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



 
     H.R. 4318, THE OUTER CONTINENTAL SHELF NATURAL GAS RELIEF ACT

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

                          LEGISLATIVE HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                      Thursday, November 17, 2005

                               __________

                           Serial No. 109-36

                               __________

           Printed for the use of the Committee on Resources



  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                                   or
         Committee address: http://resourcescommittee.house.gov


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
24-681                      WASHINGTON : 2006
_____________________________________________________________________________
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 RESOURCES

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

Don Young, Alaska                    Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

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

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                     JIM GIBBONS, Nevada, Chairman
           RAUL M. GRIJALVA, Arizona, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
Barbara Cubin, Wyoming                   Samoa
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania       Jim Costa, California
Stevan Pearce, New Mexico            Charlie Melancon, Louisiana
Thelma Drake, Virginia               Dan Boren, Oklahoma
Bobby Jindal, Louisiana              Edward J. Markey, Massachusetts
Louie Gohmert, Texas                 Nick J. Rahall II, West Virginia, 
Richard W. Pombo, California, ex         ex officio
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Thursday, November 17, 2005......................     1

Statement of Members:
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     2
    Peterson, Hon. John E., a Representative in Congress from the 
      State of Pennsylvania......................................     3

Statement of Witnesses:
    Bennett, Michael L., President and Chief Executive Officer, 
      Terra Industries Inc., Sioux City, Iowa....................    23
        Prepared statement of....................................    25
    Bradley, David, Executive Director, National Community Action 
      Foundation, Washington, D.C................................     8
        Prepared statement of....................................    10
    Gerard, Jack N., President and CEO, The American Chemistry 
      Council, Arlington, Virginia...............................    16
        Prepared statement of....................................    18
    Hunt, Geoffrey P., Senior Vice President, Communications and 
      Human Resources, OSRAM SYLVANIA, Danvers, Massachusetts....     5
        Prepared statement of....................................     7
    Oellig, Keith, President, Dauphin County Farm Bureau, 
      Grantville, Pennsylvania...................................    20
        Prepared statement of....................................    22

Additional materials supplied:
    American Forest and Paper Association, Statement submitted 
      for the record.............................................    45


LEGISLATIVE HEARING ON H.R. 4318, ``THE OUTER CONTINENTAL SHELF NATURAL 
                           GAS RELIEF ACT.''

                              ----------                              


                      Thursday, November 17, 2005

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to call, at 2:38 p.m., in 
Room 1324 Longworth House Office Building, Hon. Jim Gibbons 
Chairman of the Subcommittee] presiding.
    Present: Representatives Gibbons, Faleomavaega, Peterson, 
Drake, and Pombo, ex officio.
    Also Present: Representatives Brown and Abercrombie.

       STATEMENT OF THE HONORABLE JIM GIBBONS, CHAIRMAN, 
          SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

    Mr. Gibbons. Thank you very much, ladies and gentlemen. And 
first of all, let me express my apology for the delay in 
getting started with this hearing. It is the Floor schedule 
that has gotten in our way.
    The Committee today is meeting for a legislative hearing on 
H.R. 4318, the Outer Continental Shelf Natural Gas Relief Act.
    Mr. Gibbons. Before I begin, I would like to ask unanimous 
consent that the gentleman from Hawaii, Mr. Abercrombie, and 
the gentleman from South Carolina, Mr. Brown, may participate 
in the hearing.
    Without objection, so ordered.
    Ladies and gentlemen, the intent of H.R. 4318, offered by 
Mr. Peterson and Mr. Abercrombie, is to increase domestic 
production of natural gas, reduce energy prices for American 
consumers, and increase Federal and State revenues from 
development of resources on the Outer Continental Shelf, 
otherwise known as the OCS.
    As the price of natural gas hovers between $12 and $14 per 
thousand cubic feet, a whopping 50 percent higher than what it 
was this time 2 years ago, the American consumer, our 
constituents, will be paying higher costs to heat their homes 
this winter. My constituents in Nevada are expected to pay 
anywhere from 13 to 15 percent more this winter for natural 
gas.
    Additionally, Nevada's electric utilities are also 
experiencing price increases due to high costs of natural gas, 
with 3.75 to 6.5 percent rate increases effective this fall. 
And industries that are energy-intensive like the chemical and 
manufacturing, and fertilizer and agricultural industries, the 
very industries that provide those conveniences we depend upon 
like food and shelter for our constituents, will be forced to 
send their investments, their manufacturing and chemical 
plants--and, thus, their jobs--overseas in search of lower 
natural gas costs.
    No one is immune. Schools and hospitals and nursing homes 
in the Midwest are expecting heating costs to rise nearly 60 
percent this winter, all because of the high cost of energy.
    The increasing costs of energy in this country are the 
result of years of poor planning in the development of vast 
Federal resources in this great country. This lack of foresight 
has put an economic squeeze on our entire Nation. The barriers 
we face in providing our communities affordable, low-cost and 
competitive energy are barriers to energy production that we 
can address here in America. But this Congress must act to do 
so.
    We have heard on this Subcommittee repeatedly that our 
Federal energy resources are vast. For example, the OCS could 
provide significant relief by providing an enormous amount of 
natural gas. But until we restructure the regulatory framework 
to enable this development, until this Federal Government 
ceases to ration American energy resources such as natural gas, 
our constituents will continue to pay higher energy bills and 
our manufacturing and agricultural industries will suffer. And 
who will bear the burden of these high costs? The answer is 
American families.
    The witnesses before us today have firsthand experience 
with and knowledge of the use of natural gas to create the very 
building blocks upon which our economy functions. Hopefully, 
the testimony you share will enlighten those people, both on 
and off Capitol Hill, who continue to scoff at the seriousness 
of the natural gas crisis.
    I look forward to hearing your testimony today. And I would 
like to recognize Mr. Peterson, since our Ranking Member isn't 
here right now. But when he and others arrive, if and when they 
have an opening statement, we will permit them to submit that 
opening statement.
    Mr. Peterson, do you have any opening remarks?
    [The prepared statement of Mr. Gibbons follows:]

           Statement of The Honorable Jim Gibbons, Chairman, 
              Subcommittee on Energy and Mineral Resources

    The Committee meets today for a legislative hearing on H.R. 4318, 
``The Outer Continental Shelf Natural Gas Relief Act of 2005.''
    The intent of this legislation, offered by Mr. Peterson and Mr. 
Abercrombie, is to increase domestic production of natural gas, reduce 
energy prices for the American consumer, and increase federal and state 
revenues from development of resources on the outer Continental Shelf 
(OCS).
    As the price of natural gas hovers between $12 and $14 per thousand 
cubic feet--a whopping 50% higher than what it was at this time two 
years ago--the American consumer--our constituents--will be paying 
higher costs to heat their homes this winter.
    My constituents in Nevada are expected to pay anywhere from 13 to 
15 percent more this winter for natural gas.
    Additionally, Nevada's electric utilities are also experiencing 
price increases due to the high costs of natural gas with 3.75 to 6.5 
percent rate increases effective this fall.
    And industries that are energy intensive--like the chemical and 
manufacturing and fertilizer and agriculture industries--the very 
industries that provide those modern conveniences like food and shelter 
for our constituents--will be forced to send their investments, their 
manufacturing and chemical plants, and thus, their jobs, overseas in 
search of lower natural gas costs.
    No one is immune--schools and hospitals and nursing homes in the 
Midwest are expecting heating costs to rise nearly 60% this winter--all 
because of the high cost of energy.
    The increasing costs of energy in this country are the result of 
years of poor planning in the development of the vast federal resources 
of this great country.
    This lack of foresight has put an economic squeeze on our entire 
country.
    The barriers we face in providing our communities affordable, low 
cost, and competitive energy are barriers to energy production that we 
can address here in America--but this Congress must act to do so.
    We have heard on this Subcommittee, repeatedly, that our federal 
energy resources are vast--for example, the Outer Continental Shelf 
could provide significant relief by providing an enormous amount of 
natural gas.
    But, until we restructure the regulatory framework to enable this 
development...
    Until this federal government ceases to ration American energy 
resources such as natural gas...
    Our constituents will continue to pay high energy bills and our 
manufacturing and agriculture industries will suffer.
    And who will bear the burden of these high costs?
    The answer is American families.
    The witnesses before us today have first-hand experience with, and 
knowledge of, the use of natural gas to create the very building blocks 
upon which our economy functions.
    Hopefully the testimony you share will enlighten those people both 
on, and off, Capitol Hill who continue to scoff at the seriousness of 
this natural gas crisis.
    I look forward to hearing the testimony from our witnesses.
    I would now like to recognize the Ranking Member, Mr. Grijalva, for 
any opening statement he may have.
                                 ______
                                 

 STATEMENT OF THE HONORABLE JOHN E. PETERSON, A REPRESENTATIVE 
           IN CONGRESS FROM THE STATE OF PENNSYLVANIA

    Mr. Peterson. I am going to be very brief. I think you have 
covered the issue well.
    I want to thank you, Chairman Gibbons and Chairman Pombo, 
for helping to put this hearing together. I want to thank Mr. 
Abercrombie, my good friend from Hawaii, for his strong, 
unwavering support for natural gas. I want to thank the five 
witnesses that are going to be here today.
    But we are here today because of a problem caused by 
government. In my view, this is a government-induced problem; 
this is not one that just happened.
    A decade ago we opened up the use of natural gas for 
electric generation, which was always prohibited, and we have 
encouraged the use of natural gas in many ways because it is 
the perfect, almost perfect, clean fuel. And we were warned 
back then by people like Daniel Yergin and others that if we 
did this and didn't open supply, we would develop a huge 
problem. And I have been watching this move forward for about 5 
or 6 years, and here we are; and so--but there are solutions.
    And why have I chosen the OCS? It is the largest pot of gas 
closest to the people with the least impact when you produce 
it. I mean, I believe that with all my heart. When you go 
offshore, out of sight, there is no impact on shore. And it is 
close to where the population centers are. Every other pot of 
gas, we have huge pipelines and costs and times related; or 
whether we go LNG, you have to build ports, ports that load, 
ports that accept, ships that haul. Those are all part of the 
process with permitting, on both ends, building those ports in 
the sending countries and building the receiving ports in this 
country--a lot of years involved.
    So, to me, the one that has the most potential, the one 
that is the most close to the population and to the users--so 
many of our plants are on the coastline--I think OCS should be 
our first.
    But we need to open up--and I was talking to Alan Greenspan 
yesterday, and he said, we really need all of them. We need the 
OCS, we need LNG, and we need Midwest gas to stabilize the gas 
business in the country.
    And I think we are all beginning to realize that natural 
gas is just a part of everything. I mean, there just almost 
isn't anything we use that isn't related to natural gas and the 
production of it. And anybody that heats, cooks, bakes, bends, 
melts is in trouble with today's prices that are competing in 
the global marketplace.
    So we are here to listen to the witnesses, and I just want 
to thank them all for participating.
    And I look forward to your testimony.
    Mr. Gibbons. Thank you, Mr. Peterson.
    I will turn now to the cosponsor of the legislation, Mr. 
Abercrombie from Hawaii, for any opening remarks he may have.
    [Recess.]
    Mr. Abercrombie. Thank you very much, Mr. Chairman. The 
main thing is to get these folks on the record. I am with Mr. 
Peterson on this. I hope my being here today is indicative of 
the fact that this is not a party question. This is not an--I 
wish I could say it is not an ideological question. I don't 
think it is.
    Unfortunately, as Mr. Peterson may have already alluded to 
this in his remarks, for some people it is an ideological 
question. We are legislators here. We are not theologians. And 
unfortunately, with regard to natural gas, I believe that we 
are coming up against what some people believe is sacred text. 
And as a result, some of us who think that there is not only a 
legitimate reason to raise the issue of how we explore foreign 
and extricate natural gas, some would think that is an 
legitimate endeavor that we need to be involved in 
legislatively, find ourselves having to defend the very idea 
that such a question should even be asked
    We want to try--and certainly I think this bill--and we 
appreciate your holding the hearing, Mr. Chairman--as a result, 
this bill needs to be aired in the context of, is natural gas 
an alternative fuel, readily available, reasonable in cost and 
domestic in origin, so that we don't have to see this wonderful 
natural resource underutilized in a world in which we now face 
rising prices, where consumers face incredible difficulties? 
And when I say, consumers, I don't just mean the individual; I 
mean industry as well. And we are missing a genuine opportunity 
to make a difference in terms of energy sufficiency and 
independence in this Nation.
    I have come to that conclusion. I wish I could say that I 
understood that right from the very beginning.
    But as my good friend, the Chairman, here knows, 
occasionally Members of Congress who sit on a committee 
actually pay attention to the testimony, read the information 
that comes in front of us, try to listen and try to exercise 
good judgment as a result.
    And what has happened is that natural gas advocates have 
been able to break through the flog of ideological condemnation 
and at least get through to this member that this is something 
that is vital and necessary to be explored right now.
    So I have taken a long time to say this, Mr. Chairman, and 
I apologize for that. But I don't apologize for the idea that 
this Committee, Republicans and Democrats alike, stand ready to 
respond to the natural gas advocates I think at a time when 
this case is ripe for the making. Thank you very much.
    Mr. Gibbons. Thank you, Mr. Abercrombie.
    Mr. Gibbons. Let me introduce the first panel. And after 
that, we will have them rise, and we will swear them in.
    The first panel is going to consist of Mr. Geoffrey P. 
Hunt, Senior Vice President of Communications and Human 
Resources from OSRAM SYLVANIA, Danvers, Massachusetts; Mr. 
David Bradley, Executive Director, National Community Action 
Foundation, Washington, D.C.; and a familiar face to all of us 
up here, Mr. Jack Gerard, President and CEO, American Chemistry 
Council, Arlington, Virginia; Mr. Keith Oellig, President, 
Dauphin County, Pennsylvania, Farm Bureau, and Grantville, 
Pennsylvania; and Mr. Michael L. Bennett, President and Chief 
Executive Officer, Terra Industries Inc., Sioux City, Iowa.
    Gentlemen, welcome. If you would please rise and raise your 
right hand.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of the 
witnesses, answered in the affirmative to the oath.
    And we begin now by allowing our witnesses their testimony.
    Gentlemen, we would ask, if you want to submit your full 
and written statement for the record, please do so. You are 
free to paraphrase and summarize your statements so that we try 
to keep within a 5-minute time frame there.
    We can start on your right, our left over here, with Mr. 
Hunt.
    Mr. Hunt, if you would like to begin, the floor is yours. 
Welcome to the Committee.

