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




 
       MEETING AMERICA'S NATURAL GAS DEMAND: ARE WE IN A CRISIS?

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON ENERGY AND RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 14, 2005

                               __________

                           Serial No. 109-93

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
24-769                      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 GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

                  Subcommittee on Energy and Resources

                 DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia        DIANE E. WATSON, California
ILEANA ROS-LEHTINEN, Florida         BRIAN HIGGINS, New York
JOHN M. McHUGH, New York             TOM LANTOS, California
PATRICK T. McHENRY, North Carolina   DENNIS J. KUCINICH, Ohio
KENNY MARCHANT, Texas

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                   Lawrence J. Brady, Staff Director
                 Dave Solan, Professional Staff Member
                          Lori Gavaghan, Clerk
          Richard Butcher, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 14, 2005...............................     1
Statement of:
    Caruso, Guy, Administrator, Energy Information 
      Administration, Department of Energy.......................    15
    Magruder, Logan, president, Independent Petroleum Association 
      of Mountain States.........................................    52
    Slocum, Tyson, research director, energy program, Public 
      Citizen....................................................    59
    Watson, Rebecca, Assistant Secretary for Land and Minerals 
      Management, Department of the Interior.....................    29
    Zenker, Michael, senior director, North American Natural Gas, 
      Cambridge Energy Research Associates.......................    44
Letters, statements, etc., submitted for the record by:
    Caruso, Guy, Administrator, Energy Information 
      Administration, Department of Energy, prepared statement of    17
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................     4
    Magruder, Logan, president, Independent Petroleum Association 
      of Mountain States, prepared statement of..................    54
    Slocum, Tyson, research director, energy program, Public 
      Citizen, prepared statement of.............................    61
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................     9
    Watson, Rebecca, Assistant Secretary for Land and Minerals 
      Management, Department of the Interior, prepared statement 
      of.........................................................    31
    Zenker, Michael, senior director, North American Natural Gas, 
      Cambridge Energy Research Associates, prepared statement of    47


       MEETING AMERICA'S NATURAL GAS DEMAND: ARE WE IN A CRISIS?

                              ----------                              


                     WEDNESDAY, SEPTEMBER 14, 2005

                  House of Representatives,
              Subcommittee on Energy and Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:22 p.m., in 
room 2154, Rayburn House Office Building, Hon. Darrell E. Issa 
(chairman of the subcommittee) presiding.
    Present: Representatives Issa, Marchant, Watson, and 
Higgins.
    Staff present: Larry Brady, staff director; Lori Gavaghan, 
legislative clerk; Dave Solan and Chase Huntley, professional 
staff members; Richard Butcher, minority professional staff 
member; and Jean Gosa, minority assistant clerk.
    Mr. Issa. Good afternoon. First, as the Chair I would like 
to call this hearing to order. I want to apologize to all of 
those of you here for the hearing today because of a conflict 
by both the chairman and the ranking member required to be at 
another vote. Once again, I want to thank you for being here.
    Natural gas prices have been at record highs because of an 
ongoing tight supply and demand situation in the United States. 
Hurricane Katrina has put an increased pressure on markets. A 
healthy economy has already stressed the capacity of natural 
gas both here and abroad. Katrina, though, awakened us to the 
possibility of a supply side shock and that we could find a 
significant portion of our natural gas supply shut off for a 
not so short period of time.
    According to the Energy Information Administration, we are 
facing high energy costs this winter, spending on natural gas 
is forecasted to be 52 percent higher nationwide, with 
residential consumers in the upper Midwest experiencing an 
increase of 71 percent over last year to heat their homes.
    U.S. industry will also be impacted by higher prices 
because it derives 40 percent of its primary energy from 
natural gas. Many industry users do not have the option of 
switching to other sources of fuel when natural gas prices 
rise. As a result of high prices, we are no longer the world's 
top location for making chemicals. We are now a net importer of 
chemicals.
    Ongoing high prices have also helped to shutter 21 nitrogen 
fertilizer production facilities and production has moved 
overseas along with the highpaying jobs that industry normally 
has with it.
    Hurricane Katrina is not the sole cause for this sobering 
market outlook. In fact, the tight supply and demand situation 
and stubbornly high prices have been an ongoing problem for at 
least 5 years. The natural gas market has become a victim of 
its own success. Most newly-constructed homes are heated by 
natural gas. It is a clean burning and efficient fuel compared 
to other fossil fuel alternatives.
    But the biggest reason for the increase in year-round 
demand for natural gas has come from it being the preferred 
fuel and choice for electrical generation. Since the 1990's, 
for right or wrong purposes, almost every new electric power 
plant is powered by natural gas. From 1996 to 2000, the use of 
natural gas for electricity grew at an annual rate of 11 
percent a year. It is time to diversify away from natural gas 
as a cure-all for electricity generation. The recently enacted 
energy bill is a step in the right direction toward that goal.
    Clearly, events have caused a reexamination, or should 
cause a reexamination of our policies and practices in terms of 
domestic production. Some producers have suggested that onshore 
drilling operations should take place throughout the year 
rather than being restricted to seasonal activity, because it 
may have less of an environmental impact than dismantling, 
transporting and then rebuilding drilling pads. Likewise, some 
have suggested that natural gas exploration and production 
activities in the Outer Continental Shelf may have less of an 
environmental impact than oil drilling. I would appreciate any 
comments our knowledgeable witnesses may have on these 
activities and others.
    The fact is that we cannot meet our current and future 
needs without taking a number of positive steps. We must build 
flexibility to meet the demand for increasing domestic 
production. Without a doubt we must increase imports, at least 
in the short run, of liquefied natural gas. We must acknowledge 
that the most important use of natural gas is for industrial 
employment. It's for those items which do not have substitutes. 
Certainly, the fertilizer industry, which today is leaving the 
United States, is a classic example of an idustry dependent on 
natural gas, as is the production of pharmaceutical products 
and many other chemicals and plastics.
    It has often been said that natural gas is too good to 
burn, and yet that is what we are doing here today. There is a 
fundamental disconnect between our appetite for natural gas and 
our willingness to make the hard choices to satisfy it. It is 
time that we look at these hard choices.
    Today we will examine the current and future sources of 
supply for natural gas consumed in the United States, as well 
as the effect of regulatory policies on domestic production. In 
short, where will our natural gas come from and what are the 
economic implications of the choices we make to supply our 
demand for natural gas?
    It is often said here in Congress, and I will say it here 
because it fits, that we are facing a crisis in terms of 
adequate supplies, and with the effect of price on industry and 
employment we will be exporting more jobs in the short run. If 
we don't take steps, we will be exporting jobs in the long run. 
Will homeowners be able to afford their natural gas heating 
bills this winter, and if prices continue to skyrocket will 
they be able to afford it next winter?
    Katrina has made an already bad situation much worse. Let 
us not continue a policy that makes it inevitably worse even 
without hurricanes.
    We all look forward to hearing from our distinguished 
panel. We are pleased to have here today the Honorable Guy 
Caruso, Administrator of the Energy Information Administration 
at the U.S. Department of Energy. Welcome back again. The 
Honorable Rebecca Watson, Assistant Secretary of Land and 
Mineral Management in the Department of Interior. Welcome. Mr. 
Michael Zenker, senior director of North American Natural Gas 
at Cambridge Energy Research Associates. Thanks, Michael. Mr. 
Logan Magruder, president of the Independent Petroleum 
Association of Mountain States, and, I might say, a significant 
California employer; and Mr. Tyson Slocum, research director of 
the energy program at Public Citizen. I look forward to hearing 
their testimony.
    I would now yield to the ranking member, the gentlewoman 
from California, for her opening statement.
    [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.001
    
