often have low tax bases.
    We must have more production from domestic energy sources including 
oil, natural gas, clean coal, nuclear, and renewable resources. The 
future of our energy supply must be a diverse one, and natural gas 
clearly must be a part of that make-up.
    For all of these reasons I am grateful that the Committee is 
holding this hearing and I look forward to the testimony that we will 
receive here today. Thank you, Mr. Chairman.

                                 ______
                                 
     Statement of Martin Kelly, President and CEO, Moraine Molded 
                             Plastics Inc.

    My name is Martin Kelly, President and CEO of Moraine Molded 
Plastics Inc., located in the northern suburbs of Cincinnati, Ohio. I 
submit this statement for the record to assist the Committee in 
proceeding with concrete actions to address the Nation's natural gas 
problem. Many of these same concerns have been expressed by Alan 
Greenspan to Congress (see Appendix 1). He believes as I do that 
solving the natural gas problem is critical to the short term viability 
and long term growth of the domestic manufacturing economy.
    Plastics is a critical U.S. industry, providing products that make 
modern life possible. The industry also is a critical slice of the U.S. 
economy, providing $310 billion in annual shipments and employing 1.4 
million workers nationwide. In 2002, more than 112,000 of those jobs 
were in my home State of Ohio, which created more than $21 billion in 
shipments, ranking it second in the Nation for plastics jobs and third 
for plastics shipments (see Appendix 2 for the plant and employment 
data on the states represented by the EPW members).
    My company is a plastics injection molder that employs about 50 
workers that mold plastic parts for manufacturers of office equipment, 
industrial products, and liquid dispensers. We operate in a very 
fragmented market place, with about 4500 competitors worldwide. Moraine 
Products focuses on a small market segment that emphasizes product 
quality, high volumes, and engineering support in trying to 
differentiate our products. Yet, with many competitors offering similar 
product attributes and customer support, the bottom line for most of 
our customers is price: am I able to provide the products that they 
want at the lowest cost to them?
    In answering that basic question, surging natural gas costs over 
the past few years, with unprecedented volatility in prices, is really 
hurting my company and the entire plastics industry in two basic ways, 
and is removing my ability to be the low cost provider, a provider of 
good jobs and a provider of benefits to my employees and retirees.
     First, we use a lot of basic resins such as polypropylene, 
polystyrene, and polyethylene, all derived from petrochemicals. Even 
the more advanced raw material resins that we use have the same origin 
from petrochemicals. As the price of natural gas has exploded to almost 
2.5 to 3 times in price over the past 2-3 years, the costs of my resin, 
my basic raw material, have increased proportionately. The resin 
manufacturers--my suppliers--have to pass on some of the natural gas 
costs to me in order for them to remain competitive in their U.S. 
operations. As a matter of fact, over the past 5 months since December 
1, 2003, I have received resin price increases every month--a total 
increase in my resin costs of about 36 percent! These increased costs 
to me are directly from energy costs imposed on my resin supplier.
     Second, when these resins are molded into plastic parts, 
the molding machines can require temperatures of up to 600 degrees 
Fahrenheit, and pressures of up to 4000 pounds per square inch. The 
molding machines that do this are significant consumers of energy. It 
turns out that the electricity for many plastics processors, 
particularly in the southwest and southeast, are supplied by gas-fired 
utilities. Thus, as natural gas prices have escalated, local utility 
companies--after the regulatory rate-paying authorities approve the 
``pass through'' fuel cost increases to all local consumers--send 
utility bills, that continue to increase, to the processors. 
Consequently, many in the industry have electricity bills that have 
almost doubled over the past few years, and with the resin price 
increases, we have to try and pass these costs downstream to our 
customers in order to stay in business. With my competition abroad 
having ample and much lower priced natural gas, this problem of passing 
our increasing raw material and energy costs--driven by natural gas--to 
my downstream customers, is becoming much more problematic.
    I should note that, while my equipment suppliers have made major 
increases in energy efficiency of my manufacturing machines over the 
past several years that helps lower the amount of electricity used per 
product produced, these improvements cannot overcome the almost doubled 
electricity costs for the energy required to run these machines. The 
market signals have been clear: energy efficiency improvements are here 
to stay.
    I do not want my company to become one of the manufacturing 
casualties reflected in recent Bureau of Labor statistics. As BLS data 
reflect, the U.S. has lost over 2.2 million manufacturing jobs since 
1998. In fact, the BLS data reflect that since 1999 Ohio has lost 
173,100 manufacturing jobs (see Appendix 3). Specifically for plastics, 
data from The Society of Plastics Industry, Inc. (SPI), the trade 
association that represents the U.S. plastics industry, including my 
company, indicates that plastics employment declined more than 9 
percent from 2001 to 2002, and shipments declined nearly 7 percent in 
that same time period. Energy policy--or the lack thereof--is a 
significant reason for this decline.
    Some folks are calling much of this loss of manufacturing 
``outsourcing'' when it really should be called ``offshoring.'' My 
company is not a multi-national company. I don't have the option of 
moving production to another facility in another country. I'm a 
typical, small plastics manufacturer, of which many such companies are 
(and were) located throughout the Midwest, including a major presence 
in Ohio.
    The simple truth is that the combination of high energy and 
feedstock costs, rising health care costs, increased costs from 
Federal/State regulations, and major increases in insurance/litigation 
costs are driving many of our companies out of business. You just can't 
compete if these domestically imposed costs are increasing at a time 
when our global competition has significantly lower operating costs 
that enable them (and not us) to establish a price level to customers 
that many of us cannot meet.
    This loss of manufacturing in the U.S. and in Ohio, and the adverse 
impact on my small company in Cincinnati, are primarily the result of a 
natural gas imbalance in the United States. We need help NOW to lower 
my resin feedstock and electricity costs, both of which are increasing 
because of demand exceeding the supply of natural gas. Today, as most 
analysts have concluded, the United States has the highest priced 
natural gas of any country with a supply. How can I compete against 
companies making plastic parts using resins and electricity based on 
natural gas costs that are in the range of 40-60 percent lower than 
mine? As the Washington Post article in the Finance section on March 
17, 2004 reported, ``In the past 5 years, U.S. natural gas prices have 
roughly doubled as more and more electrical plants consume the clean-
burning fuel but supplies stay stagnant. Other parts of the world--
including Western Europe--pay far less.'' For the record, the entire 
Washington Post article is at Appendix 4.

           RECOMMENDATIONS OF THE NATIONAL PETROLEUM COUNCIL

    What can we do? What are the solutions? To help this Committee 
respond to these questions, I refer to the National Petroleum Council 
Report, ``Balancing National Gas Policy'' dated September 25, 2003, and 
offer the following, selected findings and recommendations from that 
report. This report is significant because it included a broad-based 
demand panel.
     First, gas consumption will continue to grow, but such 
growth will be moderated as the most price-sensitive industries become 
less competitive, causing some industries and associated jobs to 
relocate outside North America.
    The relocation of industries and jobs is happening now. Homeowners, 
utilities, commercial users such as local transportation agencies using 
natural gas (e.g., natural gas buses), and the industrial sector are 
all feeling the pinch. However, the industrial sector, such as the 
plastics industry, is the only one that has to meet a globally imposed 
ceiling on costs from natural gas, and the only one that is ``mobile'' 
in the sense of going out of business or relocating abroad. This is 
called ``demand destruction'' and helps explain why job losses are 
occurring. This also explains why gas consumption growth in the 
outyears will be moderated--gas will be freed from companies going out 
of business, and that gas will then be available for the other 
consuming sectors to use. The report also makes clear that the U.S. is 
a net importer of natural gas and we will never again be self 
sufficient in gas supply.
     Second, a balanced fuel portfolio is essential. This 
includes renewables (e.g., wind, solar, fuel cells), oil/distillate, 
coal, hydroelectric and nuclear.
    A balanced portfolio of energy resources is critical. By 
maintaining/expanding nuclear, by increasing the investment in and use 
of advanced coal technologies, by emphasizing renewables where 
reasonable and economical, we can help alleviate some of the nation's 
ever increasing demand on scarce natural gas. If we can provide more 
industrial users access to natural gas then we will have a better 
chance of maintaining operations in the U.S. and helping stabilize and 
perhaps grow the number of manufacturing employees in this country.
     Third, gas-fired electricity generation buildup has 
reshaped natural gas demand.
    This is by far the major driver in this country's increased demand 
for natural gas. From about 780 gigawatts of electricity demand in 
1995, to about 900 gigawatts in 2004, increasing to about 1400 
gigawatts in 2025 in order to meet increasing population growth and 
needs in the U.S., most of this growth is planned from new, natural 
gas-fired utilities. But, where is the growth in natural gas to come 
from? Unless this specific driver of demand is ameloriated, the 
``demand destruction'' referenced above will be one of the supply 
sources to help meet this demand. We should not let this happen. We 
cannot let this happen. We must assure that U.S. use of coal grows in 
the future.
     Fourth, increased access to U.S. resources (excluding 
designated wilderness areas and national parks) could save consumers 
$300 billion in natural gas costs over the next 20 years.
    The U.S. is the only developed Nation in the world that is not 
developing all of its domestic natural gas energy resources. Instead, 
we continue to drill for natural gas in the same old areas that are not 
``off limits.'' As the NPC study indicates, traditional North American 
producing areas will provide 75 percent of long-term gas needs, but 
will be UNABLE to meet projected demand. The supplies by pipeline from 
Canada will decline as they face the same problems with declining 
production from mature fields as the U.S. Mexico will continue to be a 
net importer of gas from the U.S. Future supplies must come from 
traditional as well as new sources (including new drilling areas, 
liquefied natural gas, and gas from Alaska). From 21-22-trillion cubic 
feet of natural gas demand annually in 1990, the demand is gradually, 
at an increasing rate primarily from the utility generation sector, 
growing to 33-trillion cubic feet by 2025. This is a 50-percent 
increase in demand over this period, in the face of only a slightly 
increasing supply of natural gas. We need to seriously consider our 
natural resources of gas in the Rockies, off the Pacific and Atlantic 
Coasts, as well as in the Gulf of Mexico. In the Rockies and Deepwater 
Gulf of Mexico, our production absolutely needs to grow now.
     Fifth, increased access and reduced permitting impediments 
to development of lower-48 natural gas resources.
    According to the NPC report, increased access could reduce natural 
gas costs by up to $0.50 per million BTU in 2002 dollars. Further, as 
mentioned above, current areas that are restricted have enough natural 
gas to meet our shortfalls now and in the future. The NPC report shows 
that, while the number of natural gas drilling rigs has more than 
doubled over the past several years, the supply of gas from the same 
old wells is basically constant. Thus, the best that can be said is 
that production response from increased drilling has been modest at 
best.
     Sixth, LNG imports can lower costs to consumers.
    While important, we cannot alleviate our natural gas problem with 
just LNG imports. But, as the NPC report states, both Arctic gas and 
LNG imports are available and could meet 20-25 percent of natural gas 
demand by 2025. But, both are higher-cost, both have longer lead times, 
and both face major barriers to development. In fact, as I'm sure the 
Committee is aware, just in the past few weeks a planned LNG terminal 
in the State of Maine was rejected by the local populace, based on 
(unfounded) fears of safety and security.
     Seventh, Arctic Pipeline projects can deliver important 
new supplies.
    My company, as well as our industry association SPI, favors 
legislation that expedites an Alaskan gas pipeline. We need to access 
the natural gas reserves in both the Alaskan North Slope as well as in 
other productive regions. But, again, this is long term and will not 
help me or others with the natural gas problem in the near to medium 
term.

                               CONCLUSION

    In summary, as a small plastics manufacturer in Ohio, I know that 
solving the natural gas crisis is not an easy task, for this Committee 
as well as others in the Congress. But, I do know that my business 
survival is dependent on doing just that. I also know from individuals 
on fixed incomes that the increased costs of utility bills, just like 
mine, are forcing hardships. Retirees on fixed incomes have to choose 
between air conditioning or pharmaceuticals for health. Single parents 
on welfare have to choose a balance between food for the children on 
the table or at school, or heat for the home. All are difficult 
situations.
    We can make great strides forward, in my view, by doing the 
following:
    (1) Ensuring a robust energy policy for this nation. We need a good 
balance between clean coal, nuclear, hydro, natural gas, oil, and 
renewables for our energy sources. We should not, for example, follow 
extremist views that argue for no growth at all in coal, but rather 
declines. Coal is our biggest and most available domestic energy 
resource. We need to use it.
    (2) Reducing demand for natural gas in two basic ways. First, a 
program of conservation now across all consuming sectors can yield our 
best way in the short-term to avoid further job losses and to free up 
natural gas for the industrial sector. Second, we need to look at ways 
that the utility sector can use more clean-coal instead of natural gas 
as the energy source to meet the rapidly increasing demand for 
electricity in this country. We must avoid any proposal that blocks the 
growth of coal for electricity.
    (3) Rapidly approving and siting LNG terminals in the coastal 
areas, including the Pacific, Northeastern Atlantic, and Gulf areas. 
While longer-term, this will go a long way toward helping stabilize 
natural gas prices and dampening volatility in prices, since the 
markets would then be connected on a global basis, rather than the 
current regional or local basis.
    (4) Opening up the resources available in Alaska, and passing 
Federal legislation that would enable a pipeline to the lower-48. This 
is a longer-term supplement, but will be needed with all the other 
sources to meet the nation's demand through 2025 and beyond.
    (5) Finally, and probably the most contentious, is to open up the 
very large natural gas resources in this country that are currently 
``off limits.'' It is my considered opinion that most of the objections 
to these areas are based on ignorance. It just doesn't make any sense 
for the U.S. to be the only developed Nation in the world that refuses 
to develop its natural resources like this. No sense at all.
    In summary, I thank the Committee for allowing my statement to be 
inserted in the record at this Hearing. I am just a small company 
trying to survive the increased costs wrought by the natural gas 
crisis, and do hope that my views have provided some insight as to how 
the Nation's leaders must proceed to resolve it.
    I will be pleased to respond to any questions the Committee might 
submit in writing.
                                 ______
                                 
                               APPENDIX 1
                  Testimony of Chairman Alan Greenspan

                  [Excerpts--emphasis and notes added]

                  NATURAL GAS SUPPLY AND DEMAND ISSUES

    . . . Canada, our major source of imported natural gas, has had 
little room to expand shipments to the United States,
    . . . and our limited capacity to import liquefied natural gas 
(LNG) effectively restricts our access to the world's abundant supplies 
of gas.
    Our inability to increase imports to close a modest gap between 
North American demand and production (a gap we can almost always close 
in oil) is largely responsible for the marked rise in natural gas 
prices over the past year. Such price pressures are not evident 
elsewhere.
    In the United States, rising demand for natural gas, especially as 
a clean-burning source of electric power, is pressing against a supply 
essentially restricted to North American production.
    Given the current infrastructure, the U.S. market for natural gas 
is mainly regional, is characterized by relatively longer term 
contracts, and is still regulated, but less so than in the past. As a 
result, residential and commercial prices of natural gas respond 
sluggishly to movements in the spot price. Thus, to the extent that 
natural gas consumption must adjust to limited supplies, most of the 
reduction must come from the industrial sector and, to a lesser extent, 
utilities.
    Yesterday the price of gas for delivery in July closed at $6.31 per 
million Btu. That contract sold for as low as $2.55 in July 2000 and 
for $3.65 a year ago.
    Futures markets project further price increases through the summer 
cooling season to the peak of the heating season next January. Indeed, 
market expectations reflected in option prices imply a 25 percent 
probability that the peak price will exceed $7.50 per million Btu.
    Today's tight natural gas markets have been a long time in coming, 
and futures prices suggest that we are not apt to return to earlier 
periods of relative abundance and low prices anytime soon.
    Since 1985, natural gas has gradually increased its share of total 
energy use and is projected by the Energy Information Administration to 
gain share over the next quarter century, owing to its status as a 
clean-burning fuel.
    Moreover, improving technologies have also increased the depletion 
rate of newly discovered gas reservoirs, placing a strain on supply 
that has required increasingly larger gross additions from drilling to 
maintain any given level of dry gas production. Depletion rates are 
estimated to have reached 27 percent last year, compared with 21 
percent as recently as 5 years ago.
    Canada, which has recently supplied a sixth of our consumption, has 
little capacity to significantly expand its exports, in part because of 
the role that Canadian gas plays in supporting growing oil production 
from tar sands. [Does not mention impact of ratification of Kyoto 
Protocol . . . Canadian gas must also be used to displace current coal 
use and for electricity growth]
    The updrift and volatility of the spot price for gas have put 
significant segments of the North American gas-using industry in a 
weakened competitive position. Unless this competitive weakness is 
addressed, new investment in these technologies will flag.
    Increased marginal supplies from abroad, while likely to notably 
damp the levels and volatility of American natural gas prices, would 
expose us to possibly insecure sources of foreign supply, as it has for 
oil.
    But natural gas reserves are somewhat more widely dispersed than 
those of oil, for which three-fifths of proved world reserves reside in 
the Middle East. Nearly two-fifths of world natural gas reserves are in 
Russia and its former satellites, and one-third are in the Middle East.
    Creating a price-pressure safety valve through larger import 
capacity of LNG need not unduly expose us to potentially unstable 
sources of imports. There are still numerous unexploited sources of gas 
production in the United States. We have been struggling to reach an 
agreeable tradeoff between environmental and energy concerns for 
decades. I do not doubt we will continue to fine-tune our areas of 
consensus.
    But it is essential that our policies be consistent. For example, 
we cannot, on the one hand, encourage the use of environmentally 
desirable natural gas in this country while being conflicted on larger 
imports of LNG. Such contradictions are resolved only by debilitating 
spikes in price.
    In summary, the long-term equilibrium price for natural gas in the 
United States has risen persistently during the past 6 years from 
approximately $2 per million Btu to more than $4.50. The perceived 
tightening of long-term demand-supply balances is beginning to price 
some industrial demand out of the market. It is not clear whether these 
losses are temporary, pending a fall in price, or permanent.
    If North American natural gas markets are to function with the 
flexibility exhibited by oil, unlimited access to the vast world 
reserves of gas is required. Markets need to be able to effectively 
adjust to unexpected shortfalls in domestic supply. Access to world 
natural gas supplies will require a major expansion of LNG terminal 
import capacity. Without the flexibility such facilities will impart, 
imbalances in supply and demand must inevitably engender price 
volatility.
                                 ______
                                 
                               APPENDIX 2

   Plastics Industry: Facilities and Jobs (Environment & Public Works
                                 States)
------------------------------------------------------------------------
                                                   Total
                     State                       Companies/   Total Jobs
                                                 Facilities   (Thousand)
------------------------------------------------------------------------
OK............................................          172       10,500
VA............................................          219       25,300
MO............................................          389       27,600
OH............................................         1327      112,100
ID............................................           64        2,100
RI............................................          130        8,500
TX............................................         1334       94,900
AK............................................           12       15,800
WY............................................           10          500
CO............................................          298       10,700
MT............................................           25          800
NV............................................          139        5,400
FL............................................          870       29,400
CA............................................         2359      137,800
CT............................................          306       15,800
OR............................................          266       11,100
DE............................................           60        4,600
NY............................................          944       52,800
VT............................................           46        3,000
------------------------------------------------------------------------

                                 ______
                                 
                               APPENDIX 3

     Higher natural gas prices in particular severely diminish 
the competitiveness of industries using natural gas as an input for 
fuel and power and as a raw material. This occurs because natural gas 
markets are generally national (or regional) in nature. As a result, 
exporting industries in this Nation face higher costs vis-a-vis 
competing nations, as the latter do not incur these costs. The same 
holds true for the agricultural sector because they consume 
fertilizers, which are natural gas-intensive.
     Diminished competitiveness results in a severe drop in the 
output of energy-intensive sectors such as cement, aluminum, steel and 
chemicals. This results in job losses or jobs created elsewhere 
overseas.
    The following table illustrates the loss of manufacturing jobs by 
State between 1999 and 2003 as compiled by the Bureau of Labor 
Statistics.

                                           Employment in Manufacturing
                                                   [Thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                                         Change
                                                       1999      2000      2001      2002      2003    1999-2003
----------------------------------------------------------------------------------------------------------------
Alabama............................................     357.5     351.4     325.5     307.3     296.2      -61.3
Alaska.............................................      11.8      11.8      11.7      11.2      11.1       -0.7
Arizona............................................     207.4     209.9     201.7     183.9     175.4      -32.1
Arkansas...........................................     240.7     240.3     226.9     214.4     208.3      -32.4
California.........................................   1,829.9   1,857.5   1,785.6   1,641.2   1,584.2     -245.7
Colorado...........................................     160.7     191.3     181.9     166.3     154.6      -36.1
Connecticut........................................     240.2     235.6     226.7     213.0     203.5      -36.7
Delaware...........................................      44.0      41.5      39.4      36.8      34.2       -9.8
District of Columbia...............................       3.8       3.7       3.4       3.0       2.8       -1.0
Florida............................................     455.5     455.0     432.3     407.8     392.9      -62.7
Georgia............................................     542.6     530.5     498.3     471.8     452.2      -90.5
Hawaii.............................................      15.9      16.4      16.4      15.2      15.0       -0.9
Idaho..............................................      68.9      69.9      68.3      64.7      61.5       -7.4
Illinois...........................................     882.1     870.5     815.4     756.2     733.0     -149.1
Indiana............................................     664.7     663.5     615.4     589.1     577.5      -87.2
Iowa...............................................     252.7     251.4     240.2     227.5     222.1      -30.6
Kansas.............................................     204.0     200.2     194.3     182.8     177.6      -26.4
Kentucky...........................................     309.0     310.4     291.8     275.7     269.6      -39.4
Louisiana..........................................     181.4     177.4     171.8     160.9     156.9      -24.5
Maine..............................................      80.5      79.5      74.6      68.0      63.9      -16.6
Maryland...........................................     173.6     173.9     168.2     157.2     153.1      -20.5
Massachusetts......................................     405.2     407.9     387.7     347.6     333.0      -72.2
Michigan...........................................     898.1     896.7     819.6     759.1     733.8     -164.3
Minnesota..........................................     395.4     396.5     378.5     355.6     346.4      -49.0
Mississippi........................................     232.9     222.5     200.8     188.7     179.9      -53.0
Missouri...........................................     371.8     361.8     342.2     322.2     314.2      -57.6
Montana............................................      22.5      22.5      21.4      19.8      18.8       -3.8
Nebraska...........................................     113.4     114.3     110.8     106.2     104.5       -8.9
Nevada.............................................      41.0      42.7      44.0      42.6      43.0        2.0
New Hampshire......................................     101.2     102.5      97.4      85.2      81.7      -19.5
New Jersey.........................................     422.4     421.5     401.2     368.8     356.9      -65.5
New Mexico.........................................      41.2      41.7      40.9      38.5      36.9       -4.4
New York...........................................     772.8     750.8     708.2     651.9     618.4     -154.4
North Carolina.....................................     776.5     757.9     704.0     642.2     609.5     -167.0
North Dakota.......................................      22.8      23.9      24.0      23.7      23.4        0.6
Ohio...............................................   1,027.6   1,021.0     953.0     885.1     854.5     -173.1
Oklahoma...........................................     177.3     177.5     169.8     152.0     148.1      -29.2
Oregon.............................................     224.7     225.0     215.7     201.8     196.4      -28.3
Pennsylvania.......................................     863.4     862.3     820.6     762.0     727.5     -136.0
Rhode Island.......................................      72.1      71.1      67.8      62.4      60.1      -12.0
South Carolina.....................................     336.1     336.2     313.6     291.7     276.6      -59.5
South Dakota.......................................      44.2      43.8      40.9      38.4      37.4       -6.8
Tennessee..........................................     494.7     488.0     454.2     426.6     414.9      -79.8
Texas..............................................   1,063.3   1,068.0   1,026.2     951.2     916.0     -147.3
Utah...............................................     126.0     125.5     122.0     113.7     111.3      -14.7
Vermont............................................      45.3      46.3      45.6      40.6      38.5       -6.8
Virginia...........................................     366.8     363.5     341.2     320.3     308.6      -58.2
Washington.........................................     343.4     331.8     316.1     285.7     266.5      -76.9
West Virginia......................................      76.9      75.9      72.2      68.8      65.7      -11.2
Wisconsin..........................................     594.8     594.1     560.3     528.7     515.3      -79.5
Wyoming............................................      10.2      10.4      10.0       9.5       9.2      -1.0
----------------------------------------------------------------------------------------------------------------
Source: US Bureau of Labor Statistics

                                 ______
                                 
                APPENDIX 4.--CHEMICAL INDUSTRY IN CRISIS

               [From the Washington Post, March 17, 2004]

    Natural Gas Prices Are Up, Factories Are Closing, And Jobs Are 
                               Vanishing

                   (By Greg Schneider, Staff Writer)