     STATEMENT OF GEOFFREY P. HUNT, SENIOR VICE PRESIDENT, 
 COMMUNICATIONS AND HUMAN RESOURCES, OSRAM SYLVANIA, DANVERS, 
                         MASSACHUSETTS

    Mr. Hunt. Thank you, Chairman Gibbons.
    I also would like to thank you for this opportunity to 
express our support of H.R. 4318. As introduced, my name is 
Geoffrey Hunt. I am a Senior Vice President of OSRAM SYLVANIA. 
OSRAM SYLVANIA is the North American business affiliate of 
OSRAM GMBH which is part of Siemens, the leading worldwide 
manufacturer and distributor of lighting products for general 
consumers and industrial and commercial users and automotive 
OEMs and consumers.
    In the United States, under the Sylvania brand name, which 
has been an American icon for over 75 years, we employ over 
9,000 people, including 6,500 hourly factory workers. Our 
annual sales are about $2 billion.
    We manufacture light bulbs, lamp components, and we process 
strategic raw materials in five States: Pennsylvania, Kentucky, 
New Hampshire, Indiana and Rhode Island.
    Reliable and affordable supplies of natural gas are vital 
to our business. Natural gas is our exclusive, clean energy 
source to melt and form glass bulbs and tubing to process raw 
materials such as tungsten and rare earth phosphorus, as well 
as the forming and molding of glass and metal components and 
assembling finished lamps, whether they be incandescent, 
tungsten halogen, fluorescent or high-intensity discharge.
    In 2004, we consumed approximately 3.3 million MCF of 
natural gas throughout our operations. In the past 5 years, we 
have seen gas prices escalate from $3 per MCF to well over $10 
on the spot market. As compared to the year 2000, our bills in 
2005 will be $24 million higher. In fact, for 2004 to 2005 
alone, gas costs for us had escalated by $7 million. This is 
the single largest rate of increase in any of our costs of 
production.
    At current supply levels, we expect to see gas prices 
exceed $12 dollars in 2006/2007, which will add another $7 
million to our energy bills.
    While the vast majority of our production is based in the 
U.S., nearly 60 percent of our competitors' products are 
manufactured outside the U.S., some in Europe where natural gas 
is less than $5, and in Asia, particularly China, where gas is 
less than $4. The competitive disadvantage is over $20 million 
at the moment, already on top of the wage gap, which is 
growing.
    Sylvania has attempted to offset the prices of natural gas 
through natural gas consumption productivity and efficiency 
projects; 5 percent of all of our capital spending has been 
devoted to natural gas productivity. We rebuild glass melding 
furnaces every 5 to 7 years, requiring investments of $3 to $6 
million each. Achieving higher gas efficiency is a major 
component of new furnace design.
    All these efforts for higher productivity have resulted in 
5 to 8 percent of gas use reduction every year. This amounts to 
savings of from $1.5 to $2 million per year. But with natural 
gas prices going up, $6, $7, $8 million per year, far exceeding 
the efficiency savings, it is a losing battle.
    We are deeply concerned that if natural gas prices continue 
to escalate--this week now at $11 per MCF--our competitiveness 
will further erode having unhappy consequences for our U.S.-
based manufacturing strategy.
    While some people may argue that passing the costs on to 
consumers is a remedy, price increases in our industry, with so 
many global competitors, is an impossibility. Incandescent 
light bulbs is an example. We have not had a price increase 
since 1985. In fact, I can show you a photograph of Sylvania 
lamps from 1924, a single incandescent bulb selling for 25 
cents. So you could say we haven't had a price increase in 
perhaps 90 years.
    Price increases to consumers to cover natural gas cost 
increases should be unnecessary as long as a timely, viable 
natural gas strategy is implemented. And globally competitive 
energy costs, especially natural gas, are a necessity to 
maintain our financial vitality and keep good-paying suitable 
jobs in the United States.
    We agree fully with Representative Peterson and 
Representative Abercrombie that coastal offshore drilling for 
new natural gas supplies carried out in a responsible and 
expeditious manner should be the most important priority in new 
energy legislation that should be taken up and enacted by 
Congress before the end of 2005.
    Thank you very much.
    [The prepared statement of Mr. Hunt follows:]

         Statement of Geoffrey P. Hunt, Senior Vice President 
           Communications and Human Resources, OSRAM SYLVANIA

    OSRAM SYLVANIA is the North America business affiliate of OSRAM 
GmbH, part of Siemens, the leading worldwide manufacturer and 
distributor of lighting products for general consumers, industrial and 
commercial users and automotive OEMs and consumers. In the United 
States, under the SYLVANIA brand, which has been an American icon for 
over 75 years, we employ over 9,000 employees, including 6,500 hourly 
factory workers and have annual sales of approximately $2 billion. We 
manufacture light bulbs, lamp components and process strategic raw 
materials in five states--Pennsylvania, Kentucky, New Hampshire, 
Indiana and Rhode Island.
    Reliable and affordable supplies of natural gas are vital to our 
business. Natural gas is our exclusive clean energy source to melt and 
form glass bulbs and tubing, process raw materials such as tungsten and 
rare earth phosphors as well as the forming and molding of glass and 
metal components in assembling finished lamps, incandescent, tungsten 
halogen, fluorescent, and high intensity discharge. We also use a 
variety of plastic parts requiring high density polyethylene resins 
which rely on natural gas for both raw material and processing energy. 
In 2004 we consumed approximately 3.3 million MCF of natural gas 
throughout our U.S. operations. In the past five years we have seen 
natural gas prices escalate from $3 per MCF to well over $10 on the 
spot market. As compared to natural gas costs in 2000, our bills in 
2005 will be $24 million higher. In fact, for 2004 to 2005 alone, gas 
costs for us have escalated by $7 million. This is the single largest 
rate of increase in any of our costs of production. At current supply 
levels, we expect to see gas prices exceed $12 per MCF in 2006/2007 
which will add another $7 million to our energy bills. Accordingly, 
since 2000, the rate of annual increase will exceed 25%.
    Furthermore, while the vast majority of our production is based in 
the U.S., nearly 60% of our competitors' products are manufactured 
outside of the United States--some in Europe where natural gas costs 
are less than $5 per MCF and Asia, particularly China, where gas is 
less than $4 per MCF. By 2007, the competitive disadvantage will be 
over $20 million on top of the wage gap vs. China which is already 
overwhelming.
    SYLVANIA has attempted to offset the cost of natural gas through 
natural gas consumption productivity and efficiency projects. 5% of all 
capital spending annually has been devoted to natural gas efficiency. 
Key projects have included improved burner controls, improved 
insulation and combustion air, and thermal measuring devices--
pyrometers and infrared optical process controls. We also have projects 
to reduce leakage, eliminate wasted BTUs and achieve shorter working 
times where heat applications are used for glass melting and forming. 
Occasionally we have considered propane as an alternate fuel, but only 
as a partial back-up source because propane is more expensive per BTU 
than gas and poses hazardous storage and security risks.
    We rebuild glass melting furnaces every 5 to 7 years requiring 
investments of $3 to $6 million each time. Achieving higher gas 
efficiency is a major component of new furnace design.
    All of the efforts to use gas more productively have resulted in 5 
to 8% of gas use reduction each year. This amounts to productivity 
savings of $1.5 to $2.0 million each year. But with the natural gas 
costs going up $6, 7, 8 million per year--far exceeding efficiency 
savings--it's a losing battle.
    Over ten years ago at our Rhode Island glass factory, we switched 
from oil to gas/oxygen to improve glass melting quality and reduce 
sulphur and NOx emissions. With the rising cost of natural gas, two 
years ago we consolidated glass melting capacity at Wellsboro, PA and 
Versailles, KY for improved economies of scale. As a result, several 
hundred manufacturing jobs in Rhode Island were eliminated and not 
replaced in either Pennsylvania or Kentucky. I cannot say conclusively 
or exclusively that if gas were at $3.00 per MCF, those Rhode Island 
jobs would be saved. But I can say, gas at $7, 8, 9, 10 per MCF didn't 
help keep those jobs in Rhode Island.
    We are deeply concerned that if natural gas prices continue to 
escalate--this week now at $11 per MCF--our competitiveness will erode 
having unhappy consequences for our U.S.-based manufacturing strategy. 
While some people may argue that passing the costs onto consumers is a 
remedy, price increases in the lamp market with so many global 
competitors is an impossibility. Moreover, price increases to consumers 
to cover natural gas cost increases should be unnecessary as long as a 
timely, viable natural gas strategy is implemented. Globally 
competitive energy costs--especially natural gas--are a necessity to 
maintain our financial vitality and keep good paying, suitable jobs in 
the United States.
    We agree with Representative Peterson that coastal offshore 
drilling for new natural gas supplies carried out in a responsible and 
expeditious manner is the most important priority in new energy 
legislation that should be taken up and enacted by Congress before the 
end of 2005.
                                 ______
                                 
    Mr. Gibbons. Thank you very much Mr. Hunt.
    We'll turn now to Mr. David Bradley from the National 
Community Action Foundation.
    Mr. Bradley, welcome. The floor is yours.

        STATEMENT OF DAVID BRADLEY, EXECUTIVE DIRECTOR, 
     NATIONAL COMMUNITY ACTION FOUNDATION, WASHINGTON, D.C.

    Mr. Bradley. Thank you, Mr. Chairman.
    I would like to submit my written testimony for the record 
and just briefly summarize if I could.
    Mr. Gibbons. For all our witnesses, we would ask unanimous 
consent for all of your full written statements to be submitted 
for the record. And without objection, they so will be.
    Mr. Bradley. Thank you. My name is David Bradley. I am 
Executive Director of the National Community Action Foundation, 
which represents the Nation's 1,100 local community action 
agencies. These are the agencies that are multi-service in 
nature but, most importantly for this hearing, operate the 
federally funded low-income energy assistance programs, both 
LIHEAP and weatherization. And it is these two programs that 
are critical to Americans who are struggling to become more 
self-sufficient.
    I am grateful to the Subcommittee for this opportunity to 
testify about the hardships low-income energy consumers have 
been experiencing as a result of high natural gas prices as 
well as oil prices.
    A combination of energy market changes and slow growth, or 
negative growth, depending on the State, and the real income of 
low- and moderate-income population means that millions of 
households repeatedly find themselves unable to pay their 
household energy bills. In most of the past 5 years, this has 
been the case, and the Department of Energy predicts no 
significant letup in the prices expected for the rest of Fiscal 
Year 2006 and beyond.
    I want to summarize the statistics provided in my written 
statement regarding the impact of high prices and especially 
natural gas prices on the working poor families that our 
agencies serve and to suggest a better framework for energy 
policy, one which adopts a key principle of the Outer 
Continental Shelf Natural Gas Relief Act.
    Mr. Peterson and Mr. Abercrombie link the development of 
our most precious natural resources to improving the lot of 
low-income households who have been hit hardest by all volatile 
energy markets. As I describe at length in my written 
statement, when the Nation opted for competitive markets for 
oil in 1979, a bargain was struck in Congress that provided 
support for consumers unable either to pay more for their 
household energy or to respond to high prices by buying more 
efficient equipment in cars. LIHEAP was launched and covered 
about half of the bills of the participants. One third of the 
eligible participated.
    Weatherization, the long-term solution to energy 
affordability, saw its funding tripled to $200 million a year 
in 1979. In 1981, LIHEAP was appropriated at $1.85 billion, or 
more than $4.3 billion in today's dollars.
    Mr. Chairman, these days, fewer than 15 percent of the 
eligible can participate and receive benefits at the levels HHS 
Appropriations conference report will pay this year, which, as 
you know, was just defeated on the Floor.
    If a low-income family signed up today for LIHEAP, these 
benefits would be out by the middle of January.
    Federal funding to assist our poorest households is only 
very slightly higher than it was 20 years ago in nominal terms. 
Meanwhile, especially this year, energy prices are rocketing. 
Our data show that the average low-income natural gas customer 
will pay over $1,250 for natural gas and nearly $700 more for 
electricity during 2006.
    The bills would take 4 to 5 percent of the incomes of the 
average consumers, those whose income exceeds 60 percent of 
their State median income. That indicates a significant loss in 
purchasing power to the moderate- or middle-income households 
that historically expended just over 3 percent of energy costs. 
For the average LIHEAP eligible household, the damage is about 
four to five times worse as those bills will devour about a 
fifth of their household resources.
    Utility bills vary among regions, but the share of income 
required to pay them varies far less because people in the 
regions that have the lower bills have lower incomes on 
average. All poor people will pay about 20 percent of their 
incomes for essential energy services. Mitigating this impact 
was the original explicit bargain between the consuming and 
producing regions and the White House when oil prices were 
decontrolled in 1979. That social compact was virtually 
abandoned as LIHEAP and weatherization funding stagnated while 
the number who qualified mushroomed. It was certainly forgotten 
when we decontrolled natural gas prices in the early 1980s and 
was declared unnecessary by the Clinton Administration.
    In summary, I would like to say that we must restore, in 
whatever legislation is considered, the bargain made with the 
American family when we began relying on the market to price 
energy and allow more development to our Nation's lands.
    Market pricing and expanding supplies by themselves are not 
sufficient. Improving the energy efficiency of low-income 
dwellings is essential to making energy bills affordable. Bill 
assistance is crucial to maintaining affordable access to vital 
energy services for millions of low-income families.
    We look forward to working with you as you design energy 
policy. And we urge you to keep the funding needs and the 
energy needs, both on LIHEAP and weatherization, but most 
importantly in general of the poor in your thoughts as the 
legislation becomes a model for future legislative activities. 
Thank you very much.
    [The prepared statement of Mr. Bradley follows:]

            Statement of David Bradley, Executive Director, 
                  National Community Action Foundation