    [GRAPHIC] [TIFF OMITTED] T4769.002
    
    [GRAPHIC] [TIFF OMITTED] T4769.003
    
    Ms. Watson of California. Thank you, Mr. Chairman, and 
thank you so much for convening today's crucial, very, very 
important hearing. This subcommittee will play a vital role in 
examining critical issues regarding America's use of natural 
gas and its cost to consumers.
    In the upcoming months America will be faced with critical 
choices in considering the amount of energy it uses, how much 
it pays for it, and what the long-term outlook is for energy 
consumption in our Nation. Now, we are here to examine the 
current supply and demand of natural gas and investigate what 
we can do to help America's consumers from paying such enormous 
costs for these essential goods.
    Energy is in very high demand in the United States, and our 
country alone consumes 25 percent of the world's total energy 
supply and 24 percent of the world's natural gas supply. Demand 
is not standing still, but it is growing. Our current natural 
gas consumption rate is steadily increasing and prices are, as 
you know, at an all-time high. It is estimated by the Energy 
Information Administration that this upcoming winter the cost 
to heat houses using natural gas will be from 52 percent to 71 
percent higher than it was last year. The price, 
differentially, depends on your location in the country. 
Estimates from the American Council for an Energy Efficient 
Economy this year said the cost, adjusted for the higher 
transportation, natural gas, and electricity costs, will be an 
additional $2,105 to the average American household. We are in 
a situation where people will have to choose between adequately 
heating their homes and purchasing the bare necessities for 
survival. So this committee must investigate solutions that can 
help alleviate this problem.
    Why is the United States increasing consumption and paying 
these tremendous amounts for natural gas? We have seen prices 
of natural gas soar over the past year, with wholesale prices 
more than doubling from less than $5 per million Btu last 
September to all-time record highs of around $11 today. Energy 
companies are taking in revenues at rates never seen before. 
While I stand by the American ideal of a free-market society, 
my constituents should not be held hostage to heating and 
rising gas prices that will crush their household's budget. So 
I am greatly concerned, because we just had this debate with 
our seniors over prescription drug prices. Just imagine the 
added burden for this sector of American society, in addition 
to a majority of Americans that struggle just to make ends 
meet.
    The effects of Hurricane Katrina have also played a huge 
role in our offshore natural gas production in the Gulf of 
Mexico, as well as onshore natural gas processing facilities. 
Our energy problems preceded Hurricane Katrina with tightness 
resulting from surging demand over the past few years. What 
Katrina did was expose underlying problems in our energy 
markets and infrastructure that we must address to avoid 
spreading the pain that has been inflicted upon those in the 
gulf coast and the broader country. In particular, I reiterate 
that I am concerned about the impact of higher energy prices on 
those least able to absorb the cost.
    While much of the focus has been on a single fuel such as 
today's topic of natural gas, the reality is that our problems 
are much deeper and more interrelated. In the past we have been 
able to switch between energy resources to relieve tightness in 
a single market. What the United States faces now is tightness 
in all major energy markets, which has put the country in an 
energy straightjacket. As a result, we need to look at reducing 
the demand for all energy to help rebalance our market.
    Like so many of my fellow Californians, I can speak 
firsthand on the energy crisis in my home State, which was 
caused by short-sighted planning. Katrina is a natural disaster 
of catastrophic proportions. Supply side shock, whether it is 
by market manipulation, price gouging, production disaster, or 
transportation difficulties, must not be allowed to cripple our 
country.
    Unfortunately, the recently passed energy bill is 
environmentally costly, favors large businesses, and contains 
inadequate solutions to reduce foreign energy dependence. I ask 
that we revisit and support responsible legislation that will 
produce effective long-term solutions.
    I am fully aware that our Nation must find alternative 
energy sources, but we must do so in a very responsible way and 
in a way that will not sacrifice our precious resources such as 
the Arctic National Wildlife Refuge. We do not need to weaken 
environmental responsibility regulations.
    According to the Bureau of Land Management, the data 
clearly shows that they have issued far more drilling permits 
than the industry has been able to use. Yes, we are in a 
crisis, but a crisis does not mean that we should not act 
responsibly and reasonably with due care. As legislators, we 
should direct resources to the next generation of science with 
the knowledge that it will produce more energy more efficiently 
with less risk to the environment than the outdated and 
wasteful practices of the past.
    Refocusing on the topic of the day, the bottom line is we 
need to facilitate the short and long-term solutions for 
effective natural gas production and consumption while keeping 
prices affordable.
    Mr. Chairman, I look forward to the testimony, and I thank 
you for bringing this subject to us today.
    I yield back.
    [The prepared statement of Hon. Diane E. Watson follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.004
    