    Nitro, W.Va.--Soon after the Flexsys chemical plant celebrates its 
75th ``Nothing over three inches high is going to be left here,'' plant 
manager Jon McKinney said.
    The former explosives factory gave the town its name, and its 
demise will eliminate 205 jobs and yet another piece of the once-
powerful U.S. chemical industry.
    Chemicals are an unglamorous part of the manufacturing world, with 
products that have unpronounceable names and often hazardous qualities. 
But they are essential to a host of industries, from automaking to 
textiles to agriculture. Hardeners make tires more durable. Polymers 
put the spring in athletic shoes, and nitrogen fertilizers increase 
crop yields. As the nation's manufacturing base seems to shrink daily 
from factories closing or relocating overseas, the health of the 
chemical sector is a crucial measure of how deep the problem goes. And 
chemicals are in crisis, squeezed not only by cheap foreign competition 
but also by soaring energy costs.
    Across the country, 1 in every 10 chemical-related jobs has 
vanished in the past 5 years--nearly 100,000 workers--and that number 
would be worse if not for a surge in one segment, pharmaceuticals.
    The chemical industry's eight-decade run as a major exporter has 
ended, with a $19 billion trade surplus in 1997 becoming a $9.6 billion 
deficit last year, according to the American Chemistry Council.
    Governors and chemical executives have appealed to the White House 
and Congress for help. They argue that the chemical problem is making 
the nation's broader manufacturing meltdown even worse, pushing 
factories to relocate offshore not only for cheap labor but to be near 
chemical suppliers.
    ``It's a very trying time in the nation's manufacturing base,'' 
said Mark Zandi, chief economist for Economy.com Inc. ``Ultimately, 
little can be done to stop the drain of jobs as companies cut costs and 
use technology to improve productivity,'' he said. ``Workers in the 
chemical industry are really getting hit hard, much harder than the 
companies themselves,'' Zandi said.
    The Flexsys plant in Nitro is closing because a sister plant in 
Belgium costs less to operate. In nearby South Charleston, Union 
Carbide Corp. has cut its workforce in half, to about 1,200 people, in 
the past 3 years. Bayer AG is shutting one of its two Charleston-area 
plants.
    It's the same story in other chemical-heavy regions of the country, 
such as the Gulf Coast. ``Right now we've got big operations just 
shutting down because they cannot compete on the world market,'' 
Louisiana Gov. Kathleen Babineaux Blanco (D) said in a telephone 
interview. ``We've had shutdowns before but they've always been 
temporary. We've not seen anything like this before.''
    Troubles began over a decade ago with the fall of communism, when 
countries of the former Soviet Union--as well as China--discovered they 
could compete in the world market for chemical products. Cheap labor 
and a freewheeling attitude toward safety and the environment helped 
them keep prices low.
    As the global economy slowed, industries that consume chemical 
products came to depend on those lower prices to offset declining sales 
and profits. U.S. chemical makers struggled to cut costs and keep up. 
Then, around 2000, an unexpected problem hit: Natural gas prices went 
up.
    Chemical plants are especially sensitive to natural gas prices 
because they use it both as a fuel and as a ``feedstock'' or ingredient 
in making plastics, resins, fertilizers and more. In the past 5 years, 
U.S. natural gas prices have roughly doubled as more and more 
electrical plants consume the clean-burning fuel but supplies stay 
stagnant. Other parts of the world--including Western Europe--pay far 
less.
    ``We have the highest natural gas prices in the industrialized 
world,'' said R. William Jewell, vice president for energy for Dow 
Chemical Co. in Houston. In the past 2 years, Dow has closed four major 
chemical factories in North America--one in Louisiana, two in Texas and 
one in Alberta, Canada--and replaced them with production from Germany, 
the Netherlands, Kuwait, Malaysia and Argentina, he said.
    ``These jobs didn't leave the U.S. because of labor costs, they 
left the U.S. because of uncompetitive energy costs,'' Jewell said. 
``It's very hard to have vitality in manufacturing and it's very hard 
to have strong growth in jobs if you don't have a competitive 
infrastructure anymore. . . . You can't just wish these jobs back.''
    Chemical jobs tend to be so well-paying--in the $50,000 to $70,000 
range--that they're virtually impossible to replace in the communities 
that lose them, said David E. Dismukes of the Center for Energy Studies 
at Louisiana State University. Every time a factory cuts back or shuts 
down, the impact ripples out through the suppliers, restaurants and car 
dealerships that surround it. ``For a small State like Louisiana that 
is so dependent on those facilities, this really is a tough one for 
us,'' Dismukes said. ``When they go away it has a devastating impact on 
small rural communities up and down the river where many of these are 
located.''
    The problem is similar to the death of steel mill towns in the 
Midwest and Pennsylvania in the 1970's and 1980's, said Michael Hicks 
of the Center for Business and Economic Research at Marshall University 
in Huntington, W.Va. In 24 months, from January 2001 to December 2002, 
West Virginia's chemical workforce declined nearly 17 percent, to 
12,000 people, Hicks said.
    ``It's a story that West Virginia has continued to feel for well 
over two decades now, with the decline in coal mining and steel 
production now followed by these challenges to the chemical industry,'' 
he said.
    Even plants that stay in operation are providing fewer jobs.
    For example, Bayer Polymers LLC operates a plant on an island in 
the Kanawha River in South Charleston. Barges bring long cylindrical 
tanks of liquid propylene oxide to a pumping station on the north 
shore. The material flows under the river to a maze of pipes, valves 
and vats on the island--nearly a mile long--where it goes through 
chemical reactions to become a polymer used in foam cushions for car 
seats, mattresses or athletic shoes.
    The entire facility is operated by two people sitting in a control 
room watching computer monitors, aided by a team of eight technicians 
that handles repairs and maintenance. In less than 4 years Bayer has 
increased the plant's output by 20 percent without adding any 
employees. The plant also has cut energy consumption by 9 percent since 
last year. Nonetheless, its costs are up 25 percent over the past 5 
years, said site manager Glenn Kraynie.
    It's a dangerous cycle. Rising costs cut into profit and make it 
harder to continue investing in improvements, which in turn makes it 
harder to compete with ever more efficient overseas rivals, said Attila 
Molnar, president and chief executive of Bayer Corp., the German 
company's U.S. arm.
    ``It is a very, very serious issue,'' Molnar said. ``You shift 
manufacturing or production [to] where you produce the cheapest. . . . 
Production in the U.S. is in danger today.'' ``There are at least two 
basic solutions,'' Molnar said. Do something about energy prices, such 
as burning more coal or drilling for more natural gas, and use 
technology to continue to make chemical factories more efficient. That 
means producing more with fewer employees.
    ``There's nothing there that says the jobs you have today will be 
the same jobs we have 10 years from now. That cannot be,'' he said. 
``Be prepared for change. That's the only way we can survive, the only 
way I can see we will be successful in the future.''
    That's a hard prescription for towns like Nitro, population 6,824, 
which stands to lose a chemical plant that once employed 900 people. 
The 202-acre riverfront facility started as a World War I explosives 
plant for making nitrocellulose, and the town was built to support it. 
Monsanto Co. bought the site in 1929 and has been making rubber 
additives ever since, today in a joint venture with Akzo Nobel NV 
called Flexsys. But with worldwide prices for its products down 42 
percent, the company decided last fall to shut Nitro's factory down at 
the end of this month.
    ``I'm 45 years old and I've lived in this Kanawha Valley my whole 
life,'' said Dave Hardy, a lawyer and Kanawha County commissioner 
representing both Nitro and Charleston. ``This valley was built on the 
chemical industry, and now in my adult lifetime . . . the chemical 
industry is contracting literally year by year. There is nothing that 
is filling the void.''
    Instead, the State is promoting tourism and gambling, he said. But 
West Virginia hasn't given up on the industry. Its statewide Chemical 
Industry Committee, a trade association, has been working to attract 
companies by touting the state's long embrace of an industry scorned in 
some places as environmentally undesirable.
    It doesn't help the cause, though, that the committee's chairman is 
McKinney, the Flexsys manager, whose own company couldn't afford to 
stay in business there.
                                 ______
                                 
 Statement of Hon. Donald L. Carcieri, Governor, State of Rhode Island
    Chairman Inhofe, Ranking Member Jeffords, and distinguished members 
of the committee, thank you for having me here today to testify about 
the energy needs of my State, my region and our Nation.
    I would like to speak today about the problem my State is facing 
with respect to the tightening supply and resulting high costs of 
natural gas.
    As Governor of a northeastern State, I understand the importance of 
plentiful, accessible energy supplies. New England has no natural 
resources of fossil fuel. As a result, all of our energy supply must 
come from some other region or nation. Meanwhile, our cold winters, 
elderly population, and highly concentrated urban centers produce a 
large and growing demand for energy resources.
    Before the people of Rhode Island elected me Governor, I spent 
almost two decades working in the private manufacturing sector. As CEO 
of Cookson America, I managed the energy needs of a thriving 
manufacturing business. That experience taught me that our needs will 
only increase in the coming years. As Governor of a New England State 
and a former CEO, I have a good understanding both of the energy needs 
of the Northeast region generally, and the particular demands that a 
competitive manufacturing base puts on a reliable, cost-efficient 
energy supply.
    Federal and State policy has encouraged the use of natural gas, 
because it's clean-burning and there is an abundance of known supply. 
Consequently, it has become the workhorse of the energy sector, and is 
expected to provide 35 percent of the fuel supply for electric 
generation in New England this year alone. According to the Federal 
Energy Regulatory Commission (FERC), in the next 4 years 50 percent of 
all electricity will be generated by natural gas.
    Unfortunately, natural gas supply hasn't kept up with this 
burgeoning demand. In fact, New England was recently on the verge of an 
energy supply crisis. KeySpan, the largest local distribution company 
in the Northeast, had record breaking send-outs during the recent cold 
spell, and at one point they were forced to shut off service to 
approximately 250 customers in order to preserve the remaining 
customers. Had temperatures remained that cold for another few days we 
would have had a real crisis.
    One would think that this combination of high demand and 
intermittent supply shortages would create an outcry for more natural 
gas production. It hasn't. Unfortunately it may take a disaster before 
some in our Nation get serious about this problem. As Federal Reserve 
Board Chairman Alan Greenspan pointed out in testimony before a Senate 
committee last summer, we have embraced the benefits of natural gas, 
but at the same time have restricted the ability to get more supply.
    Soon, the Northeast may no longer be able to offer industry a 
competitive venue unless the rising cost of energy is addressed. For 
example, while the cost has remained relatively steady since the mid-
1980's at around $2 per million BTUs, prices have recently spiked at 
times to upwards of $10 per million BTUs. These dollar amounts are 
often much higher in Rhode Island, because we sit at the end of two 
pipelines and consumers must pay the costs associated with transporting 
gas such long distances.
    Some of Rhode Island's largest employers and oldest companies are 
already grappling with the consequences of this looming energy crisis. 
Considerations of layoffs and job relocation are beginning to manifest. 
Electric Boat, the producers of the hulls for our Navy's submarines, 
switched to natural gas for heating several years ago. Now the price is 
skyrocketing, and since the region's electric generation is 
increasingly fueled by natural gas, EB can expect a further rise in 
their electric bill. This company employs more than 2,000 people in 
Rhode Island and many more in Connecticut.
    The story is the same with Arkwright Incorporated, located in 
Coventry, RI. Their 300 employees coat and convert paper and films for 
specialty imaging devices. Arkwright's natural gas bills have nearly 
doubled in the past year, jeopardizing their profitability and 
competitiveness. As the company struggles with this issue, it has lost 
bids for contracts. They were already forced to lay off some employees, 
and cut out bonuses last year.
    Another example is Cranston Print Works, a textile company with 
facilities in Rhode Island and Massachusetts. The per unit price they 
pay for natural gas has already increased 40 percent this year, 
electric costs another 19 percent and oil costs another 6 percent. They 
will spend $200,000 more this year than last year to keep their plants 
operating, without any increase in overall energy usage.
    Similarly, their neighbor in North Kingstown, Rhode Island, TORAY 
Plastics, saw energy costs rise by more than $1.6 million last year. 
TORAY employs approximately 700 people in our little State. It's an 
energy-intensive business with huge production runs 24 hours a day. It 
is critical that they be able to manufacture products competitively.
    The same story can be told over and again with many of the other 
manufacturing companies in Rhode Island that employ tens-of-thousands 
of workers and contribute so much to the quality of life in our State. 
The high cost of natural gas is taking a toll on our economy across New 
England and the Nation. In today's competitive world manufacturers 
cannot raise prices to compensate for rising energy costs.
    Liquefied natural gas (LNG) offers a short-term answer for Rhode 
Island. But until we are able to site and build LNG receiving terminals 
or realize significant new sources of gas, gas prices will likely 
remain high and volatile.
    The only long-term solution is to increase supply. We must develop 
reasonable policies on both State and Federal levels that allow natural 
gas to be produced and delivered to homes and businesses across the 
country.
    The alternative is a Northeast without sufficient energy supplies 
and stable prices a Northeast that cannot keep the heat on in thousands 
of homes, cannot provide for the industrial capacity of manufacturing 
businesses, and cannot remain competitive at home or abroad.
    As Governor of Rhode Island, I cannot let that happen, but I fear 
that it will unless we take the needed steps now to address this energy 
supply crisis.
    Thank you for allowing me to testify before you today. I look 
forward to answering your questions.

   Statement of Bob Drake, Vice President, Oklahoma Farm Bureau and 
                Chairman, National Grazing Lands Council

    Mr. Chairman and members of the committee, my name is Bob Drake. I 
farm and raise Angus cattle in Davis, Oklahoma. Like many Oklahomans, I 
have been active in the oil and gas industry as well as farming and 
ranching for most of my life. I am currently vice-president of the 
Oklahoma Farm Bureau and I serve as chairman of the National Grazing 
Lands Conservation Initiative. I have also served as President of the 
National Cattlemen's Beef Association. This issue concerns me both as 
an agricultural consumer and as a producer in the oil and gas industry. 
On behalf of the American Farm Bureau Federation and the Oklahoma Farm 
Bureau, thank you for the opportunity to express how energy supply, and 
energy prices, are adversely impacting American agriculture.
    First, let me say that today's agriculture is more energy efficient 
than ever before, producing more economic benefit with less energy. For 
example, on corn fields across this Nation, farmers are producing 30 
percent more crop using 30 percent less energy-related inputs, 
including fertilizer, than we did only a generation ago. Even though 
energy efficiencies have been realized in agriculture, no one should 
expect a growing U.S. economy and population to need less energy 
security in the future.
    Natural gas is one of the most important energy feedstocks to 
production agriculture and associated manufacturing industries. In the 
last year, the United States has experienced prolonged natural gas 
price volatility, along with an overall elevation in price.
    One of the industries highly dependent on natural gas that is 
critical to American agriculture is the fertilizer industry. Natural 
gas is the primary feedstock in the production of virtually all 
commercial nitrogen fertilizers in the United States, accounting for 90 
percent of the farmer's total cost of anhydrous fertilizer. According 
to The Fertilizer Institute, the 2000 planting season saw ammonia 
fertilizer at a cost of around $100 per ton. During the 2003 growing 
season, farmers faced ammonia prices of $350 or more per ton. The U.S. 
Department of Agriculture estimates that it cost U.S. farmers and 
ranchers an extra $2.6 billion to produce the same amount of food and 
fiber in 2003 when compared to the 2002 growing season. Our domestic 
fertilizer production capacity already has experienced a permanent loss 
of 25 percent over the past 4 years and an additional 20 percent is 
currently shut down due to high natural gas prices. The current price 
volatility threatens the existence of what remains of our domestic 
fertilizer industry and will exacerbate America's dependence on foreign 
sources of energy and fertilizer.
    Last week, I sat down with a group of producers in the Oklahoma 
panhandle to discuss this issue. They reported that the cost of running 
their natural gas powered irrigation pumps increased more than 70 
percent in 2003. One producer, in Beaver County, Oklahoma, stated that 
these costs alone resulted in a $26,000 drop in his net income.
    The current natural gas crisis is a prime example of the need for a 
clear and consistent energy policy. On one hand, the Federal Government 
has encouraged expanding the use of natural gas as an environmentally 
friendly alternative for electrical generation, home heating and 
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 Federal lands. 
Similar restrictions have been and continue to be experienced on other 
traditional energy resources such as oil, coal and nuclear, due 
primarily to environmental concerns, but adding to the demand pressure 
on natural gas as a clean alternative. In Oklahoma, oil and gas 
exploration on private lands has been severely hampered by the U.S. 
Fish and Wildlife Service's habitat rules for the burying beetle. The 
service has delayed drilling, gathering and other activities of oil and 
gas producers. If left unaddressed, U.S. energy policy as a whole will 
certainly result in the loss of even more of our energy independence 
tomorrow.
    In addition to higher operating costs due to natural gas, farmers 
and ranchers have experienced diesel fuel price increases 40 percent 
above historical averages. With thin margins already being experienced 
in agriculture and the prospect of high energy prices in the 
foreseeable future, this added expense, which cannot be passed on in 
the price of agricultural commodities, will erode the financial 
positions of many farm and ranch families.
    The energy price instabilities being experienced today should not 
be allowed to grow into a more serious energy crisis in the future. Nor 
does America need to become as dependent on foreign sources of natural 
gas as we now are with crude oil. Energy rich repositories now off 
limits must be reconsidered for environmentally safe oil and gas 
exploration and production immediately. Advancements in oil and gas-
drilling technology have resulted in the most environmentally sound and 
responsible capturing of energy stocks ever conducted, and will 
continue to improve. Earlier this year, American Farm Bureau Federation 
president Bob Stallman was on hand in support of Secretary of Interior 
Gale Norton's announcement of royalty relief for deep natural gas 
drilling in the shallow waters of the western Gulf of Mexico. These 
innovative approaches show promise toward future energy supplies, but 
much more can be done.
    AFBF and the Oklahoma Farm Bureau strongly believe that the current 
comprehensive energy legislation will lead to a diversified energy 
portfolio with increased emphasis on renewable sources, while at the 
same time increase our domestic energy supply from traditional sources 
such as natural gas, oil and coal in a safe and affordable manner. We 
urge that Congress complete this important legislation this session. 
Thank you for the opportunity to appear before you and for your 
consideration of our views.

                               __________
 Statement of Marjorie West, Western Organization of Resource Councils

    Mr. Chairman and members of the committee, my name is Marjorie 
West. Thank you for the opportunity to address this committee regarding 
the environmental impacts of natural gas production. My husband and I 
own a ranch on Spotted Horse Creek in the Powder River Basin of 
Wyoming, where we grow dry land wheat and raise cattle. We have lived 
on this land for 50 years. The ranch was homesteaded by my husband's 
father and expanded by the family over the generations. As a landowner, 
farmer and 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 develop natural gas 
responsibly or as we say, ``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 Powder River Basin Resource Council (PRBRC) and the Western 
Organization of Resource Councils (WORC). PRBRC is a grassroots 
organization dedicated to good stewardship of Wyoming's natural 
resources, and the preservation of the State's agricultural heritage. 
WORC is a network of grassroots organizations from seven western States 
that include 8,250 members and 48 local community groups. About a third 
of WORC's members are family farmers and ranchers, many of whom are 
directly impacted by natural gas development.
    Mr. Chairman, I want you to know that the organizations I represent 
here today support responsible natural gas development. But our ability 
to be good stewards of the land and earn a living is threatened by 
irresponsible gas development practices. For several years now, we have 
been asking industry, State and Federal agencies and Congress to 
develop natural gas responsibly and ``Do It Right.'' I wish I could say 
they are listening.
    The sheer magnitude of the natural gas development being planned 
for the West is unprecedented. Over 60,000 new coalbed methane wells 
are planned for the Powder River Basin in Montana and Wyoming alone 
(compared with approximately 16,000 current wells), with tens of 
thousands of additional gas and coalbed methane wells planned for 
Colorado, North Dakota, New Mexico and other parts of the West.
    My first-hand experience with coalbed methane, and accounts I have 
heard from other westerners indicate that the current pace and 
direction of natural gas development in this country is resulting in 
serious damage to land and water resources and private property rights.
    The last 5 years have been the most difficult and destructive years 
we've ever experienced. We've been through droughts, grasshopper 
invasions and bad wheat and cattle prices on the ranch but nothing 
holds a candle to the stress and the damages brought upon us by 
irresponsible coalbed methane gas development. Over the last 5 years we 
have lost all three of our artesian wells and our domestic water well 
due to groundwater dewatering. This is presently and will continue to 
be a long term problem for us. For now, we are using some of the 
coalbed methane water that is being pumped out to water our livestock, 
but that will be gone in a few years and then what? The company has 
told us outright that they do not intend to leave us with an operating 
livestock well when they are finished developing the gas.
    After 6 or 7 months of hauling our household water, the coalbed 
methane company finally drilled us a 1300-foot household water well. We 
could not drink this water without getting diarrhea, and I could not 
wash clothes without having them turn orange from the high iron 
content. This is not the good water we had before coalbed methane 
drilling destroyed our well. We now have two water treatment systems: 
Reverse osmosis for drinking water, and an iron treatment system for 
the rest of our household needs. Our electricity costs for pumping the 
deep well have doubled, and the first time we had the treatment system 
serviced we were charged three hundred dollars. We should not have to 
bear these additional costs.
    For the past 4 years, another company has been discharging coalbed 
methane water upstream of us into Spotted Horse Creek, which is an 
ephemeral creek that formerly ran only during spring melt or heavy 
summer rain events. This CBM water has a high ``sodium adsorption 
ratio'' (a ratio of sodium to calcium and magnesium) which over time 
will destroy soils, crops and native vegetation. This water flooded 
Spotted Horse Creek the entire winter of 2000/2001, icing over and 
flowing out on either side of our hay meadow, and destroying all the 
native vegetation in our creek. So much salt was deposited on the soil 
and leached out of the clay soils that nothing but weeds will grow. 
This past year we had an impressive crop of fireweed which is very salt 
tolerant, but cattle will not eat it.
    The worst tragedy for us was that it drowned and killed over two 
hundred of our beautiful hundred-year-old cottonwood trees that lined 
that creek. These were our best hay meadows. Now they grow only weeds. 
This stretch of Spotted Horse Creek looks nothing like it did 5 years 
ago. The discharge of CBM water into ephemeral creeks all over the 
Powder River Basin is destroying soil and vegetation and changing these 
streams, probably forever.
    We've spent thousands of dollars on legal fees trying to get the 
problems addressed. We've made agreements with these companies only to 
have the companies fail to live up to their agreements, thus forcing us 
to spend more money and time on lawyers. Out of six companies, not one 
has lived up to its word or its agreement. These are not just small 
operators, several are large well established oil and gas companies. 
They are Devon, Marathon-Pennaco, Yates, Williams, CMS, Lance and 
Redstone.
    The so-called ``regulators'' have not only allowed the damages to 
occur without intervention or penalty, but they continue to permit 
activities that are in violation of their own regulations. Industry has 
been given license to destroy our property, our soil, our grass, our 
land, our creek, our solitude.
    Our experiences are not isolated and they are becoming more 
widespread. There are many other landowners that have lost water wells, 
have had companies come on their land without an agreement and cause 
numerous damages by building roads and well pads or discharging water 
that has killed soil and vegetation. Landowners also experience reduced 
property values, lost income, seepage of methane into drinking water 
wells and under homes, introduction and spread of noxious weeds, the 
death of livestock and noise from compressor stations, generators, 
traffic and drilling.
    While we may be luckier than some landowners because we do own a 
percentage of our minerals, our lives have been turned upside down and 
our health has deteriorated. My husband, Bill, now takes high blood 
pressure medication and I take a prescription medication for severe 
headaches. I cannot prove that the methane industry has caused these 
conditions, but it certainly has not helped. We spend our days fighting 
with companies to develop coalbed methane in a responsible manner. 
Although one company has a successful reinjectionsite for CBM water on 
our ranch, another company has come on our land without an agreement 
for development, after making many false promises. We no longer have 
time for the ranching and farming that we love.
    I am here to ask you not to further weaken environmental laws, nor 
to further assist industry in rushing carelessly forward to develop 
natural gas on our lands. I am asking you to take some decisive 
leadership and require oil and gas companies to develop this gas 
responsibly.
    The energy bill that failed to pass the U.S. Senate in December, 
and the new version of that bill that was introduced by Senator 
Domenici in February (S. 2095) both take us in the wrong direction by 
failing to provide desperately needed new protections and weakening 
current environmental and procedural safeguards. For example, S. 2095:
     Threatens clean water by: (1) exempting hydraulic 
fracturing from Federal safe drinking water standards, potentially 
resulting contamination of drinking water supplies by diesel fuel and 
other hazardous chemicals, and (2) exempting oil and gas construction 
activities from the Clean Water Act's pollution controls, resulting in 
unregulated discharges of chemicals into rivers, streams and other 
water bodies.
     Requires the U.S. Bureau of Land Management to approve gas 
drilling permits within a matter of days, leaving impacted landowners 
and communities with limited opportunities to review applications and 
offer the benefit of their considerable knowledge and experience and 
attempt to protect their property, health and economic well being.
    Congress can and should do better. Natural gas development is 
important to the Nation, and in appropriate places and under the right 
conditions can and should be developed for the benefit of the country. 
But it has to be balanced with protections for other resources 
especially water and other uses of the land involved. We need laws that 
require companies to negotiate agreements with landowners; and then 
they must be required to live up to those agreements. Instead of tax 
credits to speed development, we need increased bonding to ensure that 
our land will not be left a scarred battlefield. Citizens and taxpayers 
should not be left with the burden of cleaning up after oil and gas 
companies. But at the rate we're going I can assure you that is the 
direction we are headed.
    PRBRC and WORC have endorsed a responsible ``doing it right'' 
approach that contains six platforms:
    (1) Effective monitoring of coalbed methane or deep gas 
development, and active enforcement of existing laws to protect private 
property rights and natural resources.
    (2) Surface owner consent, and surface use agreements that help 
landowners better protect their property rights.
    (3) Use of aquifer recharge, clustered development, mufflers for 
compressor stations and other low-impact, best available technologies 
to minimize impacts on undergroundwater, rivers, streams and surface 
resources.
    (4) Collection of thorough fish, wildlife and plant inventories 
before development proceeds to protect habitat, followed by phased-in 
development to diffuse impacts over time.
    (5) Meaningful public involvement in the decisionmaking process.
    (6) Complete reclamation of all disturbed areas, and bonding that 
protects landowners and taxpayers from all cleanup liability costs.
    In the House of Representatives, Representatives Mark Udall and Tom 
Udall have introduced a bill (H.R. 3698) that would assure that our 
precious water resources are safeguarded during the course of oil and 
gas development, reduce potential conflicts between oil and gas 
operators and surface owners, and provide for appropriate reclamation 
of affected lands. This bill provides a necessary balance to the gas 
permitting and production rush that is underway, and I am submitting a 
copy for the record.
    In closing, I invite each and every one of you to visit my ranch 
and see for yourselves the damages that have occurred. We are willing 
to make the sacrifice of living with responsible coalbed methane 
development in order for this country to have natural gas. However, we 
are not willing to make a complete and total sacrifice of our land, our 
water, our property rights, and our children's future. Nor should we 
have to. These companies are making very good profits; they can well 
afford to be environmentally responsible.
    I never thought this kind of damage could be brought upon citizens 
of this country by this government and this industry. I was naive. My 
only hope is that lawmakers such as yourselves, the honorable members 
of this committee, will realize what is happening to us at the hands of 
the powerful oil and gas industry, and change it, to make the system 
just, fair and equitable. We require our coal mining industry in 
Wyoming and this country to live up to very high standards for 
permitting, bonding, landowner consent, water well replacement and many 
other things we should expect nothing less of the oil and gas industry. 
They must be required to ``Do it Right.'' Thank you very much for your 
time and concern.

