[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 
 
   THE HIGH PRICE OF NATURAL GAS AND ITS IMPACT ON SMALL BUSINESSES: 
                    ISSUES AND SHORT TERM SOLUTIONS

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

                                HEARING

                               before the

      SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE & TECHNOLOGY

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, MARCH 17, 2005

                               __________

                            Serial No. 109-6

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
21-283                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

     SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY

SAM GRAVES, Missouri, Chairman       JOHN BARROW, Georia
STEVE KING, Iowa                     TOM UDALL, New Mexico
ROSCOE BARTLETT, Maryland            MICHAEL MICHAUD, Maine
MICHAEL SODREL, Indiana              ED CASE, Hawaii
JEFF FORTENBERRY, Nebraska           RAUL GRIJALVA, Arizona
MARILYN MUSGRAVE, Colorado

                   Piper Largent, Professional Staff

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Terry, Hon. Lee (NE-02), Congressman, U.S. House of 
  Representatives................................................     4
Kruse, Mr. Charlie, President, Missouri Farm Bureau, Jefferson 
  City, MO.......................................................     6
Hilgedick, Mr. Terry, Chairman, Missouri Corn Merchandising 
  Council, Hartsburg, MO.........................................     8
Pirkle, Mr. J. Billy, Managing Director, Environment Health and 
  Safety, Agricultural Retailers Association/The Fertilizer 
  Institute, Collinsville, IL....................................    11
Duesterberg, Mr. Thomas J., Ph.D., President and CEO, 
  Manufacturers Alliance/MAPI....................................    13
Cicio, Mr. Paul, Executive Director, Industrial Energy Consumers 
  of America.....................................................    14
Jones, Mr. Peter, President, Wexco Corporation, Lynchburg, VA....    16
Boyd, Mr. Ben, Farmer, Sylvania, GA..............................    18

                                Appendix

Opening statements:
    Graves, Hon. Sam.............................................    26
Prepared statements:
    Terry, Hon. Lee (NE-02), Congressman, U.S. House of 
      Representatives............................................    27
    Kruse, Mr. Charlie, President, Missouri Farm Bureau, 
      Jefferson City, MO.........................................    32
    Hilgedick, Mr. Terry, Chairman, Missouri Corn Merchandising 
      Council, Hartsburg, MO.....................................    35
    Pirkle, Mr. J. Billy, Managing Director, Environment Health 
      and Safety, Agricultural Retailers Association/The 
      Fertilizer Institute, Collinsville, IL.....................    39
    Duesterberg, Mr. Thomas J., Ph.D., President and CEO, 
      Manufacturers Alliance/MAPI................................    43
    Cicio, Mr. Paul, Executive Director, Industrial Energy 
      Consumers of America.......................................    50
    Jones, Mr. Peter, President, Wexco Corporation, Lynchburg, VA    55
    Boyd, Mr. Ben, Farmer, Sylvania, GA..........................    73
Additional Material:
    Frisby, Mr. Bradford, Associate General Counsel, National 
      Mining Association.........................................    75
    American Chemistry Council...................................    81

                                 (iii)
      



   THE HIGH PRICE OF NATURAL GAS AND ITS IMPACT ON SMALL BUSINESSES: 
                    ISSUES AND SHORT TERM SOLUTIONS

                              ----------                              


                        THURSDAY, MARCH 17, 2005

                   House of Representatives
Subcommittee on Rural Enterprises, Agriculture and 
                                         Technology
                                Committee on Small Business
                                                     Washington, DC
    The Subcommittee met, pursuant to call, at 10:07 a.m. in 
Room 2360, Rayburn House Office Building, Hon. Sam Graves 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Graves, Barrow. 

    Chairman Graves. We will call this hearing to order. I want 
to thank everybody for coming today and say good morning.
    Welcome to the Small Business Subcommittee on Rural 
Enterprise, Agriculture and Technology. I am glad to see that 
not everybody attended the steroid hearing downstairs. The good 
news is maybe we can study steroid use and natural gas 
somewhere along the process. It is quite a show down there.
    Today we are going to focus on something a little bit more 
serious in my opinion, and that is the high cost of natural 
gas. The outrageously high cost of natural gas and the impact 
that it is having on manufacturers, on small businesses and on 
farmers. We are going to look at maybe some of the short-term 
solutions that are out there too.
    Natural gas is a very important issue because of its 
diverse applications. Natural gas is used to create 
electricity, produce fertilizer, feed our crops and drive our 
vehicles, among many other things. In fact, natural gas is the 
preferred fuel to heat and cool our homes today totaling over 
50 percent of the residential energy consumption, and it is 
still growing.
    Natural gas has been increasing at a dramatic pace in an 
industrial capacity. In 2000, 95 percent of all new electricity 
generated was generated from natural gas, and this growth is 
expected to continue well into the future.
    Natural gas is the primary feedstock used in producing 
nitrogen fertilizer, which is used on farms throughout this 
country. Lastly, natural gas is being used more in the 
transportation sector all the time.
    My point is that natural gas is popular, and its use is 
going to continue to grow. Demand is expected to increase 30 to 
40 percent by the year 2025. Recent studies show that our 
recoverable natural gas reserves are sufficient to meet the 
demand for years to come, but we are facing obstacles in 
securing these resources and reserves.
    On top of that, prices are now more than double what they 
were during the 1990s, and consumers, manufacturers and farmers 
are the ones that are paying that price. To be clear, I am 
supportive of domestic exploration of production, but current 
proposals will yield results 10 years from now. We need to 
discuss short term solutions that can address the high cost of 
natural gas in the present.
    One idea is to examine natural gas trading. Natural gas, 
the pricing is obviously volatile by nature, but that does not 
explain to me the drastic increase in price over the last five 
years. Since 2000 and the passage of the Commodities Futures 
Modernization Act, natural gas has been trading at prices more 
than double what it was throughout the 1990s. This price 
increase hits the consumer hard.
    Consumers are seeing record high energy bills through the 
cold winter months and hot summer days. Farmers and 
manufacturers are experiencing increased expenses of operation. 
These folks need some relief. We are going to be looking to 
legislation that will prevent market manipulation, increase 
transparency in the market and provide for accurate disclosure 
of storage data so consumers of natural gas will not be at the 
whim of a volatile market caused by manipulation and fraudulent 
action.
    [Chairman Graves' opening statement may be found in the 
appendix.]
    I am going to now turn it over to our new Minority Member, 
Representative Barrow for an opening statement. I want to 
welcome you to the Committee, and I look forward to working 
with you in the future.

    Mr. Barrow. Thank you, Mr. Chairman. It is good to be here.
    As the new congressman from Georgia's 12th District, I have 
the honor of representing a large number of family farmers 
across a large rural portion of our state. I have been up here 
in Washington for just three months now, but I am starting to 
realize something. Folks up here often times do not realize 
that family farms are small businesses too. They are one and 
the same, and they should be viewed that way. To protect our 
farmers, we have to protect the business of farming.
    I have lived in Georgia virtually all my life, and I have 
grown up with farmers. Georgia farmers are some of the most 
committed and hardworking folks you will find anywhere. The 
hard work of family farmers in Georgia's 12th is seen in the 
strength of our state's economy. My district has over 3,000 
family farms and produces more than $206 million in 
agricultural products.
    What is true is true across the country. Family farmers are 
a powerful force in the U.S. economy. With family farmers 
playing such a strong role in our communities and our economy, 
we cannot ignore the challenges they are facing today. While 
production is great, the costs are going through the roof.
    Natural gas supplies one of the main energy sources for 
family farmers to run their farms and operate their equipment. 
It is also the key ingredient and major cost component in the 
production of pesticides and fertilizers, up to 95 percent of 
the total cost for most fertilizers. Farmers need fertilizer, 
plain and simple.
    Nationwide, farmers use nearly 11 million metric tons of 
nitrogen fertilizer each year. High natural gas prices mean 
high fertilizer prices, and that means a whole lot of farmers 
spending a whole lot more than they should have to in order to 
grow crops the rest of the country depends on.
    At the same time the rest of the country's demand for 
natural gas is going way up for a variety of reasons. It is 
used much more in residential housing nowadays, and more and 
more electric plants have switched to natural gas. As demand 
increases in these other industries, the prices of natural gas 
jumps higher and higher, and this hurts farmers. When farmers 
suffer, that affects the rest of us.
    As the United States supply of natural gas is slowly tapped 
out, there are other areas of the world that have ample 
reserves available. That explains why we are importing more and 
more of our fertilizer from foreign sources. A 2004 
Congressional Research Services report shows that over 50 
percent of U.S. nitrogen fertilizer comes from imports since 
1998.
    According to officials in the fertilizer industry, higher 
natural gas prices and a glut of imports are having a negative 
impact on the U.S. fertilizer industry. Right now, 45 percent 
of the domestic fertilizer industry is in shutdown mode due to 
high natural gas prices.
    To help our family farmers in Georgia and across the 
nation, we need to hear what is really going on out there. That 
is why I have asked Georgia farmer Ben Boyd to come up and 
testify this morning. Mr. Boyd is from the town of Poor Robin, 
Georgia, which is located near the Georgia/South Carolina state 
line in Screven County.
    Along with his father and his brother, Mr. Boyd farms 3,500 
acres of cotton, peanuts, soybeans, corn, watermelon, small 
grain, and he also raises cattle, so he has seen firsthand how 
the rising cost of fertilizer affects family farmers.
    Farming has been in Mr. Boyd's family for many generations. 
As the chairman of the American Farm Bureau's Young Farmer 
Committee, he is committed to providing the next generation of 
family farmers with the skills they will need to succeed as 
both farmers and businessmen.
    I am proud to have Mr. Boyd and the rest of the witnesses 
up here today, and I hope we will listen carefully to what they 
have to say. What is happening to Mr. Boyd is what is happening 
to the rest of the country, and by listening to him I trust we 
will agree that Congress has to start coming together to find 
some common sense solutions to the problems.
    Thank you, Mr. Chairman.