    [GRAPHIC] [TIFF OMITTED] T4769.005
    
    [GRAPHIC] [TIFF OMITTED] T4769.006
    
    [GRAPHIC] [TIFF OMITTED] T4769.007
    
    [GRAPHIC] [TIFF OMITTED] T4769.008
    
    Mr. Issa. Thank you very much, Ms. Watson. Is there any 
other Member that wants to make an opening statement? The Chair 
recognizes the gentleman from New York for his opening 
statement.
    Mr. Higgins. Thank you very much, Mr. Chairman. I don't 
have a written statement, but I do want to offer some thoughts 
relative to perspective.
    What you see happening here is indicative of not having an 
effective energy policy in this situation relative to the 
demands that our economy places on the supply of natural gas 
and oil, which puts us in a very, very difficult position, from 
a practical standpoint, and from an economic standpoint.
    If you look at the history of this economy, any time 
natural gas prices and oil prices increase from 50 percent from 
the year before, the world economy and the national economy go 
into recession. They go into recession because what typically 
happens is the producers are in a very small concentration of 
countries, and they are taking all of the revenues, and all the 
money that would typically be spent in our economy for other 
things goes to those countries. Thus, people's ability to buy 
things and to sell things in the traditional economy is 
significantly compromised.
    But what most concerns me, at least in the shorter term, is 
the place that I come from, Buffalo, NY. Buffalo, NY, like many 
northeastern cities, is economically depressed. Buffalo is 
statistically by population loss and job loss the weakest 
economy in the entire State of New York. We also experience 
very cold winters. When you look at statistics, the fact of the 
matter is that there is going to be a 50 to 75 percent increase 
in the cost of home heating using natural gas. That doesn't 
even speak to the other sources of home heating.
    Additionally, this administration cuts from year in and 
year out the appropriations for the Home Energy Assistance 
Program, which directly impacts low income and senior citizens 
in the Buffalo, NY, area, and throughout the entire Northeast 
and those other regions of the country who experience 
inordinately cold temperatures during the winter months.
    So what I would like to hear today is less of an analysis 
of the problem and more solution-based responses. I know that 
perhaps that sounds like an oversimplification, but I think, we 
have enough analysis in front of us. We see that the natural 
trends, the traditional trends, have had an adverse impact 
relative to natural gas supply not meeting the demand. We also 
see that a natural disaster has also adversely impacted the 
supply side of providing natural gas.
    But I think what people, particularly in Buffalo, NY and 
throughout this Nation are looking for, are clear, decisive 
answers to these problems, both in the short and the long term. 
With this expert panel of witnesses, that is what I am hoping 
to hear from this testimony today.
    Thank you very much.
    Mr. Issa. Thank you. I might also agree with the gentleman 
from New York that we focus on, well, if we went from a SUV to 
a more efficient vehicle how much fuel we could save, no 
question at all.
    However, if you drive 15,000 miles a year on a 20-mile per 
gallon vehicle, you are only consuming $2,250 at $3 a gallon 
worth of fuel. So very clearly, we have been looking at the one 
area that has a limit to how much we really consume and how 
easily we can reduce it. Having been a Clevelander, I would 
share with the gentleman I do understand it is much more 
difficult to find a way to keep your home warm by simple 
changes in choice.
    With that, I would ask that all of the witnesses rise and 
also anyone who is going to advise the witnesses to take the 
oath.
    Ms. Watson of California. Mr. Chair, would you yield for a 
just a second?
    Mr. Issa. Certainly.
    Ms. Watson of California. I wanted to announce at the end 
of my statement that I wanted to submit the testimony from Neal 
Elliott from the American Council for an Energy-Efficient 
Economy for the record.
    Mr. Issa. Without objection. That and any other revisions 
or openings statements not entered here will be allowed into 
the record.
    [Witnesses sworn.]
    Mr. Issa. Record that everyone here answered in the 
affirmative.
    The committee appreciates the substantive written testimony 
that each witness has submitted for the record. I respectfully 
ask that you consider it all heard and seen by us and use your 
5 minutes of initial statements in order to add or find 
additional items that you would like to have in the record. 
However, it's your 5 or so minutes, and we respect the fact 
that you know what you need to present to us.
    Since I have already introduced the witnesses, I would like 
to start with Mr. Caruso for his opening statements or his 
testimony.

  STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION 
              ADMINISTRATION, DEPARTMENT OF ENERGY

    Mr. Caruso. Thank you, Mr. Chairman, and members of the 
subcommittee. I appreciate the opportunity to present the 
Energy Information Administration's views on the recent 
developments in energy markets, with a focus on natural gas and 
the impact of Hurricane Katrina.
    EIA is a statistical and analytical agency within the U.S. 
Department of Energy. As such we do not promote, formulate or 
take positions on policy issues. But even before this tragic 
natural disaster, crude oil, gasoline prices and natural gas 
were already at very high levels. On August 29th, the average 
gasoline price was $2.61. Diesel prices were $2.59. Crude 
prices were about 60 percent above where they were over the 
same period due to strong growth on world oil demand, in which 
we have used up much of the world's surplus productive 
capacity. Refineries, not only in the United States but in 
Europe and in Asia, were running at very high levels of 
capacity, and the production of distillate fuels and the higher 
than average refinery outages this summer led to a tight 
gasoline supply.
    So the picture before Katrina was a tight oil market and an 
even tighter natural gas market with prices above $10 per 1,000 
cubic feet. Katrina has had a significant impact, particularly 
on gasoline, diesel fuel and natural gas prices, with gasoline 
prices reaching $3.07 for the national average on Labor Day. 
They have come down by about $0.11 in our survey just this 
Monday, but nevertheless they are still about $1 a gallon above 
where they were a year ago. Natural gas spot prices at the 
Henry Hub Center have risen sharply, reaching over $13 per 
1,000 cubic feet on August 31st. Prices have declined somewhat 
since then and are staying at about $11 per 1,000 cubic feet.
    In the near-term, the outlook for the oil and natural gas 
markets will depend on a number of factors, most importantly 
the timing and pace of the recovery to the infrastructure and 
operations in the gulf. Production of both oil and natural gas 
in the Gulf of Mexico has recovered somewhat since the initial 
shut-in in amounts of oil and gas. My colleagues and Secretary 
Watson, will go into more detail about that.
    With crude oil from the Strategic Petroleum Reserve 
available to refiners and the full operation of crude and 
product pipelines restored, the rate at which refinery capacity 
affected by Katrina and which it can be brought back online is 
certainly a major factor which will affect petroleum markets 
this winter.
    Fortunately for natural gas markets, we are in the shoulder 
season between the period of high demand for electricity, 
generation for air conditioning and the high demand for 
heating. The level of natural gas in storage remains above the 
5-year average, but the disruption in operations due to Katrina 
is likely to reduce the amount put into storage during the 
remainder of the injection season.
    Our understanding with respect to natural gas production 
and processing is evolving rapidly, but we are concerned that 
about two or three of the remaining natural gas damaged 
processing facilities may take several months--and this 
certainly can affect our ability to put gas into storage for 
the winter. Even if the energy system is nearly or fully 
restored by December, the high prices for petroleum products 
and natural gas are likely to remain.
    In our most recent short-term energy outlook, which was 
released on September 7th, we used three recovery cases. I will 
focus this afternoon on our medium recovery case. In all of the 
cases normal operations are assumed to be achieved or nearly 
achieved by December. Natural gas markets are likely to stay 
tight over the next couple of months as the heating season 
begins.
    Based on present trends, we expect natural gas prices this 
winter to be significantly higher than last winter, that we 
expect residential natural gas prices in the medium recovery 
case to be about 47 percent higher than the heating season of 
2004-2005. And as has been mentioned, the north central region 
in the Midwest is likely to see some of the highest price 
increases this winter, nearly 60 percent. On a per household 
expenditure basis for natural gas, we expect that the north 
central region will see price expenditures increase by about 70 
percent compared with last year.
    So clearly this winter the economic pain of higher prices 
for heating by either natural gas or heating oil is going to be 
felt across this country, but probably the Midwest region will 
probably suffer the largest increases.
    With that, Mr. Chairman, I would be happy to answer 
questions when you deem appropriate. Thank you.
    [The prepared statement of Mr. Caruso follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.009
    
    [GRAPHIC] [TIFF OMITTED] T4769.010
    
    [GRAPHIC] [TIFF OMITTED] T4769.011
    
    [GRAPHIC] [TIFF OMITTED] T4769.012
    
    [GRAPHIC] [TIFF OMITTED] T4769.013
    
    [GRAPHIC] [TIFF OMITTED] T4769.014
    
    [GRAPHIC] [TIFF OMITTED] T4769.015
    
    [GRAPHIC] [TIFF OMITTED] T4769.016
    
    [GRAPHIC] [TIFF OMITTED] T4769.017
    
    [GRAPHIC] [TIFF OMITTED] T4769.018
    
    [GRAPHIC] [TIFF OMITTED] T4769.019
    
    [GRAPHIC] [TIFF OMITTED] T4769.020
    
    Mr. Issa. Thank you. We will hold those for the end and 
next go to Ms. Watson for--the Honorable Rebecca Watson, not my 
ranking member, for your statement.