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   Statement of Joel Bluestein, President, Energy and Environmental 
                             Analysis, Inc.

    Thank you Mr. Chairman and members of the committee for the 
opportunity to testify today. My name is Joel Bluestein and I am the 
President of Energy and Environmental Analysis, Inc. EEA is located in 
Arlington, Virginia and has been providing energy and environmental 
consulting services since 1974. Our major areas of expertise include:
     Analyzing and forecasting the supply, demand and price of 
natural gas; and
     Analyzing the impacts of energy and regulatory policy on 
energy markets.
    We have done this work for natural gas producers, pipelines, local 
distribution companies, power generators, technology developers, the 
U.S. Department of Energy, the U.S. Environmental Protection Agency and 
other public, private and institutional clients. I have been at EEA for 
15 years and have over 20 years of experience in the energy and 
environmental field.
    My testimony today addresses two areas: our outlook on natural gas 
prices and current effects and trends related to gas prices in 
industrial and power generation markets.

                           GAS PRICE OUTLOOK

    EEA quarterly prepares a 20 year month-by-month forecast of North 
American natural gas supply, demand and price that we call our Gas 
Market Compass. Figure 1 summarizes our current view of the price for 
natural gas over that period. Our current outlook for gas prices (in 
constant 2003 dollars) at the Henry Hub in South Louisiana is about 
$5.75/MMBtu for this year, a little higher at about $6.00/MMBtu for 
2005, then moderating somewhat to $4.50 to $5.00/MMBtu in the medium to 
longer term. We do not expect to see future gas prices returning to 
pre-2000 levels.
    This outlook assumes significant development of new LNG import 
terminals in the U.S. and eventual gas imports from Arctic Canada and 
Alaska. It does not assume any changes in policies regarding where gas 
can be produced. Delivered gas prices will be higher in areas with 
local gas delivery constraints. Extreme weather also can cause 
temporary price spikes. Overall, however, we believe that the market 
will function and find ways to bring new gas to market. If that does 
not occur, we would expect gas prices to be roughly 50 percent higher 
than this forecast.

[GRAPHIC] [TIFF OMITTED] T4599.088

         EFFECT OF CURRENT PRICES AND TRENDS IN END USE MARKETS

    Regardless of any changes in policy, there is widespread agreement 
that it will take a significant amount of time to get new gas supplies 
in place. In the interim, the most readily available option to 
stabilize gas prices is increased efficiency in direct gas consumption 
and indirectly through increased efficiency in electricity consumption. 
This was one of the primary conclusions of the recent National 
Petroleum Council study\1\ on natural gas, which stated that: ``Greater 
energy efficiency and conservation are vital near-term and long-term 
mechanisms for moderating [natural gas] price levels and reducing 
volatility.''
---------------------------------------------------------------------------
    \1\ ``Balancing Natural Gas Policy: Fueling the Demands of a 
Growing Economy'', National Petroleum Council, September 2003.
---------------------------------------------------------------------------
    Other studies have found similar results. A December 2003 study\2\ 
by the American Council for an Energy Efficient Economy (ACEEE) looked 
at the effects on gas prices of an aggressive application of energy 
efficiency and renewables. The study estimated that efficiency and 
renewables could achieve a 1.1 percent reduction in gas consumption 
within 1 year and a 5.5 percent reduction within 5 years. More 
importantly, EEA projected in this study that this level of demand 
reduction would result in a 20 percent reduction in gas prices. This 
non-linear result occurs because we are in a very steep part of the gas 
supply curve where small changes in demand can result in large changes 
in price. This can happen in a negative way during extreme weather or 
in a positive way when efficiency reduces demand.
---------------------------------------------------------------------------
    \2\ ``Natural Gas Price Effects of Energy Efficiency and Renewable 
Energy Practices and Policies'', ACEEE, December 2003.
---------------------------------------------------------------------------
    EEA performed another study\3\ last year that looked at the effect 
of increased use of combined heat and power (CHP) to reduce gas demand. 
CHP, also known as cogeneration, is one of the most readily available 
and widely applicable sources of increased efficiency for generation of 
electricity and thermal energy for process heat applications. The study 
found that widespread application of CHP in regions of the U.S. that 
are heavily dependent on natural gas for power generation could achieve 
4 to 9 percent reductions in gas consumption through increased 
efficiency. This study did not separately assess the effects on gas 
price, but based on studies such as the ACEEE study, this level of 
demand reduction could result in significant gas price reductions.
---------------------------------------------------------------------------
    \3\ ``Natural Gas Impacts of Increased CHP'', U.S. Combined Heat 
and Power Association, October 2003.
---------------------------------------------------------------------------
    While one can forecast that increased efficiency would be 
beneficial, one might question whether these types of efficiency 
improvements are practically achievable after 30 years of industrial 
efficiency improvements, starting with the energy price shocks of the 
early 1970's. Support for this expectation was described in a February 
17 article in the Wall Street Journal\4\.
---------------------------------------------------------------------------
    \4\ ``Natural Gas Costs Hurt U.S. Firms'', Wall Street Journal, 
February 17, 2004.
---------------------------------------------------------------------------
    The article describes the efforts of the Owens-Corning company to 
respond to high gas prices related to its production of glass and 
mineral fibers. While the company is exploring increased imports of 
materials as one response, it is also increasing the efficiency of its 
operation in the U.S. The article describes Owens-Corning's efforts at 
an insulation factory in Waxahachie, Texas, that was burning as much as 
$4 million to $5 million of natural gas a year. The company was able to 
make operational changes at incinerators and melters that cut gas 
consumption without sacrificing product quality. With these 
adjustments, natural-gas use in the third quarter of 2003 was 18 
percent below the year before, even though production increased. The 
plant is reported to be approaching $1 million in annual energy savings 
and the company plans to replicate the changes in 10 other North 
American insulation factories and two composite-fiber factories by the 
end of this year.
    While not every facility will be able to achieve such startling 
results, this example suggests that there is still a significant amount 
of low-cost efficiency improvement to be achieved. We have also heard 
reports of companies reinstating or increasing their ability to switch 
gas-fired equipment to alternative fuels, primarily oil. The ability to 
switch to alternative fuels for short periods of time, while it does 
not result in significant reduction in overall gas consumption, can 
serve as an important safety valve to reduce gas price volatility 
during periods of extreme weather or local supply constraints. Chemical 
producers are also emphasizing production from facilities that rely on 
petroleum rather than natural gas feedstocks. These examples illustrate 
that industry is actively and creatively adjusting to changes in the 
U.S. energy markets.

                        POWER GENERATION TRENDS

    Much of the concern over gas prices has focused on the recent wave 
of construction of gas-fired power plants. Despite this growth, gas-
fired generation in the U.S. in 2002 accounted for a lower share of 
total generation (18 percent) than in 1970 (24 percent). Coal-fired 
generation in 2002 was 51 percent of total generation and almost 70 
percent of fossil generation. Energy forecasts show coal-based 
generation continuing to increase.
    Moreover, the effects of new gas power plant construction are more 
complicated than they may seem. Of 152 GW of new gas-fired generating 
capacity installed in the U.S. between 1999 and 2002, approximately one 
third consists of peaking plants that seldom run and use little fuel. 
In addition, much of the construction has been in the west and 
southwest where the new gas plants are competing with less efficient 
older gas plants. Because of the higher efficiency, the new plants have 
displaced the older plants and caused them to run less or be 
mothballed. The displacement of older gas plants with new gas plants 
results in more efficient use of gas. While gas consumption has 
increased due to increasing electricity demand, the effect of the more 
efficient new plants has been to reduce the amount of gas that would 
otherwise have been consumed. In these areas, the construction of new 
gas plants is actually reducing gas consumption. Figure 2 shows this 
effect in Texas.

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    The increase in gas prices has also spurred increased interest in 
the use of renewables, biomass and waste fuels, including agricultural 
biogases. While some of these fuels are already in use, others are only 
starting commercial application and the recent higher gas prices have 
made their use more competitive. We have seen reports of increased 
interest in use of wind energy, small hydro, landfill and digester gas. 
There is also great interest in using agricultural biogas that can be 
produced by improved handling and treatment of waste from very large 
livestock and poultry operations. This is an area in which we expect to 
see quite a bit of growth in the near future.

                              CONCLUSIONS

    Natural gas prices have reached a new price level that is 
significantly higher than during the last 20 years. We do not expect to 
see a return to those historical lower levels. However, we also do not 
expect to see natural gas prices increasing to the extreme levels 
predicted by some analysts. Over the last two and a half years, U.S. 
gas markets have responded by initiating new LNG import and other 
supply projects. With an increase in LNG imports and future imports 
from Canada and Alaska, we see a mid-to long-term moderation to Henry 
Hub gas prices in the $4.50 to $5.00/MMBtu range (in constant dollars). 
If new supply options are not available, the prices could be 50 percent 
higher.
    On the demand side, gas users are turning to energy efficiency, 
fuel-switching and alternative feedstocks to address higher gas prices. 
We are also seeing increased interest in renewables, waste and 
byproduct fuels. These market responses have helped to stabilize gas 
prices in the near-term. However, new sources of gas supply will be 
needed to meet future growth in gas demand without creating further 
upward pressure on gas prices.
                                 ______
                                 
Responses by Joel Bluestein to Additional Questions from Senator Inhofe

    Question 1. Are you aware that in late 2003, your company also used 
the same model you described in making your demand repression argument 
to show that a relatively small increase in supply (increasing 
production in the Powder River Basin from 1,000 to 3,000 wells) would 
save $88 billion to the economy over a 10-year period? Is it your 
testimony that incremental increases in supply don't moderate gas 
prices?
    Response. I am familiar with this study and it is consistent with 
my testimony that the current tight supply/demand situation means that 
relatively small changes in either supply or demand can have a 
significant effect on prices. My testimony specifically states that a 
lack of new supply, for example delays in LNG development, will result 
in sharply higher prices than in our current forecast.

    Question 2. What does fuel switching by industrials back to oil do 
to our reliance on oil imports and the quality of our air?
    Response. Most fuel switching today is very short term to avoid 
peak gas price periods. It can be very important to control of gas 
price volatility but amounts to relatively small amounts of gas 
consumption. A move to more permanent switching to oil as an 
alternative to gas consumption certainly could increase U.S. reliance 
on oil imports. While oil combustion could have higher potential air 
emissions than gas, I assume that any such switching will be done 
within current air quality protection requirements.

    Question 3. Mr. Bluestein, in your opinion, do you agree with 
September 2003 NPC report's findings that new domestic sources of 
natural gas are critical to meet our nation's energy needs?
    Response. I agree with the NPC conclusion that the U.S. needs a 
balanced mix of energy efficiency, new domestic supply and LNG imports.

    Question 4. In your company's November 13, 2003 document, ``The Gas 
Price Roller Coaster. The Ride Continues,'' dated November 13, 2003, 
you project that gas supply from new frontiers will account for one-
third of total supply in 2010, vs. only 13 percent today. Do you think 
we'll meet your projected target?
    The NPC report identified policies that increase demand for natural 
gas on the one hand, while restricting access to development on the 
other. What regulatory constraints or challenges frustrate exploration 
and production and must be overcome in order to meet your firm's 
projected target identified in ``The Gas Price Roller Coaster; The Ride 
Continues?''
    Response. The NPC report identifies new policies that could expand 
production in a variety of North American producing areas. EEA's 
forecast is based only on existing U.S. policies regarding gas 
production.
    Our forecast indicates that the frontier resources identified will 
be economically viable under the forecast price scenario. Whether they 
will actually be developed and which specific resources will be 
developed over time is difficult for us to say. In aggregate, gas 
supply needs to increase over time to keep gas prices within the range 
of our current forecast. We have not seen any significant gas 
production increases in the last year and some new projects have been 
delayed, which is one reason that near-term efficiency improvements are 
important.
                                 ______
                                 
   Responses by Joel Bluestein to Additional Questions from Senator 
                                Jeffords

    Question 1. In your testimony, you have highlighted that additional 
supply and efficiency will assist lowering natural gas prices. Are 
there other factors, such as the deployment of renewable generation 
through State renewable portfolio standards programs, that will also 
contribute to a decrease in price in the absence of new Federal 
policies?
    Response. Increased use of renewable generation through RPS 
programs is another way to reduce gas demand and ease gas prices. My 
testimony cited a 2003 study we performed with ACEEE that highlighted 
the potential gas price-reducing effect of aggressive development of 
renewables.

    Question 2. You mentioned that extreme weather can cause temporary 
price spikes. It seems to me that although stringent new clean air or 
greenhouse controls at coal-fired utilities may lead to some gas 
switching, it is also true that unabated or abrupt climate changes 
could also have impacts on natural gas supply and pricing. Are you 
aware of whether anyone has done such an analysis?
    Response. I'm not aware of any such studies.

    Question 3. Have you examined the effect that the pending Senate 
Energy bill will have on natural gas prices if it is enacted into law?
    Response. I have not examined the implications of the Senate Energy 
bill on gas prices.

    Question 4. Are there other reasons, other than the price of 
natural gas, that fertilizer prices have increased?
    Response. According to the attached briefing from The Fertilizer 
Institute (TFI), domestic ammonia produced at $5.50--$6.00/MMBtu gas 
prices should cost about $200/ton. Current ammonia prices are about 
$300/ton. According to TFI, this higher price is the result of 
increased international ammonia demand and a tight world market for 
ammonia. The implication is that domestic ammonia production is 
profitable at today's prices.

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     Statement of Dennis M. Bailey, Director of Energy Purchasing, 
                             PPG Industries

    I am Dennis Bailey, director of energy purchasing for PPG 
Industries. Thank you for inviting us to provide testimony on this very 
important topic.
    PPG is a $9-billion global supplier of paint, glass, fiber glass 
and chemicals, with manufacturing assets in 23 States and 22 countries.
    We have about 20,000 employees and 14,000 retirees in the United 
States and 33,000 employees worldwide.
    Affordable energy has played an important role in PPG becoming the 
leading global manufacturer that it is today.
    PPG began operations more than 120 years ago in Pennsylvania. And 
has been in Senator Voinovich's home State of Ohio for 105 years.
    In all, about 10 percent of PPG's corporate sales is generated from 
products made in Ohio.
    The high cost of natural gas is clearly affecting PPG's operations 
in Ohio and across the Nation. For example:
     At our Circleville, Ohio, plant--which makes resins needed 
in paint manufacturing--natural gas costs have increased 70 percent 
over the past several years.
     From 2002 to 2003, natural gas costs at our Cleveland 
automotive paint plant doubled, and at our Barberton, Ohio, chemicals 
plant increased by 50-percent.
     High natural gas costs at our Crestline, Ohio, automotive 
glass plant may result in elimination of more than 10-percent of that 
site's workforce.
    PPG has a well-earned reputation for controlling costs. But in 
spite of this, if natural prices increase, our businesses may have to 
make reductions elsewhere.
    The average market price during the past 15 months has been about 
$5.50--25 percent higher than any year since 1976 and double that of 
the 1990's.
    On a global scale, if the price of natural gas increases to $7--and 
remains there--PPG's chlor-alkali chemicals business would have 
additional problems competing in global markets.
    The workforce at our Lake Charles, Louisiana, Chemicals facility is 
shrinking by 8 to 10 jobs per month through attrition. And we don't 
expect to be rehiring.
    And we believe other Gulf Coast producers are similarly affected.
    The U.S. chemicals industry is no longer competitive globally 
because of the disparity of natural gas prices--as shown in the exhibit 
I've entered into the record.
    The U.S. industry has evolved into a net importer of product and 
exporter of jobs.
    My company strongly believes solutions to the natural gas crisis 
are within our country's grasp.
    In the short term, energy conservation must be a major part of the 
solution. Education is necessary, as well as increased economic 
incentives.
    For example, if all new residential windows sold in the United 
States were energy-efficient, it would eliminate the need for 20 
additional power plants over the next decade and up to 60 power plants 
over the next 20 years.
    Consumers need an incentive to use energy-efficient glass, 
positioning high-performance glass as the construction material of 
choice for saving energy in homes and commercial buildings.
    As a start, the Senate needs to pass the Energy Conference Report 
which provides consumers an incentive to use energy-efficient glass.
    But consumer conservation alone will not fix the problem.
    There is an urgent need for increased access to domestic supplies, 
including resources in the outer continental shelf, the Rocky Mountain 
region and Alaska.
    We feel that all of these opportunities can and should be 
accomplished in an environmentally responsible way.
    Construction of an adequate delivery infrastructure, including for 
the import of liquefied natural gas, must be part of the solution.
    In addition, government should encourage increased energy 
production from all sources, including coal, oil, nuclear, wind energy 
and other alternatives.
    As makers of fiber glass used in wind-powered electricity 
generators, we believe tax credits to develop wind energy is a step in 
the right direction. Unfortunately, the bill is stalled in Congress.
    On a final note, PPG does not support government intervention for 
price controls. Competition and free market forces should continue to 
drive prices.
    Thank you for your leadership in developing solutions to resolve 
this growing natural gas crisis that threatens businesses, jobs and our 
nation's economy.

[GRAPHIC] [TIFF OMITTED] T4599.106

                                 ______
                                 
       Response by Dennis M. Bailey to Additional Question from 
                            Senator Jeffords

    Question 1. Your testimony highlighted the need for conservation in 
the short term to reduce natural gas prices, and you described several 
economy wide proposals to achieve that objective, such as increased 
incentives for the use of energy efficient windows. Has PPG been able 
to reduce its natural gas use and improve efficiency in the face of 
high prices, and how have you done so?
    Response. 2002 is the most recent year for which PPG has compiled a 
summary of natural gas consumption at our U.S. manufacturing sites.
    Our consumption in 2002 increased by 12% over that for 2001. The 
majority of this increase can be attributed to the normal start-up 
costs and inefficiencies associated with a new combined heat and power 
(CHP) generation facility. RS Cogen, a joint venture combined heat and 
power generation facility justified by PPG's management to improve 
energy efficiency in light of rising energy prices, became operational 
in late 2002 and makes PPG's Lake Charles, Louisiana chemicals plant 
completely self-sufficient in terms of electric power generation. CHP, 
also known as cogeneration, reduces the amount of energy consumed per 
unit of output. Heat that would be wasted in a conventional utility 
plant is captured for use in the form of steam. CHP can be twice as 
fuel efficient as conventional power plants.
    As to energy efficiency (measured in terms of MMBtus of natural gas 
per ton of product produced), PPG's efficiency in the U.S. declined 
approximately 1% in 2002 when compared to 2001. The decline can be 
attributed to the RS Cogen start-up noted above, as well as natural gas 
associated with sales of electricity (which are not considered 
``product produced''). Without consideration of the natural gas 
associated with the sale of electricity, the efficiency actually 
improved almost 2%.
    As to the start-up of RS Cogen, it is known that the natural gas 
efficiency of the Lake Charles, Louisiana chemicals plant improved over 
15% in 2003 largely as a result of the joint venture. With the Lake 
Charles plant representing over 60% of PPG's annual U.S. consumption, 
we feel safe in projecting that our energy efficiency for our U.S. 
manufacturing operations will be much improved in 2003.
                               __________
  Statement of Michael C. Caskey, Executive Vice President and Chief 
     Operating Officer of Fidelity Exploration & Production Company

    Mr. Chairman and members of the Committee, my name is Mike Caskey. 
I am the Executive Vice President and Chief Operating Officer of 
Fidelity Exploration & Production Company (Fidelity) headquartered in 
Denver, Colorado. I would like to thank the Senate Environment and 
Public Works Committee for the opportunity to testify at this hearing.
    Fidelity is a wholly-owned indirect subsidiary of MDU Resources 
Group, Inc. We are an independent oil and natural gas producer engaged 
in acquisition, exploration and production activities. Our efforts are 
primarily focused in the Rocky Mountain region of the United States and 
in the Gulf of Mexico. Fidelity produces coalbed natural gas (CBNG) in 
Wyoming and Montana. We are currently the only producer of CBNG in 
Montana. I am here today to discuss the prospects for finding and 
producing clean natural gas in North America and the obstacles Federal, 
State and local governments and producing companies face.
    You are well aware of our nation's growing demand for clean-burning 
natural gas to meet current and future residential, commercial, 
industrial and electrical generation needs. Energy Information Agency 
(EIA) projections show that natural gas will play an increasingly 
important role in meeting our nation's energy needs. The EIA in its 
``Annual Energy Outlook 2004 with Projections to 2025'' forecasts that 
natural gas used in the industrial sector alone will increase by 41 
percent from 2002 to 2025 (Chart 1). The Department of Energy (DOE) has 
made similar projections. Current consumption levels of just under 23-
trillion cubic feet (tcf) of natural gas per year are expected to grow 
to approximately 32 tcf/year by 2025. Presently 98 percent of our 
domestic consumption is supplied by North American production. 
Traditional natural gas basins located in Texas and Oklahoma, and in 
the Gulf of Mexico are showing dramatic declines in production and 
reserves. The only major gas province with increased reserves is the 
Rocky Mountain Region (Map 1). Therefore, in order to meet increasing 
supply needs, natural gas development in the Rocky Mountain region must 
be allowed to progress in an effective, timely manner.

                            OUR STAKEHOLDERS

    As an exploration and production company we are committed to do our 
part to discover, develop and produce this valuable, clean-burning 
resource. While doing so, Fidelity conducts its operations dedicated to 
sound environmental stewardship so as to ensure that our development 
protects the environment and ongoing sustainable agricultural 
operations. That is the core of our corporate business model. Our 
business process includes three principal stakeholders--landowners, 
governments (local, State and Federal) and shareholders. In order for 
Fidelity to operate in a balanced, stable and functional manner, we 
must meet the needs of all three groups. Today, special interest 
activism, obstructionism and litigation are threatening the stability 
of these three stakeholder groups and the natural gas industry's 
ability to provide reliable, affordable supplies of natural gas for our 
country's needs. I will relate some examples of our experience in the 
Powder River Basin of Montana and Wyoming as I discuss our concerns.
    Perhaps the most important stakeholder in our business is the 
landowner, the person who owns the surface of the land on which we 
operate. That person may or may not own the mineral rights. Because 
natural gas production requires a long-term commitment to be on the 
land, it is imperative that we develop a ``good neighbor relationship'' 
with each landowner. We work with these landowners to ensure that our 
development activities minimize disruption of the use and enjoyment of 
the landowners' property, thereby protecting their ability to maintain 
and enhance the profitability of their agricultural operations. It is 
important to understand that the time of maximum disturbance occurs 
during the initial drilling and construction phase of operations. 
Because of that, most landowners we deal with prefer a ``get in--get 
out--get back to normal'' approach to development. Special interest 
litigation and obstruction, which delay or stop timely development, 
especially during the initial development phase, have a detrimental 
effect on landowners who have agreed to allow development of the 
Federal resources beneath their land.
    Governments (local, State and Federal) are the second stakeholder 
in our operations. In addition to meeting the needs of our landowners, 
we must also comply with the laws and regulations in place at the 
local, State and Federal levels. Exploration and development of Federal 
lands is subject to many laws; however, the key laws that impact 
exploration and development are the National Environmental Policy Act 
(NEPA) for which you are the authorizing committee, and the Federal 
Land Policy and Management Act (FLPMA).
    FLPMA is the law which Federal land managers use to balance the 
diverse interests of the multiple uses of Federal lands. NEPA is the 
tool by which the managers analyze the effects of their decisions. NEPA 
documents--Environmental Impact Statements (EISs) and Environmental 
Assessments (EAs)--are the foundation of all decisions involving the 
use of Federal lands. It is this NEPA process of evaluating land use 
and development plans, not the law itself, which has become the 
principal tool used by obstructionists to delay or halt natural gas 
development.
    Unfortunately, the plethora of litigation and the likelihood of 
additional litigation surrounding natural gas development have forced 
governmental agencies to make choices on the use of limited budgets. 
Like producers, regulatory agencies' resources are being consumed by 
defending frivolous, wasteful lawsuits. These lawsuits impact 
government at all levels. Typically, the lawsuits are against the 
Bureau of Land Management (BLM) or other land use agencies that manage 
the use of Federal land for multiple activities. The government must 
divert resources, which are forever lost, from important environmental 
programs such as noxious weed control, habitat rehabilitation and fire 
prevention to defend frivolous lawsuits.
    In addition to affecting allocation of limited resources, delays or 
restriction of production from Federal leases impacts the revenue 
received by the government. Royalties from Federal minerals fall behind 
only personal and corporate income taxes as a source of Federal 
revenue. The states also have a stake in the revenue generated from 
Federal minerals, receiving 50 percent of Federal bonuses, rents and 
royalties generated within their boundaries. These states use this much 
needed source of revenue for school funding, law enforcement, 
infrastructure improvement and other local uses. From 1998 through the 
first 5 months of 2003, bonus revenue from leasing in Wyoming was over 
$147 million and in Montana for that same period the amount was over $9 
million. These are funds paid by energy companies just for the right to 
explore for natural gas and oil on Federal leases.
    The third stakeholder in this development is our shareholder. As a 
subsidiary of a Fortune 1000 corporation we are looking for investment 
opportunities that will stimulate corporate growth and provide an 
attractive and acceptable return to our shareholders. We constantly 
pursue new technologies that can accomplish our mission and improve the 
environment where we operate and live. The litigation from heavily 
funded, special interest groups that has been so prevalent in the 
Powder River Basin's CBNG development, impairs our return to 
shareholders in several ways. First, there is the significant direct 
legal cost of participating in and defending against the litigation. In 
addition, there is an indirect cost associated with dedication of 
corporate resources to litigation that could otherwise be invested in 
productive, value-building activities. And finally, there is the cost 
of delay--not being able to fully employ our significant investments in 
a timely manner. Imagine the owner of any other business, who obtains 
all the permits necessary to conduct business, sets up an office, 
invests in hiring workers and makes a commitment to buy equipment, 
supplies and startup needs and isn't allowed to conduct business 
because of frivolous litigation that targets the well-established 
licensing process. As our corporation, or any other, is impacted by 
these impediments to shareholder return, we must begin to look for more 
attractive, more predictable opportunities with less capital risk. The 
net result is a chilling effect on energy production in the United 
States.
    I will describe for you some examples of the litigation that has 
impacted our operations in Montana and Wyoming thereby impairing our 
ability to produce energy from our lease positions. While these 
examples are specific to Fidelity's operations, other energy companies 
could relate similar examples from their experience.