    Chairman Graves. Thank you, Mr. Barrow.
    We are going to start. We have two panels today. The first 
panel we are going to have Congressman Lee Terry speak to us. 
Congressman Terry represents Omaha, Nebraska, obviously a state 
that is heavily dependent on natural gas.
    Congressman Terry, I appreciate you being here today, and 
thanks for your testimony.

 STATEMENT OF THE HONORABLE LEE TERRY (NE-02), CONGRESSMAN, US 
                    HOUSE OF REPRESENTATIVES


    Mr. Terry. Thank you, Mr. Chairman, Mr. Barrow. I 
appreciate you holding a hearing on this specific topic.
    Natural gas accounts for nearly a quarter of America's 
energy supply and is used in more than half of the U.S. 
households and businesses. In fact, in my metropolitan area 
just about 62 percent of the homes are heated with natural gas. 
Unfortunately, the United States faces a natural gas challenge 
that threatens the profitability of almost every sector of our 
economy, as well as our citizens' quality of life.
    Nationwide, natural gas prices are up from $1.50 per 1,000 
cubic feet just 10 years ago to $7.19 at the close of the 
market yesterday. This is compared to about right now 70 cents 
in Venezuela, 40 cents in North Africa, 80 cents in Russia and 
$3.70 in Eastern Europe.
    Farm states, including mine of Nebraska, yours of Georgia 
and, Mr. Chairman, yours of Missouri, have been hit especially 
hard by higher natural gas prices since natural gas is the 
primary material in nitrogen fertilizer, as well as a key fuel 
for irrigation and drying of grains.
    In Nebraska, anhydrous ammonia fertilizer has increased 
from about $175 per ton in 2000 to as much as $375 per ton last 
planting season. About half of America's nitrogen fertilizer is 
now imported today due mostly to the high cost of the key 
ingredient of natural gas.
    Since 2001, at least 15 U.S. fertilizer production 
facilities have closed primarily due to the high price of 
natural gas. This could serve as a severe impact on the U.S. 
economy and our farmers.
    The reasons for concern are magnified when one considers 
that U.S. natural gas consumption is expected to increase 40 
percent over the next 20 years. Simultaneously, domestic 
natural production will drop one percent per year. Keep in mind 
the global expansion and need for natural gas, particularly 
from China.
    Until substantial new gas supplies are brought to market, 
the nation's businesses, manufacturers and farmers may not have 
an adequate supply of affordable natural gas to meet their 
needs. In fact, a recent study by the American Gas Foundation 
found that if current natural gas constraints are continued 
through 2020, the price of natural gas is likely to rise above 
$13 per 1,000 cubic feet.
    There are steps Congress can take to address the natural 
gas crisis. Now, it has to be a multifaceted approach. Last 
year we passed a pipeline. We think that is going to be an 
immediate help. Well, I will tell you what. The politics of the 
pipeline in Alaska may take 10 years to settle before the 10 
years to build, but that is one of the key components, 
increasing continental production.
    Then we have to say and realize we cannot meet the needs 
and that we will have to import, and that is where liquid 
natural gas comes in. Chairman Alan Greenspan in several 
speeches has mentioned the importance of LNG to our economy.
    I have introduced a bill, H.R. 359, that would encourage 
this additional component of additional supply of natural gas 
to our domestic supply--that is H.R. 359--that ameliorates the 
morass of permitting. It streamlines the permitting process for 
an LNG facility.
    Right now we have four facilities. There are some offshore 
facilities that may come on line in the next couple years, but 
when we talk to those who have asked for a permit for an LNG 
facility they come back with the same story, and that is the 
morass for the myriad of permits is intolerable. It delays and 
even kills good projects.
    What we have done in H.R. 359 is basically two simple 
approaches. There has to be a lead authority, and that should 
be FERC. We need to have the states and localities involved in 
the process, but not with veto powers. Also what we have found 
out is there are folks in the process that have permitting 
powers that intentionally delay action on their permit, in fact 
de facto vetoing the permit.
    What this bill, H.R. 359, also does then is for localities, 
states, state agencies, other federal agencies, once the permit 
request has been filed the clock starts ticking. They have one 
full year then to present the evidence or begin the process of 
working with FERC to state what hazards may occur or may not 
occur. We then have a 301 year timeline.
    It is a simple process. We should encourage more LNG 
because we are not going to be able to meet our own needs with 
domestic production in the pipeline. It has to be a 
multifaceted approach, and this is just one of the prongs.
    I appreciate, Mr. Chairman, you giving me the opportunity 
to come here and talk about liquid natural gas because, 
frankly, as we have talked about energy bills, until just in 
the last couple months, no one has talked about liquid natural 
gas and the impact that it is having on our farmers and our 
small businesses, so thank you for holding this hearing.
    [Congressman Terry's statement may be found in the 
appendix.]

    Chairman Graves. Thanks for being here, Mr. Terry.
    You mentioned some offshore facilities. Where are they 
located?

    Mr. Terry. That is a good question. Mostly in the Texas and 
Louisiana facilities right now. There is one in the northeast. 
There is one in New York, one in Boston, so that is where they 
are right now.
    There are permits that have been applied for in California, 
along the Gulf coast and the northeast, and those are the ones 
that are caught up in the regulatory morass.

    Chairman Graves. I appreciate you being here. Thank you 
very much for testifying on your bill.

    Mr. Terry. Thank you very much.

    Chairman Graves. We are going to now seat the second panel. 
I want to remind everyone that all the statements made by the 
witnesses and the Members of the Committee will be placed in 
the record in their entirety. We will go ahead and bring 
everybody up.
    Again I want to thank all the witnesses for being here 
today. To kind of explain the way the light bar in front of you 
works, everybody has five minutes to give your testimony. When 
you have one minute left it turns to yellow and then turns to 
red.
    Now, do I follow that? Not necessarily. If you have 
something to say I want to hear it. I do not like shutting 
people off, but we do use the time lights just so everybody has 
some idea of what is going on.
    I want to thank everybody for being here today. What we are 
going to do is we will introduce each of you individually, let 
you give your opening statement, and then we are going to have 
questions for you.
    First on the panel is Charlie Kruse who is president of the 
Missouri Farm Bureau in Jefferson City, a friend of mine and 
also a farmer. He and his family farm down in Dexter, Missouri, 
and have been farming for a long, long time. Charlie is very in 
touch with the issue of natural gas and what it is doing to 
farmers and the squeeze that it is placing on them.
    Charlie, thank you for being here, for coming all the way 
out. I appreciate and look forward to hearing your testimony.