    My name is David Bradley; I am Executive Director of the National 
Community Action Foundation, which represents the nation's 1100 local 
Community Action Agencies (CAAs). Community Action Agencies are multi-
service organizations, and the federal low-income energy programs are a 
very important element of their portfolio of services to Americans who 
are struggling to become more self-sufficient.
    I am very grateful to the distinguished Chairman, as well as to Mr. 
Peterson and to Mr. Grijalva, the Ranking Member of the Subcommittee, 
for this opportunity to talk about the hardships hundreds of thousands 
of low-income natural gas consumers are experiencing; they are 
streaming into Community Action Agencies seeking help with their bills 
this very afternoon, just as they have every day since agencies opened 
Low Income Home Energy Assistance Program (LIHEAP) this fall.
Community Action Agencies and Low-Income Energy Programs
    CAAs in over 46 states are responsible for either administering the 
entire LIHEAP program or for providing expedited assistance to the 
families who face a crisis because they are threatened by loss of 
utility power or fuel deliveries. About one-third of LIHEAP resources 
are managed by CAAs. Our network is also the primary delivery system 
for the Department of Energy Weatherization Assistance Program (WAP), a 
more permanent solution to high energy prices.
    Our 15 million customers are predominantly the working poor and 
their children, along with a million or so elderly persons living 
alone.
    CAAs also take responsibility for reaching out to private partners, 
particularly utilities and regulators; we have secured substantially 
more resources and achieved some low-income consumer protections in a 
majority of the states. But these successes have not offset the impact 
of sharp price increases in recent years. More and more consumers 
cannot afford to pay for an adequate quantity of household energy and 
maintain safe, decent shelter.
Trends in Residential Natural Gas Bills and Their Impact
    It is important to recognize two elements that are generally absent 
from the debates over LIHEAP and WAP funding. First, the residential 
customer must deal with the current level of home energy prices year in 
and year out because energy inflation has far outpaced wage growth as 
well as the consumer price index for most of the past two decades.
    Further, a utility customer never gets a heating bill or a cooling 
bill. Those are abstractions convenient for political discussions of 
the problem. That is, the natural gas consumer gets a gas bill that 
probably includes water heating and cooking, and he gets an electric 
bill as well. The electric bill can include: heat, hot water, and 
cooking, but also lighting and refrigeration and, for many some air-
conditioning. Customers are not given the choice of paying the heating 
and cooling portion, or about 40% of the real bottom line. Paying the 
energy bill is no longer a seasonal crisis for America's poor. That 
reality explains the real suffering of many very low-income Hawaiians 
whose electric power has always been the costliest in the nation. It 
explains why even many LIHEAP recipients, including those that have 
been weatherized, cannot keep their utilities connected year-round.
    We have had double-digit increases in natural gas prices every year 
except in 2002, and no double-digit decline in price is expected for as 
long as DOE predictions stretch into the future. Neither low-income nor 
middle-income families have experienced real income growth at a similar 
rate. Chart 1 shows the recent patterns of increase in residential fuel 
prices in petroleum-based heat fuels and compares the rate of change in 
LIHEAP resources. Natural gas and heating oil prices began taking off 
anew in 2003 and liquid propane tracked these increases. Clearly, the 
needs of vulnerable consumers cannot be addressed as if each year's 
upward spiral were a one-time crisis requiring a one-shot infusion of a 
relatively small amount of emergency assistance and weatherization 
funding. Utility bills do not rise by the same percentage as commodity 
prices, but the pattern is the same.
    Table 1 shows the annual natural gas bills that consumers who heat 
with natural gas can expect during the current fiscal year for 
different income levels in every region--map showing the states in each 
Census Division follows.
    A majority of low-income homes use natural gas heat, as does about 
60% of the nation. As shown, the market share varies greatly by region. 
Estimates of twelve months of gas bills for all the end-uses of gas, 
such as cooking and hot water, are shown for the nearly 33 million 
consumers who are income-eligible for LIHEAP under federal law; and 
also for those whose incomes are too high to qualify them for LIHEAP. 
These are based on DOE survey databases and forecasts. Details of 
sources and methodology appear at the end of this testimony. 
1
    Utility customers have to pay their entire gas bill all year, and 
CAAs make it a priority to put customers on a level-billing monthly 
plan to even out the expenses. Failing to meet these obligations means 
disconnection, and disconnection, at the very least, means extra costs 
added to the un-affordable bill.
    Of course, gas customers have electric bills as well; electricity 
is needed to make a gas furnace run and for refrigeration. Electricity 
is essential, a must-have for safe shelter.
    Table 2 shows the real challenge: the annual bills that will need 
to be paid in this fiscal year and the ``energy burden,'' the percent 
of personal income that the average consumer in the region and income 
group would have to pay their vendors over the course of the year.
The Two Kinds of Indicators
    There are two kinds of indicators of the hardships high energy 
bills impose; we have used these dry statistics to indicate human 
suffering that is a prime example of hidden poverty conditions in 
America's communities.
    The first indicator is energy burden; the proportion of income 
required for paying the bills. This has long been a policy measure for 
the affordability of housing or food. Table 2 shows:
      While bad for most households, low-income household 
budgets are hit four to five times as hard by energy costs. The year's 
energy bills will take 4-5% of the incomes of the average consumers, 
those with incomes exceeding 60% of their state median income. That 
indicates a significant loss in purchasing power to the moderate- or 
middle-income household that historically expended just over 3% on 
energy costs. 2 Far worse, these high priced energy bills 
will devour about a fifth (20%) of the average LIHEAP-eligible 
household's resources.
      The percentages of income shown mean that the low-income 
household can no longer meet its energy needs with its own income 
alone. However, most of those eligible for LIHEAP, even those in 
poverty, are not receiving assistance. About 15% of eligible households 
received LIHEAP in FY 2005 and the average payment was about $300.
      The comparison between the regions also shows that the 
energy bills of Southerners, while a little lower than those of the 
colder Midwest, take up an even higher percentage of low-income gas 
customers' resources, because incomes in the South are relatively 
lower.
      Weatherization, which can significantly reduce energy 
burden, is only available to a small fraction of those who qualify.
    The poor will not be able to afford these bills, of course. The 
Census has periodic surveys of cohorts of lower-income individuals that 
are tracked through the Survey of Income and Program Participation.
      Low-income consumers will sacrifice necessities. Census 
data show that, in 2001 when energy prices were much lower and the 
weather was abnormally warm, 9.6 million consumers failed to pay at 
least one month's energy bill last year because they could not afford 
it.
      Analysis of the previous group's data revealed 77% of 
those who could not afford an energy bill endured at least one 
additional kind of hardship during the year, and the majority suffered 
three or four kinds of deprivation. The most common sacrifices reported 
were (in order of frequency):
        1.  Delayed rent payments,
        2.  Skipping needed medical or dental care, and
        3.  Enduring poor nutrition or hunger. 3
    These coping techniques used by low-income families are essentially 
invisible to the community, and are more examples of the hidden face of 
poverty. Furthermore, the Census survey also found that about half of 
those suffering from energy-related hardships were not poor or even 
income-eligible for LIHEAP, but most were at or below the median 
income.
    The second and more extreme indicator is utility disconnection, 
especially in those homes where the customer remains without service 
for an extended period. Usually, the suffering is not known unless and 
until the poor end up in a shelter or a hospital because the home is 
too cold or overheated, or unless a child dies by fire in a home 
without lights, as did one-year old baby Jonah Flores of Columbia 
Heights in Washington, D.C. last month. The lack of reporting systems 
in most states means only the utility or the oil dealer and the 
affected customer are aware of the miserable conditions in the house.
    The figures generally remain a secret kept by individual utilities. 
Few regulatory commissions require reports on the number of consumers 
who are disconnected but still occupying their homes 4 
However, Pennsylvania tracks these data and after a new statute made 
disconnection easier for utilities, nearly 100,000 occupied homes 
remained disconnected in September, with as many as 60,000 predicted to 
remain without gas or service by December. Mr. Chairman, enduring those 
conditions is direct evidence that the customer cannot pay and is no 
casual deadbeat, as some utility regulators believe. In Pennsylvania, 
as well as the few other states that require utilities to report 
service disconnections and reconnections, not only has there been a 
dramatic increase over the past few years in service disconnections, 
but the gap between disconnections and reconnections has also increased 
at an alarming rate.
    Wisconsin and Minnesota have sensible rules to prevent such 
incidents; thousands were recently reconnected for an affordable 
minimum payment after spending a summer without gas service. The 
Governors of Illinois and Michigan have issued emergency orders 
requiring utilities to accept a somewhat smaller debt repayment than is 
due under normal collection rules. For many, even that sum may be too 
high.
    Recently, NCAF, the AARP, Consumers Union, Consumer Federation of 
America and National Consumer Law Center joined in a letter to the two 
associations of investor-owned utilities to ask them to approach their 
members and urge their consideration of humane re-connection policies 
for their long-standing customers and for Katrina evacuees with a poor 
credit history who were setting up new accounts. (CAAs have assisted 
over 196,000 evacuees to get resettled.) We have had no answer to this 
request to date, and it is already far too cold to be without gas or 
lights in the upper Midwest.
    Both the Census 5 and recent DOE Residential surveys 
6 show that in 1997, 1998 and 2001, about 2 million 
households a year were going without either heat or lights, or both, 
for some period of time because of inability to pay a bill or to afford 
to fix their heating equipment. With prices now double or triple what 
they were in those years, the situation is far worse.
Energy futures and the Low-Income consumer: An Opportunity for Fairness
    Having a significantly larger domestic supply of gas, along with a 
policy of requiring commercial and utility gas storage, would have a 
stabilizing impact on prices. Allowing high market price could call 
forth investment in exploration, alternative fuels and accelerated 
upgrades of inefficient equipment and buildings is appropriate, but 
this should not occur until after protections against abuse and 
exploitation of all small consumers are in place.
    Those small consumers who are too poor to respond to the market, 
i.e. those who lack capital or credit to invest in efficiency 
improvements, must be guaranteed access at least to the quantity of 
energy needed to maintain healthy conditions in their homes and ensure 
the ability to travel to their work.
    This was the original, explicit bargain between the consuming and 
producing regions and the White House when oil prices were decontrolled 
in 1979; LIHEAP was created that year and by 1981 was worth nearly 
twice its inflation-adjusted present value. DOE Weatherization funding 
was tripled.
    Unfortunately, that social compact was virtually abandoned in the 
early 1980's. LIHEAP funding stagnated while the number who qualified 
mushroomed. The compact was certainly forgotten when the White House 
decontrolled natural gas prices in the early Reagan years, and 
dangerous conditions that come with lack of enough electricity 
competition. Consumers were assured that 6.5 cent per kilowatt hour 
electricity lay right around the corner when the electric industry was 
deregulated in many states. Neither of the promises--affordable energy 
or energy security for the most vulnerable families--has been realized 
in a generation.
    The results have been largely hidden because, like so many poverty 
conditions that exist inside the homes of the impoverished; life in the 
squalid and dangerous conditions that come with lack of enough 
electricity and gas is a private misery.
    No matter how private, it is still a profound level of misery. Lack 
of affordable energy is devastating to the efforts of the working poor 
CAAs serve; families that are working in our programs to lift 
themselves out of poverty by building assets and stabilizing their 
families. It is also devastating to the health and security of the 
elderly poor who are trying, with the help of their CAAs, their 
partners in the public and private sectors, and volunteers our agencies 
mobilize to remain independent in their older homes while 
conscientiously paying their bills.
    Mr. Chairman, LIHEAP benefits at the level in the HHS 
Appropriations conference report will not pay as much as one-fifth--two 
months and one week--of the year's energy bills for the average poor 
household.--family being certified for benefits today is on its own to 
find the money to pay the rest of the year's bills soon after New 
Year's Day. There are about $4.5 billion in resources of one kind or 
another that provide direct bill payment assistance, counting all of 
the LIHEAP block grant, and all the utility discounts and charitable 
funds available last year. Chart 2 shows all of the resources available 
beside the expected expenditures for all who are income-eligible for 
LIHEAP; clearly the support does not quite measure up. States are 
beginning to find new funds and reprogram others this winter which, 
collectively, may add up to several hundred million more. That will not 
make a measurable difference to most of the low-income consumers; 85% 
have not participated in LIHEAP in recent years.
    It is also important to note that the avoided bills for a gas 
consumer who was weatherized in the past few years means bill are $470 
lower this year than if the investments had not been made. 7 
The approximately 7.5 million homes weatherized by our network using 
DOE and other funds will, collectively, reduce bills by billions this 
year and every year. The tall bar on the right in the graph includes 
these savings; otherwise, it would be even a bit higher. As we move 
forward, it is important not just to pay bills, but to lower those 
bills by making low-income homes more energy efficient.
    Mr. Chairman, it is time that the link between our market-based 
energy policy, wherein the development of new sources of energy or 
efficiency, be welded to a policy of ensuring that every American can 
buy enough energy to keep their home safe and their family healthy. I 
am not an energy expert, but rather an expert on how our local 
institutions can help low-wage workers and their families move out of 
poverty and stabilize themselves in a self-sufficient life. I look 
forward to working with you on developing the mechanism in the Outer 
Continental Shelf Natural Gas Relief Act which collects new funding to 
add to LIHEAP and WAP and in using those funds to restore the 
protections once promised and keep them in place in the future.
    Thank you very much.

    [GRAPHIC] [TIFF OMITTED] T4681.001
    
    [GRAPHIC] [TIFF OMITTED] T4681.002
    
    [GRAPHIC] [TIFF OMITTED] T4681.003
    
                                ENDNOTES
1 This analysis is based on updates of the 2001 U.S. 
        Department of Energy Residential Energy Consumption Survey 
        (RECS) data (see http://www.eia.doe.gov/emeu/recs/
        contents.html) performed by Oak Ridge National Laboratory and 
        further modified by Economic Opportunity Studies. See the ORNL 
        paper Joel F Eisenberg, The Impact of Forecasted Energy Price 
        Increases on Low-Income Consumers, November 2005. Oak Ridge 
        national Laboratory, TN. ORNL/Con 495 at http://weatherization/
        ornl.gov. Household records were adjusted to incorporate 
        current price and weather projections from the Energy 
        Information Administration. Economic Opportunity Studies Inc 
        (EOS) changed the ORNL data base to update incomes for the 
        sample households based on the U.S. Bureau of the Census 
        Current Population Survey data for census divisions. The 
        projections are a model that assumes that the weather-adjusted 
        usage remains constant regardless of price; this is obviously 
        not realistic, especially for households with very limited 
        disposable income. The results indicate what it would take for 
        the consumer to stay as comfortable as at the time the RECS 
        survey was administered and to use the same appliances and 
        lighting in the same way. Related analyses are available at 
        www.opportunitystudies.org. See ``The 2006 Energy Bills of Low-
        Income consumers and their Impact'': October 2005.
2 See the most recent HHS LIHEAP Notebook 2003 at http://
        www.liheap.ncat.org/pubs/energynotebook03.doc
3 These statistics are measures of household well-being from 
        the 1998 and 2001 cohort of Survey of Income and Program 
        Participation (SIPP) respondents. http://www.sipp.census.gov/
        sipp/. The data are from the U.S. Census Bureau's Survey of 
        Income and Program Participation (SIPP) 1996 Panel Wave 8 
        Topical Module; the details of information provided by those 
        who said they were unable to afford their full energy costs 
        were analyzed by EOS and are found at http://
        www.opportunitystudies.org/weatherization/national.php. See 
        also the SIPP working paper: Kurt Bauman ``Direct Measures of 
        Poverty as Indicators of Economic Need: Evidence from the 
        Survey of Income and Program Participated U.S. Bureau of the 
        Census Population Division Technical Working Paper No. 30,'' 
        November 1998.
4 Nonpayment of Energy Bills by Low-Income Customers, 
        Francine Sevel, The National Regulatory Research Institute and 
        Mitch Miller, Pennsylvania Public Utility Commission, June 
        2005.
5 Survey of Income and Program Participation, 2001 op.cit
6 Data are from the RECS 1997 and RECS 2001 survey public 
        use data files. http://weatherization.ornl.gov/
        metaevaluation.htm.eia.doe.gov/emeu/recs/contents.html
7 http://weatherization.ornl.gov/
        metaevaluation.htm.eia.doe.gov/emeu/recs/contents.html
                                 ______
                                 
    Mr. Gibbons. Thank you very much Mr. Bradley.
    We will turn now to Mr. Jack Gerard, the President of the 
American Chemistry Council.
    And if I am not mistaken, Mr. Gerard, this is your first 
appearance before Congress in your new role as President of the 
American Chemistry Council.
    Mr. Gerard. That is correct.
    Mr. Gibbons. Welcome. The floor is yours. We look forward 
to your testimony.

         STATEMENT OF JACK N. GERARD, PRESIDENT & CEO, 
           AMERICAN CHEMISTRY COUNCIL, ARLINGTON, VA

    Mr. Gerard. Thank you, Mr. Chairman. It is a pleasure to be 
with you today, and we appreciate the opportunity to testify on 
behalf of the American Chemical Industry, which has sales over 
$500 billion in the United States, employ over 900,000 people 
with the average wage of about $70,000 a year.
    I want to particularly thank you, Chairman Pombo, 
Congressmen Peterson and Abercrombie, today for your 
leadership, for your willingness to be outspoken and unwavering 
in your support to increase access to the Nation's abundant 
supplies of natural gas. On behalf of all Americans whose 
livelihoods depend on affordable natural gas, we will stand 
with you until we get this job done.
    I would like to make a simple prediction today: Winter is 
coming. Home heating bills will climb by as much as 70 percent. 
Natural gas will be in short supply. Factories will be forced 
to close or cut back operations. Jobs will be lost. The economy 
will contract.
    What I can't predict is how Congress will respond to this 
crisis.
    What more will it take to finally pass legislation to 
permit more access to new supplies of natural gas in deep sea 
waters? Some people have called what is happening with natural 
gas prices a concern, a problem or perhaps a bump in the road.
    It is not. It is a crisis, not just for the business of 
chemistry but for our entire Nation.
    Let me explain. Our industry uses natural gas to create 
compounds that go into 96 percent of all manufactured products 
in the United States, from shampoo, plastic water bottles, 
carpeting, aspirin, water purification systems, computer 
equipment, mattresses, and the list goes on and on. The 
materials used to formulate medicines come from the business of 
chemistry.
    So far, more than 100 chemical facilities in the U.S. have 
been forced to close largely because of out-of-control natural 
gas prices. More than 100,000 skilled workers have lost their 
jobs in our industry alone.
    Unless the Congress opens up the deep waters of the Outer 
Continental Shelf to sensible production and infrastructure, 
there is little relief in sight. Business Week Magazine 
recently reported that, of the 120 major new chemical plants 
under construction around the world--I might say, major 
chemical plants being defined as those that require at least a 
$1 billion investment--of those 125 facilities around the 
world, there is only one that is slated for the United States; 
50 are in China, where natural gas is less than half the price 
that Americans pay, and their government is aggressively 
pursuing a pro-growth strategic national energy policy.
    America's natural gas bill will top $200 billion this year. 
In 1999, the last year natural gas sold in its historic band, 
the Nation's gas bill was a bit more than $50 billion. That 
$150 billion difference is the price that gas consumers, 
homeowners, schools, hospitals, farmers and businesses are 
paying for government policies that simultaneously increase 
demand while at the same time restrict supply.
    Policies that drove utilities to switch much of their power 
generating capacity from coal to natural gas has turned out to 
be the straw that broke the camel's back. We can't have it both 
ways. It can't continue.
    It is failing millions of Americans whose livelihoods 
depend on reliable supplies of natural gas at affordable 
prices.
    It is in this country's vital national interest to maintain 
a robust, highly competitive, chemical industry. But it is an 
undisputable fact of our time that this cannot be achieved with 
natural gas prices anywhere near present levels.
    Simply put, our Nation's energy policy is acting as a de 
facto manufacturing policy. And it is a policy that is not 
working.
    This Committee has already demonstrated that there is 
bipartisan support for more access to deep sea sources of 
natural gas. This winter, we think it will become painfully 
clear that the Nation's natural gas supplies are insufficient 
to meet its needs. It will become painfully clear that Congress 
can no longer continue to support a 25-year-old policy that was 
developed in a long gone era when natural gas was cheap and 
plentiful.
    There has never been a better or a more critical time to 
pass natural gas supply legislation.
    We urge you to seize the moment. Thank you very much.
    [The prepared statement of Mr. Gerard follows:]

             Statement of Jack Gerard, President and CEO, 
                     The American Chemistry Council