                            NEPA LITIGATION

    Prior to any surface disturbing activity, oil and gas leasing must 
take place. Most of the current Federal leasehold within Montana and 
Wyoming was leased during the period from 1997 through 2001. In mid-
2000, the BLM commenced the preparation of the Wyoming ``Powder River 
Basin Oil and Gas Environmental Impact Statement'' and the ``Montana 
Statewide Oil and Gas Environmental Impact Statement.''
    When Fidelity acquired its oil and gas leases and began planning 
development of CBNG in the CX Field area of Big Horn County, Montana in 
1997, we approached the Bureau of Land Management (BLM) to request that 
it prepare an environmental assessment of a 325-well pilot project. As 
the agency began that analysis, Fidelity drilled wells on private lands 
and initiated limited production testing of those wells in late 1998. 
Commercial production from 125 initial wells began in October 1999. 
Five months later, in March of 2000, the Northern Plains Resource 
Council (NPRC) filed its first CBNG lawsuit, suing the Montana Board of 
Oil & Gas Conservation (MBOGC), claiming it failed to conduct adequate 
environmental analysis before approving Fidelity's drilling 
applications. Montana has a State law--the Montana Environmental Policy 
Act (MEPA)--a law that is essentially identical to NEPA that requires 
an environmental evaluation of the effects of decisions made by State 
regulatory agencies. MBOGC settled the case by agreeing to either 
prepare a supplement to its 1989 Oil & Gas Environmental Impact 
Statement (EIS) or to cooperate with other agencies in preparation of a 
programmatic EIS for CBNG development in the Montana portion of the 
Powder River Basin. The agreement allowed Fidelity to continue with its 
CX Field pilot project, including the development of up to 250 
producing wells, but placed a statewide moratorium on all other CBNG 
development.
    In December of 2000, the BLM, the MBOGC and the Montana Department 
of Environmental Quality (MDEQ) initiated a programmatic EIS (the 
Montana Statewide Oil and Gas EIS) to amend the Billings and Powder 
River Resource Management Plans for CBNG development in the Montana 
portion of the Powder River Basin. This combined document was prepared 
to address both MEPA and NEPA issues associated with CBNG development. 
Prior to that time, in June of 2000, the Wyoming BLM decided to amend 
the Buffalo and Platte River Resource Management plans for CBNG 
development in the Wyoming portion of the Powder River Basin by 
preparing the Powder River Basin Oil and Gas EIS. The NEPA process for 
these EISs, originally estimated to take 18-24 months to complete, was 
finally completed on April 30, 2003 (29 months for the Montana 
Statewide Oil and Gas EIS, 35 months for the Powder River Basin Oil and 
Gas EIS) with the signing of the Records of Decision (RODs). Within 1 
day of the issuance of the RODs, lawsuits were filed in Montana 
challenging the validity of both Montana's and Wyoming's EISs. In 
total, four different lawsuits were filed against the RODs.
    In June of 2001, NPRC filed another lawsuit against the BLM and 
Federal oil and gas lease owners in the Powder River Basin of Montana, 
claiming the BLM should not have issued leases that had the potential 
to be developed for CBNG. NPRC claimed that the 1994 Miles City 
District Oil and Gas EIS/Plan Amendment to the Billings, Powder River 
and South Dakota Resource Management Plans had not analyzed the effects 
of full scale CBNG development. The 1994 Plan Amendment did allow for 
the drilling of CBNG test wells and initial small-scale development. It 
also stated that for full-field development to occur on Federal oil and 
gas leases, an additional environmental document would be required. 
This lawsuit was filed despite the fact that the Montana Statewide Oil 
and Gas EIS was underway and the BLM had allowed no production to occur 
from Federal exploratory wells that had been drilled for CBNG. NPRC 
lost this case on summary judgment but has appealed the case to the 
Ninth Circuit Court of Appeals.
    In accordance with the Montana Statewide Oil and Gas EIS, Fidelity 
submitted its Badger Hills Plan of Development (POD) covering 178 
wells. This POD contains a Surface Use Plan, a Noxious Weed Plan, a 
Water Management Plan, and a Wildlife Monitoring and Protection Plan as 
required by the EIS. The BLM spent about 90 days conducting the site-
specific environmental review to complete the EA. However, the NPRC, 
the Northern Cheyenne Tribe, Native Action, the American Lands 
Alliance, George Wuerthner and the Biodiversity Conservation Alliance 
protested the EA of the Badger Hills POD to the Montana BLM State 
Director. NPRC went so far as to file a lawsuit against the BLM before 
the State Director could even make a decision as to the adequacy of the 
first EA. The State Director remanded the EA back to the Miles City 
Field Office for further analysis. When the revised EA was issued and 
Fidelity was allowed to resume its operations, the NPRC lawsuit was 
amended to include a laundry list of NEPA objections. Additionally, the 
Northern Cheyenne Tribe filed suit against the BLM alleging non-
compliance with the National Historical Preservation Act. This was done 
despite the cultural resource inventory that Fidelity submitted with 
its Badger Hills POD application.
    Fidelity is not the only operator being affected by these appeals 
and lawsuits. Similar lawsuits and endless appeals and protests 
(Exhibit 1) are delaying production throughout the Rocky Mountain 
Region. Unfortunately, these lawsuits are also straining the BLM's 
human resources. Fidelity has been advised that the resource 
specialists essential to reviewing and processing Plans of Development 
are now working on litigation, preventing the BLM from committing to a 
timeline for completing environmental reviews and issuing permits. You 
can be assured that oil and gas permitting is not the only resource 
management activity that will suffer from allocation of resources to 
litigation. Programs ranging from fire management to habitat 
enhancement will be impacted. This needless special interest litigation 
deviates from the honorable goal of protecting the environment to 
obstructing responsible resource management by challenging the 
completeness of a well-established and time-tested process.

                             OTHER LAWSUITS

    Montana law allows discharge of unaltered groundwater without a 
permit if the discharge does not result in a violation of water quality 
standards or cause degradation of water quality. Nevertheless, Fidelity 
applied to the MDEQ for a Montana Pollution Discharge Elimination 
System (MPDES) permit to allow discharge of water produced in 
conjunction with CBNG in January 1999. The permit was issued on June 
16, 2000. On June 23, 2000 Fidelity initiated outreach to the NPRC by 
hosting NPRC representatives on a field trip of our CX Field. Fidelity 
granted NPRC the right to tour every aspect of our operations. At the 
same time this field tour was in progress, NPRC's attorneys were filing 
a lawsuit in Montana Federal District Court against Fidelity for 
violating the Clean Water Act by allegedly discharging without a 
permit. And 10 months later, in April of 2001, NPRC and the Tongue 
River Water Users Association sued the MDEQ in State court for issuing 
the permit in June of 2000. You can see the complexity of the problem 
here--We were sued for not having a permit even though State law did 
not require one, and the agency that issued the permit was also sued. 
It is important to note that the water quality data shows that 
Fidelity's discharge has not degraded the receiving water quality.
    NPRC next sued Fidelity in August of 2001 in Federal court under 
Section 404 of the Clean Water Act, alleging that Fidelity failed to 
obtain 404 permits for discharge of fill material and for construction 
of pipelines and roads in waters of the United States. The lawsuit was 
filed despite the fact that the U.S. Army Corps of Engineers had 
advised the NPRC that the work they had reviewed in the field was 
either covered by nationwide permits or was not located in 
jurisdictional waters of the U.S. That case was settled in December 
2003.
    The attached newspaper articles (Exhibits 2 and 3) describe a 
pipeline proposal in June 2003 to ship natural gas from Wyoming to 
Chicago and the subsequent decision by the pipeline company to delay 
the project due to the unwillingness of producers to commit to the 
project. The producers' reluctance is due to ``uncertainty on when 
they're going to receive permits, how rapidly they are going to receive 
them, and where they can go once they receive them.'' The BLM 
reportedly said that the slow permitting was the result of the numerous 
still-unsettled lawsuits filed against the Wyoming BLM over the 
Environmental Impact Statement.
    The attached Exhibit 4 shows all of the active lawsuits and their 
current status related to Fidelity's CBNG development program in 
Wyoming and Montana. In total, we have been involved in 13 separate 
lawsuits brought by environmental obstructionists in connection with 
CBNG development in the Powder River Basin. Twelve of these lawsuits 
are still active. These lawsuits cover every aspect of resource 
development, from lawsuits on Resource Management Plan Amendments, 
lawsuits on individual CBNG projects and lawsuits on water discharge 
permits. These numerous lawsuits are limiting the ability of natural 
gas producers to effectively and efficiently produce energy for the 
nation, and one can only conclude that there is an agenda by these 
obstructionists to stop natural gas development in the U.S.

                                 ACTION

    As we look to the future of energy development in the United 
States, trends indicate that demand has and will continue to outstrip 
supply. To resolve this imbalance, we need to ensure accountability of 
all parties. The energy industry is held accountable by Federal and 
State regulation. Those special interest litigants are not being held 
to the same standard of accountability.
    Take NEPA back to its original roots. Special interest groups are 
misusing the NEPA process to obstruct development. The scales of 
Justice have to be balanced and not tip to the benefit of one.
    Yes, this is America and the obstructionists have every right to 
due process--but they need to be accountable to the American people for 
their actions just like my company is held accountable. There is no 
substitute for honesty and action based upon verifiable science. 
Without a greater level of accountability being applied to the 
obstructionist community, the United States' ability to be less 
dependent upon other energy producing countries and to keep many of the 
jobs that are currently going overseas in our homeland will be 
impossible.
    I wish to again thank the committee for this opportunity and if 
there are any questions I will be happy to share any answers I may 
have.

[GRAPHIC] [TIFF OMITTED] T4599.107

                               EXHIBIT 1
                   Frivolous Environmental Litigation

             AN OBSTACLE TO PRODUCTION OF CLEAN NATURAL GAS

    In the past several years, the Nation has seen production of 
natural gas decline in most of the traditional producing provinces--
shallow waters of the central and western Gulf of Mexico; on-shore 
private lands in Texas, Oklahoma, Kansas and Louisiana. Industry has 
seen significant restrictions placed on natural gas production in the 
Eastern Gulf of Mexico, off the California Coast and off the Eastern 
Coast of the U.S.
    There remain large supplies of natural gas to meet our nation's 
needs for clean burning fuels. Much of it can be found in Wyoming, 
Utah, Colorado, Montana and New Mexico. Future supplies of this vital 
fuel that heats our homes, operates factories and is the feedstock for 
many industrial and commercial products are increasingly found on 
public (BLM and Forest Service), non-park lands in the west.
    The ability of energy companies to extract this clean fuel from 
national, non-park Federal lands has become harder because of 
aggressive, frivolous litigation from so-called ``special interest'' 
groups. Legal challenges have caused delays at every step of the 
permitting process--Resource Management Plan Revisions, oil and gas 
leasing, Environmental Impact Statements, Environmental Assessments, 
Records of Decision, Applications for Permit to Drill, regulatory 
permits (i.e. water discharge permits), and many more. The cost in time 
to the Federal and State bureaucracies to prepare administrative 
records for protests, appeals, and legal challenges is staggering. 
Agency budgets are now spent defending these challenges versus 
performing their regulatory duties such as conducting environmental 
audits, processing permits, and conducting enforcement responsibilities 
in Wyoming and Montana. The cost to energy companies is equally 
debilitating.
    The following chart represents examples of current actions taken by 
special interest groups. Should this trend continue, further delays 
will continue to reduce supplies of natural gas, increase costs and 
affect employment in a number of industries.


------------------------------------------------------------------------
  Request for State Director
   Reviews or Environmental     Who challenged    Year     Field Office
     Document Challenged
------------------------------------------------------------------------
Fidelity's Badger Hills POD..  Northern            2004  Montana--Miles
                                Cheyenne Tribe.           City Field
                                                          Office
                                                         United States
                                                          District Court
Epsilon POD EA...............  Powder River        2004  Wyoming--Buffal
                                Basin Resource            o Field Office
                                Council (PRBRC).         State Director
                                                          Review (SDR)
Delta POD EA.................  PRBRC...........    2004  Wyoming--Buffal
                                                          o Field Office
                                                          (SDR)
Fogarty Creek Wells #3133 &    Defender of         2004  Wyoming--Pineda
 #3233.                         Wildlife and              le Field
                                Wyoming Outdoor           Office (SDR)
                                Council (WOC).
Lower Prairie Dog POD EA.....  PRBRC...........    2004  Wyoming--Buffal
                                                          o Field Office
                                                          (SDR)
Copper Ridge Shallow Gas Unit  Biodiversity        2004  Wyoming--Rock
                                Conservation              Springs Field
                                Alliance (BCA).           Office (SDR)
1Anadarko's Beta II Plan of    Powder River        2004  Wyoming--Buffal
 Development (POD).             Basin Resource            o Field Office
                                Council.                  (SDR)
Fidelity's Badger Hills POD..  Northern Plains     2003  Montana--Miles
                                Resource                  City Field
                                Council, Inc.             Office
                                (NPRC).                  United States
                                                          District Court
Fidelity Tongue River--Badger  NPRC, Northern      2003  Montana--Montan
 Hills POD.                     Cheyenne Indian           a Miles City
                                Tribe, Native             Field Office
                                Action, Western           (SDR)
                                Environmental
                                Law Center.
Brown Cow POD EA.............  National            2003  Wyoming--Rawlin
                                Wildlife                  s Field Office
                                Federation, et            (SDR)
                                al.
Beta II Additions POD EA.....  PRBRC...........    2003  Wyoming--Buffal
                                                          o Field Office
                                                          (SDR)
Questar Winter Long Drilling   BCA, Wyoming        2003  Wyoming--Pineda
 Exception.                     Outdoor Council           le Field
                                (WOC), Greater            Office (SDR)
                                Yellowstone
                                Coalition
                                (GYC), Jackson
                                Hole
                                Conservation
                                Alliance,
                                Wilderness
                                Society.
N SA Creek POD EA............  PRBRC...........    2003  Wyoming--Buffal
                                                          o Field Office
                                                          (SDR)
LX Bar Creek POD EA..........  PRBRC...........    2003  Wyoming--Buffal
                                                          o Field Office
                                                          (SDR)
NP II POD EA.................  PRBRC, Tom and      2003  Wyoming--Buffal
                                Helen Jones,              o Field Office
                                Mr. & Mrs.                (SDR)
                                Barlow.
Horse Creek POD EA...........  PRBRC, Tom and      2003  Wyoming--Buffal
                                Helen Jones,              o Field Office
                                Mr. & Mrs.                (SDR)
                                Barlow.
Vermillion Basin.............  Biodiversity        2003  Wyoming--Rock
                                Conservation              Springs Field
                                Alliance.                 Office (SDR)
Lower Bush Creek II..........  Biodiversity        2003  Wyoming--Rock
                                Conservation              Springs Field
                                Alliance.                 Office (SDR)
Lower Bush Creek.............  Biodiversity        2003  Wyoming--Rock
                                Conservation              Springs Field
                                Alliance.                 Office (SDR)
Williams' Pleasantville POD    PRBRC...........    2003  Wyoming--Buffal
 EA.                                                      o Field Office
                                                          (SDR)
Pennaco's (Marathon) Horse     PRBRC...........    2003  Wyoming--Buffal
 Creek 10 POD EA.                                         o Field Office
                                                          (SDR)
Powder River Basin Oil and     * American Lands    2003  Wyoming--Buffal
 Gas Project Environmental      Alliance, BCA,            o; Montana--
 Impact Statement (EIS),        George                    Billings and
 Record of Decision (ROD) and   Wuerthner.                Miles City
 Resource Management Plan      * Western                  Field Office
 (RMP) amendments*.             Organization of
Montana Statewide Oil and Gas   Resource
 EIS, ROD and RMP for the       Councils,
 Billings and Powder River      Jeanie
 Resources Areas.               Alderson, Wally
                                McRae, Wyoming
                                Outdoor Council
                                (WOC), Natural
                                Resources
                                Defense Council
                                (NRDC), PRBRC.
Montana Statewide Oil and Gas  NPRC, Northern      2003  Montana--Billin
 EIS, ROD and RMP for the       Cheyenne Tribe            gs and Miles
 Billings and Powder River      and Native                City Field
 Resources Areas.               Action.                   Office
Montana Statewide Oil & Gas    NPRC, Montana       2003  Montana
 EIS & ROD.                     Environmental             Environmental
                                Information               Policy Act &
                                Center, Inc.,             Constitutional
                                Tongue and                Litigation
                                Yellowstone               against
                                Irrigation                Montana Board
                                District.                 of Oil & Gas
                                                          Conservation &
                                                          Montana
                                                          Department of
                                                          Environmental
                                                          Quality
Application for Permit to      WOC, Greater        2003  Wyoming--Pineda
 Drill (APD) Environmental      Yellowstone               le Field
 Assessment (EA) for the        Coalition                 Office (SDR)
 Questar Stewart Point          (GYC),
 Wells**.                       Defenders of
                                Wildlife,
                                Wilderness
                                Society.
Hanna Draw Coalbed Methane     WOC, BCA, Sierra    2003  Wyoming--Rawlin
 Exploration Project EA,        Club, NRDC,               s Field Office
 Decision Record and Finding    Earthjustice.
 of No Significant Impact
 (FONSI).
Questar Winter Long Drilling   WOC.............    2002  Wyoming--Pineda
 Exception.                                               le Field
                                                          Office
                                                         Federal
                                                          District Court
Haystacks Geophysical EA,      BCA, GYC, Center    2002  Wyoming--Rock
 Decision Record and FONSI.     for Native                Springs Field
                                Ecosystems,               Office (SDR)
                                Wildlands
                                Center for
                                Preventing
                                Roads.
Big Piney 2-D Geophysical      Sierra Club,        2002  Wyoming--Pineda
 Project EA, Decision Record    BCA, GYC,                 le Field
 and FONSI.                     Center for                Office (SDR)
                                Native
                                Ecosystems,
                                Wildlands,
                                Center for
                                Preventing
                                Roads.
West Pinedale 3-D Geophysical  GYC, Sierra         2002  Wyoming--Pineda
 Project EA, Decision Record    Club, WOC.                le Field
 (DR) and FONSI.                                          Office (SDR)
Merna 3-D Geophysical Project  GYC, Sierra         2002  Wyoming--Pineda
 EA, DR, and FONSI.             Club, WOC, NRDC.          le Field
                                                          Office (SDR)
Blue Sky POD EA, DR and FONSI  National            2002  Wyoming--Rawlin
                                Wildlife                  s Field Office
                                Federation                (SDR)
                                (NWF), BCA, WOC.
                               Wyoming Wildlife
                                Federation
                                (WWF).
Cow Creek Pod EA, DR and       NWF, BCA, WOC,      2002  Wyoming--Rawlin
 FONSI.                         WWF.                      s Field Office
                                                          (SDR)
Leasing under 1994 oil and     NPRC............    2001  Montana--Miles
 gas leasing EIS, ROD,                                    City Field
 Resource Management Plan                                 Office
 Amendment in Billings and
 Powder River RMA.
Lower Prairie Dog Creek......  WOC, PRBRC, Mike    2000  Wyoming--Buffal
CBM Project EA, DR and FONSI.   Foate.                    o Field Office
                                                         IBLA Appeal
Lower Prairie Dog Creek......  WOC, PRBRC, Mike    2000  Wyoming--Buffal
CBM POD EA, DR, and FONSI....   Foate.                    o Field Office
                                                         IBLA Appeal
------------------------------------------------------------------------
* Powder River Basin Oil and Gas EIS
Pg. S-1 ``within the US the largest number of responses were from
  California, New York, and Florida''
14,283 comments from member organizations
4/30/03 Record of Decision signed, 5/1/03 three lawsuits filed by
  Earthjustice in Denver as lead council, Western Environmental Law
  Center of Boise, and NPRC of Denver. A fourth suit was filed 5/8/03 by
  the firm of Ziontz, Chestnut, Varnell, Berley & Slonim of Seattle as
  lead counsel. Suits filed in Montana District Court in Billings, Mt.


                              WATER ISSUES

----------------------------------------------------------------------------------------------------------------
  Environmental Document Challenged         Who challenged                Year                 Field Office
----------------------------------------------------------------------------------------------------------------
General Permit for off-channel pit     PRBRC..................  2002...................  Wyoming
 Coal Bed Natural Gas.
National Pollution Discharge           WOC; PRBRC.............  Continuously...........  Wyoming
 Elimination System (NPDES) permits.
Corps of Engineers (COE) General       WOC, PRBRC.............  2002...................  Wyoming
 Permit 98-08..
MPDES discharge permit issued by       Tongue River Water       2001...................  Montana
 Montana DEQ.                           Users' Association,
                                        NPRC, Montana
                                        Environmental
                                        Information Center.
Construction of roads, impoundments,   NPRC...................  2001...................  Montana
 outfall structures and pipelines
 without Corp of Engineers 404 Permit
 (COE advised permit not necessary).
Montana Water Quality Act, discharge   NPRC...................  2000...................  Montana
 of unaltered groundwater without
 permit.
----------------------------------------------------------------------------------------------------------------

                    FEDERAL OIL AND GAS LEASE SALES

    In Wyoming, 23 of 24 lease sales have been protested and/or 
appealed by special interest groups since February 2000 to present. The 
outcomes of those protests present significant delay in industries' 
ability to produce natural gas and do not necessarily conclude with a 
better environmental outcome. The following examples are provided:
Wyoming BLM February 2000 Lease Sale
     The February 2000 lease sale was protested to the BLM 
State Director by special interest groups where 49 lease parcels were 
offered in the sale that were located within the Buffalo Field Office 
Management Area.
     The State Director Review dismissed the protest and 
special interest groups then appealed that decision to the Interior 
Board of Land Appeals (IBLA).
     IBLA dismissed 46 of the 49 parcels for lack of standing 
and granted the special interest groups standing on 3 parcels of which 
a stay was granted.
     IBLA ruled on April 2002 remanding the 3 parcels back to 
the BLM for further review. IBLA determined that BLM did not take a 
``hard look'' at the unique characteristics of coal bed natural gas 
development prior to leasing, particularly water and air quality, and 
therefore the leases were issued illegally.
     BLM then placed a moratorium on further leasing in the 
Buffalo Field Office Management Area where leases were thought to be 
utilized for coal bed natural gas development.
     Several parties appealed this decision to Federal District 
Court in Wyoming and on May 30, 2003 the Federal judge overturned 
IBLA's decision and defended BLM's original State Director Review in 
that the agency did take a ``hard look'' at the impacts of coal bed 
natural gas prior to leasing.
     The reinstatement of these three leases took place some 3 
years after industry invested in developing the Federal mineral estate.
     Special interest groups are now appealing the Federal 
District Court decision to the 10th Circuit Court of Appeals. This 
hearing has yet to be scheduled.
Wyoming BLM April 2000 Lease Sale
     The April 2000 lease sale was protested to the BLM State 
Director by special interest groups where 122 lease parcels were 
offered in the sale that were located within Bighorn, Campbell, Carbon, 
Converse, Johnson, Natrona, Sheridan, Sweetwater, and Uinta Counties in 
Wyoming.
     The State Director Review dismissed the protest and 
special interest groups then appealed that decision to IBLA.
     IBLA initially dismissed 119 parcels for lack of standing 
and eventually reconsidered 5 of those parcels that were dismissed; 
therefore granting standing on a total of 8 parcels. A stay was granted 
on those 8 parcels limited to coal bed natural gas development only.
     The special interest groups charged that the applicable 
environmental documents of which the State Director relied in its 
review completely failed to mention coal bed natural gas development or 
inadequately addressed the unique and significant impacts associated 
with that development.
     In April of 2003, IBLA affirmed the State Director's 
Review in part and reversed and remanded the Review in part. That 
decision was never appealed to Federal District Court.
Wyoming BLM June 2000 Lease Sale
     The June 2000 lease sale was protested to the BLM State 
Director by special interest groups where 132 lease parcels were 
offered in the sale that were located within Bighorn, Campbell, Carbon, 
Converse, Johnson, Natrona, Sheridan, Sweetwater, and Uinta Counties in 
Wyoming.
     The State Director Review dismissed the protest and 
special interest groups then appealed that decision to the IBLA.
     IBLA dismissed 127 parcels for lack of standing and 
granted the special interest groups standing on 5 parcels but limited 
the stay to only coal bed natural gas activities.
     IBLA then granted the special interest groups motion for 
partial voluntary dismissal of the appeal as to 3 of the 5 parcels for 
which it had established standing leaving only 2 parcels in the appeal.
     The special interest groups charged that the applicable 
environmental documents of which the State Director relied on his its 
review completely failed to mention coal bed natural gas development or 
inadequately addressed the unique and significant impacts associated 
with that development.
     In February of 2004, IBLA affirmed the State Director's 
decision on review stating that the BLM supplemented its review with 
the submission of supporting information and provided the hard look at 
the environmental consequences of leasing including impacts from coal 
bed natural gas development.
     It has not been decided if this decision will be appealed 
to Federal District Court.