        STATEMENT OF CHARLIE KRUSE, MISSOURI FARM BUREAU

    Mr. Kruse. Thank you, Mr. Chairman. We appreciate, Mr. 
Chairman, you and the Members of the Committee having this 
hearing. I am joined in the hearing room this morning by a 
number of Missouri Farm Bureau folks who happen to be out here 
this week, and I will just say we are all very proud of our own 
Congressman, Sam Graves. We appreciate you having this hearing.
    My name is Charlie Kruse. I am a fourth generation farmer 
from Dexter, Missouri, in southeast Missouri. My wife, Pam, and 
I own a row crop farm and operate it in the boot heel of 
Missouri. I am the president of Missouri Farm Bureau, and I 
also serve on the American Farm Bureau Board of Directors.
    I appreciate the opportunity to share the Farm Bureau's 
perspective on the impacts of high natural gas prices. Whether 
it is gasoline, diesel, electricity or natural gas, farmers and 
ranchers must have access to reliable and affordable energy 
inputs. Unfortunately, our country's failed energy policy makes 
it increasingly difficult for us to produce food and fiber for 
the United States and the world while at the same time 
providing for our own families.
    Using USDA statistics as a basis, the Farm Bureau has 
estimated that increased energy input prices during the 2003 
and 2004 growing seasons have cost U.S. agriculture over $6 
billion in added expenses. Natural gas is especially important 
to agriculture, as we all know, because it is used to produce 
nitrogen fertilizers and farm chemicals, as well as electricity 
for lighting, heating, irrigation and grain drying.
    Natural gas can account for nearly 95 percent of the cost 
of nitrogen fertilizer. During the last four years, the price 
of natural gas has been extremely volatile, causing retail 
nitrogen fertilizer prices to dramatically increase.
    For example, between 2000 and 2003, the average retail cost 
of nitrogen fertilizer skyrocketed from around $100 per ton to 
$350 or more a ton. On my own farming operation, the cost of 
nitrogen fertilizer is 70 percent higher today than it was two 
years ago. The same is true for other energy inputs, whether it 
is diesel fuel, LP gas or whatever.
    While I am paying more to plant and harvest my crops, that 
does not necessarily mean I am receiving or will receive more 
for what I sell. Currently the price of corn is about 30 to 35 
percent lower than a year ago. Soybean prices have fallen 35 to 
40 percent. I think it is clear farmers are caught in a real 
squeeze at this point in time.
    Manufacturers and retail suppliers are also reeling from 
the effects of increased natural gas prices. According to The 
Fertilizer Institute, 15 nitrogen fertilizer plants have 
permanently stopped production since 2000, representing 22 
percent of domestic capacity. Another 20 percent of the 
industry is temporarily shut down due to high natural gas 
prices.
    All the while, the agriculture industry is becoming more 
reliant on foreign imports to meet farmers' demands. An article 
featured last year in Amber Waves, a publication of USDA's 
Economic Research Service, states that over half of the 
nitrogen used in the United States today is imported. In the 
1980s, our nation was the largest exporter of nitrogen 
fertilizer. Now we are the largest importer.
    We should be very concerned about increasing our dependence 
on foreign sources for the nitrogen fertilizer needed to raise 
the food and fiber on which our country relies.
    There are a lot of reasons why the price of natural gas has 
skyrocketed. First, our national energy policy has discouraged 
domestic exploration and recovery of oil and natural gas, which 
has made us more dependent on foreign energy sources.
    Second, many power plants have been forced to use natural 
gas to generate electricity in order to comply with 
environmental regulations, even though we have huge reserves of 
coal and the technology to use coal safely and efficiently. The 
Energy Information Administration estimates demand for natural 
gas will increase 54 percent by 2025 with electric power 
generation accounting for 33 percent of consumption.
    We recognize there is no silver bullet for solving our 
nation's energy woes. However, prompt, decisive action must be 
taken now if we are going to avert a major energy crisis. Farm 
Bureau supports domestic exploration and recovery of energy 
resources using sensible, environmentally sound methods. We are 
encouraged by yesterday's vote in the Senate to explore for 
energy in Anwar.
    We support the use of renewable energy, such as ethanol and 
biodiesel. We support incentives for the use of clean coal 
technology and electric power generation, and we support the 
use of nuclear energy.
    In closing, the perfect storm--the combination of 
significantly higher energy and fertilizer costs coupled with 
falling grain prices and cotton and rice prices--spells serious 
trouble for rural America. For this reason it is our hope that 
Congress will act soon to address these problems.
    Mr. Chairman, Congressman Barrow, we appreciate you taking 
time to hold this hearing today and look forward to answering 
any questions.
    [Mr. Kruse's statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Kruse.
    Next on the panel is Terry Hilgedick from Hartsburg, 
Missouri. Terry is chairman of the Missouri Corn Merchandising 
Council.
    Terry, thanks for coming out to Washington to testify.

   STATEMENT OF TERRY HILGEDICK, MISSOURI CORN MERCHANDISING 
                            COUNCIL


    Mr. Hilgedick. Thank you and good morning, Chairman Graves 
and Mr. Barrow. Thank you for the opportunity to testify on the 
impact of high natural gas prices to farmers.
    My name is Terry Hilgedick, as Congressman Graves 
mentioned, and I am Chairman of the Missouri Corn Merchandising 
Council and a member of the National Corn Growers Association's 
Public Policy Action Team. I am from Hartsburg, Missouri, where 
my wife, Kristie, and I grow corn, soybeans, wheat and 
watermelons.
    NCGA was founded in 1957 and represents more than 33,000 
dues paying members from 48 states. NCGA also represents the 
interest of more than 300,000 farmers who contribute to corn 
check off programs in 19 different states. NCGA's mission is to 
create and increase opportunities for corn growers and to 
enhance corn's profitability and use.
    My purpose today is to provide insight to the Subcommittee 
on how high natural gas prices affect the cost of producing 
important fertilizers that farmers rely on for their crops. 
Increased natural gas prices have already had an adverse effect 
on farmers due to higher production cost and will continue to 
do so in the future.
    Growers rely on affordable natural gas as a feedstock for 
fertilizer, but also for energy for irrigation, drying grain 
and producing ethanol. Whether used directly as a feedstock or 
for heat and power generation, reasonably priced natural gas is 
essential to grower profitability.
    Fertilizers account for more than 40 percent of the total 
energy input per acre of corn harvested. Most of that energy is 
consumed in the production of nitrogen fertilizer. Retail 
prices for fertilizer, the prices paid by farmers, rise sharply 
when natural gas increases. According to the USDA, farm gate 
prices for fertilizer have jumped to record high levels. The 
largest component of making all basic fertilizer products is 
natural gas, accounting for more than 90 percent of the cost of 
production.
    Nitrogen fertilizer is a key input for the bountiful yields 
achieved by U.S. corn farmers. Rising natural gas prices in the 
U.S. have caused domestic nitrogen fertilizer producers to 
severely curtail production. Of the 16.5 million tons of 
nitrogen capacity that existed in the U.S. prior to 2000, 
almost 20 percent has been closed permanently. Another 25 
percent is at risk of closing within the next couple years. 
Farmers face higher nitrogen fertilizer prices and the prospect 
that there might not be an adequate supply of nitrogen 
fertilizer to satisfy our needs at any price.
    Nitrogen fertilizer producers have no way of curtailing or 
reducing their demand for natural gas other than shutting down 
the process itself. This not only destroys their businesses, 
but it drives up fertilizer prices to the American farmer and 
food prices to the American consumer. These production 
curtailments and higher nitrogen prices are largely the cause 
of the current surge in nitrogen imports.
    Imports currently account for about 40 percent of the U.S. 
nitrogen fertilizer supply. Lower natural gas prices in the 
Middle East, Asia and South America make it difficult for U.S. 
nitrogen fertilizer producers to compete with these countries 
with much lower gas prices.
    These countries take their excess natural gas, turn it into 
fertilizer and undersell U.S. producers. This practice will 
only become more common in the future. Supplies of nitrogen 
fertilizer have been adequate during periods of high natural 
gas prices in the past primarily because of increased imports.
    Natural gas accounts for 70 to 90 percent of the cost of 
producing anhydrous ammonia, a key source of nitrogen 
fertilizer. In the midwest, at the beginning of the year 2000 
anhydrous ammonia was selling for about $170 a ton. Last 
spring, anhydrous ammonia was selling for $360 a ton. The price 
of anhydrous at my local dealer last Friday was $435.
    For my family farm, the price increase in one year amounts 
to $13,000 for ammonia alone, and we will have to absorb an 
additional $7,000 cost increase when other forms of plant food 
are added in. All costs we cannot pass on to our buyers of 
production. Unfortunately, these high and volatile prices are 
expected to continue into the foreseeable future.
    Higher natural gas prices will also negatively impact the 
country's growing ethanol industry. The second biggest cost in 
ethanol production, second only to feedstock, is the cost of 
energy, generally natural gas. Energy costs typically make up 
about 15 percent of a dry mill plant's total cost.
    According to USDA's latest crop production report, this 
year's corn crop will be the largest ever, and yields will 
increase by nearly seven bushels per acre compared to last 
year. When harvested, more than 10 percent of that crop will be 
turned into ethanol. The corn industry becomes more energy 
efficient every year, but we still must have the adequate, 
reliable and affordable natural gas to fuel the industry.
    Government policy is creating a supply squeeze for natural 
gas. Electric utilities and other industries are moving away 
from using nuclear energy and our plentiful supplies of coal 
and moving towards use of natural gas. Natural gas has been the 
fuel of choice for more than 90 percent of new electric 
generation to come on line in the last decade. In addition, as 
that happens our access to natural gas is limited due to 
environmental policy. Clearly we cannot have it both ways.
    Our ability to be efficient and environmentally friendly 
corn producers will face huge obstacles if our nation cannot 
come to grips with its desire to have limitless resources like 
natural gas for production and not realize that these resources 
have to come from somewhere.
    I am sure that the Members of the Subcommittee as 
individuals know this well. However, Congress seems to be 
unaware of this fact. We can produce corn, but we need you to 
produce the kind of policy that enables us to use the needed 
resources to do our jobs.
    Our nation's current natural gas crisis has three 
solutions, increase supply, conserve what we have and reduce 
demand. The 109th Congress is facing a daunting task of finding 
ways to balance our nation's dwindling supply of and rising 
demand for natural gas.
    Additional supply is available from three primary sources, 
onshore production, offshore production and liquified natural 
gas. While there is considerable activity underway in each of 
these areas, Congress can do more to facilitate the timely 
development of these critical supply sources. Congress must 
also adopt measures to ensure new coal and new nuclear 
facilities are constructed.
    Congress should provide federal loan guarantees and other 
incentives for the retrofitting of existing natural gas fired 
facilities with the new integrated gasification combined cycle 
and next generation nuclear technologies. It is vitally 
important that these forms of power generation be developed and 
deployed. Without them, the demand for gas fired plants will 
continue to grow and place an ever increasing burden on the 
nation's supply base.
    Support through long-term extension of tax credits and 
other incentives for other emerging technologies, including 
wind and biomass, is also an important element to diversifying 
our nation's energy resource portfolio. We urge Congress to act 
expeditiously to promote the development of domestic energy 
resources to help secure future economic growth for our nation.
    Congress needs to enact a comprehensive energy bill now 
that provides, one, an enhanced role for renewable energy 
sources; two, further development of all energy resources for a 
more diverse portfolio; and, three, environmentally responsible 
production of adequate domestic supplies of natural gas.
    There are many indications that our nation's economy and 
energy security will be seriously impacted should we not take 
action to expand all sources of domestic energy to feed our 
country's growing demand. The days of cheap energy are behind 
us. A renewable fuel standard as part of a comprehensive energy 
policy would result in expansion of ethanol production, 
directly contributing to the domestic fuel supply, thus 
reducing our dependence on imported oil.
    Our ability to produce food and fuel for our nation and the 
world depends on sound energy policy. I encourage this 
Subcommittee to continue to address energy and natural gas 
issues. Your decisions impact family farmers' ability to 
compete internationally.
    Simply put, farmers need access to reliable sources of 
energy and raw materials so they can use the fertilizers 
necessary to produce an abundant, affordable and healthy food 
supply.
    Thank you, Mr. Chairman.
    [Mr. Hilgedick's statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Hilgedick.
    We will next hear from Bill Pirkle, who is the Managing 
Director of Environment Health and Safety, and correct me if I 
get this wrong, but you are with the Agricultural Retailers 
Association and The Fertilizer Institute. Is that correct?