    Good morning, Chairman Gibbons and members of the subcommittee. My 
name is Jack Gerard, President and CEO of the American Chemistry 
Council. Thank you for the opportunity to testify on behalf of the U.S. 
chemical industry, an industry that accounts for more than 500 billion 
dollars in U.S. sales and employs nearly 900,000 Americans in high-wage 
jobs.
    I want to begin by personally thanking Chairman Pombo on behalf of 
all Americans whose livelihoods depend on affordable natural gas. The 
chairman has been leading the fight to keep deep sea exploration 
provisions in the budget reconciliation bill and we deeply appreciate 
the fight he is waging for America's natural gas consumers.
    I also want to thank Congressman Peterson for being such an 
evangelist for more access to new sources of natural gas supply. 
Congressman Peterson has known for a long time that paying the highest 
natural gas prices in the world puts American-based manufacturing at a 
severe competitive disadvantage, and that this is largely a self-
inflicted wound.
    I would like to offer a prediction. Winter is coming. Home heating 
bills will climb by as much as 70 percent. Factories will be forced to 
close or cut back operations. Jobs will be lost. The economy will 
contract. What I can't predict is how Congress will respond to this 
crisis. What will it take to finally pass legislation to permit more 
access to new supplies of energy in deepsea waters?
    For the next few minutes I will explain why the cost of natural gas 
is so important to our industry--and by extension--to the entire 
economy and I will elaborate on what we think needs to be done to end 
the crisis in the U.S. natural gas market.
    The chemical industry uses 2.5 trillion cubic feet of natural gas 
each year. That's more than 10 percent of the nation's total 
consumption and it's more than the State of California uses.
    Our manufacturers use gas to heat and power their facilities, but 
uniquely, natural gas is our most important raw material. Natural Gas 
is to chemical manufacturing as flour is to baking.
    Chemical makers transform natural gas molecules into the essential 
materials that are found in computers, cars, clothing--and thousands of 
other products that everyone of use everyday. The chemistry share of 
the materials value of a bottle of shampoo is 100%. For carpets it is 
68%. For tires it is 62%. For semiconductors it's 30%. Even for paper 
cups it's 22%. In fact, chemistry is contained in 96 percent of all 
manufactured goods and chemistry directly supports 25 percent of U.S. 
GDP.
    This year, for the first time in history, the nation's natural gas 
bill will top $200 billion. My industry's gas bill will exceed $20 
billion. In 1999, when gas last sold in its historic band of $2 to $3 
per million Btus, the nation spent just over $50 billion and my 
industry's bill was $5 billion.
    Think about it. Americans have $150 billion less to spend this year 
on other things. And, because natural gas is an ingredient used to make 
chemicals--and chemicals are ingredients used to make nearly everything 
the nation manufactures--the cost of nearly everything Americans buy is 
going up.
    When consumers have less money to spend on goods that cost more, 
the economy contracts. Every recession since the Eisenhower 
Administration began with a steep runup in energy costs. That is 
precisely what is happening now.
    My industry's gas bills have increased by more than $40 billion 
since the beginning of the decade. That's $40 billion we didn't have to 
invest in research, in building new plants, and creating new jobs.
    That $40 billion is also the reason why chemical company CEOs are 
being forced to put more of their future capital investment in other 
countries and less here in America. The other day, Frank Mitsch of 
Fulcrum Global Advisors, was quoted as saying that CEOs who spend money 
to build new production capacity in the US, at this time, should--
quote--``have their heads examined.''
    Last week, Congressman Peterson and members of the energy and 
interior Appropriations subcommittees heard testimony from Andrew 
Liveris, President and CEO of Dow Chemical--the nation's largest 
chemical company.
    Andrew said that Dow is building a $4 billion chemical plant in 
Oman. That plant will employ 1,000 people in high paying R&D, 
engineering and operations jobs. Until three years ago, that new plant, 
and those 1,000 jobs, was going to be built in Freeport, Texas. Andrew 
said that the high cost of natural gas here--now 12 times higher than 
it costs on the Arabian Peninsula--is why Dow moved the project.
    Business Week wrote earlier this year that of 120 world-scale 
chemical plants (those costing $1 billion or more) under construction 
around the globe, only one is in the United States. The industrial core 
of our country, Business Week said, ``is being hollowed out'' by 
natural gas costs that are far and away the highest in the world.
    That $150 billion I mentioned a minute ago is the price that 
natural gas consumers--homeowners, schools, hospitals, farmers and 
businesses--are paying for government policies that simultaneously 
increase demand and restrict new sources of supply.
    Policies that drove utilities to switch much of their power 
generating capacity from coal to natural gas has turned out to be the 
straw that broke the camel's back.
    Congress is trying to have it both ways. It can't continue. It is 
failing millions of Americans whose livelihoods depend on reliable 
supplies of natural gas at affordable prices.
    Winter is coming. The economics firm, Energy and Environmental 
Analysis, says that industrial demand destruction may be as great as 
3.5 bcf/d this winter in order to balance demand and supply and ensure 
reliable service to residentials and commercials.
      3.5 bcf/day is equal to closing 70 chemical plants;
      it equals 57 percent of chemical industry's daily 
consumption;
      it equals 73 percent of pulp and paper, food processing, 
and primary metals industries daily consumption (third, fourth and 
fifth largest industrial consumers);
      it equals 100 percent of the daily residential winter 
consumption of Ohio, Wisconsin, Minnesota and Indiana combined.
    We believe that a wide range of policy responses are needed to 
unknot this problem, We support funding for energy efficiency measures; 
investment in diverse sources and supplies of fuel, especially 
gasification technology; and, upgrades to natural gas infrastructure. 
They are detailed in our written statement.
    The chemical industry is hard at work trying to manage our natural 
gas costs by becoming more efficient consumers. On Wednesday, the 
American Chemistry Council honored 11 member companies for implementing 
efficiency improvements in 2004 that together enough energy to power a 
city the size of Minneapolis. In 2004, ACC members managed to reduce 
energy consumption per pound of output by 6 percent and greenhouse gas 
emission intensity were down by 7.6 percent. Since 1974, the U.S. 
chemical industry has improved its energy efficiency by 46 percent. 
Being more energy efficient is one of the smartest business investments 
this industry makes, but we can't save our way out of this problem.
    From a policy perspective, what is most obvious to us is that new 
sources of supply are needed to meet the new sources of demand.
    That is why large natural gas consumers, like the chemical 
industry, support increasing access to new sources of natural gas in 
the deep waters of the Outer Continental Shelf (OCS). More sources of 
new domestic natural gas supplies, in our view, is in the nation's 
economic and security interests.
    This Committee has already shown that there is bipartisan support 
for more access to deep sea sources of natural gas. This winter, we 
think that it will become painfully clear that the nation's natural gas 
supplies are insufficient to meet its needs. It will become painfully 
clear that Congress can no longer continue to support a 25-year old 
policy that was developed in a long gone era when natural gas was cheap 
and plentiful.
    There has never been a better--or more critical--time to pass 
natural gas supply legislation. I urge you to seize the moment.

             Attachment: Additional Policy Measures Needed

    In addition to supporting legislation that leads to more access to 
deep sea sources of natural gas, the American Chemistry Council 
supports the following government actions.
1.  We join the Alliance to Save Energy in asking Congress to 
        immediately provide 10 million dollars to begin funding the 
        energy efficiency public education campaign called for in Title 
        I of the Energy Policy Act.
    Funds are needed now for a nationwide energy conservation and 
efficiency campaign. The public must be told that natural gas will be 
in short supply this winter. Consumers will pay record prices to heat 
their homes, factories will be closed and jobs will be lost. If every 
American home turned their thermostat down by two degrees this winter, 
that would free up 3 Bcf/d of natural gas, an amount equal to the daily 
output from three LNG terminals. If the Committee passes an emergency 
supplemental appropriations bill this fall funding a national campaign 
it would help American consumers make it through the winter. We also 
call on Congress to fully fund the energy efficiency provisions 
authorized in Title I of the Act. Among many other things, funding 
Title I will accelerate adoption of new appliance energy efficiency 
standards and it would provide funds to states to help adopt the latest 
building codes and achieve high rates of compliance.
2.  Fund the incentives for innovative energy technology authorized in 
        Title XVII of EPAct05 to diversify this nation's fuel 
        portfolio.
    Title XVII of the Act authorizes DOE to create programs and provide 
federal assistance to help commercialize a number of new energy 
technologies. These technologies have the potential, over time, to 
fundamentally change the way the nation makes and uses energy. 
Gasification technology, in particular, has the potential to become the 
foundation for the nation's future energy infrastructure. The United 
States has the world's largest proven and potential supplies of coal 
and biomass. On a Btu basis, U.S. coal reserves are the equal of world 
petroleum reserves. Gasification technology converts coal and biomass 
(and other energy-bearing raw materials) under heat and pressure into a 
high quality gas. Since the raw material is not burned, gasification 
produces remarkably little pollution. Gasification technology is 
exceptionally versatile. The gas it producers can be used to heat homes 
and businesses, make power, low-sulfur diesel fuel, fertilizer and 
chemicals. Given gasification's strategic potential, ACC believes it is 
especially critical for DOE to design a successful gasification 
commercialization program and for Congress to fully fund that program.
3.  Restore damaged natural gas processing facilities along the Gulf of 
        Mexico.
    Sixteen natural gas processing plants in Louisiana and Texas, with 
capacities equal to or greater than 100 million cubic feet per day, 
remain closed six weeks after Hurricane Rita hit the coast. These 
plants process nearly 15 percent of U.S. natural gas consumption. ACC's 
members depend on the liquid hydrocarbons that are removed from the 
natural gas supply by the processing plans. Those natural gas liquids 
are the raw materials we use to make hundreds of chemicals that our 
customers use to make thousands of products that everyone uses every 
day. We have asked the federal government to examine what is causing an 
extended delay in restoring those processing plants and what, if any, 
assistance the government can provide to restore those vitally needed 
plants. If the government asks Congress for funds in an emergency 
supplemental appropriation to assist in the restoration of the damaged 
processing plants, we ask the Committee to support those requests.
4.  Condition funding of hurricane recovery projects on achieving 
        maximum efficiency in the generation, transmission and use of 
        energy.
    Extensive power loss in the Gulf states after the hurricanes meant 
that nationally-critical energy facilities, like crude oil terminals, 
petrochemical facilities, natural gas processing plants, refineries and 
product pipelines were rendered inoperable because of a lack of 
electricity. The energy infrastructure in the Gulf is clearly of 
strategic importance to the United States. Given the energy 
infrastructure's dependence on electricity, it is in the national 
interest for that infrastructure to be supplied by highly reliable, 
robust and resilient sources of electricity. ACC believes any federal 
funds made available to address the damages sustained by electric 
utilities should be to design and build a transmission grid in the Gulf 
Coast region that will ensure a reliable source of power to the many 
facilities that comprise a significant part of the nation's energy 
infrastructure.
                                 ______
                                 
    Mr. Gibbons. Thank you Mr. Gerard.
    We turn now to Mr. Oellig.
    Mr. Oellig, welcome, the floor is yours. We look forward to 
your testimony.

STATEMENT OF KEITH OELLIG, PRESIDENT, DAUPHIN COUNTY (PA) FARM 
                BUREAU, GRANTVILLE, PENNSYLVANIA

    Mr. Oellig. Thank you. Good afternoon.
    My name is Keith Oellig. I am a third-generation hay and 
grain producer from Grantville. I grow corn, barley, wheat and 
soybeans on 1,600 acres of land in Grantville, Pennsylvania. 
Grantville is located in Dauphin County near Harrisburg, PA, in 
the south central part of the State. I have been farming for 20 
years. Currently, I serve as the President of my county farm 
bureau along with other volunteer commitments.
    Mr. Chairman and members of the Subcommittee, I appreciate 
the opportunity to share Pennsylvania Farm Bureau's 
perspectives on the impacts of high natural gas prices. I am 
speaking today because I purchase fertilizer which uses natural 
gas as a base.
    All my crops are sold locally in Dauphin County to area 
businesses. The hay and straw are sold for feed to the horse 
trainers at Penn National Race Track. My wheat goes to a local 
flour mill for sale to Hershey foods to make the Kit-Kat bar. 
My corn is sold to a local hog producer.
    Today I am representing the Pennsylvania Farm Bureau that 
represents more than 37,000 farm and rural families. The 
Pennsylvania Farm Bureau is a membership organization which 
represents all agricultural commodities.
    Many Pennsylvania farmers are paying higher expenses for 
electricity, fertilizer and farm chemicals. These industries 
use natural gas to heat their barns. Also, vegetable and grain 
farmers use nitrogen-based fertilizer to fertilize their 
vegetables, corn, barley, soybeans and wheat. I am here to tell 
you, to express agriculture's frustration with high natural gas 
prices and the need to increase our natural gas supply.
    As a grain producer, I think about ever-escalating costs of 
natural gas every day. Not only does it increase the cost of 
fertilizer to fit my bottom line, but it also impacts the 
economy of my local community. Unfortunately, I cannot pass 
that cost along. Therefore, higher fertilizer prices directly 
affect my operation.
    I am very pleased with the recent passage of the 
comprehensive energy bill. This energy bill will begin to solve 
our Nation's energy woes. However, much more needs to be done 
to encourage domestic exploration and recovery of natural gas. 
Congress must act to address our Nation's energy needs, 
especially the challenge farmers face with high fertilizer 
prices.
    For those not involved in agricultural production, allow me 
to explain how our industry uses natural gas. The natural gas 
is a fundamental feedstock ingredient for the production of 
nitrogen fertilizer. Nitrogen fertilizer is produced when air 
and hydrogen are combined using natural gas as a feedstock. In 
my operation, I use liquid nitrogen fertilizer which I spread 
on my crops.
    High natural gas prices come at a time when commodity 
prices are extremely low. Nitrogen fertilizer costs have sky-
rocketed in the past 5 years. Pennsylvania farmers and other 
farmers across the country have paid record prices for nitrogen 
fertilizer. Last year, I purchased four trailer loads of 
nitrogen fertilizer for my crops that equates to about 100 tons 
of nitrogen. Last year, I also paid $190 per ton compared to 
$105 per ton in 2002.
    In fact, a local fertilizer dealer where I purchased my 
fertilizer stated the price for 2006 would be at least $205 per 
ton. That is an increase of $100 per ton over 2002.
    Unfortunately, corn prices have not gone up accordingly. In 
fact, I am receiving the same price per bushel of corn that I 
received in 1999, yet I am paying 50 percent more for the 
fertilizer.
    Due to the low corn prices and the low corn yields in 2005, 
my income was $215 per acre. My income per acre was $360 in 
2004. Unfortunately, the cost of liquid nitrogen was $41 in 
2005 compared to $32 per acre in 2004. In other words, I 
grossed 60 percent less per acre last year yet paid 35 percent 
more for fertilizer.
    The Pennsylvania Farm Bureau appreciates the efforts by 
U.S. Representative Peterson to open the Outer Continental 
Shelf for natural gas. The agricultural community is eagerly 
awaiting a solution to the problem of high prices for energy. I 
appreciate the opportunity to speak before the Committee, and I 
welcome any questions the Subcommittee might have.
    Thank you.
    [The prepared statement of Mr. Oellig follows:]

          Statement of Keith Oellig, Pennsylvania Farm Bureau

    Good afternoon. My name is Keith Oellig and I am a third generation 
hay and grain producer from Grantville, Pennsylvania. I grow corn, 
barley, wheat and soybeans on 600 acres of land in Grantville, 
Pennsylvania. Grantville is located in Dauphin County near Harrisburg, 
PA in the south-central part of the state. I have been farming for 20 
years. Currently, I serve as the President of my County Farm Bureau 
along with other volunteer commitments.
    Mr. Chairman and members of the subcommittee, I appreciate the 
opportunity to share Pennsylvania Farm Bureau's perspective on the 
impacts of high natural gas prices. I am speaking today because I 
purchase fertilizer, which uses natural gas as a base. All of my crops 
are sold locally in Dauphin County to area businesses. The hay and 
straw are sold for feed to the horse trainers at Penn National Race 
Track. My wheat goes into the local flour mill for sale to Hershey 
Foods to make the Kit-Kat bar. My corn is sold to a local hog producer.
    Today I am representing the Pennsylvania Farm Bureau that 
represents more than 37,000 farm and rural families. The Pennsylvania 
Farm Bureau is a membership organization, which represents all 
agricultural commodities. Many Pennsylvania farmers are paying higher 
expenses for electricity, fertilizers, and farm chemicals. These 
industries use natural gas to heat their barns. Also vegetable and 
grain farmers use nitrogen-based fertilizers to fertilize their 
vegetables, corn, barley, soybeans and wheat.
    I am here to today to express agriculture's frustration with high 
natural gas prices and the need to increase our natural gas supply. 
Many people use natural gas to generate electricity, which is used to 
heat our homes and cook our food. I believe most people do not stop to 
consider the importance of natural gas in our everyday lives. As a 
grain producer, I think about the ever-escalating costs of natural gas 
every day. Not only does the increasing cost of fertilizer affect my 
bottom line, but it also impacts the economy in my local community. 
Unfortunately, I cannot pass that cost along. Therefore, high 
fertilizer prices directly affect my operation.
    I am very pleased with the recent passage of the comprehensive 
energy bill. This energy bill will begin to solve our nation's energy 
woes. However, much more needs to be done to encourage domestic 
exploration and recovery of natural gas. Congress must act to address 
our nation's energy needs, especially the challenge farmers face with 
high fertilizer prices.
    For those not involved in agricultural production, allow me to 
explain how our industry uses natural gas. Natural gas is the 
fundamental feedstock ingredient for the production of nitrogen 
fertilizer. Nitrogen fertilizer is produced when air and hydrogen are 
combined using natural gas as the feedstock. In my own operation I use 
liquid nitrogen fertilizer, which I spread on my crops.
    High natural gas prices come at a time when commodity prices are 
extremely low. Nitrogen fertilizer costs have skyrocketed in the past 
five years. Pennsylvania farmers and other farmers across the country 
have paid record prices for nitrogen fertilizer. Last year I purchased 
four trailer loads of liquid nitrogen fertilizer for my crops, which 
equates to about 100 tons of nitrogen. Last year I also paid $190 per 
ton, compared to $105 per ton in 2002. In fact, the fertilizer dealer 
where I purchase my fertilizer stated that prices for 2006 would be 
$205 per ton. That is an increase of $100 per ton over 2002. 
Unfortunately, corn prices have not gone up accordingly. In fact, I am 
receiving the same price per bushel of corn that I received in 1999, 
yet I am paying 50 percent more for fertilizer. Due to the lower corn 
price and lower corn yield in 2005, my income was $215 per acre. My 
income per acre was $360 in 2004. Unfortunately, the cost of liquid 
nitrogen was $41 in 2005 per acre compared to $32 per acre in 2004. In 
other words, I grossed 60 percent less per acre last year, yet paid 35% 
more for fertilizer.
    The Pennsylvania Farm Bureau appreciates the efforts by our U.S. 
Representatives to open the outer continental shelf for natural gas. 
The agricultural community is eagerly awaiting a solution to the 
problem of high prices for energy. I appreciate the opportunity to 
speak before the Committee and I welcome any questions the subcommittee 
may have.
[GRAPHIC] [TIFF OMITTED] T4681.004

                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Oellig.
    I want to compliment you. That was so well timed. You were 
within 5 seconds of 5 minutes.
    And, Mr. Bennett, I hope you're testimony is as good as the 
farmer's testimony was. So, welcome, the floor is yours. We 
look forward to your testimony.