                               CONCLUSION

    It has become apparent that through the public process NEPA has 
become a ``tool'' that is used as the primary impediment to oil and gas 
development on Federal lands. Industry supports without qualification 
the Act's provisions for public comment, identification of alternatives 
to the proposed action, and consideration of impacts and mitigation 
measures to be used. However, these same provisions are being used by 
some groups as opportunities to stop proposed projects without regard 
for cost and delay of impacts on land management agencies, the US 
taxpayer, or multiple users of the public lands.
    The cost of ``NEPA abuse'' is high. All of these delays put a 
tremendous burden on industry's ability to economically develop the 
resource for the benefit of the country. It is safe to say that the 
cumulative impacts, due to frivolous environmental litigation, is 
strangling industry's ability to develop energy resources on Federal 
lands and to supply much needed energy to the citizens of this country.
                                 ______
                                 
                               EXHIBIT 2

                 [From the News Record, June 25, 2003]

                Canadian Firm Plans Pipeline to Chicago

                    (By the Staff and Wire Reports)

    A Canadian firm has announced plans to build a high-volume natural 
gas pipeline from northeastern Wyoming to Chicago.
    Calgary, Alberta-based Enbridge, Inc., said Tuesday the plans 
include a design that would export up to 1-billion cubic feet of gas 
per day from the Powder River Basin.
    Industry and government officials say a pipeline with that much 
volume would bolster wholesale prices and bring Wyoming closer to 
becoming the nation's top natural gas supplier.
    ``Here we have a time when the whole country is screaming for 
natural gas and we have the supply. Clearly this huge for the state,'' 
said Mark Doelger, chairman of the Wyoming Pipeline Authority.
    ``We've been talking with Enbridge since February but didn't expect 
a decision this early,'' Doelger told The News-Record.
    ``If ongoing market studies and other reviews are favorable, 
Enbridge believes this pipeline could be constructed and in service 
within 4 years,'' said Ron Brintnell, director of the company's Gas 
Pipeline Development Division.
    The proposal was announced at a meeting of the Wyoming Natural Gas 
Pipeline Authority in Casper.
    Brintnell said Enbridge has been working with the agency to contact 
local gas producers and to find out if it can make a deal to ship 
royalty-in-kind gas, or gas that is given to the Federal Government in 
lieu of conventional royalty payments.
    If the government is able to negotiate better pipeline deals for 
moving gas, it can earn more money that it would from cash payments. 
Wyoming was the first State to make in-kind payments.
    The company is looking for producer support and plans to open an 
office in Wyoming but ``the location and timing has yet to be 
determined,'' Brintnell told The News-Record.
    Enbridge and its subsidiaries operate more than 20,000 miles of 
natural gas and oil pipelines in Canada and the United States, 
including the Vector natural gas pipeline from the Chicago Hub to Dawn, 
Ontario.
    Enbridge has been working on a $900 million deal to sell half its 
interest in the 1,857-mile Alliance Pipeline, which moves natural gas 
from western Canada to the Chicago hub, and all its interest in a 
Saskatchewan pipeline system.
    According to an Enbridge press release issued Monday, the deal 
would net the company about $210 million, which it would use to pay 
down debt and invest in ``strategic growth opportunities.''
    The deals could close at the end of the month.
    Last year the State and several gas producers paid PACE Global 
Energy Services to study what Wyoming's gas industry needs to become 
more competitive nationwide. The answer was a high-volume, single-route 
``bullet'' pipeline from northeast Wyoming to the Chicago market.
    Enbridge was not among the firms that helped fund the PACE study 
but State officials involved in the process said it doesn't matter who 
wants to build it.
    Earlier this year, the Legislature followed recommendations from 
the now-idled Wyoming Energy Commission and from Gov. Dave Freudenthal 
to revive the Wyoming Natural Gas Pipeline Authority and charge it with 
bolstering interest in expanding Wyoming's pipeline connections to 
high-volume markets.
    One of the problems noted in the PACE study was how many of the 
companies which typically build interstate gas pipelines have suffered 
from credit problems related to the recent problems in the energy 
trading business.
    Brintnell said Enbridge never got into the energy trading business 
and its credit is strong enough to finance a project like a Wyoming-to-
Chicago pipeline.
    He said the next step will be for the company to discuss with 
producers and end-users to see how much interest there is in the 
project.
                                 ______
                                 
                               EXHIBIT 3

                [From the News Record, January 28, 2003]

                    Pipeline Project is Put on Hold

                          (By Charlie Homans)

    Wyoming.--The Canadian pipeline company Enbridge Inc. has put its 
Beacon Pipeline project on the back burner, an Enbridge official told 
The News-Record today.
    ``For the time being, we've stopped further development on it,'' 
said Ron Brintnell, Enbridge's director for gas pipeline development. 
``We didn't see the kind of response from the producing community that 
we hoped for.''
    But Brintnell says the company is optimistic about the future of 
the pipeline, which is slated to eventually carry 2-billion cubic feet 
per day of coal-bed methane and conventional natural gas from Cheyenne 
to Chicago.
    ``Right now we're waiting to see what transpires with producers 
over the next year or so,'' he said. ``If we see the kind of growth 
that we expect, then we will continue.''
    Both Brintnell and Wyoming Natural Gas Pipeline Authority officials 
pointed to slow coal-bed methane well permitting by the U.S. Bureau of 
Land Management's Wyoming field offices as a large part of the problem.
    According to BLM Buffalo field office manager Dennis Stenger, the 
Buffalo office--where most of the criticism has been targeted--has 
permitted 525 wells since April, when the landmark Powder River Basin 
Oil & Gas Project environmental impact statement was issued.
    Last week Secretary of the Interior Gale Norton said she wanted to 
see 3,000 permits issued each year by the BML in the Powder River 
Basin.
    ``Right now there's just a lack of market support for the 
project,'' Pipeline Authority Executive Director Bryan Hassler said of 
the Beacon Pipeline. ``And most of that's due to producer uncertainty 
on when they're going to receive permits, how rapidly they're going to 
receive them, and where they can go once they do receive them.''
    BLM Buffalo assistant field manager Richard Zander acknowledged 
that slowed permitting has been a problem, pointing to the numerous 
still-unsettled lawsuits filed against the BLM over the environmental 
impact statement.
    But he said that permitting was most likely not the only factor 
inhibit large projects like Beacon.
    ``Is there a certainty that (the permitting)'s affecting it? I 
don't thinks so,'' Zander said.
    Brintnell said that while the scale of the Beacon project could 
offer significant economic payoffs to Wyoming, particularly if natural 
gas prices in the Midwest remain high, it also made getting the 
pipeline off the ground a trickier proposition.
    ``Given that it is a bigger project economics prevail,'' Brintnell 
said. ``We need more commitments to make it work, so it's just a 
different set of challenges.'' State Oil & Gas Conservation Commission 
Supervisor Don Likwartz said that the commitment problems Beacon faces 
are characteristic of the Wyoming pipeline market in general.
    ``What has happened is that a lot of operators . . . are having 
even more difficulty forecasting production for their companies and 
their boards and Wall Street, and they're also getting more reluctant 
to commit to pipelines,'' Likwartz said.
                                 ______
                                 
                               EXHIBIT 4

----------------------------------------------------------------------------------------------------------------
                 Case                        Cause Number                Court            Complaint Allegations
----------------------------------------------------------------------------------------------------------------
NPRC v. Fidelity.....................  CV-00-105-BLG-SEH......  US District Court for    Citizen suit
                                       No. 02--35836..........   the District of          challenging regulated
                                                                 Montana, Billings        discharges.
                                                                 Division.
                                                                Ninth Circuit Court of
                                                                 Appeals.
NPRC v. BLM, Fidelity, et al.........  CV-01-96-BLG-RWA.......  US District Court for    Lawsuit challenging
                                       No. 04--35002..........   the District of          BLM's compliance with
                                                                 Montana, Billings        NEPA process.
                                                                 Division.
                                                                Ninth Circuit Court of
                                                                 Appeals.
TRWUA, NPRC, and MEIC v. MT DEQ and    CDV-2001-258             Montana First Judicial   Lawsuit claiming that
 Fidelity.                              consolidated with BDV    District Court, Lewis    regulated discharges
                                        2001-258.                and Clark County.        violate environmental
                                                                                          standards.
NPRC v. Fidelity.....................  CV 01-137-BLG-RWA......  US District Court for    Citizen suit
                                                                 the District of          challenging pond
                                                                 Montana, Billings        construction.
                                                                 Division.
NPRC v. BLM, Gale Norton, Kathleen     CV-03-069-BLG-RWA        US District Court for    Lawsuit challenging
 Clarke, and Martin Ott (Defendants),   consolidated with CV-    the District of          BLM's compliance with
 and Fidelity, et al. (Intervenors).    03-078-BLG-RWA.          Montana, Billings        NEPA process.
                                                                 Division.
WORC, Jeanie Alderson, Wally McRae,    CV-03-70-BLG-RWA         US District Court for    Lawsuit challenging
 WOC, NRDC, and PRBRC v. Kathleen       (Montana).               the District of          BLM's compliance with
 Clarke, BLM, Gale Norton, and DOI     04-CV-0018-J (Wyoming).   Montana, Billings        NEPA process.
 (Defendants), and Fidelity, et al.                              Division.
 (Intervenors).                                                 US District Court for
                                                                 the District of
                                                                 Wyoming.
ALA, BCA, and George Wuerthner v. BLM  CV-03-71-BLG-RWA         US District Court for    Lawsuit challenging
 and Gale Norton (Defendants), and      (Montana).               the District of          BLM's compliance with
 Fidelity, et al. (Intervenors).       04-CV-0019-J (Wyoming).   Montana, Billings        NEPA process.
                                                                 Division.
                                                                US District Court for
                                                                 the District of
                                                                 Wyoming.
Northern Cheyenne Tribe and Native     CV-03-78-BLG-RWA         US District Court for    Lawsuit challenging
 Action v. Gale Norton, Kathleen        consolidated with CV-    the District of          BLM's compliance with
 Clarke, and Martin Ott (Defendants),   03-69-BLG-RWA.           Montana, Billings        NEPA process.
 and Fidelity, et al. (Intervenors).                             Division.
T & Y Irrigation District, NPRC, and   BDV-2003-579...........  Montana First Judicial   Lawsuit claiming that
 MEIC v. MT DEQ and MBOGC                                        District Court.          agencies' actions
 (Defendants) and Fidelity                                                                violated State
 (Intervenor).                                                                            constitution and
                                                                                          statutes.
NPRC v. BLM and Martin Ott             CV-03-185-BLG-RWA......  US District Court for    Lawsuit challenging
 (Defendants) and Fidelity                                       the District of          adequacy of
 (Intervenor).                                                   Montana, Billings        environmental analysis
                                                                 Division.                for Fidelity's Badger
                                                                                          Hills Project.
Northern Cheyenne Tribe v. BLM,        CV-04-17-BLG-RWA.......  United States District   Lawsuit challenging
 Martin C. Ott, and David M. McIlnay                             Court of Montana,        adequacy of
 (Defendants) and Fidelity                                       Billings Division.       environmental analysis
 (Intervenor).                                                                            for Fidelity's Badger
                                                                                          Hills Project.
----------------------------------------------------------------------------------------------------------------

                               __________
     Statement of Steve H.M. Bloch, Staff Attorney, Southern Utah 
                          Wilderness Alliance

    My name is Stephen Bloch and I am a staff attorney for the Southern 
Utah Wilderness Alliance (SUWA). SUWA is a non-profit organization with 
over 15,000 members in all 50 States. SUWA's mission is the 
preservation of the outstanding wilderness at the heart of the Colorado 
Plateau, and the management of these lands in their natural state for 
the benefit of all Americans. SUWA promotes local and national 
recognition of the region's unique character through research and 
public education; supports both administrative and legislative 
initiatives to permanently protect Utah's wild places within the 
National Wilderness Preservation System or by other protective 
designations where appropriate; builds support for such initiatives on 
both the local and national level; and provides leadership within the 
conservation movement through uncompromising advocacy for wilderness 
preservation.
    SUWA is a founding member of the Utah Wilderness Coalition, a group 
of 240 national, regional, and local organizations that advocates for 
the passage of America's Redrock Wilderness Act (ARWA) (S. 639/H.R. 
1796) and the designation of roughly 9 million acres of Utah's stunning 
Bureau of Land Management (BLM) lands as Wilderness.
    I appreciate the opportunity to testify today regarding the 
environmental impacts of natural gas leasing, exploration, and 
development. Because SUWA's mission focuses solely on protecting and 
preserving public lands and resources in Utah, my testimony will 
address natural gas issues on Utah's public lands, and in particular 
the lands managed by the BLM.
    A close review of the undiscovered natural gas resources on the BLM 
lands in Utah proposed for wilderness designation in America's Redrock 
Wilderness Act reveals that drilling these lands will have an 
absolutely insignificant impact on the price of natural gas. A balanced 
approach of energy conservation, resource extraction, and public land 
protections, however, will ensure that our country has both the natural 
gas and intact wild places it needs for sustained growth, security, and 
sustainability. This is precisely the approach advocated by SUWA and 
the conservation community.

DEVELOPING UTAH'S WILD PLACES WOULD PRODUCE ONLY INSIGNIFICANT AMOUNTS 
                             OF NATURAL GAS

    According to the Department of Energy (DOE), over 13,500 wells have 
been drilled since oil and gas exploration and development first began 
in earnest in Utah in the 1940's, and as of October 2003 the total gas 
production had been 7.65 TCF (trillion cubic feet). See Mark Lemkin, An 
Analysis of Utah Oil and Gas Production, Leasing, and Future Resources 
(2003) (Lemkin), at 1 (citing Utah Geologic Survey and DOE sources). 
Put in a broader context, the total gas extracted in Utah since the 
1940's would supply the country with natural gas for just over 4 months 
at current national consumption levels. Id.
    A closer look at DOE figures on Utah's recent annual gas production 
a level which is consistent with production from the past several years 
indicates that the State produced 273 BCF (billion cubic feet) of 
natural gas. This is not even enough natural gas to supply the country 
for 5 days.
    An analysis of information compiled by DOE, the United States 
Geological Survey (USGS), and the State of Utah's Division of Oil, Gas, 
and Mining (UDOGM) indicates that approximately 95 percent of gas and 
oil production in Utah both historically and more recently between 
2001-03 has come from seven ``hot spots.'' See Exhibits 1 and 2 
(Lemkin, Figure 3, Location of principal areas of oil and gas 
production in Utah and Figure 5, Location of principal areas of oil and 
gas production in Utah: 2001 to present).\1\ None of these areas are 
proposed for wilderness designation in America's Redrock Wilderness 
Act. See id. (illustrating areas of production and BLM lands proposed 
for wilderness).
---------------------------------------------------------------------------
    \1\ See Lemkin, at 2-3 (noting that wells drilled outside these 
seven areas are ``six times more likely to be dry, and have an expected 
production level less than one-tenth that of wells drilled inside'' of 
the seven hot spots).
---------------------------------------------------------------------------
    According to DOE, the entire State of Utah has proven gas reserves 
of 4.6 TCF (or 2.5 percent of U.S. proven gas reserves). Using the 
USGS's own methods for predicting Utah's statewide inferred reserves (a 
figure that must be estimated because it is not publicly available), 
another 6.1 TCF of gas may be extracted from within or immediately 
adjacent to existing fields. Finally, according to USGS, Utah may have 
as much as 15,668 BCF of gas that is technically recoverable 
undiscovered resources.\2\
---------------------------------------------------------------------------
    \2\ The use of ``technically recoverable'' versus ``economically 
recoverable'' undiscovered resources has been heavily criticized 
because it ignores market (transportation, infrastructure, etc.) and 
non-market (wildlife, wilderness values, etc.) costs, and thus 
overemphasizes the amount of reserves. See The Wilderness Society, 
Energy & Western Wildlands, A GIS Analysis of Economically Recoverable 
Oil and Gas (2002). The USGS estimates that less than 20 percent of 
technically recoverable gas is economically recoverable in the 
intermountain west. Id. at 17.
---------------------------------------------------------------------------
    An analysis of the most current USGS data estimates that the 
technically recoverable undiscovered natural gas resources within 
America's Redrock Wilderness Act amounts to 1495 BCF, or less than 4 4 
weeks of natural gas at current consumption levels. Lemkin, at 4.
    If the more appropriate economically recoverable screen were 
applied, this 1495 BCF figure would no doubt be much less because of 
these lands' relatively remote location and lack of infrastructure, as 
well as non-market costs, including the loss of wildlife habitat, water 
quality, and wilderness values.\3\
---------------------------------------------------------------------------
    \3\ According to The Wilderness Society, the amount of economically 
recoverable undiscovered natural gas resources in Utah's Forest Service 
roadless lands is between 182-295 BCF, or between three to 5 days at 
current national consumption levels. The Wilderness Society, Estimates 
of Economically Recoverable Gas and Oil on National Forest Roadless 
Areas in Utah on the USGS Low and High Price Scenarios. This analysis, 
and an analysis of other western States roadless areas is available at 
The Wilderness Society's webpage: www.wilderness.org/standbylands/
roadless/.
---------------------------------------------------------------------------
    In sum, even if we sacrifice one of America's crown jewels--Utah's 
redrock wilderness--we cannot meaningfully reduce the price of natural 
gas. Instead, a sound national energy policy that emphasizes 
conservation and renewable energy sources, hand-in-hand with 
environmentally sensitive natural gas exploration, is a better approach 
to stabilizing natural gas prices. See Natural Resources Defense 
Council, Managing America's Natural Gas ``Crisis'' (2004), available 
on-line at www.nrdc.org/air/energy/fnatgas.asp; Union of Concerned 
Scientists, Renewable Energy Can Help Ease Natural Gas Crunch (2004), 
available on-line at www.ucusa.org/clean--energy.

  SUWA ADVOCATES A BALANCED APPROACH TO THE PROTECTION OF UTAH'S WILD 
                       PLACES AND GAS DEVELOPMENT

    The sacrifice of Utah's BLM wilderness quality lands to industrial 
development will only provide the country with a few weeks of natural 
gas, estimated at 1495 BCF. There is little question, however, that 
exploration and development will leave lasting scars on this 
magnificent landscape, including: the fragmentation of wildlife 
habitat, long term damage fragile desert soils (estimated by USGS at 
between 50-300 years),\4\ and the loss of wilderness values (i.e., 
outstanding solitude, including things such as night skies and 
irreplaceable quiet). See Exhibits 3 and 4 (Exhibit 3--sludge pit at 
Long Canyon well outside Moab, Utah; Exhibit 4--seismic truck in Yellow 
Cat seismic project area near Arches National Park).\5\ Quite simply, 
once these lands are gone, they are gone forever and thus future 
leasing and development of these should be prohibited.\6\
---------------------------------------------------------------------------
    \4\ See Biological Soil Crusts: Ecology and Management, U.S. 
Department of the Interior, BLM Technical Reference 1730-2 (2001).
    \5\ See The Wilderness Society, Fragmenting Out Lands: The 
Ecological Footprint from Oil and Gas Development (2002).
    \6\ Existing leaseholders, of course, would be allowed to proceed 
with development, but only in the most environmentally sensitive 
manner.
---------------------------------------------------------------------------
    Far from advocating a broad ``no lease/no drill'' policy, SUWA and 
the conservation community are extremely selective about filing 
administrative or legal challenges to gas exploration or development 
projects in Utah, and throughout the intermountain west. An analysis by 
the Natural Resources Defense Council (NRDC) revealed that these 
figures are representative for the number of legal challenges to gas 
and oil related projects throughout the intermountain west. NRDC, 
Managing America's Natural Gas ``Crisis,'' at 3. For example, 
conservationists appealed or litigated only 0.2 percent of the APDs 
approved by the BLM between 2001-2002, and only 5 percent of the leases 
issued by BLM from the beginning of fiscal year 2001 to the end of 
fiscal year 2003. The conservation community will continue to closely 
monitor mineral leasing and development for full compliance with 
Federal environmental and preservation laws, and will continue to 
challenge BLM decisions that flaunt these laws, and thus put sensitive 
resources at risk.
    In Utah, the vast majority of these legal challenges have been 
brought because the action threatened lands proposed for wilderness 
designation (either citizen proposed or existing WSAs). For example, 
between January 2000 and March 2004, there were over 3200 APDs approved 
in Utah; conservationists challenged fewer than \1/2\ of 1 percent of 
these drill projects. Thus, legal challenges are clearly not an 
impediment to gas development and production.
    Likewise, between 2000-2004, the BLM approved 10 seismic 
exploration projects proposed in eastern Utah. SUWA challenged four of 
the projects in Federal court and before the Interior Board of Land 
Appeals (IBLA) because they threatened to damage wilderness quality 
lands. See Map, Seismic Exploration in the Heart of Redrock Country 
(2004), attached as Exhibit 5. SUWA prevailed on one of these four 
challenges, and is appealing a second.\7\
---------------------------------------------------------------------------
    \7\ In Southern Utah Wilderness Alliance v. Norton, 237 F. Supp.2d 
48, 52 (D.D.C. 2002), Federal district judge James Robertson admonished 
BLM for its hurried decision to approve a seismic exploration project 
on the doorstep of Arches National Park: ``What does appear from this 
record is a sense that the agency (a) was in hurry to approve the 
Yellow Cat Swath [seismic] project and (b) considered the damage that 
would be done by the [seismic] trucks relatively insignificant.'' The 
BLM did not appeal this decision.
---------------------------------------------------------------------------
    The balanced approach advocated by SUWA and others of permitting 
gas exploration and development in less sensitive public lands, and in 
full compliance with Federal environmental laws, will secure both 
continued natural gas production and the protection of our country's 
irreplaceable national heritage.

       THE BUSH ADMINISTRATION IS CREATING CONFLICT BY FLAUNTING 
                           ENVIRONMENTAL LAWS

    Since 2001, this Administration has misled the American public by 
focusing the Nation's attention and imagination on drilling and 
developing natural gas and oil resources on the country's few remaining 
wild places as a means of achieving energy independence. To the 
contrary, the development of Utah's wilderness quality and roadless 
lands will not produce any meaningful amount of natural gas.
    First, President Bush issued Executive Order 13212 in May 2001, 
which required Federal land management agencies to expedite their 
review of gas and exploration permits and thus accelerate completion of 
energy projects. Second, and at about the same time the Administration 
released the National Energy Plan (NEP), which required, among other 
things, the opening of more western public lands to gas and oil 
drilling. Neither of these policies provide for a thoughtful, measured 
approach to ensuring a continued supply of natural, while at the same 
time protecting and preserving our treasured wild places and resources.
    In response to the NEP, the BLM identified 40 tasks to implement 
the NEPA, including establishment of a charter team to evaluate 
bottlenecks and to streamline methods to expedite the agency's 
processing of applications for permit to drill (APDs). See BLM 
Information Bulletin 2001-138, Status of Bureau of Land Management's 
National Energy Policy Implementation Plan (Aug. 15, 2001). After an 
onsite review from the BLM's Washington, DC. headquarters office in the 
summer of 2001, Utah BLM staff were told in no uncertain terms that gas 
and oil leasing and the issuance of new APDs were their ``No. 1 
priority,'' and that compliance with the National Environmental Policy 
Act (NEPA), 42 U.S.C. Sec. Sec. 4321 et seq., and wilderness reviews 
were the primary reason for unacceptable delays:

          The purpose of the subject review is to improve the oil and 
        gas program in Utah. The review team believes the oil and gas 
        program should be a high priority program in Utah. Utah 
        management should work with Washington to acquire whatever 
        resources are necessary to reduce oil and gas leasing delays 
        and drilling backlogs.
          The leasing delays and APD backlogs are created by the people 
        responsible for performing the wilderness reviews and NEPA 
        analysis. Utah needs to ensure that existing staff understand 
        that when an oil and gas lease parcel or when an APD comes in 
        the door, that this work is their No. 1 priority.

Information Bulletin UT 2002-008, Oil and Gas Program Review Final 
Report (January 4, 2002) (emphasis added).
    In addition, the BLM has produced a series of agency Instruction 
Memoranda and Information Bulletins that have implemented the 
Administration's call for the easing of restrictions on leasing and 
development of the public lands. In July 2003, the BLM's Washington 
office issued an Instruction Memorandum which revealed that the agency 
was abandoning its congressionally mandated multiple use mission for 
the promotion of a single resource oil and gas. Instruction Memorandum 
2003-233, Integration of the Energy Policy and Conservation Act (EPCA) 
Results into the Land Use Planning Process (July 28, 2003). This 
internal agency document made clear that the BLM would ``eliminate'' 
protective special lease stipulations (i.e., timing of operations 
stipulations designed to protect critical wildlife winter habitat) that 
were deemed ``duplicative'' Id. At the same time, the Instruction 
Memorandum directed agency staff to use unenforceable ``lease 
notices,'' in lieu of protective special lease stipulations whenever 
possible and to use the ``least restrictive'' mitigation necessary to 
protect sensitive resources Id. at Attachment 3-3.
    Most recently, in February 2004, the BLM's Washington, DC. office 
issued guidance making it even more difficult for State Directors to 
defer leasing the most sensitive public lands for gas development, even 
when the agency has been presented with significant new information 
never before considered by BLM about those very same lands. Instruction 
Memorandum 2004-110, Fluid Mineral Leasing and Related Planning and 
National Environmental Policy Act (NEPA) Processes (Feb. 23, 2004).