    Mr. Pirkle. That is correct.

    Chairman Graves. Thank you for being here. I appreciate you 
coming all the way from Collinsville, Illinois, to be with us 
today, and I look forward to your testimony.

     STATEMENT OF J. BILLY PIRKLE, AGRICULTURAL RETAILERS 
              ASSOCIATION/THE FERTILIZER INSTITUTE


    Mr. Pirkle. Thank you. I appreciate the opportunity to come 
and speak to you, Mr. Chairman, and to the Committee and to the 
guests of the Committee on behalf of the Ag Retail Group and 
The Fertilizer Institute and Royster-Clark, which has 250 ag 
retailer facilities. We serve about 40,000 farmers in 22 
states, and we supply crop inputs to another 30 states.
    Royster-Clark traces its roots back to 1872 and a sleepy 
town in North Carolina, Tarboro, North Carolina. Our 
headquarters are in Norfolk, Virginia, and we employ around 
2,500 employees.
    ARA is a non-profit trade organization that represents the 
industry's ag retailers across the United States. Not only does 
it represent its members; it also educates members on the 
political process and important issues that affect our 
industry.
    TFI is also a leading voice in the nation's fertilizer 
industry, and you have heard comments from some of the data 
that they have furnished on this issue.
    One of the things that I would like to speak to you on this 
morning is that the United States needs a reliable and 
plentiful supply of natural gas for nitrogen fertilizer. As was 
mentioned before, 70 to 90 percent of the cost of anhydrous 
ammonia is from the cost of natural gas. Currently, the 
nitrogen fertilizer industry accounts for about three percent 
of the nation's consumption of natural gas as well.
    The current natural gas crisis is exacting a heavy toll on 
our industry. In fact, as has been mentioned in former 
testimonies, 15 facilities have been shut down permanently. 
There is another five that have been idled, and that capacity 
has reduced the domestic production 35 percent. It has also 
been mentioned this morning, and I would agree, that the 
imports have increased by 50 percent.
    One of the effects upon the supply to the growers is that 
these domestic facilities stored and had infrastructure within 
the domestic United States to store product. With the closing 
of those facilities, 30 percent of the storage capacity of the 
domestic farmers and their access to those raw materials and 
crop inputs have been closed.
    This increases the cost for the farmer to find suppliers of 
these raw materials through rail and truck infrastructure. As 
you know, our country is facing logistical issues as well, 
which increases the cost of the supply to the farmer and also 
to the ag retailer.
    Royster-Clark is also pleased and concerned about at the 
same time the issue of natural gas as we have entered into a 
study with Rentech, who is a technology company, and we are 
looking at what we call a coal to corn project. This coal to 
corn project will actually take Illinois coal, and we will ship 
it to our East Dubuque, Illinois, nitrogen facility. This 
technology is not new. It is called Fisher-Trops.
    Rentech is actually working with the Coal Coalition in 
Illinois, along with the governor of Illinois and the local 
coal industry to try to convert our facility to this ultra 
clean technology. The clean distillate fuel that would also be 
produced from that facility could be used in municipalities to 
help with ambient air quality standards. The Department of 
Defense has shown some interest in this technology as part of 
their Clean Fuel Initiative.
    The company's conversion to clean coal will ultimately 
replace the natural gas with this coal gasification as its 
source of energy for fertilizer production. This shift will pay 
huge dividends for Royster-Clark, greatly reducing the 
company's cost of doing business and eventually creating more 
jobs, 100 new jobs at the facility, an estimated 200 coal 
mining jobs in Illinois and 1,500 construction jobs during the 
construction of the facility.
    This important coal to corn project will pave the way for 
expansion that will keep the nitrogen fertilizer production 
facility in Illinois intact. This also will allow us to supply 
the midwest farmers and growers in our area.
    As excited as we are at Royster-Clark about the promise 
this project represents for our company, we would like to add 
that this is not a realistic option for many other domestic 
nitrogen producers due to the hundreds of millions dollars 
necessary to complete the coal to gasification feedstock 
conversion.
    Also, there are problems with availability to coal 
logistically close to the domestic production facilities, and 
in some states there is an absence of political and financial 
assistance that has been offered to us by the State of 
Illinois.
    Mr. Chairman, allow me to relay my recommendations which we 
believe should be included in the federal energy legislation 
and policy. The first recommendation that we recommend is 
opening additional federal lands and offshore areas to oil and 
gas exploration and production. We also believe that you should 
assure that there is an infrastructure for a pipeline to bring 
that supply to market.
    We also support the bill to build new liquid natural gas 
terminals by placing the exclusive jurisdiction over these 
regulatory matters of liquid natural gas under the Federal 
Energy Regulatory Commission.
    We believe that these policies and these initiatives are 
critically important to the energy security, food security and 
our nation's security, and we strongly urge the Members of this 
Committee to support their inclusion in the industry 
legislation to be considered by the United States House of 
Representatives.
    Let me conclude by saying thank you for the opportunity 
this morning to share my testimony.
    [Mr. Pirkle's statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Pirkle. I appreciate you 
being here.
    Next we are going to hear from Dr. Thomas Duesterberg, who 
is President and CEO of the Manufacturers Alliance here in 
Washington, D.C. I appreciate you being here.
    I do want to point out too we received notice that we have 
a series of votes, three votes, at approximately 11:00, which 
will be sometime in there, but just so everybody is aware that 
we may have to recess for a very short period of time to run 
over and vote.
    Mr. Duesterberg, I appreciate you being here.