   STATEMENT OF MICHAEL L. BENNETT, PRESIDENT AND CEO, TERRA 
               INDUSTRIES INC., SIOUX CITY, IOWA

    Mr. Bennett. Thank you.
    I am Mike Bennett, President and Chief Executive Officer of 
Terra Industries headquartered in Sioux City, Iowa. Terra is an 
international producer and marketer of nitrogen products. We 
operate four plants in the United States, one in Canada, two in 
the UK, and we have a joint venture operation in Trinidad. All 
told, our company employs 1,200 people.
    In the manufacturing facilities we have in the midwestern 
and southeastern U.S., we provide good-paying jobs to about 750 
U.S. citizens. As you might have gathered from Mr. Oellig's 
testimony, the U.S. needs reliable and plentiful supplies of 
natural gas to produce nitrogen and to meet critical 
agricultural and food production needs.
    Natural gas is the primary purchase feedstock ingredient 
for the production of nitrogen fertilizer and represents as 
much as 90 percent of the cash cost to produce anhydrous 
ammonia, which is the building block material from which we 
produce other commercial nitrogen plant nutrients.
    All told, the domestic nitrogen industry consumes about 2 
percent of the natural gas used in this country. And it is 
important to note that natural gas is our feedstock, not simply 
a source of fuel for heat. And as a result, we really have no 
viable alternatives.
    At today's gas prices, the cost of natural gas, as I 
mentioned, accounts for up to 90 percent of the production 
costs of anhydrous ammonia. Thus, when U.S. natural gas prices 
increased significantly beginning in the year 2000, the cost of 
production of ammonia rose significantly. Average U.S. ammonia 
production costs doubled between 1999 and 2003, which is the 
latest full year for which data is available. In looking at 
today's current costs, the cost of producing this product has 
doubled again from those levels of 2003.
    And certainly, fertilizer producers can try to pass along 
these cost increases, but our ability to do so is constrained 
by the commodity nature of the business and competition from 
producers in nitrogen-exporting countries that have access to 
lower priced gas.
    As a result, rising natural gas prices cause our margins to 
shrink eventually turning those margins into losses, and as a 
result, companies are forced to reduce production, idle or even 
permanently close plants depending on the specific economic 
conditions they face.
    As a result of the ongoing natural gas crisis in America, 
22 nitrogen fertilizer production facilities have closed since 
1999; 17 of those plants--and four of those 17 were owned by 
Terra--have closed permanently, representing a 20 percent drop 
in total production capacity while five plants remain idle at 
this time.
    The operating rates for the U.S. ammonia industry have 
declined significantly from historical levels. And all told, we 
have seen a 35 percent decline in U.S. ammonia production from 
1999 until the 2003/2004 fertilizer year.
    And as a result, U.S. imports have increased. We used to be 
nearly self-sufficient in the production of nitrogen fertilizer 
in the 1990s. This past year, more than 40 percent of our 
nitrogen fertilizer was imported from countries that have 
abundant low-cost natural gas. And this percentage will 
certainly increase in the coming year.
    In the past 2 months alone, three of the largest remaining 
U.S. nitrogen fertilizer producers, including Terra, have idled 
a significant portion of their facilities and/or reduced 
production due to the unprecedented rise in natural gas 
feedstock costs.
    And certainly, as Mr. Oellig has pointed out, these extreme 
conditions harm our customers and farmers as well. Farmers are 
facing not only high fertilizer costs but also higher costs for 
other inputs which are affected by sky-rocketing energy costs. 
The higher input costs make U.S. farmers less competitive with 
other countries as they market their crops. And these difficult 
circumstances are causing farmers to delay decisions about what 
crops they will plant and how much fertilizer they will apply, 
thereby providing no indication for nitrogen producers or our 
commerce on how to effectively plan for the spring planting and 
upcoming fertilizer application season.
    To that end, and to--as the solution to this crisis, we 
agree that the comprehensive energy bill passed earlier this 
year took a number of steps that were very positive for energy 
policy, but certainly production was a clear missing item from 
that bill. And to that end, we believe that the recommendations 
that would open additional Federal lands and offshore areas to 
oil and gas exploration production, especially the lease/sale 
area 181 in the Gulf of Mexico and other coastal areas on the 
Outer Continental Shelf, are vitally important for our Nation.
    [The prepared statement of Mr. Bennett follows:]

             Statement of Mike Bennett, President and CEO, 
      Terra Industries Inc., on behalf of The Fertilizer Institute

Introduction
    Mr. Chairman and members of the subcommittee, I am Mike Bennett, 
President and Chief Executive Officer of Terra Industries Inc. On 
behalf of Terra and The Fertilizer Institute (TFI) of which Terra is a 
member, I appreciate the opportunity to testify before the House 
Committee on Resources, Subcommittee on Energy and Minerals Resources 
regarding the high price of natural gas and its impact on Terra and its 
customers. Furthermore, I would like to thank you, Mr. Chairman, for 
scheduling this important hearing and for your leadership in addressing 
the critical issue of increasing this nation's supply of natural gas, 
which is so vital to the U.S. plant food industry, its many local 
retail agribusiness outlets and the farmers and livestock producers 
they serve.
Terra
    Terra Industries Inc. is a leading international producer of 
nitrogen products, which we sell to industrial customers and 
agribusiness dealers for eventual sale to farmers. The company employs 
approximately 1,200 people in North America and the United Kingdom, and 
is headquartered in Sioux City, Iowa. Terra is traded on the New York 
Stock Exchange.
    Terra owns and operates seven nitrogen products manufacturing 
facilities, four of which are in the Midwestern and Southeastern United 
States, providing good-paying jobs to about 750 U.S. citizens.
TFI
    TFI is the leading voice of the nation's fertilizer industry, 
representing the public policy, communication and statistical needs of 
fertilizer producers, retailers and transporters. In addition to energy 
policy, issues of interest to TFI members include the environment, 
international trade, security, transportation and worker health and 
safety.
Fertilizer and Energy
    The United States needs reliable and plentiful supplies of natural 
gas to produce nitrogen and meet critical agriculture and food 
production needs. Natural gas is the primary purchased feedstock 
ingredient for the production of nitrogen fertilizer and represents as 
much as 90 percent of the cash cost to produce anhydrous ammonia--the 
building block for most other forms of commercial nitrogen plant 
nutrients. The nitrogen fertilizer industry uses approximately three 
percent of the total natural gas consumed in the nation.
Nitrogen Fertilizers
    Anhydrous ammonia is the source of nearly all the nitrogen 
fertilizer produced in the world. Ammonia is produced by combining 
nitrogen with hydrogen. The nitrogen is obtained from the atmosphere, 
while the hydrogen is obtained from natural gas. At today's gas prices, 
the cost of natural gas, as I mentioned, accounts for up to 90 percent 
of the production cost of ammonia. Thus, when U.S. natural gas prices 
increased significantly beginning in the year 2000, the cost of 
domestically produced ammonia also rose significantly. Average U.S. 
ammonia production costs doubled from 1999 to 2003, the latest year for 
which data are available, and are sure to have increased again in 2004 
and 2005 as natural gas prices have continued to rise.
    While fertilizer producers can try to pass along these cost 
increases, our ability to do so is constrained by the commodity nature 
of the business and competition from producers in nitrogen exporting 
countries with access to lower priced gas. As a result, rising U.S. 
natural gas prices cause producer margins to shrink, eventually turning 
those profit margins into losses. Consequently, companies are forced to 
reduce production, temporarily idle, or even permanently close plants 
depending on the specific economic situation they face.
    As a result of the ongoing natural gas crisis in America, 22 
nitrogen fertilizer production plants have closed since 1999. Seventeen 
of those plants--four of them owned by Terra--have closed permanently, 
representing a 20 percent drop in total production capacity, while five 
plants remain idle. Operating rates for the U.S. ammonia industry have 
also declined significantly from historical levels. The permanent and 
temporary closures in combination with the drop in operating rates have 
resulted in a 35 percent decline in U.S. ammonia production from nearly 
18 million tons of material in the 1998-99 fertilizer year to less than 
12 million tons in the 2003-04 fertilizer year. U.S. nitrogen imports 
have increased from just over 6 million tons to more than 10 million 
tons in that same period. Consequently, the U.S. fertilizer industry, 
which typically supplied 85 percent of its domestic needs from U.S.-
based production during the 1990s, now relies on imports for nearly 45 
percent of nitrogen supplies.
    In the past few weeks alone, three of the largest remaining U.S. 
nitrogen fertilizer producers, including Terra, have idled a 
significant portion of their facilities and/or reduced production.
The Impact of High Natural Gas Prices
On the U.S.
    The U.S. natural gas crisis is exacting a heavy toll on America's 
nitrogen fertilizer producers, our customers and the end-users they 
supply. The resulting negative financial impact is unprecedented and is 
irreversibly crippling the U.S. nitrogen fertilizer manufacturing 
industry, which supplies approximately one-half of U.S. farmers' 
nitrogen fertilizer needs. America's food security, and by extension, 
our national security will be jeopardized if we don't take fast and 
decisive action to address our country's natural gas crisis.
On Terra Industries Inc., our Customers and End-users
    It is no exaggeration to say that Terra and other producers with 
nitrogen manufacturing operations in North America may not survive 
unless we find a way to lower natural gas prices through increased 
supply. To illustrate the drastic effect that natural gas prices have 
on Terra and other nitrogen producers' profitability and viability, 
consider that a $1.00 per MMBtu change in the price of natural gas 
moves Terra's annual operating income by about $100 million. For the 
first nine months of 2005, Terra's North American natural gas costs 
were $7.66 per MMBtu. At this price, which represents Terra's cost 
before the recent extreme runup in gas prices, Terra's annual cost for 
natural gas to operate its U.S. plants at capacity would be 
approximately $735 million.
    These extreme conditions are harming our customers and farmers as 
well. Farmers are facing not only higher fertilizer costs, but also 
higher costs for other inputs, which are affected by skyrocketing 
energy costs. The higher input costs also make U.S. farmers 
uncompetitive with other countries as they market their crops. These 
difficult circumstances are causing farmers to delay decisions about 
what crops they will plant and how much fertilizer they will apply, 
thereby providing no indication to nitrogen producers or our customers 
of how to effectively plan for the spring planting and fertilizer 
application season.
    Ironically, the U.S. energy crisis--a direct result of U.S. energy 
policy--is making the crops we're best suited to grow the least viable 
in global markets.
Conclusion
Actions Taken
    Recently, I and many of my colleagues in the nitrogen producing 
industry met with U.S. Department of Energy Secretary Samuel W. Bodman, 
as well as a number of key farm-state senators and congressmen. After 
describing agriculture's natural gas crisis situation, I cannot say in 
all honesty that we left any of those meetings encouraged about the 
short- or long-term energy future for our producers, retailers, farmers 
or nation. Energy conservation, renewable fuels and increased imports 
of Liquefied Natural Gas (LNG), while important, will not save this 
nation's nitrogen fertilizer industry from being forced to idle 
remaining U.S. production capacity because of cost pressures from high 
natural gas prices. The only way to avoid the further decline of the 
U.S. fertilizer industry and a nationwide economic disaster in farm 
country is to increase U.S. supplies of natural gas significantly and 
as soon as possible.
Recommendations
    Mr. Chairman, allow me to relay recommendations toward that end, 
which we believe should be immediately included in federal energy 
legislation and policy. These recommendations include opening 
additional federal lands and off-shore areas to oil and gas exploration 
and production, especially the lease/sale area 181 in the Gulf of 
Mexico and other coastal areas on the Outer Continental Shelf (OCS).
    Currently, 85 to 90 percent of the OCS is off-limits to natural gas 
exploration due to a combination of congressional and state moratoria. 
Industry estimates suggest that the OCS contains gas reserves large 
enough to supply all current U.S. industrial and commercial needs for 
40 years. Regarding ``Lease Sale 181,'' the U.S. Interior Department 
estimates that the 6 million acre area contains natural gas reserves of 
1.3 trillion cubic feet. Terra Industries and TFI strongly believe that 
opening these areas to natural gas drilling is the fastest way to bring 
new natural gas to market and bring much needed relief to our industry 
and our nation's food producers. One option that might go a long way 
toward achieving these goals is the ``Outer Continental Shelf Natural 
Gas Relief Act'' recently introduced by Rep. John Peterson.
    Also, any federal policies that can be implemented to make it 
easier to get permitting and to build new LNG terminals in the United 
States as quickly as possible are vital. We believe these federal 
policy initiatives are critically important to the energy security, 
food security and our national security.
    Finally, Terra Industries and TFI urge members of this subcommittee 
and all Members of Congress concerned about the ongoing U.S. natural 
gas crisis, to contact Secretary Bodman and request that the U.S. 
Department of Energy move quickly to promulgate rules and regulations 
for loan guarantees and investment tax credits for construction of coal 
gasification facilities as authorized by Congress in the recently 
enacted federal energy bill.
    To conclude, allow me to again thank you Mr. Chairman and members 
of the subcommittee for your leadership in addressing the critically 
important issue of high natural gas prices in this country and its 
impact on the U.S. fertilizer industry and its customers. Thank you for 
the opportunity to testify today.
                                 ______
                                 