          It is Bureau policy that a decision not to implement oil and 
        gas or geothermal leasing decisions, as contained in current 
        [land use plans] must be made by the State Director with 
        appropriate input from the affected Field Manager. The State 
        Director must provide a letter to those who submitted the 
        expression of interest for the tract, stating the reasons for 
        not offering the parcel(s), the factors considered in reaching 
        that decision, and approximate date when analysis of new 
        information bearing on the leasing decision is anticipated to 
        be completed and when a decision to lease (or amend the plan) 
        is expected to be made.

Id. This guidance turns well established caselaw regarding the Interior 
Department's broad discretion whether to offer Federal oil and gas 
leases on its head, and places the burden on an already overextended 
agency to explain to industry why it is not offering lands for lease. 
See Marathon Oil Co. v. Babbitt, 966 F. Supp. 1024 (D. Colo. 1997), 
aff'd 166 F.3d 1221 (10th Cir. 1999). The Department has imposed no 
similar obligation or additional workload requirement regarding any 
other type of public resource such as wilderness, wildlife habitat, and 
water quality.
    Finally, in April 2003, the Administration eased the way for the 
leasing and development of the country's wildest BLM lands when 
Secretary of the Interior Gale Norton settled a long moribund lawsuit 
with then Utah Governor Michael Leavitt (now EPA Administrator), which 
asserted, among other things, the novel position that the BLM lacks the 
authority to establish new wilderness study areas (WSAs) after 1993. 
See State of Utah v. Norton, 2:97CV479, Stipulation and Joint Motion to 
Enter Order Approving Settlement and to Dismiss Third Amended and 
Supplemented Complaint (April 11, 2003).\8\ In the wake of this 
settlement, the BLM has halted consideration of public lands with 
wilderness character from becoming WSAs and, tragically, has targeted 
these same wilderness quality lands for mineral leasing.\9\ A coalition 
of 11 national and regional conservation organizations, including SUWA, 
have challenged the settlement order in Federal court.
---------------------------------------------------------------------------
    \8\ In 1999, Utah BLM completed its wilderness ``re-inventory'' of 
over 3 million acres of public lands and concluded that over 2.6 
million acres of those lands had wilderness character. See Utah 
Wilderness Inventory, Bureau of Land Management, at xiv-xv (1999). 
These lands, identified as ``wilderness inventory areas'' or ``WIAs'' 
were to have been studied in an environmental impact statement for 
designation as wilderness study areas. This analysis never took place.
    \9\ The Settlement Agreement also required that the BLM rescind its 
Wilderness Inventory Handbook (WIH) a vehicle for the public to bring 
new information about undesignated wilderness quality lands to the 
BLM's attention--and other guidance which explained that the BLM's work 
of protecting currently undesignated wilderness quality lands was not 
yet finished. See also Instruction Memorandum 2003-195, Rescission of 
National Level Policy Guidance on Wilderness Review and Land Use 
Planning (June 23, 2003).
---------------------------------------------------------------------------
    As noted above, a review of where the natural gas resources lie in 
Utah confirms that the Administration's focus on easing restrictions to 
lease and develop the State's BLM wilderness quality lands is unsound. 
As USGS and DOE own figures confirm, a continued emphasis on leasing 
and producing from established areas of production and their inferred 
reserves will produce vastly more gas and oil than will the development 
of these wilderness quality lands. Indeed, it is the Administration's 
persistent efforts to lease and develop these wild lands that has 
created much of the perceived and unnecessary ``conflict'' between 
resource extraction and preservation.
    For example, in November 2003 and February 2004, Utah BLM under the 
direct supervision of BLM's Washington, DC. office, offered and sold 26 
oil and gas leases in lands that the BLM itself recognizes as having 
wilderness character. According to USGS and DOE data, these leases--if 
ever fully developed and brought on-line--would produce absolutely 
insignificant amount of natural gas. These wilderness quality lands, 
however, would be scarred with drill pads, access roads, pipelines, 
sludge pits, and other by-products that development brings with it.
    Moreover, in its rush to lease Utah's wilderness quality lands, the 
BLM is flaunting NEPA's mandate that the agency ``think first, then 
act,'' by refusing to fully analyze the impacts of leasing, 
exploration, development, and reclamation before it engages in an 
irretrievable commitment of resources the sale of an oil and gas lease. 
The BLM is also ignoring NEPA's requirement that the agency take a 
``hard look'' at its own new information about the wilderness values of 
these lands--information that it has never before considered. SUWA, the 
Natural Resources Defense Council, and The Wilderness Society have 
challenged Utah BLM's sale of wilderness quality lands at its November 
2003 lease sale.
    Nevertheless, there is certainly no shortage of public lands 
throughout the west that have already been leased and thus are 
available for development. According to BLM, there are currently over 
42,000,000 acres of onshore Federal lands under lease across the 
country. In addition, a 2003 report from BLM indicates that only 
11,000,000 acres of Federal leases--less than one-third of the total 
acreage of leased lands--were actually in production in 2003. See 
Public Rewards from Public Lands, Bureau of Land Management (2003). See 
also Exhibit 6 (Lemkin, Figure 7, Current lease and production status 
[in Utah]). Finally, the Interior Department itself acknowledges that 
roughly 88 percent of Federal gas resources in the Rocky Mountain 
region are already available for leasing and development. See Statement 
of Rebecca Watson, Assistant Secretary for Lands and Minerals 
Management, Oversight Hearing on ``The Energy Policy and Conservation 
Act Inventory,'' House Resources Subcommittee on Energy and Mineral 
Resources (June 24, 2003).

                               CONCLUSION

    In sum, current high prices for natural gas cannot reasonably be 
attributed to ``impediments and restrictions'' to Federal natural gas 
resources as alleged by industry advocates and the Administration. 
Moreover, data shows that attempts to exploit the minimal gas resources 
beneath Utah's wilderness quality BLM lands will damage priceless 
wilderness treasures with little corresponding benefit to the public. 
Based on my experiences in Utah, I believe that enforcement of existing 
environmental laws and regulations have not posed serious impediment to 
gas development.
    Thank you again for the opportunity to testify on these important 
issues.

[GRAPHIC] [TIFF OMITTED] T4599.108

[GRAPHIC] [TIFF OMITTED] T4599.109

           Sludge Pit at Long Canyon Well Outside Moab, Utah

[GRAPHIC] [TIFF OMITTED] T4599.110

 Seismic Truck in Yellow Cat Seismic Project Area Near Arches National 
                                  Park

[GRAPHIC] [TIFF OMITTED] T4599.111

[GRAPHIC] [TIFF OMITTED] T4599.112

[GRAPHIC] [TIFF OMITTED] T4599.113

                             Fisher Towers

[GRAPHIC] [TIFF OMITTED] T4599.114

      Hunting Panel Petroglyphs--Stone Carbin Seismic Project Area

[GRAPHIC] [TIFF OMITTED] T4599.115

 Responses by Stephen Bloch to Additional Questions from Senator Inhofe

    Question 1. Your organization supports ``Drilling for oil and gas 
in fields that are already developed.'' However, fields that are 
already developed are being depleted and insufficient to meet demand. 
Experts agree that we must find new sources to meet ever-increasing 
demand. How could drilling for oil in developed and depleting oil 
fields meet that certain demand?
    Response. Senator, according to figures compiled by the Energy 
Information Administration, Department of Energy, the State of Utah has 
proven oil reserves of 271 million barrels (1.2% of U.S. proven oil 
reserves) and proven natural gas reserves of 4.6 TCF (2.5% of U.S. 
proven natural gas reserves). Utah's ``inferred reserves'' 
(extrapolated reserve estimates reflecting projected amounts of oil or 
gas quantities that will be eventually extracted within or abutting 
existing fields) are estimated to be 812 MMBO and 10.68 TCF. These 
inferred reserves--which are generally open to further development--
will likely be tapped as technologies improve, different geologic 
strata are tested, and reserves become more defined.
    Moreover, as I explained earlier, the public lands outside of 
Utah's seven ``hot spots'' (places where 95% of all oil and gas 
production is currently occurring and where it is predicted to occur in 
the future), have very little to offer in the way of meaningful oil and 
gas reserves. Drilling these lands, however, will have a definite 
cost--the loss of our few remaining wild lands and natural heritage.

    Question 2. Your group also ``supports federal policies that 
encourage energy efficiency and renewable power, which can meet much of 
[the] nation's need for electric power plants over the next 20 years.'' 
Right now, people are going out of work because of the cost of natural 
gas, but our environmental policies continue to spur more natural gas 
use. 24% of our nation's energy depends on natural gas and nearly half 
our manufacturers. Yet, our country gets only 1% of its power from 
renewables.
    Gas producers go where the gas is abundant. Similarly, wind and 
solar power producers build where the wind are sun are plentiful. 
Southern Utah is sunny and windy, just as it may contain significant 
gas reserves.
    Would you support construction of wind turbines and solar panels in 
that same area?
    Response. Senator, the Southern Utah Wilderness Alliance (SUWA) 
support federal, state, and private efforts to increase energy 
efficiency and to spur the development and expansion of renewable power 
sources, such as wind power. In fact, SUWA purchases wind-generated 
power for its main Salt Lake City office through Utah Power's ``Blue 
Sky'' program.
    Regarding the placement of either future wind turbines or solar 
panels in southern Utah, I believe that each project must be evaluated 
on a case-by-case basis to determine if there were other resource 
concerns such as wildlife habitat or proposed wilderness lands.
    One point of clarification, as I indicated to you earlier, with the 
exception of the established fields at Aneth and Lisbon Valley, the 
majority of southern Utah's public lands have not been identified by 
the Department of Energy, U.S. Geological Survey, or the State of 
Utah's Division of Oil, Gas, and Mining as being predicted to contain 
meaningful quantities or either oil or gas.

                               __________
Statement of George Handley, President, Eclipse Exploration Corporation

    Thank you Mr. Chairman, my name is George Handley, I am the 
President and only employee of Eclipse Exploration Corporation based in 
Denver, Colorado. I appreciate the opportunity to speak with you today 
and I am glad to see the Committee's interest in natural gas supply in 
America and the environmental policies affecting its development.
    Policies that either limit or encourage energy development of 
natural gas resources have very real consequences. Policies that 
promote the use of a particular energy source, yet fail to provide for 
the necessary and orderly development of that same resource are 
predisposed to failure.
    I have been the victim of Federal land management policies that 
allow groups that are not party to any contract with the BLM or State 
to effectively stop a project through protests, appeals, and 
litigation. I have been victimized by the uncertainty that is created 
by abuses to public involvement statutes. Even when I followed all the 
laws and regulations, and had the approval of land managers, I found 
that I was still subject to the reach of obstructionist groups that 
sought to halt my natural gas exploration project and my cripple my 
company.
    Legal challenges severely limit oil and natural gas development on 
Federal lands. At every stage of development obstructionist groups 
challenge agency decisions and seek to stop development. For example, 
in the State of Utah alone, fifty-seven percent (57 percent) of all 
lease parcels offered by the Bureau of Land Management between 2001 and 
2003 were protested by groups opposed to development.
    I experienced one of these legal challenges first hand in Grand 
County, Utah on a seismic project over a Federal mineral lease. This 
lease is located in the Thompson Mining District, a former uranium 
mining area characterized by dry, sparsely vegetated land. It is not 
within Arches National Park. It is not within view of Arches National 
Park. It is not wilderness. It was leased to me by the Federal and 
State government with the expressed intent and responsibility to 
explore for oil and natural gas.
    Seismic technology has greatly increased our ability to map the 
subsurface geology thereby allowing exploratory drilling in the most 
efficient manner. I have thirty years of experience working on seismic 
projects and developing petroleum exploration plays around the world. I 
have a Masters degree in geophysics from the Colorado School of Mines. 
In order to accurately map the subsurface geology of this prospect, I 
designed a specific seismic program. Any deviation from this program 
might result in useless data.
    WesternGeco was hired to conduct the seismic activities on my 
lease. One of the employees of WesternGeco, Stuart Wright, is one of 
the foremost experts on seismic exploration and helped me design this 
program to ensure an accurate map of the subsurface. An Environmental 
Analysis was prepared following the guidelines of the BLM. The BLM 
informed WesternGeco and myself, what was needed to comply with the 
law. We did what the government asked. After the permit was issued, 
WesternGeco began operations. More than half-way through the project, a 
judge in Washington, DC. issued a ruling that stopped the project based 
on a challenge by the Southern Utah Wilderness Alliance (SUWA). My 
company is small and cannot afford to fight well-funded, non-profit 
groups in the courts. The State of Utah and WesternGeco helped, but in 
the end the SUWA won the court battle and has all but stopped my 
project.
    Abuse of the process delays the delivery of natural gas to 
consumers and destroys the livelihood of businessmen like myself. The 
more legal challenges, the more delays. The more delays, the more that 
consumers are affected. The more consumers are affected, the more the 
economy suffers.
    I am not here to debate the factual or legal merits of my case. I 
use this example to lay blame on a process that allows non-profit 
groups to continually halt mineral development on public lands. SUWA 
may show you pictures and tell you stories of horrific damage done by 
the incomplete seismic project. It is misleading. There is no long term 
damage to the area and it would be hard for anyone to see the path of 
this project today. The State of Utah, the BLM and the Grand County 
Council fully support my project. Grand County is anxious for the 
wildcat well to be drilled and for the seismic program to be completed, 
as it will mean a lot to their economy.
    The Intermountain West is blessed with abundant resources of 
natural gas, a substantial portion of which is owned by the Federal 
Government. These resources cannot be developed when small businesses 
like mine face insurmountable litigation. Abusing the legal process 
puts Americans out of work and sends energy development outside our 
borders. It costs the government in terms of litigation costs and the 
potential to pay the attorney fees of the groups who bring the suit. In 
my case, I did what I was told by the government, but still lost and I 
have no recourse. Either way, the American public bears the burden of 
litigation against the government.
    Thank you for allowing me to testify before you today.
    Display 1: This is a regional map showing the location of the 
seismic purchased and recorded for the Yellow Cat prospect. Note the 
location of Arches National Park.

[GRAPHIC] [TIFF OMITTED] T4599.116

    Display 2: This is a base map showing the location of the seismic 
and the acreage now held by Eclipse for the Yellow Cat Prospect.

[GRAPHIC] [TIFF OMITTED] T4599.117

    Display 3. On this land map the yellow represents all the acreage 
originally leased by Eclipse and Gulf Canada. Note the acreage now held 
for Yellow Cat and the location of Arches National Park.

[GRAPHIC] [TIFF OMITTED] T4599.118

    Display 4. Shows the Mississippian fault feature and the overlying 
Pennsylvanian Structure that is not adequately defined because the 
seismic program was halted.

[GRAPHIC] [TIFF OMITTED] T4599.119

    Display 5. Shows the sparse vegetation in this old mining district, 
the Mississippian Fault Feature and the road access to the Initial 
wildcat location.

[GRAPHIC] [TIFF OMITTED] T4599.120

    Display 6. Shows Seismic Line YC-6 and the location of the initial 
test well. This is only the bottom portion of this seismic line, from 
1.2 seconds to 2.6 seconds. The Honaker Trail is the top of the 
Pennsylvanian section. The Leadville is the top of the Mississippian 
section. At the location the Honaker Trail will be at a depth of 8,400 
feet. The Lynch is at a depth of 16,500 feet.

[GRAPHIC] [TIFF OMITTED] T4599.121

   Statement of Paul N. Cicio, Executive Director, Industrial Energy 
                          Consumers of America

 46-Month Natural Gas Crisis Has Cost U.S. Consumers Over $130 Billion

                           EXECUTIVE SUMMARY

    The U.S. natural gas crisis began 46 months ago in June, 2000 and 
has had a staggering direct and indirect economic impact on all 
consumers, the U.S. economy and especially on manufacturing. 
Residential, commercial and industrial consumers have paid $130 billion 
dollars more for natural gas during the 46-month natural gas crisis 
when compared to the price paid for the previous 46 month period, an 86 
percent increase. Unfortunately, there is no end in sight to these high 
and sustained natural gas prices that are the highest in the world.
    The increased price of natural gas has cost industrial consumers 
$66 billion, residential consumers $39 billion and commercial consumers 
$25 billion. Every penny of the $130 billion could have been prevented 
and was totally unnecessary. The U.S. is blessed with enormous natural 
gas reserves yet we do not lift drilling moratoriums.
    Drilling for more natural gas and the recent California forest 
fires are a perfect analogy. In the name of protecting forests, certain 
groups fought efforts to thin the trees out and to take a balanced 
approach to managing the forests. Now, everyone knows that balance is 
needed, that forests should be thinned and there is a price to pay for 
inaction.
    In the case of the forest fires, the people of California became 
the victim. In the last 46 months, all consumers, including a lot of 
families with fixed income, became the victim of high natural gas 
prices. Manufacturing workers, who lost their jobs to overseas 
manufacturers with cheaper natural gas, also became the victim. The 
jobs lost may never return.
    When prices of natural gas rose significantly in June of 2000, it 
began to impact manufacturing jobs immediately and still is today. 
Manufacturing employment has fallen for 43 consecutive months. Since 
July 2000, the number of factory jobs is down by over 2.8 million.
    Every U.S. economic recession has been preceded by high-energy 
prices and the recent recession was no different. IECA believes the 
natural gas crisis started in June 2000. Government officials say the 
U.S. recession officially began in March 2001. In our view the US 
economy is unlikely to fully recover without globally competitive 
energy.
    High sustained natural gas prices are a hidden tax on consumers, 
depressing disposable personal income and savings, and ultimately 
consumer spending which accounts for two-thirds of the economy. High 
natural gas prices are a tax on every person and company because 
natural gas is used as both a fuel and raw material for the production 
of everything from fertilizer to plastics for computers to heating 
homes and water. Sustained high natural gas prices impede economic 
growth and severely impacts competitiveness of industry.

                       THE REAL COST IS MUCH MORE

    The real cost of the crisis is much more than $130 billion when one 
considers other direct and indirect impacts of sustained high prices on 
industrial and residential consumers.
    The $130 billion cost estimate does not include:
     Consumption of natural gas by electric utilities and the 
ultimate impact high prices have caused by increasing the price of 
electricity.
     Lower demand for natural gas by manufacturing because of 
``demand destruction,'' caused by high prices.
     Reduction of operating rates in the manufacturing sector 
and the resultant loss of efficient capacity utilization caused by high 
natural gas prices.
     Impact to downstream customers. For example, farmers have 
reduced their consumption of high cost natural gas based fertilizers 
resulting in lower agricultural crop yields, which leads to higher food 
prices for all Americans.
     Loss of manufacturing jobs, plant shutdowns, corporate 
bankruptcies, loss of capitalization, loss of competitiveness and 
profitability.
     Impact to residential electricity bills, higher food cost 
and the difficult choices for fixed income families.
     Financial loss of corporate related tax income and higher 
heating and cooling bills on states, cities, county governments, school 
systems and financial pressure on human services.
  the impact of high natural gas costs on manufacturing is significant
    Manufacturing plays an important role in the economic health of our 
country and we must recognize that affordable energy, including natural 
gas, is essential. In the past, the affordability of U.S. energy was a 
key factor in manufacturing building their factories here. Now, the 
non-globally competitive price of natural gas and natural gas feedstock 
is forcing manufacturing companies to produce their products elsewhere.
    According to the National Association of Manufacturers, 
manufacturing accounts for 22 percent of GDP growth, contributes one-
third of the economy's productivity growth, creates more business 
activity and jobs in other sectors than any other industry, performs 62 
percent of U.S. private sector R&D, pays the highest wages--18 percent 
higher than the national average and makes two-thirds of all U.S. 
exports.

                  NATIONAL ENERGY POLICY IMPLICATIONS

    The blame for these high prices does not rest on the oil and gas 
companies, it rests mostly on Federal and State policymakers. Congress 
and states must work together to break the impasse between the 
environment and the need to increase supplies of natural gas.
    Unfortunately, the end of the crisis is no-where in sight. It is 
the belief of the Industrial Energy Consumers of America (IECA) that 
the Energy Policy Act of 2003 will not by itself resolve this crisis. 
It will neither increase near-term production of natural gas nor 
increase the use of Clean Coal-based electricity generation. The 
legislation includes many provisions that will help but these will not 
be enough to turn this situation around. More is needed.
    Resolving the crisis takes a combination of policies. We must 
increase production of natural gas and increase use of coal for base-
load electricity generation. The high price of natural gas is due to 
the combination of relatively flat natural gas production despite 
increasing rig count and the significant increase in demand for natural 
gas by the electric utility industry.
    Natural gas consumption by the electric utility industry is a major 
problem. From 1992 to 2002 natural gas demand by the electric utility 
industry increased 60.5 percent and accounted for 93.6 percent of the 
nations' increase in natural gas demand.
    According to the Energy Information Administration (EIA), US 
natural gas consumption from 1992 to 2002 rose 2.227-billion cubic 
feet/day, an increase of 11 percent. In that same time period, natural 
gas consumption from the electric utility industry increased by 2.085-
billion cubic feet/day or 60.5 percent. The increased electric utility 
demand for natural gas accounted for 93.6 percent of the entire US net 
increase. The EIA forecasts continued large annual increases in natural 
gas use for power generation. This is unacceptable.
    This enormous increased demand without an equivalent increase in 
supply has increased the price of natural gas on all consumers. The 
electric utility industry has alternative energy sources to produce 
power while industrial consumers, farmers and homeowners do not. The 
current situation puts consumers in competition with the electric 
utilities for purchases of natural gas and consumers are losing- paying 
both higher natural gas and electricity prices as a result.
    Increasing use of coal for power generation solves this problem. 
Use of clean coal technology allows use of coal for power generation in 
an environmentally acceptable manner. Coal has several hundred years of 
supply and power generation using coal is a low cost option. As a power 
generation fuel, coal is far more reliable than natural gas because 
several months of coal supply can be stored onsite, while natural gas 
is only reliable so long as the gas flows.
    Increased demand for natural gas has largely been driven by 
government air quality regulations. Air quality issues are important 
and cannot be ignored and we acknowledge the EPA/utility rulemaking 
that is underway. The Interstate Air Quality Rule and the Utility 
Mercury Reduction Rule must be ``natural-gas-neutral''. This means the 
EPA action on this rule must not directly or indirectly increase the 
demand for natural gas.
    There must be a way of accommodating progress in clean air quality 
while not putting additional pressure on natural gas demand that is 
costing Americans billions in higher natural gas and electricity 
prices.
    For more information on this report or for information on the 
Industrial Energy Consumers of America and how you can help increase 
the affordability of natural gas, please contact us at 202-223-1661 or 
visit us on the web at www.ieca-us.org.
    The Industrial Energy Consumers of America is a 501 (C) (6) 
nonprofit organization created to promote the interests of 
manufacturing companies for which the availability, use and cost of 
energy, power or feedstock play a significant role in their ability to 
compete in domestic and world markets. IECA supports a diverse, robust 
and affordable supply of energy. IECA membership represents a diverse 
set of industries including: plastics, cement, paper, food processing, 
chemicals, fertilizer, insulation, steel, industrial gases, 
pharmaceutical, and brewing. IECA board members are senior energy 
procurement managers.

                                 ______
                                 
                  PRICE IMPACT CALCULATION METHODOLOGY

    The $130 billion price impact calculation uses the monthly average 
of the daily published closing price of the Henry Hub spot index price, 
considered to be the most widely used cash price index in the United 
States. The 46-month average price from June 2000 to March 2004 was 
$4.44/MM Btu. The previous 46-month average price from January 1997 
through May 2000 was $2.39/MM Btu. This means consumers paid $2.05/MM 
Btu more for natural gas during the natural gas crisis, an 86 percent 
increase.