   STATEMENT OF THOMAS J. DUESTERBERG, Ph.D., MANUFACTURERS 
                         ALLIANCE/MAPI


    Mr. Duesterberg. Mr. Chairman, I appreciate the opportunity 
to be here.
    Manufacturers Alliance represents about 450 manufacturing 
companies ranging from the auto sector to the chemicals 
industry to the electronics industry. Our membership represents 
over $3 trillion in final sales, and the products of our 
industries are closely related to the concerns of rural 
America, in addition to being in many cases located in rural 
America.
    I have chosen today to focus on the role of Liquified 
Natural Gas and the crisis, but I wanted to call your attention 
to the cost squeeze that is affecting manufacturing today, and 
this points out why it is important to focus on natural gas 
costs.
    This is an era of global competition which just continues 
to increase. Not only China, but now India, Malaysia, 
Indonesia, Mexico are all competing with U.S. manufacturers. In 
this environment we have seen a cost squeeze that is produced 
by a variety of circumstances.
    We have a strong dollar, which continues to be an issue for 
manufacturers as especially Asian producers/producing countries 
keep the value of their currencies low. Benefit costs are 
rising rapidly, up 32 percent since 2001. Metals of all sorts, 
including steel, copper and other inputs to manufacturing, have 
almost doubled in the last few years.
    We have done a study on a variety of factors affecting 
manufacturing, the price of manufacturing compared to our nine 
leading trading partners, and a combination of higher taxes 
here than elsewhere, higher benefit costs, higher energy costs, 
regulatory costs and tort costs add about 22 percent to the 
cost of labor in this country, which is already high so it 
produces a considerable cost squeeze.
    Natural gas is important to manufacturing. The sector uses 
about a third of all natural gas used in this country. It is 
especially important, as has already been pointed out, to the 
chemicals industry, but also to the glass industry and to the 
metal forming industry, which have few options for this heat 
source.
    The impact of this cost squeeze and the higher price of 
natural gas has been especially devastating on the chemicals 
industry, which has lost 90,000 jobs in the last few years. We 
went from a trade surplus of $16 billion in 1997 to a trade 
deficit of $11 billion in 2003 largely because of this.
    Now, one thing that we have looked at as a near term 
solution. We endorse increases in supply of all sorts, 
including what has been mentioned for electricity, diversifying 
electricity, but there are stupendous amounts of natural gas 
available in the world, including in politically stable places 
like Norway, Australia, the Netherlands, the Caribbean, which 
could provide a solution to the price of natural gas.
    We have calculated that without increased supply of LNG, 
the price of natural gas could rise to about $12.62 per 1,000 
cubic feet over the next 15 years. If, however, we take 
advantage of momentum to increase the supply of LNG, there have 
been three new facilities that have been licensed in the last 
year. There are 19 facilities in the United States that have 
licenses in various stages of the process.
    If we can approve only six new facilities from those 19, we 
could have up to 25 percent of the domestic supply from LNG by 
the year 2010. We think that this can reduce the price of 
natural gas by about 20 to 25 percent over current levels.
    Mr. Chairman, let me conclude by saying that manufacturing 
is at a crossroads because of a cost squeeze and because of 
global competition. The doubling or even tripling of natural 
gas prices has exacerbated this crisis, so we need immediate 
attention.
    In addition to increasing domestic supply, we think 
increasing the ability to import LNG could be a near term 
solution. The economics are good right now for LNG imports, and 
we encourage the Committee to investigate means to accomplish 
this such as Congressman Terry's bill to promote expedited 
licensing.
    [Mr. Duesterberg's statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Duesterberg.
    Next we are going to hear from Paul Cicio, who is the 
Executive Director of the Industrial Energy Consumers of 
America here in Washington, D.C.
    Thank you, Paul, for being here.

  STATEMENT OF PAUL N. CICIO, INDUSTRIAL ENERGY CONSUMERS OF 
                            AMERICA


    Mr. Cicio. Good morning, Chairman Graves, Ranking Member 
Barrow and Members of the Committee. I am the Executive 
Director of the Industrial Energy Consumers of America.
    Among other things, I would like to bring to the 
Committee's attention the important issues relating to the 
regulation of natural gas futures contracts markets. This June 
will be the five year anniversary of the beginning of the 
natural gas crisis. Cost of the crisis is nearing $200 billion.
    It was in June of 2000 that natural gas prices averaged 
above $4 per million BTU, a price level that immediately began 
to impact competitiveness of U.S. manufacturing and small 
business. One by one, manufacturing plants were permanently 
shut down, idled, reduction was shifted overseas and resulted 
in a loss of some three million relatively high paying jobs. 
Today, with a brisk economic recovery, manufacturing is still 
down some 2.5 million jobs.
    Natural gas prices have continued to rise. Prices on the 
New York Mercantile natural gas contract closed at $7.14 per 
million BTU this Monday. In November of 2004, prices reached 
levels of just under $10 per million BTU.
    Had it not been for industrial demand destruction as a 
result of high natural gas prices and the resulting decline of 
consumption by the manufacturing sector, together with a cool 
summer and a mild winter, we would potentially be facing 
rationing of natural gas.
    The point is the U.S. has a serious natural gas crisis that 
has the potential to get much worse before it gets better, and 
sound energy policy is not praying for a cool summer and a warm 
winter. In the meantime, we will continue to witness the 
dismantling of U.S. manufacturers who built facilities here in 
the United States based on globally competitive natural gas 
prices for fuel and feedstock.
    Mr. Chairman, I would like to turn our attention to the 
natural gas market issues. Energy markets have changed 
dramatically, and regulatory oversight, transparency and limits 
to rampant speculation by traders, particularly unregulated 
hedge funds, is needed to meet this challenge.
    Changes made by the Commodity Futures Modernization Act of 
2000 were very well intended, but did not anticipate the rapid 
market changes or the problems it would cause by relaxing CFTC 
regulatory oversight. The changes that a self-regulated NYMEX 
has made to the natural gas futures contract contributes to the 
significantly increased volatility.
    The natural gas market is no longer being set by consumer 
demands for the physical supply of gas. Instead of the market 
serving the greater public good, it serves the investment 
interests of an ever growing number of speculators and 
unrelated billion dollar hedge funds that are completely 
disconnected from the consumer and the manufacturing market. 
None of them appear concerned that there are negative impacts 
on your constituents.
    The NYMEX natural gas futures contract has the distinction 
of being the most volatile commodity in the world, far more 
volatile than crude oil. The trading limits, commonly referred 
to as circuit breakers, are about twice that of other energy 
commodities and about four times that of agricultural 
commodities in general.
    We encourage the Congress to look at the agricultural 
market. There is no question that the government understands 
that we must provide affordable food and stable prices. As a 
result, agricultural commodities set futures trading limits 
that are substantially below that of the NYMEX natural gas 
contract and as a result have lower volatility. We believe that 
natural gas should be treated with the same priority.
    The Industrial Energy Consumers of America encourages the 
Committee on Agriculture to make the following necessary 
legislative changes to support consumers within the 
reauthorization of the CFTC:
    1] NYMEX should be required to seek prior CFTC approval of 
proposed changes to the terms and conditions of contracts as it 
did before CFMA was implemented. CFTC should be required to 
evaluate the economic impacts of proposed changes and seek 
public input, a similar approach to the Federal Energy 
Regulatory Commission;
    2] Give CFTC authority to establish trading limits similar 
to agriculture commodity markets that are far less volatile;
    3] Give CFTC and the SEC greater regulatory oversight that 
increases the transparency of market players and transactions 
in both NYMEX and the OTC sufficient to prevent market 
manipulation;
    4] CFTC should evaluate after hours overnight trading and 
determine if its operations are in the best interests of energy 
markets and can operate without manipulation. If not, it should 
be eliminated;
    5] Congress should prohibit senior CFTC enforcement 
officials from taking jobs with organizations that their agency 
oversees for one year. This would eliminate serious integrity 
and ethic issues;
    6] Restore and reinforce the anti-fraud anti-manipulation 
gap to CFTC that it once had over energy swap transactions 
prior to year 2000.
    Thank you very much.
    [Mr. Cicio's statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Cicio. We appreciate your 
testimony.
    Next we are going to hear from Peter Jones, who is 
President of Wexco Corporation. He is with the Consumers 
Alliance for Affordable Natural Gas in Lynchburg, Virginia.
    Peter, thank you for being here.