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

    Ms. Watson. Mr. Chairman, Representative Watson, I 
appreciate the opportunity to discuss the role of the 
Department of Interior in meeting America's demand for natural 
gas. I would first like to acknowledge our Gulf State 
communities. It's difficult to comprehend the horrific impacts 
of Hurricane Katrina on so many people in the Gulf of Mexico 
region.
    The Minerals Management Service is part of the New Orleans 
family. Last week, when I testified to the Senate Energy 
Committee, 67 MMS employees were unaccounted for. Today we have 
located all but two individuals, and every effort is being made 
to find them. All of us at Interior extend our condolences to 
every individual impacted by Hurricane Katrina.
    Hurricane Katrina has dealt the central Gulf of Mexico 
region, its people and the oil and gas industry, a heavy blow, 
but we will recover. MMS, from a satellite office in Houston is 
working with industry to assess damage, facilitate repairs, 
expedite critical business processes and resume full production 
of oil and gas on the Outer Continental Shelf as rapidly as 
possible to meet the Nation's energy needs.
    The oil and gas produced from the Gulf of Mexico's Outer 
Continental Shelf plays a major role in supplying our daily 
energy needs. It accounts for about 29 percent of domestic oil 
production and 21 percent of natural gas production. The future 
of natural gas production in the gulf lies in the 
technologically challenging frontier of deep shelf and deep 
water gas.
    I want to have a slide put up on the screen. This map shows 
the path of Hurricane Katrina. It demonstrates that it moved 
through a core area of offshore operations.
    Accordingly, on August 30th, 95 percent of oil production 
and 88 percent of gas production was shut in. Today, as of 2 
p.m., 56 percent of oil production remains shut in and 35 
percent of natural gas production is shut in. Gulf of Mexico 
production facilities accounting for 90 percent of gulf 
production escaped significant damage.
    However, it is important to note, as Mr. Caruso did, that 
critical onshore support facilities and infrastructure 
sustained serious damage. The availability of these facilities 
will be a crucial factor in the recovery of the gulf's 
production.
    As Mr. Caruso noted, before Hurricane Katrina we were 
already in a tight supply. Demand for natural gas is expected 
to increase dramatically both here at home and globally and 
well into the future.
    The Federal Government plays a significant role in helping 
us meet this growing demand; 35 percent of domestic natural gas 
comes from Federal resources and 50 percent of undiscovered 
natural gas is expected to underlie onshore lands and offshore 
Continental Shelf resources.
    Accordingly, developing natural gas on Federal lands is a 
high priority of both the President's natural energy policy in 
the Energy Policy Act of 2005. Turning to onshore resources, 
five Rocky Mountain basins hold the second largest source of 
natural gas after the Gulf of Mexico. Those onshore basins 
contain about 139 Tcf of natural gas, enough gas to heat 55 
million homes for 30 years.
    More than half of those lands are on public lands, managed 
by the Federal Government. With high natural gas prices, 
development interest is high. For the past several years, the 
Interior Department has been implementing a balanced program to 
aggressively make available Federal natural gas resources, yet 
require industry to develop those resources in an 
environmentally responsible manner consistent with the laws 
that Congress has put in place.
    This next slide illustrates the progress that has been made 
in the last 4 years. We have issued more than 17,000 permits, 
which is a 74 percent increase from the last 4 years of the 
previous administration. Likewise, this issuance of permits has 
resulted in an increase in natural gas production of 17.4 
percent during this same time period.
    The next slide that I would ask to be put on this screen 
demonstrates one of the challenges. During this same time, 
however, we had pre-lease protests--these are administrative 
protests that were filed at the leasing stage, and these rose 
an astonishing 664 percent. Appeals of leases were up 253 
percent.
    These lease protests slow energy development by delaying 
lease or APD issuances. Leases are held up while these protests 
are resolved and the BLM field staff is working on addressing 
these protests rather than issuing APDs.
    High gas prices and high demand create high workloads. As 
prices rise, industry's perspective on what they want to 
develop changes. They may come in and say, ``Well, this is what 
we wanted to develop at this time, but these prices have made 
us become a little bit more ambitious.'' That requires us to go 
back and reanalyze the environmental impacts.
    We are not as nimble as industry is in responding to high 
prices. We can't pour resources and people as quickly to 
address these high prices. So we are not as responsive, I 
think, as industry would like us to be in issuing APDs.
    The good news is the Energy Policy Act is giving us 
resources and new direction and new timelines to address this 
high demand. We are hard at work at the Department of Interior, 
at the Department of Agriculture, at the Department of Energy, 
and other agencies, regulatory agencies, to meet the 
requirements in this act and utilize the resources to increase 
APD issuance. We look forward to working with Congress.
    I will be happy to answer any questions.
    [The prepared statement of Ms. Watson follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.021
    
    [GRAPHIC] [TIFF OMITTED] T4769.022
    
    [GRAPHIC] [TIFF OMITTED] T4769.023
    
    [GRAPHIC] [TIFF OMITTED] T4769.024
    
    [GRAPHIC] [TIFF OMITTED] T4769.025
    
    [GRAPHIC] [TIFF OMITTED] T4769.026
    
    [GRAPHIC] [TIFF OMITTED] T4769.027
    
    [GRAPHIC] [TIFF OMITTED] T4769.028
    
    [GRAPHIC] [TIFF OMITTED] T4769.029
    
    [GRAPHIC] [TIFF OMITTED] T4769.030
    
    [GRAPHIC] [TIFF OMITTED] T4769.031
    
    [GRAPHIC] [TIFF OMITTED] T4769.032
    
    [GRAPHIC] [TIFF OMITTED] T4769.033
    
    Mr. Issa. Thank you. Before we move on, because I want to 
make sure you have the full attention of the entire dais, not 
just the dais that remains here during the vote, we are having 
a series of three votes on the floor.
    So with your indulgence, we are going to recess for about 
15 to 20 minutes. Then all the Members will be returning 
directly afterwards.
    With that we stand in recess.
    [Recess.]
    Mr. Issa. The hearing will now come to order.
    Mr. Zenker, we would look forward to your comments. Once 
again, your entire written statement is in the record, so you 
may revise and extend as you see fit.