                              REPORT DATA


                        Average Price Calculation
------------------------------------------------------------------------
                                                              Dollars/MM
                                                                  Btu
------------------------------------------------------------------------
Average price of 46 months prior to June, 2000..............       $2.39
Average price of 46 months starting with June, 2000.........       $4.44
Price Difference............................................       $2.05
Percent change..............................................       85.8%
------------------------------------------------------------------------



            Price Impact Calculation on Industrial Consumers
------------------------------------------------------------------------
                                               Annual
               Year                  Months   Volume,   46 Month Volume,
                                                TCF            TCF
------------------------------------------------------------------------
2000..............................        7      9.40*             5.483
2001..............................       12      8.45*              8.45
2002..............................       12      8.29*              8.29
2003..............................       12     8.06**              8.06
2004..............................        3     8.06**             2.015
                                   -------------------------------------
Total Volume......................                             32.30 TCF
Total MMBtu.......................                        32,298,333,333
Cost Impact.......................                       $66,269,002,592
------------------------------------------------------------------------



            Price Impact Calculation on Residential Consumers
------------------------------------------------------------------------
                                               Annual
               Year                  Months   Volume,   46 Month Volume,
                                                TCF            TCF
------------------------------------------------------------------------
2000..............................        7      4.99*            2.9111
2001..............................       12      4.78*              4.78
2002..............................       12      4.92*              4.92
2003..............................       12     5.07**              5.07
2004..............................        3     5.07**            1.2675
                                   -------------------------------------
Total Volume......................                             18.95 TCF
Total MMBtu.......................                        18,948,333,333
Total.............................                       $38,877,769,259
------------------------------------------------------------------------


            Price Impact Calculation on Commercial Consumers
------------------------------------------------------------------------
                                               Annual
               Year                  Months   Volume,   46 Month Volume,
                                                TCF            TCF
------------------------------------------------------------------------
2000..............................        7      3.22*             1.878
2001..............................       12      3.04*              3.04
2002..............................       12      3.12*              3.12
2003..............................       12     3.15**              3.15
2004..............................        3     3.15**            0.7875
                                   -------------------------------------
Total Volume......................                             11.98 TCF
Total MMBtu.......................                        11,975,833,333
Total.............................                       $22,571,748,703
------------------------------------------------------------------------


                            Henry Hub Monthly Average of Daily Spot Natural Gas Price
----------------------------------------------------------------------------------------------------------------
                                   1996     1997     1998     1999     2000     2001     2002     2003     2004
----------------------------------------------------------------------------------------------------------------
Jan............................             $3.99    $2.25    $1.80    $2.36    $9.91    $2.61    $4.96    $6.15
Feb............................             $2.96    $2.04    $1.81    $2.61    $6.22    $2.03    $5.66    $5.77
Mar............................             $1.78    $2.26    $1.64    $2.61    $5.03    $2.39    $9.11    $5.00
Apr............................             $1.85    $2.32    $1.88    $2.89    $5.35    $3.40    $5.14
May............................             $2.51    $2.27    $2.35    $3.08    $4.87    $3.36    $5.12
Jun............................             $2.31    $2.03    $2.23    $4.37    $3.73    $3.37    $5.95
Jul............................             $2.16    $2.37    $2.28    $4.36    $3.16    $3.26    $5.30
Aug............................    $2.30    $2.19    $1.93    $2.62    $3.83    $3.19    $2.95    $4.69
Sep............................    $1.83    $2.57    $1.63    $2.90    $4.62    $2.34    $3.27    $4.93
Oct............................    $1.85    $3.16    $2.07    $2.55    $5.29    $1.86    $3.72    $4.44
Nov............................    $2.72    $3.30    $2.00    $3.06    $4.50    $3.16    $4.13    $4.45
Dec............................    $3.90    $2.55    $2.12    $2.14    $6.02    $2.28    $4.13    $4.86
----------------------------------------------------------------------------------------------------------------
1 MCF = MM Btu
* Energy Information Agency
* Estimate
March, 2004 price is an estimate.

                               __________
 Statement of the National Petrochemical & Refiners Association (NPRA)

                                OVERVIEW

    NPRA, the National Petrochemical & Refiners Association is a 
national trade association with over 450 members, including those who 
own or operate virtually all U.S. refining capacity, as well as 
petrochemical manufacturers. NPRA members manufacture petroleum and 
petrochemical products that are essential to U.S. economic growth and 
maintenance of national security. These industries are dependent on 
adequate supplies of fuels, including natural gas and natural gas 
liquids, at predictable, affordable prices.
    NPRA appreciates the interest of the Senate Environment & Public 
Works Committee in addressing the impact of environmental regulations 
and policies on natural gas supply and demand. We urge you to study and 
assess current policy thoroughly and openly. The Nation needs and 
deserves a frank and public debate on the future of its natural gas 
supplies.
    Short natural gas supplies and accompanying high prices threaten 
the health of U.S. industries, their significant contributions to 
national, State and local economies and the continued existence of 
thousands of jobs. Government, industry, and private experts agree that 
natural gas demand is expected to rise by the year 2020 by as much as 
60 percent over today's levels. It is certain that domestic gas 
production can not satisfy this new demand unless current policy is 
altered significantly.
    In addition, the President's National Energy Policy Task Force 
projects that over 1,300 new electric generating plants must be 
constructed to fulfill anticipated electric energy needs during the 
next 20 years. DOE suggests that over 90 percent of these facilities 
will be fueled by natural gas. This increase in gas usage for electric 
generation may not be achievable.
    The United States has an abundant supply of domestic gas, but 
flawed government policies and regulatory red tape prohibit its 
development in many areas. In the short term, efforts should be made to 
encourage energy efficiency and conservation while also encouraging the 
substitution of fuel oil, coal or nuclear power where possible. For the 
long term, we must develop policies that promote continued 
environmental progress without reducing the supply of natural gas and 
other petroleum products.

        FLAWED POLICES ENCOURAGE CONSUMPTION, DISCOURAGE SUPPLY

    Our Nation currently faces daunting challenges as it strives to 
balance ever-increasing energy demands from all consuming sectors, 
largely due to contradictory and short-sighted policies that have 
limited supply while promoting additional natural gas consumption. 
Increasing demand for natural gas because of its environmental benefits 
has come up against a North American production base, which has been 
artificially restricted due to contradictory policy initiatives. Those 
policies promote the use of clean burning gas while at the same time 
failing to ensure adequate, affordable supplies of the fuel.
    NPRA believes the current ill-advised national policy of limiting 
natural gas supply while encouraging gas use because of its 
environmental benefits--mostly in the generation of base and peak load 
electricity--has created and could exacerbate continuing higher gas 
prices and volatility. In fact, EIA reports that demand by electricity 
generators is expected to account for 30 percent of total natural gas 
consumption in 2025. This equates to a doubling of gas use by the 
utility sector over current demand. Under present policies, it is not 
clear that adequate supplies will be available to accommodate this 
demand figure unless current natural gas users in core industries are 
forced to switch fuels or close.
    This is really not a resource problem. Flawed government policies 
have prohibited the development of gas in many areas. If changes are 
not made to existing policies, our predicament will not be short-lived. 
This means that policymakers and stakeholders must act or accept 
responsibility for the ultimate consequences of short supplies, lost 
U.S. jobs, a worsening trade balance and further loss of U.S. 
industrial leadership. The U.S. has an abundant supply of domestic gas.
    In January 2004, the Department of the Interior issued a rule 
providing new incentives to boost domestic natural gas production in 
the hard-to-reach, deepwater areas of the Gulf of Mexico. The rule is 
expected to save consumers some $570 million a year and create as many 
as 26,000 jobs. NPRA believes that the rule is an excellent short-term 
step which will go a long way to help sustain a reliable supply of 
natural gas. But more is needed. The comprehensive energy legislation 
(H.R. 6) is a good start to address longer term needs, but it lacks 
adequate incentives to increase natural gas supply in the near term. 
NPRA will work with Congress in 2004 to enact separate legislation to 
encourage natural gas production.

 PETROCHEMICAL AND REFINING INDUSTRIES SEVERELY DISADVANTAGED BY HIGH 
                              ENERGY COSTS

    The domestic petrochemical industry, as well as others in the basic 
chemical sector, is primarily based upon natural gas and natural gas 
liquids. About 70 percent of U.S. petrochemical manufacturers use 
natural gas liquids as feedstocks. In contrast, about 70 percent of 
petrochemical producers in Western Europe and Asia use naphtha heavy 
oil as a feedstock. While oil is a global commodity whose price is set 
on the global market, natural gas liquids are generally more locally 
traded commodities. Thus, price increases in natural gas have had a 
larger impact on competitiveness in North American-produced 
petrochemicals.
    The U.S. has generally maintained a reasonable-cost feedstock 
position relative to its competitors in Europe and Asia. However, that 
situation has been eroded as the price of natural gas has increased. 
North American natural gas and natural gas liquids prices have risen to 
unprecedented levels for a sustained period of time and placed a 
significant portion of the domestic petrochemical industry at a 
disadvantage to European and Asian producers. The trend toward 
increased siting of base petrochemical production and expansion 
projects in overseas locations is directly attributable to this growing 
disparity in fuel prices. Additional displacements will occur if the 
current and prospective gas price and supply situation is not addressed 
promptly.
    High natural gas prices have created fundamental changes in the U.S 
chemical industry, with the petrochemical industry affected more than 
other segments of the industry. There have been a series of 
bankruptcies, plant closures, and reductions in production levels at 
many facilities because they can no longer compete at the current 
elevated gas prices.
    On March 17th, The Washington Post published an article on the job 
losses in the chemical industry resulting from high natural gas prices. 
The Post reported that ``Across the country, 1 in every 10 chemical-
related jobs has vanished in the past 5 years--nearly 100,000 workers--
and that number would be worse if not for a surge in one segment, 
pharmaceuticals.'' These chemical jobs tend to be well-paid and 
``virtually impossible to replace in their communities.'' Louisiana 
Governor Kathleen Blanco said, ``Right now we've got big operations 
just shutting down because they cannot compete on the world market. 
We've had shutdowns before but they have always been temporary. We've 
not seen anything like this before.''
    U.S. trade receipts from chemical companies have also been 
adversely impacted by high natural gas prices. Over 3 years of 
extraordinarily high natural gas prices (2001-2004) have resulted in a 
depressed chemical export market and a negative trade balance for the 
U.S. economy. The U.S. balance of payment for chemicals went from an $8 
billion surplus in 1999 to an estimated $9 billion deficit for 2003. 
This negative trade balance allows foreign businesses to capture U.S. 
market share.
    Natural gas prices also impact petroleum product prices because 
refineries are significant users of natural gas. Many facilities 
switched to natural gas use at the order of environmental authorities 
such as the EPA. The result is that natural gas supply and price have 
considerable impact on the output of the nation's petroleum products as 
well as on refining industry profitability. This is even more critical 
as refiners face a tight supply/demand balance for petroleum products 
and higher raw material costs for crude oil.
    Over the next 6 years and well beyond, there appears to be no 
relief for residential consumers, refiners, and petrochemical 
manufacturers. In its ``2004 Annual Outlook'', the Energy Information 
Administration (EIA) concludes that high natural gas prices are likely 
to continue to increase until 2010. EIA predicts ``. . . greater 
dependence on more costly alternative supplies of natural gas'' from 
LNG imports and remote resources in Alaska and Canada. This is 
difficult news for petrochemical manufacturers, refiners, and 
consumers. Congress should act to maximize production from the 
significant U.S. reserve base. Without urgent action, the United States 
will continue to lose thousands of manufacturing jobs and suffer 
billions of dollars in economic harm due to inadequate gas supplies.
  short-term policy options--conservation, efficiency & fuel switching
    In the immediate future, efforts should also be made to help 
mitigate the natural gas supply problems through voluntary conservation 
and efficiency efforts. NPRA urges both Congress and the Administration 
to act to improve energy efficiency and conservation in the use of 
natural gas and power, especially as the Nation enters the summer 
cooling season. This could be accomplished by offering appropriate 
incentives. Any adjustment in electricity consumption would reduce 
natural gas consumption by the power sector and have a positive impact 
on natural gas availability. This, in turn, could help to moderate 
natural gas supply and price concerns. Further, if and when natural gas 
supplies become extremely tight, the Federal and local government 
should allow electric utilities and other industrial facilities to 
switch to alternative fuels in order to conserve natural gas supplies. 
Pre-emptive efforts to encourage fuel switching would be even more 
helpful.

                 LONG-TERM OPTIONS MUST FOCUS ON SUPPLY

    We must develop policies that promote continued environmental 
progress without reducing the supply of natural gas and other petroleum 
products needed for a healthy economy and the nation's security. We 
need to forge a diversified national energy policy that reduces our 
dependence on foreign energy sources while increasing our domestic 
production. These policies must include increased access and 
development opportunities to onshore public lands as well as those on 
the Outer Continental Shelf. We must also bring Alaskan natural gas to 
lower 48 markets as soon as possible. New and promising domestic areas 
for development must be open for exploration and production. In the 
meantime, NPRA would urge caution when Congress and the Administration 
consider any policies, environmental or other, that will accelerate the 
demand for natural gas when other policy options exist.
    Environmental progress and energy supply need not be mutually 
exclusive. However, long-standing and recent environmental policies 
have significantly limited fuel and energy supply choices. They have 
promoted or even required fuel switching while at the same time 
discouraging expanded domestic production of natural gas. Anticipated 
environmental constraints could aggravate the current situation. This 
is a formula guaranteed to make an already bad situation worse.
    Recent reports support the need for increased domestic production. 
As an example, last fall, the National Petroleum Council (NPC), at the 
request of the Secretary of Energy, released its recommendations and 
policy options on the long-term future of natural gas. The NPC warned 
that the U.S. will pay an additional $1 trillion in natural gas costs 
over the next 20 years unless current policy is altered and action is 
taken to increase domestic production.

                            RECOMMENDATIONS

    NPRA urges Congress and the Administration to re-think and re-
evaluate current and future policy initiatives. We should focus on all 
energy options, including fuel choice mixture and flexibility; gas 
supply source diversification; faster permitting for modernization and 
expansion of infrastructure, including LNG facilities and pipelines; 
development of new technologies; and natural gas market transparency 
and efficiency. As a nation, we can not afford to inhibit any options 
that are beneficial to increasing supply.
    Finally, NPRA believes that there is an urgent need to harmonize 
the nation's energy and environmental policies, and that any national 
energy plan must include traditional supply and market-oriented 
policies for all fossil fuels, including natural gas. The current 
energy legislation is deficient, so separate legislation must be 
developed and enacted.

                               CONCLUSION

    We urgently need a thorough review of natural gas-related policies 
to maintain and retain the U.S. petrochemical, refining, and other 
manufacturing industries in the context of a healthy and growing U.S. 
economy. It is clear that natural gas will play an increasingly 
important role in America's energy future; but we must analyze, 
clarify, and correct policies to maximize the available supply of this 
key resource. Therefore, we repeat that the principal focus of the gas 
policy discussion must be on the need for increased supply of this 
critical fuel.
    For this reason, NPRA appreciates the Committee's efforts to 
investigate the issues surrounding and impacting the supply, demand, 
and price volatility of our nation's natural gas resources. We hope to 
work with all stakeholders to design a natural gas policy that provides 
adequate supply at reasonable and predictable prices while 
simultaneously continuing environmental progress.

                               __________

            Statement of the American Gas Association (AGA)

                           EXECUTIVE SUMMARY

    The American Gas Association represents 192 local energy utility 
companies that deliver natural gas to more than 53 million homes, 
businesses and industries throughout the United States. Natural gas 
meets one-fourth of the United States' energy needs and is the fastest 
growing major energy source. As a result, adequate supplies of 
competitively priced natural gas are of critical importance to AGA and 
its member companies. Similarly, ample supplies of reasonably priced 
natural gas are of critical importance to the millions of consumers 
that AGA members serve. AGA speaks for those consumers as well as its 
member companies.
    For the past 3 years, the natural gas industry has been at a 
critical crossroads. Natural gas prices were relatively low and very 
stable for most of the 1980's and 1990's. Wholesale natural gas prices 
during this period tended to fluctuate around $2 per million Btus 
(MMBtu). But the balance between supply and demand has been extremely 
tight since then, and even small changes in weather, economic activity 
or world energy trends have resulted in wholesale natural gas price 
fluctuations. Market conditions have changed significantly since the 
winter of 2000-2001. Supply and demand is now in precarious balance. 
Today our industry no longer enjoys prodigious supply; rather, it 
treads a supply tightrope, bringing with it unpleasant and undesirable 
economic and political consequences--most importantly high prices and 
higher price volatility. Both consequences harm natural gas customers--
residential, commercial, and industrial.
    Since the beginning of 2003, the circumstances in which our 
industry finds itself have become plainly evident through significantly 
higher natural gas prices. Natural gas prices have consistently hovered 
in the range of $5-6 per thousand cubic feet in most wellhead markets. 
In some areas where pipeline transportation constraints exist, prices 
have skyrocketed for short periods of time to $70 per thousand cubic 
feet. Futures prices for natural gas as far out as 2007 continue to 
reflect a wellhead price expectation of greater than $5, as they have 
done for more than a year. Simply put, natural gas prices are high, and 
the marketplace is predicting that they will stay high. At this point 
there is no debate among analysts as to this State of affairs.
    Energy is the lifeblood of our economy. More than 50 million 
Americans rely upon natural gas to heat their homes, and high prices 
are a serious drain on their pocketbooks. High, volatile natural gas 
prices also put America at a competitive disadvantage, cause plant 
closings, and idle workers. Directly or indirectly, natural gas is 
critical to every American.
    The consensus of forecasters is that natural gas demand will 
increase steadily over the next two decades. This growth will occur 
because natural gas is the most environmentally friendly fossil fuel 
and is an economic, reliable, and homegrown source of energy. It is in 
the national interest that natural gas be available to serve the 
demands of the market. The Federal Government must address these issues 
and take prompt and appropriate steps to ensure that the Nation has 
adequate supplies of natural gas at reasonable prices.
    Many of the fields from which natural gas is currently being 
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. While technology will 
undoubtedly continue to progress, technology alone will not be 
sufficient to maintain or increase our domestic production.
    As Federal Reserve Chairman Greenspan noted before the House Energy 
and Commerce Committee, today's tight natural gas markets have been a 
long time in coming but there are still numerous unexploited sources of 
gas production in the United States. We are not running out of natural 
gas; we are not running out of places to look for natural gas; we are 
running out of places where we are allowed to look for gas. The truth 
that must be confronted now is that, as a matter of policy, this 
country has chosen not to develop much of its natural gas resource 
base.
    Without prudent elimination of some current restrictions on U.S. 
natural gas production, producers will likely not be able to continue 
providing increased amounts of natural gas from the lower-48 states to 
customers for longer than 10 or 15 years. This would likely expose 65 
million homes, businesses, industries and electric-power generation 
plants that use natural gas to unnecessary levels of price volatility--
thus harming the U.S. economy and threatening Americans' standard of 
living.
    If America's needs for energy are to be met, there is no choice 
other than for exploration and production activity to migrate into new, 
undeveloped areas. There is no question that the nation's natural gas 
resource base is rich and diverse. It is simply a matter of taking E&P 
activity to the many areas where we know natural gas exists. 
Regrettably, many of these areas--largely on Federal lands--are either 
totally closed to exploration and development or are subject to so many 
restrictions that timely and economic development is not possible. As 
we contemplate taking these steps, it is important that all understand 
that the E&P business is--again as a result of technological 
improvements--enormously more environmentally friendly today than it 
was 25 years ago. In short, restrictions on land access that have been 
in place for many years need to be reevaluated if we are to address the 
nation's current and future energy needs.
    Both houses of Congress recognized these concerns last year in 
passing H.R. 6. This year, like last, the most important next step the 
entire Congress can take to address these pressing issues is to enact a 
comprehensive energy bill with provisions ensuring 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. These steps are 
necessary to help consumers and the economy.

                            RECOMMENDATIONS

    To promote meeting consumer needs, economic vitality, and sound 
environmental stewardship, the American Gas Association urges 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 leases, lease review, 
and permitting procedures.
     Federal lands must continue to be leased for multi-purpose 
use, including oil and gas extraction and infrastructure construction.
     Both private and public entities should act to educate the 
public regarding energy matters, including energy efficiency and 
conservation. Federal and State agencies, with private sector support 
and involvement, should strive to educate the public on the 
relationship between energy, the environment, and the economy. That is, 
energy growth is necessary to support economic growth, and responsible 
energy growth is compatible with environmental protection.
     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''.
     Existing moratoria for onshore lands should be lifted.
     The geologic conditions for oil and gas discovery exist in 
the US mid-Atlantic area, the Pacific Offshore area, and the eastern 
portion of the Gulf of Mexico.
          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, in the Pacific Offshore, and in the Gulf of Mexico to 
        ensure that adequate geological and geophysical evaluations can 
        be made and that exploratory drilling can proceed.
          The Destin Dome (181 lease area) of the eastern Gulf 
        of Mexico should immediately be offered for lease for oil and 
        gas exploration.
          The Federal Government must work with the 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.
     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.
     The Coastal Zone Management Act (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. Many believe the project 
        may not be undertaken without some form of Federal support.
     The Federal Energy Regulatory Commission (FERC) announced 
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.
          Efforts should be made to encourage existing LNG 
        terminals to commence operating at full capacity at the 
        earliest opportunity.
          The siting of LNG offloading terminals 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.
          Some new LNG facilities should be sited on Federal 
        lands so that permitting processes can be expedited.
     Congress should increase LIHEAP funding. Low-income energy 
assistance is currently provided to roughly 4 million households, only 
15 percent of those eligible. The financial burden on needy families 
will certainly increase this winter, and LIHEAP appropriations should 
be increased to $3.4 billion--up from $2.0 billion of total assistance 
in 2003.
     Should gas supplies become extremely tight, the Federal 
Government and the States should consider easing environmental 
restrictions on a temporary basis so that electric generating 
facilities and industrial facilities can switch to alternative fuels.
     States should be encouraged to authorize local utilities 
to enter into fixed-price long-term contracts and/or natural gas 
hedging programs as a means of dampening the impact of natural gas 
price volatility upon consumers.