          STATEMENT OF PETER JONES, WEXCO CORPORATION


    Mr. Jones. Good morning, Chairman Graves, Congressman 
Barrow and Members of the Committee. I am Peter Jones, 
President of Wexco Corporation of Lynchburg, Virginia.
    Established in 1975, Wexco has grown into a highly 
respected and capable supplier of machinery components for the 
plastics industry both in the U.S. and internationally. Thank 
you for the opportunity to testify before you regarding the 
critical issue of natural gas markets and pricing.
    Today I am appearing on behalf of the Consumers Alliance 
for Affordable Natural Gas, which was formed to call attention 
to the natural gas crisis and develop rational policy responses 
to the natural gas supply/demand imbalance.
    CAANG represents a broad collection of industrials, farming 
interests and other consumers of natural gas. Since the 1990s, 
government policies have encouraged the use of natural gas as a 
clean fuel with the largest growth in demand coming from the 
electric utility sector. Yet supply has not kept pace because 
of government policies that have restricted the access to 
abundant domestic reserves.
    The resulting supply/demand imbalance has driven U.S. 
natural gas prices to unprecedented heights. In fact, they are 
two to three times historical levels, and they are the highest 
in the industrial world.
    Domestic prices are projected to stay at these globally 
uncompetitive levels for the foreseeable future. As we have 
heard, April natural gas futures are already over $7, which for 
a month is the first time in history. This is troubling 
considering that natural gas is the key feedstock in fuel used 
in our plastic industry, as well as chemical, fertilizer, paper 
and other manufacturing companies and heating homes and 
producing electricity. Natural gas impacts all facets of the 
economy.
    Because of high natural gas prices, manufacturing plants 
have closed and jobs have moved to other countries with lower 
energy costs. Communities across the nation are suffering. Some 
three million manufacturing jobs have been lost, but we need to 
understand that each of these jobs supports four to five other 
jobs in surrounding communities, so it ripples through the 
economy.
    Okay. What has happened to Wexco Corporation that I 
represent? Our two primary operating costs are natural gas and 
steel. Our natural gas prices have tripled since I started in 
Wexco in 1999, and our steel prices at least in part driven by 
natural gas have also dramatically raised, so our operating 
costs are skyrocketing. At the same time these high prices are 
forcing my customers to move offshore where they can achieve 
competitiveness.
    We cannot follow them. We have to stay here in Virginia. My 
business and our 68 employees are being squeezed. When I 
started we had 135 employees, and we have downsized to 68. Our 
benefits are pressured, and our company of 30 years history is 
definitely under siege.
    The nation did not find itself in this mess overnight, so 
solutions to help alleviate the natural gas supply/demand 
imbalance will not come overnight. We must address structural 
supply/demand imbalance, which is the fundamental cause of the 
high, volatile natural gas prices.
    Only with a balanced and comprehensive portfolio of 
policies that address both sides of the equation will the 
problem be resolved. There is no silver bullet.
    We believe in four pillars to accomplish this. First, we 
believe in the short term aggressive energy efficiency and 
conservation measures must be taken, which offer the best near 
term opportunities for reducing price pressures of natural gas.
    Second, significant diversification of industrial and power 
generation fuels, including renewables, clean coals, syn gas 
from coal, biomass or other materials and nuclear energy to 
reduce the demand or offset natural gas use and as a matter of 
energy security.
    Thirdly, expanded supply including LNG and new 
environmentally sound U.S. production, and finally an 
infrastructure upgrade that includes LNG terminals, an Alaska 
pipeline and improved storage and transmission facilities.
    The natural gas problem is complex. It will take a 
multifaceted effort to resolve it, and it must be resolved for 
U.S. manufacturers to remain globally competitive and to give 
our small businesses and farmers a fighting chance to compete.
    Thank you for this opportunity to present our views. I look 
forward to answering any of your questions.
    [Mr. Jones' statement may be found in the appendix.]

    Chairman Graves. Thank you, Mr. Jones.
    Mr. Barrow?

    Mr. Barrow. Thank you, Mr. Chairman. It is my pleasure to 
introduce my guest at these proceedings, Mr. Ben Boyd from 
Screven County, Georgia.
    As I stated before, Ben is the chairman of the American 
Farm Bureau's Young Farmer Committee. Not the Georgia Farm 
Bureau, but the American Farm Bureau Young Farmer Committee, 
and I am very proud to represent him.
    He has a lot of friends from the Georgia Farm Bureau who 
are here with him today. I want to thank them for being here.
    Ben, thank you for testifying today.

    Chairman Graves. Thank you too, Ben. I want to congratulate 
you on being chairman of the American Farm Bureau Young Farmer 
Committee.
    I was Chairman of the Missouri Young Farmer Committee and 
served on that committee for two years. I did not have the 
pleasure of being able to be on the American Young Farmer 
Committee, but I am very impressed.
    Thank you for being here.

                 STATEMENT OF BEN BOYD, FARMER


    Mr. Boyd. Thank you. I appreciate you all letting me be 
here today. As I said, I am Ben Boyd, and I farm with my father 
and my brother close to a little town called Sylvania, Georgia. 
We are a diversified farm. We grow cotton, peanuts, corn, 
soybeans, small grains and cattle.
    I am a member of the Screven County Farm Bureau, and as we 
have said I have the pleasure to serve on the American Farm 
Bureau Young Farmer Committee, which lets me talk to a lot of 
people from all over the country, but today I am here speaking 
on behalf of myself, a farmer from Georgia.
    I just want to thank my congressman, Mr. Barrow, for 
letting me come here today. I appreciate you letting somebody 
like me come and talk to you all.
    As we have all affirmed now, natural gas is a critical 
resource for nearly every farmer in this country from 
fertilizer, crop protection, chemicals, energy used to dry and 
store all our commodities. My farm and just about everyone else 
relies heavily on natural gas.
    When the price of natural gas increases as much as it did 
since 2002, the price for products I use on my farm which are 
based on natural gas increase as well. Since 2002, nitrogen 
fertilizer prices have increased 113 percent for me. On my 
farm, that means an increase of about $54,880 just in nitrogen 
based fertilizer prices for me to try to work this year on the 
same crops that I have been growing the whole time.
    For my corn acres I went from about $36 per acre in 
nitrogen prices in 2002 to $64 per acre in 2004, and it is 
going to be even higher this year I am afraid. Our cotton acres 
are the same way. Cotton takes nitrogen too. The same fate. As 
nitrogen goes up, so do my prices for raising this cotton. We 
use mostly anhydrous ammonia because it is the most economical 
of all nitrogen based fertilizers.
    I do not come here to ask for a break to facilitate 
inefficiencies. I want to do the best job I can, but I feel 
like I have cut costs about as much as we can without seeing a 
dramatic decrease in crop production.
    Our farm also uses natural and LP gas to dry commodities. 
Just on our peanut drying bill alone, the increase has been 
about $4 per ton this year, so that has been close to $4,000 
this past year in increased drying costs.
    Farmers all across Georgia and all across the nation deal 
with higher energy input costs over the last few growing 
seasons, but in general in this time higher commodity prices 
have been in place and so we have kind of been able to offset 
differences, but this year is not the same. As inputs are going 
up the prices are going down. Many Georgia farmers just like me 
are going to find it more and more difficult to sustain 
profitability.
    We are eventually going to reach a point where energy costs 
and energy related inputs force me and my neighbors and people 
from all over the country to not only change our crops, but 
maybe to change our livelihoods. When gross income on the farm 
falls, our rural communities suffer.
    When farmers stop farming by choice or by circumstance we 
lose infrastructure, and this is critical. When we lose this 
infrastructure in these rural communities, it cannot be 
replaced without huge capital expenditures in the future.
    This is something that really matters to me in the little 
place I live called Poor Robin, Georgia. Please do not 
underestimate the difficulty it is going to put on young 
farmers all over the country. I will argue that nitrogen is the 
most important fertilizer element to most crops. If something 
is not done with this problem, I do not know how we are going 
to be able to keep going.
    I believe American agriculture is just as much a national 
security issue as anything else we do. If you have plenty to 
eat, you have 1,000 problems. If you are hungry, you only have 
one.
    We have been blessed in America. We have more abundance 
than we know what to do with, and I think it is imperative that 
we maintain a broadbased agriculture industry so we grow food 
all over the country to provide safe, affordable and abundant 
supply of food and fiber for our citizens. We should also be 
able to rest assured that our food, we have plenty of it and it 
is safe.
    In closing, what I want everybody to get from this is that 
this is important to me. We talk about endangered species. You 
are looking at one. I am a 27-year-old farmer. There are not 
many of us left, and if for some reason we skip a generation in 
farmers for one reason or another I am afraid it is going to be 
because it is not profitable.
    It is hard to get into. Right now if you cannot make a 
living for it--you can ask my banker. It is looking rough, but 
I think we can do some things that will help. If we can cut our 
costs as much as we can--I want to do my part. I will cut 
everything out I can, but I am at the point right now if I cut 
anything else productivity is going to go down.
    If we could do something to decrease the energy related 
input cost, be it fertilizer, chemicals, all of these things, 
transportation both ways, I think it would let us be able to 
produce the food that our citizens need while maintaining these 
rural economies that according to me are extremely important in 
this part of the world.
    I just thank you all for letting me talk today.
    [Mr. Boyd's statement may be found in the appendix.]