 STATEMENT OF MICHAEL ZENKER, SENIOR DIRECTOR, NORTH AMERICAN 
       NATURAL GAS, CAMBRIDGE ENERGY RESEARCH ASSOCIATES

    Mr. Zenker. Thank you, Mr. Chairman and members of the 
subcommittee. I appreciate the opportunity to appear before you 
today to discuss the natural gas market in the United States 
and recent developments from Hurricane Katrina.
    The market today for natural gas is very different from the 
one with which the Nation grew comfortable. Prices during the 
1990's, as a reference period, averaged $2 per 1,000 cubic feet 
at the wholesale level, reflecting abundant supply. These 
prices certainly encouraged consumption of this environmentally 
friendly fuel, led to restrictions on alternative fuels, and 
helped launch a large wave of power plants that burn nothing 
but natural gas, as you, Mr. Chairman, referred to. With the 
market today with wholesale prices over $4 per 1,000 cubic feet 
for what is now 35 consecutive months and over $7 averaging 
this year reflects a very different market.
    But I want to stress that these prices are not the result 
of some unexpected mysterious force or some event that caught 
the country off guard. Rather, the inability of continental 
supply to keep pace with demand is the single greatest reason 
for the sustained higher prices over the past few years. This 
supply disappointment is nothing new. In fact, U.S. wellhead 
capacity for natural gas has remained virtually stagnant for 
the last 15 years.
    Drilling for gas is up in the United States by over 175 
percent since 2002, yet supply is still down over that period. 
There are very few, if any, spare rigs available to drill more. 
Canadian supply, a key source for the United States, has 
faltered since 2001. Hurricane Katrina has only added to this 
picture by removing some of that scarce supply.
    But beyond winter, the challenge for the next few years 
will be to meet demand growth that has all but assured the 
power sector will comprise the bulk of demand growth. I think 
we have heard that already today. Economic expansion is going 
to push these power plants into higher utilization.
    The Energy Policy Act of 2005 is encouraging development of 
new coal, nuclear, renewable power sources--a very important 
step--but the lead time for these plants means they will 
provide no relief for the gas markets for the next few years.
    With demand growth virtually assured, let's turn to the 
outlook for supply. I describe in my prepared testimony the 
substantial investment that we see that is under way in the 
energy industry to bring new supplies. This will play out in 
our view and CERA's view as follows.
    Record level drilling in the United States and Canada will 
just offset declines from existing gas wells for no net growth 
in continental supply. Simply put, America's breadbasket supply 
regions are in collective decline, and there is not enough 
growth expected from the newer but smaller regions to offset 
losses from the larger ones. This assumes no liberalization in 
the land access rules. Significant additions of new LNG 
receiving terminals will allow growing levels of imports to 
catch up with demand. It's going to take some time, and it 
could potentially exceed demand.
    Importantly, CERA sees no feasible way to meet long-term 
natural gas demand without substantial new LNG facilities. The 
supply growth will begin to soften prices in 2008, in our view. 
Unfortunately that means, barring anything in the immediate 
term to change that course, price relief for natural gas 
remains as far away as 2008.
    Does this mean that there is nothing to be done to help 
shield consumers from higher prices for the winter, to 
Congressman Higgins' question? No, there are actions that could 
be taken to soften demand and thereby provide some price 
relief. Promoting conservation is the largest single action 
that we can do in the near term.
    As an example, if all U.S. consumers turn their thermostats 
down 2 degrees Fahrenheit for the coming winter, the resulting 
drop in consumption of about 8 percent would be bigger than the 
impact that Hurricane Katrina is causing to the markets. 
California, as I am sure the chairman recalls, cut electricity 
consumption by a greater amount in 2001 in the electricity 
crisis.
    In addition, relief can also be achieved by granting 
flexibility to existing power plants that can burn alternate 
fuels. California, as an example, could demand alternative 
energy from a power plant called Mohave to keep operating. 
Mohave is a coal-fired plant that is being shut down.
    I want to stress that these actions, if they are to be 
efficacious for the winter, should be undertaken with great 
haste.
    Finally, let me turn to the effects of Katrina. Katrina, of 
course, highlighted the precarious nature of supply in the 
United States, but Katrina also highlighted the adaptive nature 
of the gas industry. That supply was rerouted around 
bottlenecks, so that destruction was minimized. Mr. Caruso 
highlighted that bottlenecks are going to be gas processing 
plants for the next few months.
    Katrina also highlights the risk of concentrating our new 
LNG facilities in the Gulf of Mexico, and that is the current 
path the Nation is on. There is that concentration. A large 
hurricane less than 300 miles to the west of the path of 
Katrina would pass through this growing concentration of 
receiving terminals. While this is not a safety concern, 
because the terminals are built to withstand hur-
ricanes, it would certainly have a disruptive effect on supply 
in the future.
    This completes my testimony, Mr. Chairman, and I would be 
happy to respond to any questions the committee may have.
    [The prepared statement of Mr. Zenker follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.034
    
    [GRAPHIC] [TIFF OMITTED] T4769.035
    
    [GRAPHIC] [TIFF OMITTED] T4769.036
    
    [GRAPHIC] [TIFF OMITTED] T4769.037
    
    [GRAPHIC] [TIFF OMITTED] T4769.038
    
    Mr. Issa. Thank you very much. Now let me go on to Mr. 
Magruder for his opening testimony.