                           WRITTEN STATEMENT

    AGA is grateful for the opportunity to share its views 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.
    The American Gas Association represents 192 local energy utility 
companies that deliver natural gas to more than 53 million homes, 
businesses and industries throughout the United States. Natural gas 
meets one-fourth of the United States' energy needs and is the fastest 
growing major energy source.
    AGA members are charged with the responsibility, under local law or 
regulation, of acquiring natural gas for the majority of their 
customers and delivering it in a safe and reliable manner. Having an 
ample supply of natural gas at reasonable prices is a critical issue 
for AGA and its members. AGA members and the natural gas consumers they 
serve share both an interest and a perspective on this subject.
    It is important to understand that the bread and butter business of 
AGA members is acquiring and delivering natural gas to residential, 
commercial, and, in some cases, 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 oil and gas exploration companies, 
whether they are super-major, major, independent, or ``Mom and Pop'' 
operators. We do not speak for them, but their continued success in 
providing natural gas to America's consumers is of the utmost 
importance to us as well. AGA and its members stand in the shoes of 
consumers who want reasonable heating bills and good jobs.
    AGA has three objectives in this statement: first, to explain 
briefly why natural gas prices have jumped over the last 2 years year; 
second, to describe the magnitude of the natural gas supply challenge 
facing this country over the next two decades; and third, to recommend 
a number of steps that Congress can take to help bring natural gas 
prices down in the long term.
    AGA remains encouraged that Congress is continuing to address this 
critical issue. Over the last year AGA has been privileged to testify 
before the Senate Energy and Natural Resources Committee, the House 
Energy and Commerce Committee, and the House Resources Committee with 
regard to the challenging issue of natural gas supply. AGA is also 
gratified that the House of Representatives and the Senate each passed 
a version of the Energy Policy Act of 2003. The House and Senate bills 
each contained a wide array of provisions designed to bring forth more 
of America's prodigious supply of natural gas to benefit consumers. 
These bills without question focused more on natural gas supply than 
the iterations under consideration in 2001 and 2002. Notwithstanding 
the inability for both houses in 2003 to agree upon a comprehensive 
energy bill, AGA remains encouraged that Congress will, in 2004, 
address the issues surrounding the nation's need for a secure supply of 
ample quantities of natural gas at reasonable prices.
    Adequate natural gas supply is crucial to all of America for a 
number of reasons. It is imperative that the natural gas industry and 
the government work together to 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 several 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.
    There has been a crescendo of public policy discussion with regard 
to natural gas supply since the ``Perfect Storm'' winter of 2000-2001, 
when tight supplies of natural gas collided with record-cold weather to 
yield record natural gas home-heating bills. Nevertheless, over the 
course of the last year the volume and the tenor of this discussion 
have increased dramatically. Simply put, this issue continues to become 
more critical with every passing day.
    Over the course of the last year, natural gas has been trading in 
wellhead markets throughout the Nation at prices floating between $5 
and $6 per thousand cubic feet. This has not been a ``price spike'' of 
the sort that has occurred in times past, lasting several days or 
weeks. Rather, it has been sustained over a period of more than a year. 
Moreover, there is no sign that it will abate in the near future. 
Indeed, quotes for futures prices on NYMEX over the next several years 
have been consistent with these levels.
    Over the last year or more, business consumers of natural gas have 
been raising a cry of concern over natural gas prices. This concern has 
touched businesses of all stripes. Since natural gas prices began 
rising in 2000, an estimated 78,000 jobs have been lost in the U.S. 
chemical industry, which is the nation's largest industrial consumer of 
natural gas, both for generation of electricity at manufacturing plants 
and as a raw material for making medicine, plastics, fertilizer and 
other products used each day. Similarly, fertilizer plants, where 
natural gas can represent 80 percent of the cost structure, have closed 
one facility after another. Glass manufacturers, which also use large 
amounts of natural gas, have reported earnings falling by 50 percent as 
a result of natural gas prices. In our industrial and commercial 
sector, competitiveness in world markets and jobs at home are on the 
line.
    This winter--like last winter--many families will pay hundreds of 
dollars more to heat their homes, which represents hundreds of dollars 
less they will have to spend on other things. Many families are forced 
to make difficult decisions between paying the gas bill, buying a new 
car, or saving for future college educations. There are, of course, 
State and Federal programs such as LIHEAP to assist the most needy. But 
LIHEAP only provides assistance to about one-quarter of those who are 
eligible, and it does not provide assistance to the average working 
family. These price increases have affected all families--those on 
fixed incomes, the working poor, lower-income groups, those living day 
to day, and those living comfortably.
    America received its first wake-up call on natural gas supply in 
the winter of 2000-2001 when a confluence of events--a cold winter, a 
hot summer and a surging economy--created the so-called ``perfect 
storm.'' This jump in demand sent natural gas prices soaring. Drilling 
boomed, supply grew (slightly), demand fell, and gas prices retreated--
just what one would expect from a competitive, deregulated natural gas 
market. Falling natural gas prices predictably led to a slowdown in 
drilling. The industry drilled 30 percent fewer gas wells in 2002 than 
in 2001. This downturn in drilling in 2002 set the stage for another 
run-up in prices in the 2002-2004 timeframe.
    This winter natural gas prices are at winter 2001 levels because 
demand is up and supply is down. Demand is up in part because we have 
had normal winters. (Consumers have been extremely fortunate that we 
have not had significantly colder-than-normal winters). Meanwhile, 
while demand is up, U.S. natural gas production has been trending 
downward. Indeed, U.S. natural gas production today is lower than it 
was 5 years ago--despite a big jump in drilling at times in the last 
several years.
    These natural gas prices have caused considerable discomfort for 
the consumers (particularly residential) that have seen their natural 
gas bills increase dramatically. Fortunately, the public backlash has 
been more muted than many had feared. Both utilities and regulators 
learned from the public reaction to the prices of 2000-2001, and, over 
the past year, they undertook significant public-awareness campaigns. 
As a result, many consumers were not taken by surprise by their 
increased utility bills.
    Because all energy prices are up, natural gas remains the best 
home-heating value this winter, according to the U.S. Energy 
Information Administration. Nonetheless, it is harmful to individual 
families and to the entire U.S. economy for natural gas price 
volatility to persist.
    Unless we make the proper public policy choices--and quickly--we 
will be facing many more difficult years with regard to natural gas 
prices. The natural gas industry is presently at a critical crossroads. 
The question before this body today is: What will that crossroads look 
like? Will it look like a brand new interstate highway? Or will it look 
like a 100-car collision on a Los Angeles freeway? It is important to 
remember that at the heart of this intersection are America's 
consumers.
    For the past 5 years, natural gas production has operated 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 
have been, and presently are, wide open.
    The supply tightrope has brought with it several inexorable and 
unpleasant consequences--prices in wholesale markets have risen 
dramatically, 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 natural gas utilities (and to legislators as well) 
that consumers dislike these price increases and the market volatility 
that has now become an everyday norm. Unless significant actions are 
taken on the supply side, gas markets will remain tumultuous, and 63 
million gas customers will suffer the consequences. Today's recurrent 
$5 price levels appear to represent a regular, level of natural gas 
prices for the foreseeable future, although this prospect can be 
moderated somewhat with aggressive and enlightened public policy.
    Gas utilities have in place a number of programs to insulate 
consumers, to some extent, from the full impact of wholesale price 
volatility. Nevertheless, consumers must ultimately pay the price that 
the market commands. There has been, and will be, considerable economic 
and political pushback from natural gas prices stabilizing at the 
current $5 level. That pushback can be expected to continue as the 
impacts of these price levels trickle through the economy. Energy 
prices are undoubtedly a factor in what some have called a ``jobless'' 
recovery from the last several years of economic malaise.
    Some would suggest that current natural gas conditions are not the 
result of market fundamentals. Continued high and volatile natural gas 
prices have, for example, resulted in charges of market manipulation 
and calls for investigation. While AGA has not performed an independent 
evaluation regarding these assertions, others--including the CFTC, FERC 
and various analysts--have. These evaluations consistently identify 
supply and demand as the explanatory variables regarding natural gas 
prices. Certainly any substantiated market irregularities should be 
dealt with aggressively and with certainty. However, the burden of high 
and unpredictable natural gas prices on consumers will not be eased 
until we as a Nation address the supply/demand imbalance in the natural 
gas market. It would be ill advised to embrace the notion that that 
aggressive investigation and law enforcement will remedy the 
underlying, fundamental imbalance in supply and demand.
    The role of supply and demand in natural gas markets has been 
plainly evident over the last 12 months. Very cold weather in January 
and February of 2003 resulted in gas consumption that was 18 percent 
higher than the previous year. This strong demand resulted in 
aggressive natural gas storage withdrawals, and storage inventories 
were 50 percent below the 5-year average at the end of the 2002-2003 
winter. Despite concern that storage could not be refilled to adequate 
levels prior to the 2003-2004 winter, gas utilities injected gas at 
record levels in order to ensure winter reliability. In late December 
2003, storage levels marginally exceeded the 5-year average, although 
much of this gas was purchased in periods of high prices and the need 
to refill storage contributed to market tightness. Natural gas prices 
fluctuated around $6 per thousand cubic feet for the first half of the 
year (with a spike over $9 during the February cold snap) declining to 
about $5 late in the year.
    Mild weather in December 2003, and a return to comfortable storage 
levels produced hope for moderating prices, and prices did fall below 
$5 in the second half of the month. However, the first week in January 
2004 was 8 percent colder than normal nationally, and 7 to 17 percent 
colder than normal in the gas heating-intensive upper Midwest, Middle 
Atlantic and New England states. Additionally, the demand for gas to 
fuel a rebounding industrial sector that started in late 2003 has 
continued in 2004. Further, with cold weather comes an increasing 
demand for electric heat and gas-fired electricity generators are now 
being pulled into the generating mix. The surge in early winter demand 
pushed natural gas prices back to $7 per thousand cubic feet in early 
January.
    The primary reason for high and volatile natural gas prices is the 
tightness in the marketplace. While law enforcement agencies must 
continue to be alert for manipulative actions, Federal policy changes 
must lead the way in reducing this tightness. Not until we increase 
supply, reduce demand and streamline relevant energy regulations will 
65 million gas consumers see more reasonably priced and more stable 
natural gas prices.
    Moreover, the problem that we face today is not simply one of 
finding means to meet current demands in the market for natural gas. 
Rather, with a growing economy we are in a growing market, and the 
demand for natural gas in the U.S. is expected to increase steadily. 
Growth seems inevitable because natural gas is a clean, economic, and 
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 U.S. natural gas market may grow by 1-2 percent per year over 
the next 20 years. Much of this growth in natural gas demand will occur 
in the electricity and industrial markets. In fact, the U.S. now has 
several hundred thousand megawatts of new gas-fired power plants on 
line that did not exist in the summer of 1999--the equivalent of 
several scores of Diablo Canyon nuclear power plants.
    If the market were to grow by 2 percent per year, gas supply would 
need to increase, in terms of average daily supply, from about 60-
billion cubic feet per day today to about 95-billion cubic feet per day 
in 2025--a 35 billion-cubic-foot-per-day increase in deliverability. 
(To place this potential increase in perspective, current production 
from the entire Gulf of Mexico is only about 14-billion cubic feet per 
day, and imports from Canada are about 10-billion cubic feet per day.)
    The challenge for both government and industry is quite 
straightforward: to ensure that both the current and future needs for 
natural gas are 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 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--particularly Federal 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 a 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 estimated natural gas resource base in the U.S. has actually 
increased over the last several decades. In fact, we now believe that 
we have more natural gas resources in the U.S. than we estimated 20 
years ago, notwithstanding the production of approximately 300-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. Nonetheless, having the natural gas resource is 
not the same as making natural gas available to consumers. That 
requires natural gas production.
    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 the 
industry. We are able today to drill for gas with dramatically greater 
success and with a significantly reduced environmental impact than we 
were able to do 20 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 from 53 percent in 1988 to over 82 percent today. In addition, 
gas trapped in coal seams, tight sands, or shale is no longer out of 
reach, and today it provides a major source of supply.
    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 the natural 
gas 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; yet it may take forty more wells 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 tend to have short lives and significantly 
more rapid rates of decline in production than onshore wells.
    The sobering reality is that America's producers are drilling more 
wells today than they were 5 years ago. Nevertheless, supply is still 
down. U.S. gas producers are on an accelerating treadmill, running 
harder just trying to stay in place. For reasons that are partly due to 
technology, and partly due to the maturing of the accessible natural 
gas resource base, a typical well drilled today will decline at a 
faster rate than a typical well drilled a decade ago. Moreover, because 
up to half of this country's current natural gas supply is coming from 
wells that have been drilled in the past 5 years, this decline trend is 
likely to continue.
    Before we can meet growing gas demand, we must first replace the 
perennial decline in production. The U.S. natural gas decline rate will 
be in the range of 26-28 percent this year. In practical terms, if all 
drilling stopped today, in 12 months U.S. natural gas production would 
be 26-28 percent lower than it is today. The accelerating decline rate 
helps explain why U.S. gas deliverability has been stuck in the 52-54-
billion cubic feet per day range for the past 8 years, notwithstanding 
an increase in gas-directed drilling.
    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. High and volatile natural gas prices have 
become the norm and will become increasingly accentuated as the economy 
returns to its full vigor. There is no question that high and volatile 
natural gas prices are putting 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 will they make upon us 
in the next two decades, we must change course. It will not be enough 
to make a slight adjustment or to wait three or four more years to make 
necessary policy changes. Rather, we must change course entirely, 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. It is clear that 
continuing to do what we have been doing is simply not enough. In the 
longer term we have a number of options:
    First, and most importantly, we must increase natural gas 
production by looking 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, most of the 
gas resource base off the East and West Coasts of the U.S. and 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.
    To be direct, America is not running out of natural gas, and it is 
not running out of places to look for natural gas. America is running 
out of places where we are allowed to look for gas. The truth that must 
be confronted now is that, as a matter of policy, this country has 
chosen not to develop much of its natural gas resource base. We doubt 
that that many of the 63 million American households that depend on 
natural gas for heat are unaware that this choice has been made on 
their behalf.
    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 is restricted from development, in some 
cases partially and in some cases 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 10 years is located just north of the US/Canada border in 
eastern Canadian 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 that the 
offshore Atlantic area has a 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 
serious 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. With Destin Dome we did not come full about, as we need to do; 
rather, we ran from the storm.
    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 
and 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.
    In the middle of the 20th century, when the postwar economy had 
begun its half-century climb and when natural gas became the fuel of 
choice in America, our colleagues in the producing business opened one 
new natural gas field after another in the mid-continent. In this era, 
it was not that difficult to produce a triple or a home run virtually 
every inning. As those fields developed, producers continued to hit a 
regular pattern of singles and doubles, with the occasional triple or 
home run in new discovery areas. This same pattern in the mid-continent 
was repeated in the Gulf of Mexico. Today, however, it is extremely 
difficult to find the new, open areas where the producing community can 
continue to hit the ball. As things are today, America has confined 
them to a playing field where only bunts are permitted. The Yankees did 
not get to the World Series playing that kind of game.
    AGA does not advance this thesis lightly. Over the past several 
years both the American Gas Association and the American Gas Foundation 
have studied this important issue vigorously. We have believed for 
several years that it is necessary for policymakers 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. We 
think that events in gas market in 2003-2004 underscore that our 
concerns have been on the mark.
    When the first energy shock transpired in the early 1970's, the 
Nation learned, quite painfully, the price of dependence upon foreign 
sources of crude oil. We also learned, through long gasoline lines and 
shuttered factories, that energy is the lifeblood of our economy. 
Nevertheless, 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 5 percent of the world's 
population, we produce nearly one-third of the planet's economic 
output. Energy is an essential--indeed critical--input for that success 
story both to continue and to 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 accomplished today through 
sophisticated technologies and methodologies that are cleaner, more 
efficient, and much more environmentally sound than those used in the 
1970's. 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-1980's 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, or world energy trends result in wholesale 
natural gas price fluctuations. We saw this most dramatically in the 
winters of 2000-2001, 2002-2003, and 2003-2004. Most analysts believe 
that we will continue to see it on a longer-term basis.
    In the 1980's and 1990's, 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 achieving the critical 
goal of 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. On the other hand, 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 need to 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 U.S. gas supply 
comes from traditional land-based and offshore supply areas in North 
America. Despite this fact, 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 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 US gas markets in the future. It will 
certainly not be as large a contributor as imported oil (nearly 60 
percent of US 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.
    It is unlikely that LNG can solve the entirety of our problem. A 
score of new LNG import terminals have been proposed, each with 
capacities of about 1- billion cubic feet per day. Even if all of these 
LNG terminals were built (which is frankly not a likely scenario), LNG 
would only supply about 10-15 percent of the expected market in 2025 of 
35-trillion cubic feet annually. Given the intense ``not on our beach'' 
opposition to siting new LNG terminals, a major supply impact from LNG 
may be a tall order indeed.
    Third, we must tap the huge potential of Alaska. Alaska is 
estimated to contain more than 250-trillion cubic feet--enough by 
itself to satisfy US natural gas demand 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 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 price volatility 
relief for US 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 lies ahead for the United States.
    The pipelines under consideration today from the Prudhoe Bay area 
of Alaska and the Mackenzie Delta area of Canada are at least 5 years 
from reality. They are certainly facilities that will be necessary to 
broaden our national gas supply portfolio. We must recognize, however, 
that together they might eventually deliver up to 8-billion cubic feet 
per day to the lower 48 States--just 8 percent of the 95-billion cubic 
feet per day that is envisioned for the 2025 market.
    There is much talk today of the need for LNG, Alaska gas, and 
Canadian gas. There is no question that we need to pursue those 
supplies to meet both our current and future needs. Nonetheless, it is 
equally clear that, in order to meet the needs of the continental 
United States, we will need to look principally to the lower 48 States.

                               __________
          Statement of the American Forest & Paper Association

    The American Forest & Paper Association (AF&PA) appreciates the 
opportunity to submit a statement for the record on the importance of 
increased access to natural gas. The high cost of energy is having a 
very negative impact on U.S. manufacturers of pulp, paper, paperboard, 
and wood products. U.S. environmental policies of the past decade have 
encouraged increased consumption of natural gas while reducing access 
to natural gas reserves on public lands. This combination of increased 
demand and reduced supply has driven prices substantially higher.
    The U.S. forest products industry is vital to the nation's economy. 
We employ approximately 1.3 million people and rank among the top ten 
manufacturing employers in 42 states with an estimated payroll of $50 
billion. Sales of the paper and forest products industry top $230 
billion annually in the U.S. and export markets. We are the world's 
largest producer of forest products.
    Energy is the third largest operating cost for the forest products 
industry\1\, making up more than 8 percent of total operating costs. 
Since 1972, this industry has reduced its average total energy usage by 
17 percent through increased efficiencies in the manufacturing and 
production process. In addition, it has reduced its fossil fuel and 
purchased energy consumption by 38 percent, and increased its energy 
self-sufficiency by 46 percent. Although the industry is nearly 60 
percent self-sufficient (using biomass), use of natural gas, coal, fuel 
oil, and purchased electricity is necessary to meet the balance of our 
energy needs.
---------------------------------------------------------------------------
    \1\ Pulp, paper, paperboard, recycled paper and paperboard, tissue, 
lumber, and wood products mills.
---------------------------------------------------------------------------
    Annually, forest products companies purchase about 395-billion 
cubic feet of natural gas. The price of natural gas in 2003 was nearly 
double the average price for 2002, forcing the industry to spend almost 
$1 billion more for the same quantity of fuel. This increased price for 
natural gas also significantly increases purchased electricity and the 
price of chemicals needed for our manufacturing operations. Higher 
natural gas prices have the additional effects of increased 
transportation costs.
    Five years ago, the American Forest & Paper Association conducted 
research to determine the competitive position of U.S. manufacturers of 
paper and wood products as compared to our primary international 
competitors. Energy was the one area where our cost of production was 
slightly better than our competitors. Today, that situation is just the 
opposite. While the wellhead price of natural gas hovers between $5 and 
$6 per million British thermal units (BTUs) in the U.S., prices in the 
rest of the world are noticeably lower. Prices of natural gas our 
competitors pay in Western Europe are in the $3 to $4 range. Prices in 
Asia are around $1.50, and in Russia the price for natural gas is less 
than $1 per million BTU, putting our industry at a significant 
competitive disadvantage.
    This disadvantage is on top of other competitive disadvantages this 
industry faces. Our taxes are higher than those of competing nations, 
and there are unfair trade barriers to the export of our products. The 
cost of compliance with our nation's environmental laws is higher, and 
transportation costs are greater than anywhere else around the globe. 
Government restrictions are also limiting our access to fiber--even 
though our forestry stock has increased by 39 percent since 1952. If we 
cannot successfully address these challenges, the public demand for 
forest products will increasingly be filled by other nations who do not 
adhere to our high standards.
    The forest products industry alone has lost more than 120,000 high 
paying manufacturing jobs and closed more than 220 plants since 1997. 
These are the direct job losses and do not count the substantial 
multiplier effect of additional service jobs that have been lost as a 
result of the lost manufacturing activity in these mostly rural 
communities in America. Many of these plant closings have been 
attributed to high energy costs.
    The most important thing that Congress can do to turn around the 
recent manufacturing job losses is to address the energy and 
environmental policies that are the root cause for the supply and 
demand imbalance of natural gas. Congress should enact a new energy 
policy that promotes the environmentally responsible development of 
domestic oil and gas reserves and it should revise environmental laws 
to eliminate the unnecessary bias toward natural gas.

                 POLICIES TO PROMOTE ADDITIONAL SUPPLY

    While the energy bill passed by the Senate in 2003 made some modest 
reforms, it fell short of dramatically changing the natural gas supply 
picture in the near-term. For example, there are significant reserves 
in the Rocky Mountains that can be accessed in a responsible way with 
little negative impact on the environment. Congress should enact 
legislation to reduce the barriers to this supply. In addition, 
expansion of transportation and infrastructure to bring additional 
natural gas to consumers from the Rocky Mountains, Alaska, Canada, and 
from overseas in the form of Liquefied Natural Gas (LNG) is essential 
to help keep gas prices affordable.
    Permitting for new transmission and distribution pipelines takes 
too long to complete. It can take from two to 5 years to get the 
permits necessary for siting and construction of transmission and 
distribution pipelines and natural gas storage facilities. Congress and 
the Administration should work to minimize the bureaucratic red-tape 
and to expedite the permitting process for siting and construction of 
pipelines and natural gas storage facilities. The Department of 
Interior has recently issued some new regulations that could speed the 
permitting process. But, ultimately, Congress must act to ensure that 
bureaucratic process does not prevent timely development of natural gas 
supply.
    Likewise, there are huge reserves in the Arctic National Wildlife 
Refuge (ANWR). A small amount of exploration and development in ANWR 
could mean substantial new supply available to meet the demand of a 
growing economy and provide a rebound for U.S. manufacturing and the 
many families and communities that depend on these jobs.
    Federal restrictions also limit access to offshore natural gas 
resources in the Pacific, Atlantic, and Eastern Gulf of Mexico Outer 
Continental Shelf (OCS). Congress should, as a first step, require a 
Federal inventory of the gas reserves in the OCS. Environmentally 
responsible technologies exist that could allow additional offshore 
production without harming the environment; but, first, we must know 
the extent of the reserves. In the long term, Congress must relax the 
current restrictions and allow for environmentally responsible access 
to some of these OCS reserves.
    The September 2003 National Petroleum Council study agreed that one 
of the biggest potential sources of new natural gas supplies would come 
from developing OCS resources. OCS resources can be developed safely 
with minimal impacts to the environment using new, safe drilling 
technologies. The OCS resources of Maritime Canada are being 
successfully and safely developed today, and the Government of Canada 
is reviewing the potential to open offshore Western Canada for 
exploration and development.
    Concepts such as State revenue sharing, increased State authority 
in leasing decisions, and expanding and equalizing states' boundaries, 
provide an opportunity to overcome resistance to OCS development. By 
providing creative incentives to share revenues from developed OCS 
natural gas resources, states are encouraged to be part of the 
solution. In fact, by increasing states' authority in leasing 
decisions, much of the need for the current OCS moratoria could be 
eliminated.
    Additional Federal research is also important to bring about 
potential new longer-term sources of energy and energy-related 
technologies. Research and deployment of technologies such as clean 
coal, coal gasification, and biomass/black liquor gasification must 
continue to be pursued. For decades, many paper and wood products mills 
have provided the majority of their own energy production. Many pulp 
and paper mills, for example, have run their paper machines using 
electricity largely supplied by mill-operated, onsite electric 
generators.
    The forest products industry has embraced energy diversity by using 
both by-product biomass fuels (such as spent pulping liquor, hog fuels, 
bark, and wood chips) and purchased fossil fuels to produce steam and 
electricity used in its manufacturing processes. Successful development 
and full implementation of black liquor and biomass gasification 
programs could make our industry a net exporter of renewable 
electricity--removing some 35 million tons of carbon emissions from the 
air and generating nearly 22 gigawatts of electricity by 2020.
    The introduction of gasification would enable far more efficient 
power generation via combined cycle or fuel cell prime movers, as well 
as the production of additional value added products like 
transportation fuels (e.g., Fischer-Tropsch middle distillates or 
hydrogen) and chemicals. In fact, the synthetic gas made from black 
liquor and biomass gasification could potentially produce 25 million 
gallons of liquid fuel per day, thereby reducing U.S. dependence on 
imported oil.
    These initiatives entail substantial risk for an already capital-
intensive industry. Important R&D remains to be completed to prove the 
gasification technologies can work without adversely impacting mill 
operations. Continued cooperation with the Federal Government is 
crucial to reducing risk to a level that will allow significant 
industry participation.
    Similar initiatives are underway in the areas of clean coal 
technology and coal gasification. These technology development programs 
are essential to creating new and diverse sources of clean energy. 
Importantly, without guaranteed access to the grid, these new power 
sources will not be developed and implemented. For this and other 
reasons, it is critical that Congress maintain existing initiatives for 
combined heat and power (such as in the Public Utility Regulatory 
Policies Act), which can be as much as 80 percent efficient in the 
conversion of input fuel to useful energy.
    Additionally, research on new technologies is needed to make 
inaccessible supplies of natural gas available, and turn projected 
resources into proven reserves. Many of the nation's existing supplies 
of natural gas are now in harder to reach areas.

          POLICIES TO PROTECT THE ENVIRONMENT AND THE ECONOMY

    The Congress must re-examine current environmental policies that 
promote the exclusive use of natural gas for power generation at the 
expense of other fuel sources that can be used in an environmentally 
sound manner. Significant technology advancements have occurred in the 
past 20 years to make coal a viable fuel source for power generation 
that is not damaging to the environment. Environmental rules should be 
updated to reflect these technological advancements and to encourage a 
more diverse mix of fuels for power generation and other industrial 
applications.
    Manufacturers are subject to a host of environmental laws that 
require control technologies that are natural gas intensive. The recent 
bias in regulations toward environmental control technologies that 
favor incineration is imposing substantial new demand pressures on 
natural gas. For example, the Pulp and Paper Cluster Rule, which was 
promulgated in the mid-1990's, requires paper mills to use an 
incineration technology to burn small amounts of volatile organic 
compounds such as methanol. This chemical is found in mouth breath in 
greater quantities than at paper mill fence lines. The technology used 
is called a ``regenerative thermal oxidizer'' (RTO), and it runs on a 
natural gas system. The end result is higher energy costs, higher 
emissions of SO2 and NOx for questionable benefits. For example, in the 
last 2 years operating costs to run the technology at one paper mill 
increased $1 million per year to $1.5 million. This increase was 
directly attributable to natural gas cost increase.
    Permitting requirements under the Clean Air Act often prevent fuel-
switching, which could in the short-term alleviate part of the 
industrial demand for natural gas. Allowing flexibility in permitting 
to accommodate fuel switching under shortage conditions could help in 
some limited circumstances. As a result, companies are prevented from 
managing energy costs through the use of other environmentally 
responsible fuels.

                               CONCLUSION

    High energy costs, and particularly the high cost of natural gas, 
threaten the long-term viability of U.S. manufacturing and its 
contribution to the American standard of living. Congress can, and 
should, take action to increase the supply of natural gas and update 
environmental laws to reflect the technological advances that have 
occurred in the past decade, and to reduce the bias toward use of 
natural gas. Abundant and affordable energy sources are critical to the 
competitiveness of U.S. manufacturers, to the communities in which they 
operate, and the Americans they employ. Many U.S. businesses have been 
crippled by high natural gas prices that are driven in large part by 
U.S. energy and environmental restrictions. As the economy begins to 
rebound, it is critically important that Congress act quickly to ensure 
that government policies promote rather than restrict the responsible 
development of our nation's abundant supply of natural gas--both 
onshore and offshore.

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             Statement of Southern Utah Wilderness Alliance

   UTAH'S REDROCK WILDERNESS RICH IN NATURAL BEAUTY--NOT NATURAL GAS

    Washington, DC.--Testifying before the Senate Environment and 
Public Works Committee, the Southern Utah Wilderness Alliance (SUWA), 
presented evidence showing that the sacrifice of Utah's crown jewel--
America's redrock wilderness--would only provide a nominal quantity of 
natural gas. With 95 percent of oil and gas resources coming from lands 
entirely outside of lands proposed for wilderness designation, SUWA 
calls energy development in Utah's last remaining wild places both 
short-sighted and ineffective.
    ``SUWA is pleased that the Committee is holding a hearing on the 
environment and natural gas supplies because it allows the Congress and 
the American public to understand that wilderness is neither a cause 
nor a solution to our nation's energy predicament'', said Stephen 
Bloch, SUWA Staff Attorney, who testified at the Committee hearing.
    Since 2001, the Administration has distracted the American public 
by focusing the Nation's attention and its Federal land management 
policies on energy development in the country's few remaining wild 
places. Lands that even the Bureau of Land Management recognized as 
having wilderness values have been stripped of protection and are now 
targeted for energy leasing.
    According to an analysis of data produced by the Department of 
Energy, the U.S. Geological Survey, and the State of Utah, 
approximately 95 percent of the State's gas and oil resources come from 
seven energy-rich ``hot spots.'' None of Utah's seven key energy 
producing regions are proposed for protection in the America's Redrock 
Wilderness Act (S. 639/H.R. 1796). Even if Utah's proposed wilderness 
were exploited for its energy resources, the most current USGS data 
suggests that the land could yield little more than a few weeks of 
natural gas at current consumption levels.
    ``Our nation's last unprotected wilderness areas are an 
irreplaceable treasure, not a cash cow for the energy corporations,'' 
Bloch explained. ``Moreover, even if we sacrifice Utah's redrock 
wilderness we cannot meaningfully reduce the price of natural gas.''
    ``While the government's own data indicates that there is little 
natural gas to be gained from drilling Utah's wilderness quality lands, 
one thing is certain--exploration and development will leave lasting 
scars on this magnificent redrock landscape,'' said Bloch. ``That, in 
my estimation, is truly a high price to pay.''
  

                                  
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