    Mr. Gibbons. Well, you were mighty close. But no banana.
    Thank you, Mr. Bennett. We appreciate your testimony.
    In fact, we appreciate all of the testimony of each of our 
witnesses here today. It has helped us greatly in terms of the 
panel better understanding the issues that we are all facing as 
a Nation with regard to energy costs and especially with 
natural gas.
    What we are going to do now, for the panel, is we are going 
to turn to a question period where members of the Committee 
will have an opportunity to ask questions. We'll try to limit 
it to 5 minutes, but there may be more than one round of 
questions as we go round. And I do understand the time frames 
that some of you are under, the restrictions and that you have 
to leave at a certain point. We will try to get as many 
questions asked and answered as possible.
    And so I am going to turn now to the gentleman from Hawaii, 
Mr. Abercrombie, and allow him to begin his questions.
    Mr. Abercrombie.
    Mr. Abercrombie. Thank you.
    Mr. Gerard, in your testimony, did you add some material in 
your summary that was not in the formal written record? I 
believe you mentioned something about China which caught my 
attention. But I wasn't able to--I have read your testimony. 
And I went back over it, and I couldn't find it.
    Mr. Gerard. Yes, I probably got pieces of it. I will share 
that with you, Congressman Abercrombie, my reference to China.
    Mr. Abercrombie. See, we pay close attention to what you 
say.
    Mr. Gerard. And we appreciate that very much. My reference 
to China dealt with the Business Week article that was recently 
written talking about, there are 120 major new chemical plants 
planned around the world. And 50 of those are slated for China 
and only one of them for the United States out of those 120.
    And that is driven by and large by the natural gas price in 
China; it is half or less than what it is here.
    Mr. Abercrombie. And it is driven, is it not, or would it 
be fair to speculate that part of it is driven in what I 
believe to be the relentless Chinese commitment to expanding 
their industrial and manufacturing base? They see natural gas 
as a vital if not central component in that; do they not?
    Mr. Gerard. Absolutely, and my reference to their strategic 
energy policy, they are very aggressive, as you see around the 
world, at oil, gas and other feedstock and energy supplies. And 
they are buying it. They are locking it up for the future. And 
they are serious about preserving that 9 percent plus growth 
that they have in that country.
    Mr. Abercrombie. Can you make sure that becomes part of the 
record, either that article and/or your commentary?
    Mr. Gerard. I will do that.
    Mr. Abercrombie. And can I follow with you on that right 
now? With regard to the China example, are you familiar or any 
of the other members of the panel familiar with what the policy 
for drilling is in China with regard to natural gas? I am 
simply unaware. I am a layperson in most of this right now. So 
some of these questions may seem a bit naive to you. But 
believe me, I am probably typical of--no I am not typical--I 
meant in terms of----
    Mr. Gibbons. Any member who wears a lei is not typical.
    Mr. Abercrombie. This is my standing against the cold wind 
out there, the lei I am wearing. But what I mean by that is, I 
am not necessarily familiar with the--where drilling is likely 
to take place.
    Obviously the Outer Continental Shelf has come to the 
forefront here for good and bad reasons. So is there an Outer 
Continental Shelf in China? Is there drilling in the ocean, or 
is there drilling on the surface? And what is the Chinese 
policy there? What is taking place?
    Mr. Gerard. I will get you more material on that, 
Congressman. But what I have been told generally is, when you 
look at the Chinese situation, you look at Southeast Asia, 
Australia and others where they're importing significant 
amounts of LNG and other things, but they are also looking 
domestically onshore, and I have been told they are also 
looking offshore. I don't know what the current situation is, 
but I can get that for you.
    Mr. Abercrombie. Is it fair to say then that other nations, 
particularly in the Pacific, where a lot of manufacturing and 
industrial expansion is taking place right now, all of them, 
are they not, exploring natural gas possibilities, resources, 
reserves et cetera?
    Mr. Gerard. My understanding is that the United States is 
the only developed country in the world that restricts access 
to our energy resources.
    Mr. Abercrombie. Could you, for purposes of--because the 
Committee doesn't necessarily have resources itself to do it, 
if you or any of the other folks there or allied industry 
people, if they could get for the Committee some kind of formal 
understanding of what the drilling practices, proposals, 
policies, either in existence now or contemplated in other 
nations particularly around the Pacific rim, I think it would 
be very useful to us.
    Mr. Gerard. Happy to do that.
    Mr. Gibbons. Would the gentleman yield for a second? If you 
want to add something to that, if you would look up and add 
into that the Chinese natural gas production, domestic natural 
gas production and its natural gas consumption would be 
helpful, too.
    Mr. Gerard. We will do it.
    Mr. Abercrombie. Thank you very much.
    One of the things that was brought up to me--let me--if you 
just give me a few more seconds to maybe elaborate a little on 
my opening remarks. We understand what the situation is here. 
Some of us, in fact, I expect most of us who have been in 
political life for some time and have had good relations and 
support from the environmental community--I think we know who 
we are talking about here, groups that are concerned about the 
environment, concerned about alternative energy and so on--find 
ourselves in a position where I have even characterized it at 
one point where we have been put in the village stocks now. We 
have fallen away from the true path and must live on the edge 
of the village and have been taken over by the dark side.
    And in some respects, it is amusing, and in other respects, 
it is irritating. And in some respects, it is disheartening. 
But that is the reason why you see the bill in front of you the 
way it is today.
    I am in a position--and I think a lot of members are like 
me in this respect--I am trying to differentiate natural gas 
exploration and extraction from oil exploration and extraction. 
And I realize that for many people that is silly, or it is 
antithetical to their interests, and in some instances, there 
may be cases where companies do oil and natural gas 
exploration. But for our conversation's sake, for the sake of 
this bill, if you will grant me that, that it is important for 
some of us, in order to advance natural gas exploration and 
extraction, that we have to make a separation or try to do it 
at least legislatively.
    Is it true--and I have been told that it is true--that it 
is possible to explore for natural gas and in the course of 
events, if you discover oil in the course of that exploration, 
that it is possible to bypass the oil and go to the natural 
gas? Technologically, is it possible to do that? Or is that 
some kind of--if you can't answer, then can you get me an 
answer on that?
    I need to know, and the Committee needs to know, what are 
the technological capacities out there to enable us to explore 
and extract natural gas without getting into the legislative 
and ideological complications of oil exploration?
    Mr. Gerard. I would be happy to get that for you, Mr. 
Abercrombie. I don't know the direct answer to that. I am not 
an expert in that field. However, I would say I think it is 
important also, and we greatly appreciate the stand and the 
position you're taking in the current debate and realize that 
this issue has been polarized for many years. I would also 
suggest, however----
    Mr. Abercrombie. Can I ask you to write a letter to my 
wife?
    Mr. Gerard. I would be happy to do that for you. But in the 
current climate--I think--in the past--experience is important 
to remember here. I believe it is Congressman Peterson has a 
pie chart that shows, when you look at the potential risks or 
exposure from development in the Outer Continental Shelf, our 
experience is that there is more that goes into the environment 
from natural seepage on the ocean floor than there's ever been 
from any spills.
    Mr. Abercrombie. I understand that. And I agree with all 
that, and I appreciate it. But if you can help me or any member 
or anybody in the audience can help me with the idea, is it 
possible technologically to explore for and extract natural gas 
absent the necessity of also taking at the same time oil? It 
may seem foolish. But we are trying to talk about what we can 
do here to break through some real genuine ideological barriers 
and perceived wisdom out there that simply will not allow 
natural gas, that the discussion about natural gas to even get 
on the table without it being caught in the oil exploration 
vise.
    Then one last thing, because my time is running out here, 
we have been told here that even if we did this, that--what was 
the--John, was it 30 days they said was the only--30 years or 
30 months, something like that, of natural gas that is 
available before it would run out. Do you remember? That was 
said to us several times.
    In other words, one of the arguments made to us by people 
who are upset with the idea that we would even be trying to 
extend natural gas exploration is that there is nothing out 
there; there is not enough out there anyway to make it worth 
our while. And that seemed to me to be, I didn't have the 
figures in front of me to be able to refute that, but it didn't 
make sense on its face to me. Anybody can talk about that with 
authority?
    Mr. Gerard. Our view is this, Congressman Abercrombie, 
number one, there are significant supplies of natural gas. We 
are not sure we fully appreciate how vast that resource is. I 
believe USGS at the Department of Interior has estimated over 
420 trillion cubic feet. Depending on how you quantify that, we 
are talking about 30, 40, 50, 60 years of natural gas supply.
    Mr. Abercrombie. Could you quantify that or again ask your 
colleagues and allies to quantify what are we talking about 
with natural gas? If we were able to succeed with this bill, 
what is the likely reserve or possibilities and so on that we 
are looking at, and how will that translate into helping 
American industry and manufacturing? Thank you. I appreciate 
it.
    Mr. Gibbons. Thank you, Mr. Abercrombie.
    And of course, we cannot go without recognizing the 
presence of the full Committee Chairman, Mr. Pombo, here today.
    Welcome. No opening statements?
    We will turn to Mr. Peterson for questioning.
    Mr. Peterson. Thank you very much. I want to thank all of 
you for your good, clear testimony. A lot of people think I am 
a mad man because I have been working this issue pretty hard, 
and I do feel a sense of urgency. And I know you do.
    If we pass this bill that was signed by the President in 
2005, this year--and we know that is not doable--it would be 
several years and probably the only gas we would touch for a 
couple of years, a potential 2 to 3 years, is in track 181 that 
is right beside where we produce today, and it is a tragedy 
that it has not been leased because every well that has been 
produced can be instantly hooked into the collection system. 
And that is the only quick gas we can get.
    How long do we have to resolve this issue that we don't 
lose the bulk of the jobs you provide in this country?
    Mr. Gerard. I guess I will take this one as well.
    That is a tough question to answer. Let me give you a 
little anecdotal evidence as to what that means. We believe if 
the Congress will send a signal to the marketplace, you'll 
begin to see the gas price moderate, which will give us hope 
and allow us perhaps to extend that window in which we have to 
make tough choices.
    As I mentioned earlier, we already shut down 100 plus 
chemical plants, lost 100,000 people. We believe that if some 
relief isn't in sight or the market doesn't get a signal, there 
will be more and more of that. The CEO of Dow Chemical 
testified last week. He had a $4 billion plant--that's a $4 
billion plant with a thousand high-wage employees slated for 
Freeport, Texas, 3 years ago. That plant has now been moved to 
Oman. And it's been moved there only because of the natural gas 
price.
    Now, if the Congress will move quickly and send a signal 
through conservation and other things, we might be able to ride 
through the short-term window. But if it doesn't happen 
relatively quick, the longer-term signal, at least to our 
industry sector in the chemical business--we are global 
operators. We have no choice. When the board gets together and 
says, where are you going to spend your money and you can get 
gas for a dollar in Saudi Arabia versus $14 in the United 
States, it is not a decision. It is an easy answer.
    Unfortunately, it is impacting our industry. It is 
impacting our country. Business Week, in that same article I 
talked to Congressman Abercrombie about, mentioned that the net 
effect of this is, we are hollowing out our industrial core in 
this country.
    So it is tough to give you much of a definition, 
Congressman, as to the window. But it can't go on forever, 
obviously.
    Mr. Peterson. Now the steel and aluminum industry are not 
impacted quite as heavy as chemical because they use it for 
heat only. But Alcoa Aluminum was quoted about a month ago or 6 
weeks ago in a story that they were going to have to watch 
energy prices in this country. And if they consistently stayed 
high and that it had this parenthesis, especially natural gas, 
we will have to redetermine if we can produce here. That is the 
aluminum industry. And they are impacted heavily. I don't mean 
to minimize that, but not as heavy as some of you. And so I 
guess the point I want to say is, how do we get this message to 
the American public? That is what I have been trying to do. I 
am trying to talk to the American public. Because I am a firm 
believer, every group I have spoken to, even women who are even 
more environmentally sensitive than men, have come up to me and 
said, you know, I am pretty active on environmental issues, but 
you're right on this issue.
    I have not had people come up to me in my district and give 
me a hard time about this policy, and I give it in every 
speech. How do we get the American public to understand this? 
The press doesn't understand it. I was on a debate recently 
with one of my friends from the south, and in the opening of 
the program, they were talking about gasoline prices and oil 
markets. And I said, folks, we are here to talk about natural 
gas. We are not here to talk about oil and gasoline. But 
gasoline is--because every night on the nightly news, the price 
of gas is the story. The story is a little better today than it 
was a few months ago, but it is not better for what we are 
talking about here today.
    Have any of you planned an overall media campaign to let 
the American public know where we are at and the potential? 
Because I believe--you mentioned almost a million jobs in 
chemicals, I heard this morning at a briefing, 2 million in 
plastics. You add fertilizer people who bend, melt, heat, treat 
dry wood, there's at least 4 million jobs under siege here in 
my view. Is that an appropriate guestimate?
    Mr. Gerard. I think so. Absolutely.
    Mr. Peterson. And any of you have a plan of helping sell 
this thing to the American public? Because if the American 
public understands this, we will do it.
    Mr. Oellig. I think it is important--through our farm, we 
have, Texas Eastern has a pipeline that goes through our farm. 
From that pipeline there is a natural gas line that goes into 
Hershey for the Hershey chocolate. And it is kind of 
interesting, in my testimony, you know, my wheat is processed 
and used by Hershey to make the Kit-Kat bars plus other 
products. Well, if natural gas gets too high, there is an 
incentive to move that production away from that area, losing 
my market for my wheat. And then, in central Pennsylvania, the 
pressure from development, there is no incentive for the next 
generation of farmers to take over.
    So, you know, the environmentalists, they are really going 
to hurt themselves because, as far as I am concerned, the 
farmer is the best conservationist there is. So thank you.
    Mr. Peterson. Anybody else?
    Mr. Bradley. I would offer that about 60 percent of low-
income homes heat with natural gas and including in the State 
of Pennsylvania. Once those bills hit in cold weather here, 
just look at today, once those bills hit in let's say January, 
LIHEAP benefits run out. They start dealing with it. The press 
is going to be very interested in what is going on. I would 
think that would create a pretty good opportunity to say, here 
are some policies that directly impact the livelihood of 33 
million low-income people.
    Mr. Gerard. I would just add, Congressman, that we have 
strategic efforts going on right now. There was a news article 
in New Jersey today. People are starting to complain. Their gas 
bill is going up 24 to 28 percent. Last week, the Florida 
public utility commission, or whatever the regulatory body is, 
is already passing through a surcharge now for the additional 
costs of that natural gas.
    I think, as we continue to beat this drum collectively 
together--and we as industry have to do a better job with this. 
And we understand that. But over the course of the next 3 or 4 
months, I believe the American public will get focused on this 
issue. If the natural gas price today were equated to the price 
of gasoline, we would be over $7 a gallon. And I think once 
that begins to flow through and the consumer begins to see 
that, we're going to have people's attention, and then we 
really have to go to the solution.
    Mr. Peterson. Milk would be $28 a gallon.
    Anybody else?
    Yes, Mr. Hunt.
    Mr. Hunt. Congressman, we have actually done a fair amount 
of our communication to the general public and to our 
customers. But it is in the arena of conservation overall in 
terms of usage of lighting products, of course, that use 
electricity. So natural gas doesn't really come into play 
directly with that argument.
    But, certainly, the issue of conservation and productivity 
with consumers and industrial users has been a message that we 
have been investing in for decades.
    I would add this, though, that we have been somewhat 
reluctant, I think, to go on record and act as if we are 
complaining about the rising prices and raw materials. It is 
our job to find ways to offset that, discover ways of being 
more productive and more efficient.
    The problem with this particular process or requirement of 
ours in natural gas is that certain policies have put a cap and 
a lid on supplies that in turn have created a suspension in 
what we would say are free-market movements in prices. And it 
has created an artificial barrier to being more efficient and 
being more competitive.
    And as a result of that, we find if we have to turn to 
other avenues for cost reduction and to remain globally 
competitive--and unfortunately, one of the side effects is the 
reduction in direct labor. I mentioned earlier that the impact 
of gas prices on our business for the past 5 years is perhaps 
between $25 and $30 million. That equates to about 800 jobs in 
terms of skilled trades and skilled technicians in our 
factories.
    And that is sort of a fact that has just compounded into 
every single industry in this country. As I flew down here this 
morning from Boston, I also happened to read in the Boston 
Globe an interesting article about the sharp run-up in plastic 
inflating the tab for groceries, and here we are with a 9 
percent increase. One food industry official who asked not to 
be identified said most milk producers added a surcharge of 9 
cents a gallon last month and tacked on another 5-cent increase 
this month. This is because of the price of milk containers. 
And of course, the polyethylene resins that are used to make 
milk bottles comes from natural gas.
    Mr. Gerard. Congressman Peterson, I hate to keep taking 
your time. One of the things I was reminded of, in the energy 
bill you just passed, there is an authorization for energy 
efficiency public education campaigns, and we would encourage 
you to try to fund that as soon as possible at the Department 
of Energy to try to get the efficiency message out, but also 
educate the public on how serious this increase in natural gas 
prices is.
    Mr. Peterson. You talked in your testimony about competing 
with bulbs made in other countries. That is with cheaper labor 
and with cheaper energy, and you just gave me the thought that 
really scared me, because, Hershey foods is now paying the 
highest gas prices in the world to make Kisses. They are also 
paying the highest sugar prices in the world. It is the blend 
of things. Can you pay the highest prices for sugar and the 
highest prices for energy--and I love Hershey Kisses--God 
forbid we eat Hershey Kisses made in some other country. And we 
could, when you stop to think about it, because it is the 
layering of costs. You can't be high in three or four areas and 
be able to play the game.
    Mr. Oellig. Are you sure you're not?
    Mr. Peterson. No, I'm not sure. I don't think they are 
making them anywhere else.
    Mr. Hunt. Congressman, also, I think your first question 
about capital planning, obviously, the cost of materials and 
energy is a significant component of cost to production in 
deciding either way to expand or to install new facilities for 
new products. And we are no different from any other company 
trying to make those decisions. And you try to base those 
decisions based on proximity to your customer, as well as the 
lowest cost for production. But also, what information is the 
most reliable?
    And the way that we would look at the natural gas situation 
right now is that it doesn't look as if there is going to be 
much relief. We have seen prices escalating 25 percent per year 
in the past 5 years.
    How high can it go? Another 25 percent for the next 5 
years? And if that seems to be the prevailing trend, that will 
have a great influence on our decisionmaking about where to 
expand production facilities either here or some place else.
    Mr. Peterson. Thank you very much.
    Mr. Gibbons. Thank you very much. Let me ask just a couple 
of brief questions here that I would like to just kind of add 
to what has already been discussed.
    And Mr. Oellig, you talked about the cost of fertilizer 
going up significantly in your operation in the farming 
industry. Would it be cheaper for you today to buy fertilizer 
made overseas with cheaper gas?
    Mr. Oellig. We probably are, and I don't know it. It is 
like he was saying, the fellow next to me, at one time----
    Mr. Gibbons. Mr. Bennett.
    Mr. Oellig. Sorry about that. But at one time most of the 
fertilizer was produced in the United States, and now he says 
40 percent of it is imported. Well, I really have no idea 
whether I am using imported fertilizer or domestic fertilizer. 
But if nothing is done with natural gas, pretty soon all of our 
inputs will be imported.
    Mr. Gibbons. Let me ask Mr. Bennett a question then.
    Mr. Bennett, is there a substitute for natural gas as a 
feedstock for the production of fertilizer?
    Mr. Bennett. Not from a practical standpoint. Certainly 
hydrogen can be secured or sourced from other hydrocarbons. In 
an extreme example, coal gasification. This is a very capital-
intensive process, and today there is very little of that 
capacity in the United States or built in the United States.
    Mr. Gibbons. On a comparison basis, just so that we can get 
our mind wrapped around the difference in the cost of 
something, producing hydrogen like coal gasification, what 
would the price of fertilizer be if you had to go to coal 
gasification or producing hydrogen for fertilizer?
    Mr. Bennett. Well, it is a little bit difficult to answer 
in that way because at the end of the day the cost of 
gasification technology to produce fertilizer would take 
probably more than or as much as twice the capital expenditure. 
And these are very capital-intensive facilities.
    The replacement cost for one of our facilities would be in 
the vicinity of $500 million. And so one of these plants, of 
which there are a number left in this country, you would be 
looking at perhaps as much as $1 billion.
    We do think coal gasification technology, which has been 
supported in the energy bill, is important, but it is only part 
of a total, comprehensive approach to the solution.
    I would like to point out, though, that from a cost-of-
fertilizer perspective, as I indicated, this past year we 
imported what I believe is in excess of 40 percent of our 
nitrogen supplies; and what has really happened in this natural 
gas environment is that the U.S. fertilizer producer is the 
marginal producer in the world.
    Today, the world has a relatively balanced supply demand 
dynamic in nitrogen fertilizer, and so nitrogen fertilizer will 
generally seek a price that will allow enough marginal 
production to operate to satisfy demand. And so today, no, 
foreign fertilizer is not cheaper for our customers than 
domestic fertilizer; it is the same price. Certainly, the 
producers of that product have a much lower cost basis than we 
do because of the difference in feedstock costs.
    Mr. Gibbons. But they have transportation.
    Mr. Bennett. And there is some of that offset by 
transportation; there is no question about that.
    For us to be dead competitive with a foreign producer that 
brought product to the U.S., we don't need to have exactly the 
same gas costs because we do have some transportation 
advantages. But in today's environment, when stranded gas 
countries may be paying $1 or $2 in BTU and we are paying today 
perhaps $10 to $12, it is almost an overwhelming differential. 
And certainly freight can only make up a small percentage of 
that difference.
    Mr. Gibbons. Mr. Gerard, let me ask you a question.
    Mr. Gerard. Can I follow up on that real quick, Mr. 
Chairman?
    Mr. Gibbons. Yes, you may.
    Mr. Gerard. Thank you.
    When you look at it in the macro, one of the things we 
don't often talk about is the ripple effect through the 
economy. The U.S. chemical industry was the single largest 
exporter of goods from the United States. We posted a $20 
billion surplus. Today, we are a net importer. And we watched 
this change just over the last half a dozen years as we began 
to export our jobs out of this country and then turn around and 
reimport the product. But--I will get you some more data on 
that.
    But in the macro sense, I think that is a very significant 
change we are starting to see that affects our balance of 
payments and other things we haven't thought of.
    Mr. Gibbons. While you have the mike in front of you, let 
me kind of tag on to what Mr. Peterson was talking about; that 
is, the strategies that all of your consumer industries now are 
contemplating, about bringing the American public into the 
awareness regime about the need for increased natural gas 
resources and what it is doing to them.
    As I look at your industry, Mr. Gerard, you know, you in 
your testimony even said that you touch just about everything 
that you come in contact with in your life, whether it is in 
your home, whether it is in a school, whether it is in a 
hospital, whether it is in a workplace, or even to and from any 
of those places. You touch literally 300 million people in this 
industry. Now, maybe--I mean, in the country.
    Maybe I am missing something here, but you have an enormous 
opportunity to educate the American public throughout the 
course of everything they do, whether they are looking at a 
milk bottle or a milk carton, or buying something at a store, 
whatever. It would seem to me that there is an opportunity for 
your industry to have a strategy to get to these 300 million 
people in this country.
    Are you contemplating that? And if you are, what are your 
thoughts on it?
    Mr. Gerard. We launched just 6 weeks ago, Mr. Chairman, an 
advertising campaign we call Essential To. I don't know if you 
have seen the ads on some of the cable channels. It talks about 
the essential nature of chemistry, and it attempts to connect 
the dots between the reality of our everyday living and also 
the role and relationship of chemistry to that living.
    Now, we have to go back, and we are talking internally 
about what we need to do specifically to gas; but I will say on 
that, we have started that, recognizing there is a disconnect 
in the public's mind between all of these products--consumer 