 STATEMENT OF LOGAN MAGRUDER, PRESIDENT, INDEPENDENT PETROLEUM 
                 ASSOCIATION OF MOUNTAIN STATES

    Mr. Magruder. Thank you very much. You have my written 
testimony. What I would like to do is just point out a few 
significant items of interest in that testimony.
    I am here representing IPAMS, which is a regional trade 
organization located in Rocky Mountain area. We cover 13 
mountain States within the Intermountain West. We have over 315 
member companies that make up IPAMS.
    I want to try to educate the subcommittee members a little 
bit about the uniqueness of the Intermountain West and what 
role it can play in meeting the U.S. natural gas demand/supply 
situation right now. We are in a unique position in that we are 
located in the center of the United States. Pipeline conditions 
right now are delivering about 80 percent of capacity to the 
West, about 85 percent of the capacity going to the East. So 
the Intermountain West is located in the center of the country, 
and we deliver natural gas mostly to the East Coast and the 
West Coast.
    I noticed from the make-up of your committee there are a 
lot of coastal representatives here. We have an individual from 
New York, California, and coastal situations.
    The thing that is unique about the Rocky Mountain area is 
that 50 percent of the lands are owned and controlled by the 
Federal Government. So that means that when we attempt to 
develop natural gas and oil in those lands we have to work with 
the Federal Government, with Secretary Rebecca Watson's group.
    Like the Gulf of Mexico, the Rocky Mountain region is a 
very important source of natural gas. We produce about 22 
percent of the production for the United States. So 22 percent 
of the natural gas comes out of the Rockies. It's not by 
coincidence, but 50 percent of that production is derived from 
Federal lands because 50 percent of the land mass is controlled 
by the Federal Government.
    Contrary to what Ms. Watson mentioned earlier, 60 percent 
of the APDs that have been issued have been drilled in 2004, 
and this is only 4 percent variance over the 5-year average. So 
we are executing on as many permits as we possibly can. Oil and 
gas operations only occupy about 1 percent of the land mass 
that the BLM regulates. So we have a very small footprint 
within the large vast areas of the Rocky Mountain region. Our 
limitations in adding more natural gas are directly related to 
attaining an adequate number of drilling permits on 
nonwilderness and nonpark lands. It is important we also obtain 
right of ways to be able to move the product out of those 
areas. You need to keep in mind that it only takes days or 
weeks to drill a well in the Rocky Mountain region. It doesn't 
take months or years to drill a well. So we can drill multiple 
wells in a very short time period, while at the same time the 
complementary permit process may take 6 months, a year, to 
receive a permit to drill an 8-day well. So thus, you know, as 
a result of that, we have to have a large inventory of permits 
in front of these drilling rigs in front of this--basically 
this manufacturing process for methane. So it is very important 
that we have an inventory of permits.
    The current NEPA process needs to be overhauled. I think 
that the BLM has done everything humanly possible to satisfy 
the demand of the industry. Ms. Watson mentioned that they are 
not as nimble as the industry, and I can tell you we are on the 
doorstep and we are trying to get every possible permit that we 
can get out of there to execute and drill wells. But the 
process needs to be changed. And I think it lies within NEPA, 
the interpretation of NEPA and the question of whether or not 
we are interpreting and applying NEPA correctly.
    Now, what can we do in the near term to try to satisfy 
demand for natural gas this winter? There are a couple of 
things you can do. In NEPA, you have the ability to execute 
categorical exclusions. This is basically where someone within 
the BLM at the field level can exercise good business judgment. 
I don't think we will sacrifice any standards, any 
environmental standards that are basically outlined within 
NEPA. But basically, for us to meet the demand this year, we 
are going to have to change what we currently do; otherwise we 
are at steady state, whatever it is today. That's about all we 
can do.
    We could also consider relaxing some of the wildlife 
stipulations in areas that are appropriate. The methane 
manufacturing business is about to shut down on November 15th. 
That's when the wildlife stipulations kick in in the Rocky 
Mountain region, so the factory is about to shut down. The 
question is: Can we apply good practices, best management 
practices, in areas that don't affect the wildlife and have 
everybody satisfied in the process?
    I think in closing, I would like to say that high natural 
gas prices are not the result of a cartel controlling supply. 
They are the direct result of an inefficient regulatory process 
that governs natural gas development on Federal lands. The 
Federal Government, as an owner of the largest natural gas 
reserves, has a responsibility to ensure the adequate supplies 
of this domestic resource owned by Americans, produced by 
Americans, and consumed by Americans is developed for the 
benefit of the public.
    I would like to thank you for the opportunity and I am 
certainly available for any questions.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Magruder follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.039
    
    [GRAPHIC] [TIFF OMITTED] T4769.040
    
    [GRAPHIC] [TIFF OMITTED] T4769.041
    
    [GRAPHIC] [TIFF OMITTED] T4769.042
    
    [GRAPHIC] [TIFF OMITTED] T4769.043
    
    Mr. Issa. Mr. Slocum, as with the other folks, we very much 
would appreciate your expanding upon your written statement, if 
at all possible.

 STATEMENT OF TYSON SLOCUM, RESEARCH DIRECTOR, ENERGY PROGRAM, 
                         PUBLIC CITIZEN

    Mr. Slocum. Thank you very much, Mr. Chairman, and other 
members of the subcommittee. I am Tyson Slocum. I am Director 
of Research for Public Citizen's energy program. We are a 
national consumer advocacy group. We represent about 160,000 
consumers across the United States. And I have done an 
extensive amount of research on energy markets.
    I last testified before this committee last year when I 
talked about the role of recent mergers in the petroleum 
industry, and lax regulations were having an impact on higher 
gasoline prices. After I gave my testimony, those findings were 
echoed by the U.S. Government Accountability Office.
    We focus on energy policies at Public Citizen and how they 
impact consumers. Speaking of energy policies, Congress and the 
White House recently passed an energy bill that was supposed to 
be comprehensive, but obviously it's not that comprehensive if 
we are holding a hearing today on what we need to do about 
natural gas policy. The only thing comprehensive about that 
energy bill, unfortunately, was the large financial incentives 
to energy producers. Public Citizen counted about $6 billion in 
taxpayer subsidies to the wealthiest corporations in the U.S. 
economy. We don't think that makes a lot of fiscal policy sense 
or energy policy sense at the time of record high prices. The 
market should be providing all that incentive, not taxpayer 
dollars.
    There was a lot of talk here on the panel today about 
demand and problems with rising demand and the Council, the 
American Council for an Energy Efficient Economy, provided 
testimony for the record that's available here today that 
outlines some very excellent policy steps to reduce natural gas 
demand by 10 percent by the year 2020. Public Citizen strongly 
supports backing those measures because clearly there are 
things that Congress can do to provide incentives to 
individuals and businesses to help us use natural gas more 
efficiently.
    I have also heard a lot of talk here today about natural 
gas production. I am familiar with a January 2003 Interior 
Department survey of natural gas and oil production on Federal 
lands that found only 12 percent of natural gas on Federal land 
is completely off-limits to drilling, and that leaves 88 
percent of Federal land either completely open or partially 
open to drilling. I think that should set aside any sort of 
argument that environmental regulations are somehow standing in 
the way of producing adequate amounts of natural gas.
    The one issue that I have not heard today is the problem of 
regulation over natural gas markets generally. I think it is 
very important to note the research that I compiled as part of 
my testimony that documents the significant problems that have 
been going on with natural gas companies in the United States. 
We have documented that America's natural gas companies have 
been fined over $2 billion in the last 3 years for manipulating 
natural gas markets. This clearly shows that we do not have an 
adequate regulatory framework over natural gas markets, and we 
feel that there is market manipulation continuing today in the 
United States. Absolutely, supply and demand is playing a role 
here, but we think that the evidence of massive amounts of 
market manipulation, as evidenced by the fines levied by 
Federal Government agencies, shows that we need a stronger set 
of regulations, kind of like what Congress did when they passed 
the Sarbanes-Oxley bill in the summer of 2002. Congress was 
presented with clear evidence of systemic fraud and abuse in 
the U.S. accounting sector and so as a result, Congress saw fit 
to greatly improve and strengthen regulatory oversight over 
that industry.
    Well, you forget that many of the accounting scandals were 
heavily concentrated in energy companies. And I think that 
there continues to be inadequate government oversight, and so 
Public Citizen has four basic regulatory suggestions that we 
offer to this subcommittee and we urge you to support them.
    The first one is to establish a just and reasonable rate 
standard over the production of natural gas. Currently, such a 
standard exists for the production of electricity. It is 
enforced by the Federal Energy Regulatory Commission. And 
because of that standard, companies like Enron that were 
engaged in illegal manipulative behavior during the West Coast 
energy crisis are now forced to provide refunds to West Coast 
consumers. In fact, just several weeks ago, Enron had to 
provide $400 million in refunds. That was only possible because 
the Federal Government has regulatory jurisdiction over the 
production of electricity. No such regulatory oversight exists 
over natural gas production.
    Second, we need to restore transparency over natural gas 
trading exchanges. Since 2000 these exchanges were deregulated, 
and we support legislation that was introduced in April by 
Missouri Republican Sam Graves that would restore and 
strengthen transparency and accountability over natural gas 
trading markets.
    Third, Public Citizen supports improving trading price 
limits. Right now there are very strict price limits on 
agricultural commodities like beef and lumber and milk. This is 
to reduce volatility. The price limits over natural gas are 
laughable. They are only $3 per 1,000 BTUs, and if that 
threshold is crossed, trading is only suspended for 5 minutes. 
This encourages a great deal of volatility and it allows hedge 
funds and other financial players to make a lot of money at 
consumers' expense.
    We also support exploring the concept of natural gas 
storage requirements modeled on the Federal strategic petroleum 
reserve. Thank you very much.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Slocum follows:]