    Chairman Graves. We are going to take a quick recess. We 
have three votes, twenty minutes maybe, twenty-five minutes, I 
hope to be back.
    I do have several questions. I am interested in coal 
gasification. I am also interested in what some of your 
opinions are, particularly Mr. Cicio, in market manipulation, 
and then I want to hear from our three farmers about what is 
happening to their operations personally.
    You know, agriculture, farming, is the only business out 
there that I know of that buys everything retail and sells 
everything wholesale. It is completely backwards to the way it 
is supposed to be. We are price takers on both ends.
    I am particularly interested in what this has done to your 
operation personally and the impact. You kind of addressed it a 
little bit and nibbled around the edges, but I want to hear it 
direct so you might think about those questions.
    We should be right back just as quickly as possible. I 
thank everyone for their patience.
    [Recess.]

    Chairman Graves. I want to thank everybody for your 
patience in our vote. It obviously took longer than we had 
thought, but again thank you all for being here, and I hope 
your schedules have not been messed up too much.
    Charlie Kruse is not going to be with us. He did have some 
commitments, which is fine.
    I do want to start with Mr. Cicio. I would be curious as to 
what your take is on market manipulation and just how much you 
think is there. It is frustrating the way limits are set or 
where they are set for natural gas as opposed to other farm 
commodities, but I am curious about what your take is on market 
manipulation and just how widespread it is.

    Mr. Cicio. Congressman, we have a very interesting 
situation where there is enormous speculation and enormous 
increased volatility that has occurred. It is only 
directionally up, but it is all legal. There is nothing that is 
illegal about what is going on. The sad thing is that they are 
permitted by law to do these things.
    We could not understand why things were as volatile as they 
were, and we looked at the construct of the NYMEX natural gas 
contract, and we found some very revealing things.
    Since the passage of the Commodity Futures Modernization 
Act, it deregulated essentially NYMEX and allowed them to do 
whatever they want with the terms and conditions of the NYMEX 
contract. Since 2000, year 2000, they changed the terms of this 
contract four times, and they have changed the terms, such as 
the limits, to make it more volatile.
    Today, as I mentioned in my testimony, the limits are twice 
that of other energy commodities and four times the limits of 
agricultural commodities, so what you have then is a contract 
that if you were a speculator, a trader, a hedge fund, that is 
a perfect environment for volatility.
    If you are the New York Mercantile or you are a trader, 
speculator, volatility is good. You want an environment, a 
contract that you can push the price around at will. If you are 
a consumer, you want stability. That is why we like the 
agricultural commodity situation.
    Our number one priority is turning back the clock a bit on 
the Commodity Futures Modernization Act. Many of the things 
that were in place, the law of the land, prior to the year 2000 
is what we would like to see. Prior to 2000, if the NYMEX 
wanted to change the contract they had to make that request to 
the CFTC. The CFTC would evaluate it and either approve it or 
disapprove it.
    We would like to go a step further and encourage the CFTC 
to do an evaluation of the impact of the proposed changes by 
NYMEX and allow for public input, and that is pretty much the 
way FERC manages their issues.
    In terms of manipulation, to our knowledge it is not 
illegal. They have been given the legal right to do this 
through the design of that contract. We need to fix the 
contract.

    Chairman Graves. Mr. Pirkle, you mentioned coal 
gasification. Could you explain that a little bit more for my 
clarification and explain that? If you just do a little bit 
more in-depth on that, I would appreciate it.

    Mr. Pirkle. Sure. Rentech is a technology holding company 
that has a patented process that is an enhanced Fisher-Trops 
technology, and Fisher-Trops technology is probably 60 years 
old. It was developed in Germany during World War II for a way 
to convert to fuel their armed forces.
    It is presently being used in South Africa. There are some 
production facilities that are there that are actually using 
the Fisher-Trop technology.
    Rentech has actually taken that Fisher-Trop technology and 
developed and refined it, and the part that they patented is 
actually when you burn--they can actually consume high sulfur 
coal which has higher BTU values, so they can actually do that, 
and with their patented process they capture the sulfur and 
condense the sulfur emissions down to elemental sulfur, and 
they can sell that elemental sulfur, so for air emissions it is 
a clean fuel.
    However, it is capital intensive. To construct a facility, 
the estimates right now are somewhere around $400 million to 
erect and construct the facility, and that is the stage that we 
are at right now.
    A product that I mentioned, the clean distillate fuel, is a 
product that will come out of the process. The clean distillate 
fuel is a low sulfur diesel fuel substitute or equivalent. It 
has one part per million sulfur.
    I mentioned in my testimony that municipalities are very 
interested in that if they are in a non-attainment area for 
their municipal transportation needs. The Department of 
Defense, with their clean fuel initiative, is interested in 
this clean distillate fuel equivalent as well.
    The State of Illinois has given a $5 million grant to 
complete the engineering studies. Those engineering studies are 
near completion. The next step after that would be the raising 
of the funds to start construction and to move forward with the 
conversion process.
    We have some papers that were developed that give a report 
of the engineering studies and a little bit more in-depth 
information on the Fisher-Trop technology that we could submit 
to you if that would meet your needs.

    Chairman Graves. Very much so. If you would submit that, I 
would appreciate it very much.

    Mr. Pirkle. We can do that.

    Chairman Graves. My staff will work with you to get that.
    I do want to hear from Terry and Ben, both of you all, on 
just what this is doing to your personal operations because as 
farmers you are hit from both sides and there is not much you 
can do about it, particularly in today's environment where we 
have decreasing profit margins in farming. It just makes it 
that much more tough when you see natural gas which is used for 
drying and then of course the fertilizer costs on top of that.
    What do you foresee in the future with your operations and 
what worries you and just how tough it is going to be? Terry?

    Mr. Hilgedick. Okay. Basically on our farm we try to look 
at it a few different ways. We can improve efficiency of the 
fertilizer that we use. Currently our farm last year, we were 
producing one bushel of corn for one unit of nitrogen, and we 
feel like we are probably hitting the wall there.
    We applied three different times throughout the growing 
season, once at planting, once at side rest time, which the 
corn is about a foot tall, and once again at about six feet 
tall through irrigators. We feel like we are probably running 
out of efficiency there, so as far as tweaking that much more I 
do not know what we would do really and still maintain the kind 
of yields it takes to make a little money farming.
    Secondly, we can try to buy seasonally. Sometimes it works. 
It worked in 2004. We were able to buy in the fall of 2003 and 
saved about $50 a ton. That opportunity has not presented 
itself thus far in our area in 2005 so we are uncovered on our 
costs on anhydrous ammonia, and, as I mentioned earlier, we are 
looking at $400 plus a ton.
    We cannot grow corn is an option. It is unacceptable for a 
lot of reasons in that our crop rotations are destroyed. Our 
yields on our other crops such as soybeans would then plummet 
due to lack of rotation, so it is a tough animal.
    Fourthly, we just pay the price and go on. That is kind of 
where we are getting to more all the time and just absorb the 
cost and try to find it somewhere else, try to find some 
dollars elsewhere.

    Chairman Graves. Ben?

    Mr. Boyd. Well, for us, as I talked about, we can change 
what crops we are using a little bit to help a little bit, but 
with us we can grow peanuts, which do not take as much 
nitrogen, but it is just like he said on rotation. We are just 
prolonging the inevitable when we do that because it is a pay 
it now/pay it later deal.
    From my perspective, we do not really need a bandaid like 
that. We need something that will fix us for a while. What 
really scares me is we are being able to do it right now. 
Obviously I am still farming so I tend to believe if it keeps 
going the way it is going we are going to be farming on equity 
and that is not good because that will run out, especially for 
me.
    The way it is increasing, if it keeps going up, like right 
now somehow we are making it, but if it keeps increasing at the 
rate it is and what they say it might, I do not know. We are 
going to pray and hope we have a good season, have a good crop, 
because it is not looking real pretty right now.

    Chairman Graves. Mr. Barrow?

    Mr. Barrow. Thank you, Mr. Chairman.
    Ben, to follow up on what you were saying, are there things 
you can turn to for fertilizer besides nitrogen based 
fertilizers? Is that an option?

    Mr. Boyd. No, sir. What I just said about the crops and 
changing around, that obviously will not work but a minute or 
two. I mean, nitrogen is its own thing. It would be like saying 
do you want food or water. You have to have it.

    Mr. Barrow. I want to harken back to something you said at 
the end of your testimony when we were being called away.
    You took a generational perspective on things, and I just 
want you to share with us. How do you think that young farmers 
today are facing challenges that young farmers yesterday and 
before your daddy's generation? Tell us how things look to you 
today, as opposed to the way things looked back then.