products, cosmetics, the milk jug, all the rest of it--and 
really where that comes from.
    In 2006, we will spend over $20 million in this country to 
connect those dots. We need to go back and think further 
about--specifically on the natural gas crisis and what we can 
do there.
    Mr. Gibbons. You know, I am reminded of the fact that 
somebody said once that when they talk to their constituents, 
they thought about gaining more electricity, all you had to do 
was go over and turn the light switch up on the wall. If they 
needed more gasoline in their car, they just went to the gas 
station and pumped more into it. They have no concept beyond 
that immediate first contact, to them--what the source or the 
logistics of getting that product to them may be.
    Let me finalize with one question to Mr. Hunt, because I 
know that you are in a vital industry. I mean, we are sitting 
here today in this very room illuminated because of a lot of 
the work that company does, Sylvania, in light bulbs. I mean, 
when we look around here, much of what we see is permitted by 
the industry that you have. And thank you for that.
    But I am concerned that the competition overseas may 
require you either to downsize to the point where you are not 
the significant company that we all look to when we buy a set 
of four light bulbs at the grocery store. You know, I want to 
see them stay U.S.-made.
    What is your strategy in terms of efficiency, in terms of 
even a natural gas policy in this country, that will help you 
maintain your lead in the industry?
    Mr. Hunt. Well, Mr. Chairman, thank you for those kind 
remarks about our company.
    I think one thing I would say at the outset is that no one 
here is looking for a handout, and we are not looking for a 
subsidy. We are basically looking for free market economics to 
work, so that there is a greater reliable supply of gas and 
prices are moderated.
    The way that we have historically dealt with these sorts of 
escalating costs, no matter what the area of production, is 
through conservation, is through productivity, is through 
automation. At some point, though--and I think I referred to 
this in my written statement--the limit to what our knowledge 
is in terms of the productive use of gas to melt glass to make 
tubing in bulbs has produced productivity savings between $1.5 
and $2 million a year.
    Now, if gas prices are going up to a level that will 
increase our costs by $7 or $8 million a year, I mean, you 
don't have to be a mathematician to figure out it is a losing 
battle; and at some point, the levers that you can pull are 
running out. And many manufacturers have found really no choice 
but either to move production offshore or actually sell out to 
a non-U.S. organization.
    Our strategy essentially is to continue to use innovation 
and find ways to be more productive, but at the same time we 
like to encourage that--give us a fighting chance with free 
market operations in natural gas and help lift the artificial 
barrier to more efficient operations that will keep all of us 
globally competitive and keep good high-paying jobs here in the 
U.S.
    Mr. Gibbons. Thank you. Thank you, Mr. Hunt.
    As you can tell, none of us up here on the Committee have 
any concept of the 5-minute rule. We have all gone over 
significantly. And I will turn to my friend, Mr. Abercrombie, 
for any additional questions he may have.
    Mr. Abercrombie. Mr. Chairman, could I be allowed to enter 
into the record--as a result of the good offices of Mr. William 
Whitsitt, who is the President of the Domestic Petroleum 
Council, I think in response to some of my questions about the 
availability and the extent to which natural gas could be 
utilized in an effective, alternative energy way, he gave me 
testimony which was a statement of Charles Davidson, the 
Chairman, President, and CEO of Noble Energy, Inc., on behalf 
of the Domestic Petroleum Council and the Independent Petroleum 
Association of America on offshore natural gas and oil 
exploration and production technology before the Senate 
Committee on Energy and Natural Resources, April 19 of this 
year.
    Mr. Gibbons. Certainly. Without objection, we will submit 
that for the record.
    [NOTE: The statement submitted for the record has been 
retained in the Committee's official files.]
    Mr. Abercrombie. And perhaps I can build off of that in the 
questions I wanted to explore.
    As you can see, even here in this testimony that is 
provided by Mr. Davidson--through, as I said, Mr. Whitsitt--is 
Mr. Whitsitt here? If you would raise your hand.
    Thank you very much.
    Even there, what happens in most of the Committee hearings 
that we have, it comes up to oil and gas, even oil and natural 
gas. And as Mr. Peterson pointed out, for the layperson, 
generally when they hear about this and they hear the word 
``gas,'' they don't even think of the phrase ``natural gas,'' 
they think it is about gasoline.
    So can somebody tell me, are the companies who explore for 
gas, natural gas, separate from oil companies? Are they one and 
the same? Is there a percentage? Are there independent natural 
gas producers, independent of oil companies? Or have they all 
been absorbed? Or are natural gas companies junior partners or 
little brothers or little sisters to oil companies?
    Can anybody enlighten me on what the configurations of 
production companies, exploration and extrication companies 
are?
    Mr. Bennett. I think I can in a broad----
    Mr. Gibbons. Would the gentleman yield for a minute? I know 
that Mr. Whitsitt is in the audience here. Would you care to 
sit at the table, Mr. Whitsitt, and answer these questions?
    Mr. Abercrombie. I probably should have asked that, Mr. 
Chairman. Thank you.
    Mr. Gibbons. So if you wouldn't mind, just pull up a chair. 
And we are putting some of our witnesses in an uncomfortable 
position of talking out of school.
    Mr. Abercrombie. We haven't put you under oath, Mr. 
Whitsitt, so don't worry, the Justice Department isn't going to 
be outside the door.
    Mr. Whitsitt. Thank you, Mr. Abercrombie. I appreciate it.
    Mr. Gibbons. What I would ask you to do is to please state 
your full name, your title, and who you work for, for the 
record.
    Mr. Whitsitt. Sure. I am William Whitsitt. I am President 
of the Domestic Petroleum Council. And we represent 24 of the 
largest independent exploration and production companies that 
are based in the United States. They are also international 
companies in that they operate in 54 countries overseas and a 
good number of the 70-plus other countries that allow offshore 
exploration and production.
    Mr. Abercrombie. So you could answer, then, some of the 
questions that I posed previously. You don't have to do it 
right now, but if you would be kind enough to take into account 
what was asked; and if there is something you could give us in 
writing, I would be grateful.
    But could you answer that question for me: Are natural gas 
exploration companies separate, junior partners? What are we 
talking about?
    Mr. Whitsitt. Generally, they are not separate. Oil and gas 
exploration and production companies explore for both oil and 
gas.
    Now, in our case, the large independents, we happen to be 
focused primarily on natural gas because of the nature of the 
resource base in the United States; onshore and offshore, we 
are about 70 percent gas production. But companies explore; 
even if they want to find oil or gas, sometimes they find the 
other. Technology is the same.
    Mr. Abercrombie. Good. If we were able to pass this bill, 
if we were able to get it out of Committee, get it on the 
Floor, get it through the Senate and everything that it takes 
to get legislation through, would it be possible for the 
companies that you know about, or for that matter, those that 
you represent, to explore and extricate natural gas separate 
and apart from what you might naturally come upon--no pun 
intended--in terms of oil?
    Mr. Whitsitt. The technical answer is ``yes.'' and in some 
cases where we have enough knowledge, we are pretty confident 
that we are going to find gas. But it is not always a 
certainty; and you could run the risk of finding oil and not 
being able to produce it, and that is not a good thing. So it 
does increase the risk.
    But I will say that in conversations with our executives, 
it is absolutely clear that as a step toward the access we 
need, we have accepted the notion, and we believe a number of 
companies would in certain areas where their science is--where 
they have confidence in their science, they would be interested 
in exploring for natural gas and accepting some risk.
    Mr. Abercrombie. Thank you. Perhaps you could even, again, 
contact the Committee in writing about what you feel about 
those things, because I am abusing the time of the Chairman 
here already.
    But you understand what our difficulty is, right? You 
understand what the legislative and ideological difficulty is 
that the Chairman and Mr. Peterson and I are up against?
    Mr. Whitsitt. Absolutely. It is a political problem.
    Mr. Abercrombie. It is a political problem. It definitely 
is a political problem, and it has real consequences for 
members who maybe would like to vote for this, because they run 
the risk--and it is a real risk, it is not something to be 
dismissed lightly, and I certainly don't do that--of being 
castigated for being--I am already a tool of your institute, 
for example. Hell, I don't even know where you are, but I am 
already a tool of your council.
    Now, I look at it, back, like speaking for the farmers here 
on the estate tax. I used to be a tool of labor and now I am a 
tool of capital, which shows that I am either very shrewd or 
stupid as hell.
    Mr. Bennett, real quick.
    Thank you very much. That is a terrific answer, and we 
needed to have it.
    Mr. Bennett, I had the opportunity to drive a hydrogen 
hybrid car the other day, and it was explained to me--again, I 
am not an engineer or an automotive engineer or anything. It 
was explained to me--and you had it down in your testimony 
pretty good about nitrogen--that natural gas is crucial to the 
manufacture of hydrogen, correct?
    Mr. Bennett. It is.
    Mr. Abercrombie. So if we are talking about even for 
alternative fuels--alternative cars, alternative fuels for 
cars, for trying to deal with the gasoline question, natural 
gas is crucial to the question of alternative hybrid cars; is 
it not?
    Mr. Bennett. I would----
    Mr. Abercrombie. Could you agree, hydrogen is a factor in 
that?
    Mr. Bennett. Yes. I am not an expert in that area, but 
based on fuel cell technology and other approaches, I believe 
that natural gas would be certainly an important feedstock 
component of that hydrogen.
    Mr. Abercrombie. OK.
    Then the last thing, Mr. Oellig--am I pronouncing your name 
correctly?
    Mr. Oellig. That is correct.
    Mr. Abercrombie. Mr. Oellig, you may be the key to all of 
this. Not you necessarily, personally, but you as 
representative of the farming interests of the country, as to 
how we get the message out here, following up on Chairman 
Gibbons' question and Mr. Peterson's.
    If we can get the farm state--now, ``farm state'' includes 
Hawaii. Some people say to me, Well, it is easy for you to 
talk; you don't have any Outer Continental Shelf oil or natural 
gas that might be in Hawaii, so it is easy for you to say, Go 
do it in the Gulf of Mexico or in the Atlantic, or whatever 
kind of thing.
    But I will tell you one thing: What I have been trying to 
do is to get ethanol going and to expand that and get the 
farmers to understand that we need to have--the politics is 
addition. And if you can get sugar cane growing and sweet 
sorghum, and you can bring in Texas votes and Florida votes and 
Louisiana votes and Hawaii votes, we can start growing 
alternative energy.
    You have farm organizations across this country that can 
help get this bill passed. We need a national farmers union; we 
need Willie Nelson and the Farm Aid folks. You can do this. You 
need to go and reach out to the Urban League so that people in 
cities understand that the food just doesn't come from the 
Safeway, that it has to be grown somewhere.
    We can reach out, it seems to me, to the environmental 
groups and say, If you want to protect farmland in this country 
and keep developers from taking it over, then you have to help 
us exist. The Chambers of Commerce, speaking to the Petroleum 
Institute and Council and others, chambers of Commerce should 
be all over this.
    And the AFL-CIO, this is something where management and 
labor can get together. This is a jobs issue. In my view, this 
is a jobs issue. This is a fundamental manufacturing, 
industrial jobs issue in this country that should subsume 
management and labor and farmers versus the city, the urban 
folks.
    Would you folks agree to that?
    Mr. Oellig. I would agree to that.
    I think one of the concerns we might have: Recently, oil 
prices and gas prices have dropped, and they just automatically 
think natural gas prices drop along with it; and I think that 
is an educational problem we might have.
    Mr. Abercrombie. Good point.
    Well, I think it is interesting when people talk about 
prices dropping for oil, we go from $60 to $57? I mean, I 
suppose that is a drop. But that is an interesting--what it 
means is that, psychologically, now we have already accepted 
the fact that $25 or $30 or $35 or $40 a barrel of oil is gone, 
so that we take some comfort in the fact that we have gone--
that those of us control--those outside forces that control our 
destiny have given us a little breathing room compared to what 
little oxygen we had before.
    So my mere point, and I am not trying to put this burden on 
you alone, but I expect you are a member of organizations, farm 
organizations. And all I am saying, here is an opportunity, I 
believe, for those organizations to reach out to other members 
that we need here. Because we can't pass this--and I am sure 
the Chairman will agree, we can't pass this if we are just 
going to rely on our own membership to do this. We are going to 
have to have some of the folks that are so interested in tax 
cuts and prescription drugs and all the rest of this stuff that 
occupies center stage right now, some of these organizations 
like the Chamber of Commerce, the labor unions.
    And I am going to reach out to the labor unions, I can 
assure you of that, the National Association of Manufacturers 
and so on, the restaurant association--stop worrying about the 
minimum wage and get your heads straight, those kinds of 
things.
    Or for that matter, the National Rifle Association; if you 
are going to have the leisure to go out and hunt, you have to 
have a job first. So maybe you ought to get those guys for 
rural hunting and all the rest of that stuff. If you want to 
have jobs out there in farm country, for the hunters out there, 
they ought to get on the ball and get on this.
    So that is what I am asking you folks to do. All of you at 
that table have national organizations with real reach and 
depth and power to be able to get other Members here, of our 
435, to respond positively to this. Because absent that, this 
will not pass, no matter what happens in this Committee.
    Thank you, Mr. Chairman, for your indulgence.
    Mr. Peterson. [Presiding.] If members of the panel have to 
leave, just quietly, we are going to extend a little bit if we 
can, because there are a few questions we have to----
    A message I would like to leave to all of you is a message, 
and we hope that a message to America is number one on your 
priority list, of the problems we face. We have to let 
everybody know about this crisis, but it needs to be broad.
    And I was a retailer for 26 years. And the homeowner, the 
plight of the homeowner should be in your message, no matter 
what you do; the plight of the church, I have churches that 
have already decided they are going to meet in the basement 
this winter. That is not right. That is just not right. YMCAs, 
schools, hospitals, and farmers.
    You know, unfortunately, I was a retail--the ones I just 
mentioned will get more people thinking about it than talking 
about jobs and you big companies. I mean, unfortunately, that 
is the way it is.
    When I talk about the business climate and how we are going 
to create jobs, people kind of--when you start talking about 
the homeowner, the church, schools, and the hospital, how we 
get hit all these different ways with these prices, we need to 
have the message be broad. And our message will be similar no 
matter who is giving it; I think it will be more effective.
    But I want to just shift for a minute, because I am for 
opening up gas any way we can, and there is one--I am just 
going to throw something out here that will probably get me in 
trouble.
    The President has the legal authority to take Lease 181 and 
put it in the 5-year plan, with the Secretary changing that 
plan today. Is there a strategy in business, especially in the 
business community, all of you, to ask this Administration to 
move forward on leasing 181 as fast as they can do it? They 
don't need legislation; am I correct?
    I am told I am correct. It is not in the current 5-year 
plan, but the Secretary, I am told, can change the plan. I 
mean, that may be in my next course.
    Has anybody thought about that potential? That is the 
fastest gas we can get.
    Mr. Gerard. We have asked and asked, and are continuing to 
ask. We are told--and I believe the Secretary testified on this 
over on the Senate side a week or two ago--that he believes 
that this current 5-year planning cycle, or whatever, needs to 
run its course; that he doesn't have the ability to do it 
without legislation right now.
    And I think that is a matter of opinion. Some people 
believe that is a correct interpretation, others don't. We have 
repeatedly asked; and we would be happy, Mr. Chairman, to lock 
arms with you and others and go down together and collectively 
ask, because we share your view. 181 is the quickest, the 
fastest, way we can get relief, and arguably it is the cleanest 
way to do it.
    So we are with you; and we do have a strategy, and we keep 
asking and we will continue to ask.
    Mr. Peterson. The other gas that is out there that was 
found, and the leases were, I think, given back. But the Destin 
Dome was located 20 miles, 25 miles from Florida. This gas 
could be produced very quickly. It is less than 10 miles from 
the gulf stream natural gas pipeline running from Mobile to 
Alabama to Tampa Bay, Florida. And in my view--I mean, I 
think--you know, I just think we are in a crisis. I am saying 
the word ``crisis'' with a capital C, because it is going to 
threaten--you know, if we lose any portion of these 4 million 
jobs, this is a different country.
    We have already lost millions of manufacturing--these are 
even better jobs. These are jobs that people have quality of 
life, have money to educate their kids, own a home, own a 
vacation place. I mean, these are the jobs we are going to lose 
that are the heart and soul of blue collar America that makes 
this country work. Those are the jobs we are going to lose.
    And they are all going to be replaced, if they are 
replaced, with jobs with less benefits, with less pensions, 
with lesser health care benefits. I mean, these are the premier 
jobs.
    That is my view; am I wrong there, the premier jobs left in 
America?
    With that, I will welcome to our Committee today my good 
friend, Mr. Faleomavaega, from Samoa.
    Mr. Faleomavaega. Mr. Chairman, I thank you. And I do want 
to offer my apologies to the members of the panel. I am sure 
that the testimonies that they have brought before the members 
of the Committee have been most edifying and, hopefully, get to 
a greater depth of information and bottom line--also educating 
our colleagues on this Committee about the importance of this 
energy resource.
    Mr. Chairman, I have as much natural gas in my district as 
there is oil in the State of Hawaii, so well represented by my 
good friend and colleague here, Congressman Abercrombie. But 
there is a commonality of the problems that we are faced with, 
like the States of New Hampshire, Rhode Island, Maine, and even 
the State of Massachusetts, talking about the seriousness of 
this effort to gain another added resource for the energy needs 
of our country.
    And in the hearings that we have had in the past--and he 
could not have stated more eloquently, my good friend from 
Pennsylvania, saying that Canada is currently drilling natural 
gas right on our borderlines and doing it in a very 
environmentally protected process. And for the life of me, I 
can't see any difference in how we were able to get that oil 
from the slopes of Alaska and build one of--what I consider one 
of the greatest successes, that Alaska pipeline, with all the 
fears about environmental destruction to this and that, showing 
that it is a wonder.
    Why can't we do the same in getting natural gas for the 
needs of our people?
    I visited recently the country of Bolivia that, I 
understand, is one of the biggest depositors of natural gas in 
the world. Now, do we have to import natural gas from Bolivia 
because we can't do it ourselves in our own country? I say not.
    And I think--and my own perception, I think there is a lot 
of sensitivity even by corporate America to be sensitive about 
the environment, but at the same time extract a resource that 
is very critical to the needs of our Nation's energy and the 
energy needs of our country.
    Now, believe it or not, I am a member of this Subcommittee 
because there are mineral resources in my humble district. 
Believe it or not, there are billions of dollars worth of 
manganese nodules. And maybe some of you gentlemen might have 
companies that may want to do some exploration in getting these 
manganese nodules, composed of cobalt, manganese, nickel and 
copper that grow in the bottom of the ocean. That is another 
subject that I want to get into in our Mineral Subcommittee.
    But I think this legislation is overdue, Mr. Chairman. I 
want to offer my cosponsorship, as well, to this proposed bill. 
And I sincerely hope that this will be an excellent joint 
effort on the part of management, our labor community, as well 
as the Congress, to see if we can push this legislation 
through.
    And I am absolutely certain that we are going to depend on 
you gentlemen for your leadership and for your sensitivity in 
educating America on how important this resource is for the 
needs of the American people.
    Mr. Chairman, with that, I thank you for giving me this 
opportunity to share my thoughts, and I look forward to working 
with our experts, the members of the panel that we have here 
before us.
    Mr. Peterson. This has been a group of about 12, and what I 
am proud of, it is about six Republicans and six Democrats that 
have been leading this. So it is bipartisan, and that is 
unusual around here.
    But we are getting lots of people coming--I don't have, 
there is not a day goes by that someone on the Floor doesn't 
say, John, I will be with you next time. And we haven't done a 
vote count yet.
    If we talk about this issue loud enough and clear enough 
and hard enough, all of us working together, we will educate 
the public, and they will be demanding that we do this.
    Mr. Faleomavaega. Will the Chairman yield?
    Mr. Peterson. Sure.
    Mr. Faleomavaega. I just want to make another added point 
that I think was stated in one of our markups, a concern about 
drilling in the Outer Continental Shelf and for the resources 
that are available there. And, of course, the concern expressed 
by some of our colleagues is the environmental damage that was 
done along the coastlines of some of the border States, the 
fear that doing this is going to cause a lot of harm to the 
environment and the shore, affecting, therefore, the tourism 
market that many of the States are dependent upon, the 
recreational fishing in all these areas.
    I think all these issues can be worked out if we really put 
our brains together, and our efforts, to see that if drilling 
has already been done off the shorelines of Louisiana and 
Florida successfully, why can't we do it for natural gas?
    But these are some of the things that we, as members of the 
Committee, have been concerned with, at least those who have a 
different view about drilling in the Outer Continental Shelf.
    But as I said earlier, Mr. Chairman, I do want to commend 
you for your initiative, and I really believe that this 
resource for our country's energy needs is necessary.
    And, again, I thank you for yielding.
    Mr. Peterson. Thank you.
    This is the beginning of a battle. I hope all of you will 
join us, and all of your friends and colleagues. At the moment, 
we are the only game in town. We were one of a couple of games 
a couple of days ago.
    But we need to put our shoulder to the wheel, and we need 
to do it quickly. I mean this sincerely. This needs to be an 
all-out push. I am going to--it is going to be an all-out push 
with me.
    As I shared a few moments ago, I just challenge this 
Administration. Maybe they had better step up to the plate and 
do what they can do, if they can do it. We are going to find 
out if they can.
    But we need to--as Alan Greenspan said to me, and maybe I 
shouldn't be quoting him. But he said, We need OCS, we need 
inland lead gas, and we need LNG for stability in our markets. 
Because--I want to conclude with this.
    You know, we had a debate this morning in a meeting whether 
we should be using natural gas or not for electricity. And I 
know where I would come down on that debate, but that is not a 
debate we need today. But natural gas can be the bridge to 
alternatives making a difference.
    Now, we all know there are those who think that windmills 
and sunshine is going to take care of us in the near future--
ethanol. And they can all be a part, and I hope they all grow 
as fast as they can. But when we have the prices for oil and 
gas we have today--a lot of things work, but unfortunately, 
they have not been developed and the system of creating them in 
the factories and plants that are needed to do them, and the 
pipelines to connect us, aren't in place.
    So, I mean, you are just years away, no matter what. But at 
$60 oil and $10 and $12 gas, a lot of things compete, and a lot 
of things will grow and prosper. But we in the interim, this 
country--if this country doesn't get its natural gas prices in 
line, we will not be the leading manufacturer and producer of 
anything in the world, in my view, because it just will put us 
in second, third, and fourth place. And that is not where this 
country ought to be.
    And it is not that we have to go anywhere--we have it, and 
it is the clean fuel. It could be taking the pressure off of 
refinery needs, which takes years to build, because all our 
school buses, all of our transit buses, all of our taxicabs 
could be using natural gas in the urban areas where they are 
not getting clean air attainment. Construction vehicles can be 
run on natural gas. That can be--we can keep our overall 
transportation system adequately fueled until we get refineries 
on line with natural gas. There are parts of the world that use 
it basically for transportation. I mean, it is not rocket 
science.
    So, in my view, natural gas is the bridge to the future. 
The current prices are a wall for this country remaining 
competitive, and we need to tear the wall down and have natural 
gas be affordable, so you can all get on with your businesses 
and grow and prosper and create those damned good jobs for 
American workers.
    Thank you very much.
    There will be additional written questions. We will have 10 
days to complete and submit answers to the Subcommittee. I want 
to thank each and every one of you panelists.
    Mr. Abercrombie. Mr. Chairman, just before----
    Mr. Peterson. Sure.
    Mr. Abercrombie. If it would be all right to ask Mr. 
Whitsitt to respond to what we did, and anything else you think 
would be useful in the context of this, feel free to get it to 
us and we will make it part of the record.
    Mr. Whitsitt. Mr. Abercrombie, Mr. Chairman, we will 
certainly do that. And I commend you. We absolutely need to 
move in the direction you are moving, and the progress we are 
seeing is, in large measure, because of these companies and 
associations here and their employees, who are getting angry 
about the gas situation.
    Mr. Peterson. Even my refiner in Warren, Pennsylvania, said 
he can't afford to pay the prices he is paying for natural gas, 
because he uses of millions of dollars of it to run his 
refinery. I mean, it is used by everybody.
    So, again, we want to thank all of you; and just keep up 
the fight. Thanks for coming and sharing today, and early this 
winter we will win.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]