    [GRAPHIC] [TIFF OMITTED] T4769.044
    
    [GRAPHIC] [TIFF OMITTED] T4769.045
    
    [GRAPHIC] [TIFF OMITTED] T4769.046
    
    [GRAPHIC] [TIFF OMITTED] T4769.047
    
    [GRAPHIC] [TIFF OMITTED] T4769.048
    
    [GRAPHIC] [TIFF OMITTED] T4769.049
    
    [GRAPHIC] [TIFF OMITTED] T4769.050
    
    [GRAPHIC] [TIFF OMITTED] T4769.051
    
    Mr. Issa. And with that, I am going to ask the first round 
of questioning. And perhaps just a comment to Mr. Slocum. You 
know, I am a little older than you are, and I have been in 
towns that enforced their speed by having a speed trap and 
caught everybody and collected a lot of money. And I have been 
in towns where they just sort of ignored the speed limit and 
people drove 10 miles, 20 miles, 30 miles over the speed limit.
    It was a surprise to me that in your opening testimony that 
you indicated that the amount of money you collect is an 
indication that there is no enforcement, or that there is a 
pervasive problem. I would say from my experience that the more 
money you are collecting, the more an agency is doing its job, 
and perhaps even collecting money when somebody even makes an 
unintentional error but makes an error for which there is 
fining. And you might want to try to in your future testimony 
try to break down the fines so as to eliminate logical good 
enforcement that is doing its job from the possibility of, as 
you said, a widespread lack of good enforcement. Today 
obviously we don't have the facts for it, but like I say, I 
look at $2 billion as a significant amount of enforcement.
    Perhaps I could open up by quoting yesterday, while touring 
the gulf and assessing the damage of Hurricane Katrina, Energy 
Secretary Bodman said, ``The great concern is about natural 
gas.'' Are we in a crisis? Will we have enough natural gas to 
heat our homes and run our factories this winter, and at what 
price?
    I guess for those who were involved in the pricing--and I 
am going to start with Mr. Magruder--are we going to have 
enough, and at what price?
    Mr. Magruder. I think we are in a situation right now where 
production is at pretty much a steady state. If you take the 
Rocky Mountain region as an example and its ability to deliver 
more natural gas, I'd tell you yes. We do have the ability to 
immediately deliver for natural gas because the wells don't 
take that long to drill. The infrastructure is already there 
and we can execute and eliminate some of the pressure this 
winter. I don't think it's going to be a solution, and I don't 
have the crystal ball to tell you what the price is going to 
be.
    We are certainly not pricemakers, as I mentioned in my 
testimony. But I just know if we don't take any action, we can 
expect higher prices and the current process is not going to 
work. I would hope that this subcommittee has the power to 
enforce or recommend some changes, and I personally think it is 
all behind the NEPA process. If you look at the way that the 
industry is able to execute and perform on State and fee lands 
in the same States and in the same vicinity, just a sand wedge 
away from a Federal lease, we are able to execute it within a 
matter of weeks. But it takes up to a year in a lot of cases to 
do the same thing, same procedure, same execution on a Federal 
parcel.
    So I think that yeah, we are in for a pretty tight winter 
if we don't take any action right now. We've got Katrina that's 
contributing to the supply picture. I don't know if we know the 
total outlook of the results of Katrina at this time. I think 
the jury's still out on that. But the Rocky Mountain region and 
the players in the Rocky Mountain region stand ready to 
perform, given the proper flexibility. And I don't think we 
will sacrifice any of the NEPA standards in the process.
    Mr. Issa. Thank you.
    Ms. Watson, I have a question and maybe--I want to make 
sure you're the right person for it. An application to drill 
taking 6 months for an 8-day drilling--there was some testimony 
that indicated that this, that the ratio between applications 
and actual drilling, I think 60 percent were being drilled and 
40 percent had not been drilled, if I understand correctly, 
creating a backlog of approved applications--costs the U.S. 
Government substantially zero.
    Why wouldn't we want to encourage the greatest amount of 
preapproved applications, the greatest amount of ability to 
preload flexibility, particularly for a crisis like this?
    Ms. Watson. Well, we are interested in processing 
applications for permit to drill, so we have zero incentive not 
to process them. But as Mr. Magruder testified, we have laws 
that we have to comply with--NEPA is just one of them--on 
Federal lands. In addition to the National Environmental Policy 
Act, which is a process to take a hard look at the 
environmental impacts, we also have to comply with the National 
Historic Preservation Act. States do not. We also have to 
comply with the Endangered Species Act, section 7. States do 
not have to comply with that. They have to avoid the take of 
endangered species. We have the Clean Water Act, the Clean Air 
Act. In other words, we have a number of Federal environmental 
laws that Congress in its wisdom has passed to protect and 
balance the environment with the need to produce energy.
    But I was struck by something that you said at the 
beginning of this hearing. You--or actually it was 
Representative Higgins, said this: He wanted to look at 
solutions. And I would like to identify for you that in the 
Energy Policy Act, we have some solutions, some of which are in 
effect right now, and they also go to a problem that Mr. 
Magruder identified. One that was put in effect the day the 
President signed the bill on August 8th is a requirement that 
we have to tell industry within 10 days whether their 
application for permit to drill is complete. If it is complete, 
BLM must process it in 30 days. That is in effect right now. We 
are going to issue two instruction memorandums to the field--
they just went out of my office yesterday--to instruct our 
field managers on these provisions of the act so they 
understand what they mean, and so we are getting to work on 
that provision of the act right now.
    Another provision that went into effect the day the act was 
signed are categorical exclusions that Mr. Magruder talked 
about. There are five categorical exclusions for APDs that are 
in the act; and again, we are working with the Forest Service 
and the Bureau of Land Management, because they apply to both 
of our lands, to get that written and prepared and out very 
shortly. It's in effect now, but we need to give the proper 
guidance to our field to implement that.
    And finally one of the issues that was raised on the issue 
of wildlife stipulations in year-round drilling, that is a very 
difficult question, the issue of balancing wildlife. Wildlife 
is important to many of these Western States. Many of those 
States have a significant income from hunting. It's part of the 
lifestyle of that State, part of what they look at as well as 
whether they enjoy hunting or not. We work with the State game 
and fish agencies and hunting groups to try and balance that. 
We are working right now in Wyoming and looking with a couple 
of companies up there at year-round drilling. How can we do 
year-round drilling and still keep the wildlife herds at a good 
level?