    Mr. Boyd. Absolutely. Farming is to capital intensive right 
now. It is hard to get into if you are not in some sort of 
operation. With that, we start losing farmers. Like with the 
age, like the demographics, farmers are getting older and 
older. There are not many young guys coming up.
    If we ever miss a generation of farmers in there, it is not 
something that you can pick up a textbook. I am not saying that 
farmers are smart or anything, but just smarter than anybody 
else so that you could not just have a textbook. You just 
cannot wake up one morning and decide I am going to be a farmer 
and read, you know, or read lots of books and figure things out 
because it is always different.
    I would just argue that if we lose it, especially if we 
lose it in regions, there are some parts of the country that 
are more efficient at growing some stuff. We need to have 
people producing commodities all over the country, and if we 
ever skip one generation I think it is going to be hard for us 
to get back into it.

    Mr. Barrow. Thank you, sir.
    Mr. Chairman, you have asked some of the questions I wanted 
to ask, so I am through.

    Chairman Graves. Manufacturing. Can any of you delve into 
competitiveness with some of your foreign competitors? I do not 
know if any of you have foreign competitors. You may know in 
general what their energy prices are or what it is doing as far 
as how that affects you. I would be curious about that.

    Mr. Jones. I can speak. In the machine that we make --we 
make barrels that go into injection molding machines and so on. 
We have a high cost of energy in casting the biometallics 
inside the steel cylinders.
    There are competitors in China who could put a barrel in 
one of our customer's plants and make a profit for less money 
than it takes for us just to produce it. I mean, it is 
dramatic.
    The only thing that keeps us going at this point in time is 
because most of the equipment in the United States, because of 
the recession we have had and the lack of a capital investment 
short term, most of that equipment is older equipment, and 
people run it until it is about ready to drop and they need a 
barrel now, and they are not going to get it from China.
    So in the short term there is a little bit of protection 
there, but in the longer term, Congressman, is that the people 
who make resin, plastic resin, are putting all their capital 
offshore. The largest manufacturer of injection molding 
machines now in the world, which makes as many as all the 
others in the United States combined, is in China.
    Plastic processing. I defy you to go into WalMart or Home 
Depot and find any consumer product made out of plastic that 
does not say Made in China on it. We are impacted both from a 
cost standpoint in manufacturing and from a standpoint that the 
pie that we vie for is getting smaller and smaller.

    Chairman Graves. Go ahead.

    Mr. Duesterberg. I might comment just in general. Natural 
gas prices in Europe, of all places, are now 25 percent or so 
lower on average than they are here. They get gas from Russia 
primarily, but also get gas from North Africa in the form of 
LNG.
    Gas is the primary determinant of location now for the 
chemicals industry, and you see unfortunately major chemical 
companies in the United States now locating in the Middle East 
because gas is--they used to burn it. It is available for less 
than $1 per 1,000 cubic feet.
    These industries, if we do not address the problem, are 
going to continue to move offshore. We are going to continue to 
put large swaths of the manufacturing sector at a competitive 
disadvantage if we do not get the price of natural gas down to 
a level where it is more competitive even with the Europeans.

    Chairman Graves. Do you have any more questions?

    Mr. Barrow. No, Mr. Chairman.

    Chairman Graves. It is obvious that we need some long-term 
solutions in the energy bill, if we can get that passed.
    There was a little bit of a ray of hope I guess that came 
out of the Senate the other day at least in looking at some of 
the things we can do in terms of more domestic production of 
some of our energy sources.
    Obviously Liquid Natural Gas has a lot of potential. We 
need to do everything we can to try to get that permitting 
process expedited. Mr. Terry, we are working with him a little 
bit on that.
    What we are going to look at is some of the short term, 
some things we can do to hopefully eliminate the volatility 
very quickly. I am going to be filing a bill as soon as we get 
back from Easter break dealing with the price stops and looking 
at basically we are going to attempt to implement some limits 
much like what we see in the farm commodities arena.
    Hopefully that will help out or at least lessen the 
volatility short-term, but obviously long-term we have got to 
come up with some serious solutions to this because it is 
hitting everybody. It is hitting our farmers. It is hitting our 
manufacturers. It is hitting consumers. It is hitting 
homeowners. Everybody has seen their heating bill skyrocket. We 
have to do something, and I believe in that.
    I appreciate everybody coming out today and giving your 
testimony. I know some of you it was much tougher to get here 
than others, but I appreciate that quite a little bit.
    Please work with my staff. If you have any other 
suggestions let us know as we are working through this process 
of filing the bill. Again, thank you.
    This hearing is adjourned.
    [Whereupon, at 12:04 p.m. the Subcommittee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T1283.001
    
    [GRAPHIC] [TIFF OMITTED] T1283.002
    
    [GRAPHIC] [TIFF OMITTED] T1283.003
    
    [GRAPHIC] [TIFF OMITTED] T1283.004
    
    [GRAPHIC] [TIFF OMITTED] T1283.005
    
    [GRAPHIC] [TIFF OMITTED] T1283.006
    
    [GRAPHIC] [TIFF OMITTED] T1283.007
    
    [GRAPHIC] [TIFF OMITTED] T1283.008
    
    [GRAPHIC] [TIFF OMITTED] T1283.009
    
    [GRAPHIC] [TIFF OMITTED] T1283.010
    
    [GRAPHIC] [TIFF OMITTED] T1283.011
    
    [GRAPHIC] [TIFF OMITTED] T1283.012
    
    [GRAPHIC] [TIFF OMITTED] T1283.013
    
    [GRAPHIC] [TIFF OMITTED] T1283.016
    
    [GRAPHIC] [TIFF OMITTED] T1283.017
    
    [GRAPHIC] [TIFF OMITTED] T1283.018
    
    [GRAPHIC] [TIFF OMITTED] T1283.019
    
    [GRAPHIC] [TIFF OMITTED] T1283.020
    
    [GRAPHIC] [TIFF OMITTED] T1283.021
    
    [GRAPHIC] [TIFF OMITTED] T1283.022
    
    [GRAPHIC] [TIFF OMITTED] T1283.023
    
    [GRAPHIC] [TIFF OMITTED] T1283.024
    
    [GRAPHIC] [TIFF OMITTED] T1283.025
    
    [GRAPHIC] [TIFF OMITTED] T1283.026
    
    [GRAPHIC] [TIFF OMITTED] T1283.027
    
    [GRAPHIC] [TIFF OMITTED] T1283.028
    
    [GRAPHIC] [TIFF OMITTED] T1283.029
    
    [GRAPHIC] [TIFF OMITTED] T1283.030
    
    [GRAPHIC] [TIFF OMITTED] T1283.031
    
    [GRAPHIC] [TIFF OMITTED] T1283.032
    
    [GRAPHIC] [TIFF OMITTED] T1283.033
    
    [GRAPHIC] [TIFF OMITTED] T1283.034
    
    [GRAPHIC] [TIFF OMITTED] T1283.035
    
    [GRAPHIC] [TIFF OMITTED] T1283.036
    
    [GRAPHIC] [TIFF OMITTED] T1283.037
    
    [GRAPHIC] [TIFF OMITTED] T1283.038
    
    [GRAPHIC] [TIFF OMITTED] T1283.039
    
    [GRAPHIC] [TIFF OMITTED] T1283.040
    
    [GRAPHIC] [TIFF OMITTED] T1283.041
    
    [GRAPHIC] [TIFF OMITTED] T1283.042
    
    [GRAPHIC] [TIFF OMITTED] T1283.043
    
    [GRAPHIC] [TIFF OMITTED] T1283.044
    
    [GRAPHIC] [TIFF OMITTED] T1283.045
    
    [GRAPHIC] [TIFF OMITTED] T1283.046
    
    [GRAPHIC] [TIFF OMITTED] T1283.047
    
    [GRAPHIC] [TIFF OMITTED] T1283.048
    
    [GRAPHIC] [TIFF OMITTED] T1283.049
    
    [GRAPHIC] [TIFF OMITTED] T1283.050
    
    [GRAPHIC] [TIFF OMITTED] T1283.051
    
    [GRAPHIC] [TIFF OMITTED] T1283.052
    
    [GRAPHIC] [TIFF OMITTED] T1283.053
    
    [GRAPHIC] [TIFF OMITTED] T1283.054
    
    [GRAPHIC] [TIFF OMITTED] T1283.055
    
    [GRAPHIC] [TIFF OMITTED] T1283.056
    
    [GRAPHIC] [TIFF OMITTED] T1283.057
    
    [GRAPHIC] [TIFF OMITTED] T1283.058
    
    [GRAPHIC] [TIFF OMITTED] T1283.059
    
    [GRAPHIC] [TIFF OMITTED] T1283.060
    
    [GRAPHIC] [TIFF OMITTED] T1283.061
    
    [GRAPHIC] [TIFF OMITTED] T1283.062
    
      

                                 