    [A statement submitted for the record by the American 
Forest and Paper Association follows:]

               Statement submitted for the record by the 
                  American Forest & Paper Association

The Impact of High Natural Gas Prices on the Forest Products Industry
    The American Forest & Paper Association (AF&PA) applauds the 
subcommittee for recognizing the urgent need for a greater domestic 
supply of natural gas and Reps. Peterson and Abercrombie for offering a 
constructive solution that will advance the energy debate. We are 
pleased to provide comments about the impact of natural gas shortages 
on the manufacturers of America's wood and paper products and to offer 
suggestions for public policy that will increase the supply of natural 
gas that is critical to helping U.S. manufacturers compete both 
domestically and overseas.
    The U.S. forest products industry is vital to the nation's economy. 
We employ more than one million people and rank among the top ten 
manufacturing employers in 42 states with an estimated payroll of more 
than $60 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 manufacturing cost for the forest 
products industry, making up 18 percent of total manufacturing costs 
for pulp and paper mills--up from 12% just three years ago. Annually, 
forest products companies purchase about 400 billion cubic feet of 
natural gas. While today the price of natural gas in the U.S. hovers 
around $11 per million BTUs, in the last three months we have seen 
prices as high as $14. That is a twofold increase since July and seven 
times historic averages. 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, 
as pulp is sourced from around the world.
    Meanwhile, prices in the rest of the world are noticeably lower. 
For example, the approximately $12 per million BTUs cost of gas in the 
U.S. dwarfs gas prices in the UK (8.20) Japan ($5.25), Russia ($1.45), 
Indonesia ($2.70) and South America ($1.65). Prices of natural gas in 
South America are around $1.60, and in Russia the price for natural gas 
is less than $2 per million BTU, putting our industry at a significant 
competitive disadvantage. This disadvantage is on top of other 
competitive disadvantages we face. 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 directionally higher than the cost for some of the countries 
with which we compete, 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% 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.
    Since the late 1990s, our industry has lost more than 140,000 jobs 
in manufacturing lumber, wood products, pulp, paper and paperboard and 
closed over 200 mills. In October alone, three mills closed including 
the last paper mill in Houston, Texas, all of them citing high natural 
gas prices among the reasons for the decision to shut down.
    Ultimately, an adequate supply of energy at a reasonable price is 
needed for vibrant economic growth. Long-term solutions are essential 
to addressing this critical problem; however, it is also important that 
short-term steps be taken to mitigate the impact currently being felt 
by manufacturers. We believe that the Congress and the Administration 
should consider the following measures:
      Remove federal regulatory barriers to new energy supply;
      Support R&D efforts to bring on-line new energy 
technologies; and
      Implement demand reduction measures.

Barriers to Supply
    Lasting relief from high prices for natural gas can mainly be 
achieved by increasing the supply of natural gas. Federal restrictions 
currently limit access to offshore natural gas resources in the 
Pacific, Atlantic, and Eastern Gulf of Mexico Outer Continental Shelf 
(OCS). AF&PA believes that the OCS is critical to America's energy 
security. It contains huge, untapped resources of oil and natural gas 
that are critically important to sustaining our national economic 
growth and maintaining much-needed jobs in virtually every sector of 
the economy.
    For years OCS development has been limited to the Central and 
Western Gulf of Mexico. This has been a vital area--supplying almost 
30% of the oil produced in the U.S. and about 20% of the natural gas. 
Nonetheless, Hurricanes Katrina and Rita have reminded us that 
disruptions in supplies from this area have major national implications 
affecting residential, commercial and industrial consumers throughout 
the country. While this area will remain very important, it is clear we 
must expand access to supplies in other parts of the OCS. Expanded 
access to new OCS areas is needed to ensure adequate future domestic 
energy supplies.
    The National Petroleum Council estimates that there are 
approximately 300 trillion cubic feet (``Tcf'') of natural gas and more 
than 50 billion barrels of oil on the OCS off the continental U.S. that 
can be recovered using existing technology but which have yet to be 
discovered. This is enough natural gas to maintain current OCS 
production for almost 70 years and enough oil to maintain current U.S. 
oil production for more than 80 years.

Lease 181
    Some estimates indicate that Lease 181 might represent 20 percent 
of the entire Gulf gas production for the next six years. Most 
importantly, it is an immediate source of supply because the pipeline 
infrastructure necessary to transport the gas to market is already 
built and operational in the area. For this reason AF&PA supports 
opening the remaining Lease 181 area. It has substantial energy 
resource potential and access to existing infrastructure that could 
help speed delivery to energy users.

State Empowerment
    AF&PA also supports empowering states to explore and develop new 
natural gas sources and find ways to increase U.S. production. 
Specifically, we are in favor of the kind of approach outlined in 
Senator Lamar Alexander's ``Natural Gas Price Reduction Act of 2005,'' 
(S. 726) and Chairman Richard Pombo's Ocean State Options Act (OSOA). 
In these legislative vehicles, states are granted permanent authority 
to decide whether to pursue energy production off their shores or to 
extend the ban on development. Further, the proposals take the wishes 
of neighboring states into account when determining the boundaries for 
gas and oil leases. The legislation also provides coastal states some 
share in the revenues to manage better the onshore impacts of 
development.

Research & Development
    In the shorter term, research and deployment of technologies such 
as clean coal, coal gasification and biomass/black liquor gasification 
must continue to be pursued. For decades, the paper and forest industry 
has provided the majority of its own energy needs. Paper mills, for 
example, have run their paper machines using electricity largely 
supplied by mill-operated, on-site electric generators. We have 
embraced energy diversity. The industry has used 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
    Important R&D remains to be completed to prove that 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.

Environmental Technologies
    While industry has been making advances in the areas of energy 
efficiency and self-generation of electricity, there has been a major 
increase in the demand for natural gas without a corresponding increase 
in supply. In fact, government policies have restricted access to 
supply of U.S. energy resources while simultaneously encouraging 
increased consumption of natural gas for environmental reasons. 
Environmental regulations have also fueled the demand for natural gas 
by manufacturers. Congress must reconsider many of the approaches that 
drive manufacturers toward natural gas.
    We urge Congress and the Administration to make aggressive policy 
recommendations that will address the fundamental imbalance in natural 
gas supply for both the short-term and the long-term. Our nation's 
economic growth and the ability of U.S. manufacturers to regain their 
competitiveness are resting on the ability of Congress to do its part 
in achieving a balanced energy policy that will reduce natural gas 
costs for consumers.

                                 