    We also implemented a policy just this summer on offsite 
mitigation. So while we are going to have wildlife impacts, we 
are going to mitigate those impacts through utilizing money 
that companies pay to purchase acreage elsewhere. And so we are 
trying to be flexible to address some of the concerns that 
industry has brought up.
    Mr. Issa. I appreciate that.
    And my final question is actually, again, or at least the 
first round is again is for Secretary Watson and Mr. Magruder.
    I saw that litigation in regards to natural gas production 
on public lands has greatly increased. To the extent that we 
have legal maneuvers tying up BLM resources and slowing down 
the natural gas process, is there a way that we can qualify and 
reduce these delays; and particularly noting that this is a 
jump from the Clinton administration at 666 protests to 4,429 
protests over a comparable period? I don't think there is any 
industry that is growing faster than this.
    Ms. Watson. It seems to be a booming industry. I'll agree 
with you there. It's quite a jump.
    Mr. Issa. So there are no lawyers considering going into 
gas drilling, I guess, at this time.
    Mr. Magruder. They don't need to take the risk. All they 
have to do is file the case.
    Mr. Issa. What can we do? Are there Executive powers that 
can be used to somehow streamline this process? Because it's 
not only, obviously, the quantity but the time they are 
consuming and the gas that isn't coming on-line as a result.
    Ms. Watson. I think the GAO did a study and examined the 
administrative appeals process and compared how the Minerals 
Management Service and the Bureau of Land Management handles 
these type of appeals, and identified the fact that the Bureau 
of Land Management has one more step in the process than does 
MMS. There is administrative action that the Secretary could 
take to address that.
    There is always, of course, Congressional action that 
Congress could take to address this situation. It is a tough 
situation. I mean, clearly there are folks out there that do 
not want to see public lands developed for any number of 
commodities' uses. Natural gas production is only one area. We 
are also seeing it in the renewable energy as wind energy is 
being developed. Geothermal. In your State of California, folks 
are stopping that as well.
    Mr. Issa. I understand that now wind is not good enough 
because a bird dies. So it is going to be interesting to find 
out what form of energy is acceptable.
    You know, solar also uses a lot of water to clean the 
lenses. It is interesting that everyone's found that 
conservation is the only answer so that we can save ourselves 
into energy self-sufficiency while producing zero energy. I 
have always found that to be interesting. Yes.
    Mr. Magruder. I would like to offer--we were talking about 
solutions, and I am certainly glad to hear that we have some 
memorandums that will be sent out pretty soon. And believe me, 
IPAMS is there to help implement those and assist any way we 
possibly can.
    But I'd like to suggest two things. And I think that--you 
know, we have existing locations using directional drilling 
technology; we can drill from the existing locations. If we 
were to introduce an order immediately that it's OK to operate 
within the given best practices defined for a given area that 
has a known recess, you can drill from the existing locations, 
we really don't do any further disturbance. We don't build any 
more roads. All we do is drill a second well from a given 
location. That could immediately offer more production and we 
could start that immediately.
    And the other thing is to do program-wide type permitting, 
similar to what the BLM is currently doing in the Powder River 
Basin. They will approve as many as 40 wells in one 
application. In other areas of the Rocky Mountain region, with 
the exception of that area, it has to be done site specific. 
Each individual well has to be permitted. If we are in a given 
area where we're basically just manufacturing natural gas and 
we are applying the same best practices approved by the BLM, 
the question is why can't we do--approve a certain area for 
development as opposed to very site specific, as long as we 
conform to the archaeological studies and everything else that 
was mentioned.
    So I think there is a lot of flexibility that can be 
granted and still meet the guidelines of NEPA and all the other 
requirements. Those two things would offer immediate increase 
in production.
    Mr. Issa. Excellent.
    And with that, I would recognize the gentleman from New 
York, Mr. Higgins, for his round of questioning.
    Mr. Higgins. Thank you very much, Mr. Chairman. Just again, 
thank you for your testimony. It's very helpful. But it's also 
very revealing.
    I think about where the problem is. There are some pretty 
divergent views here. Some are suggesting more regulation, 
others suggesting less. Some are suggesting that the energy 
bill was helpful. Some are suggesting that the energy bill just 
passed was harmful. The fact of the matter is it just seems 
like we're stuck. And we're stuck because we have become 
increasingly reliant on natural gas not only to heat our homes 
directly, but also as an alternative fuel source to electricity 
production. So whether you're paying a gas bill this winter or 
you're paying an electricity bill, that bill is going to be 
profoundly influenced by the price of natural gas.
    Mr. Slocum, you had mentioned that the new energy bill had 
some $6 billion in industry subsidies. Could you elaborate a 
little bit further? I don't quite understand.
    Mr. Slocum. Sure. Well, I mean first of all there are $27 
billion total in subsidies to the energy industry. I isolated 
$6 billion to the oil gas and natural gas industry. The largest 
tax break for the natural gas industry was just over $1 billion 
in tax breaks to allow them to depreciate the value of their 
natural gas pipelines much quicker than under current law. 
There are additional new government spending programs such as 
the new ultra deepwater drilling program that is $1\1/2\ 
billion in new government spending in direct subsidies to 
encourage research and development in new ultra water drilling 
in the Gulf of Mexico. There is an additional $1 billion in tax 
breaks for geological and geophysical expenditures that allows 
companies to write off more of the cost of production.
    Again--and then there's also a series of royalty relief 
programs. Again, Public Citizen strongly feels that the record-
high commodity prices for natural gas and oil should be 
providing all the incentives necessary to the industry to 
provide this product and that scarce taxpayer dollars should 
not be given to a highly profitable industry.
    Mr. Higgins. You know, the other issue here is the whole 
impact of Hurricane Katrina. Based on this map that was 
provided in our packet here, I mean, just the cluster of oil 
and gas platforms that are seemingly disproportionately located 
on the border of host States indicate a further problem that 
may be resolved in the longer term but obviously presents some 
severely complicating factors relative to the price of natural 
gas this upcoming heating season.
    On the issue of conservation, a number of you, all of you, 
have made, I believe, specific reference to conservation, and 
it seems like there is always a rhetorical run-up to the whole 
notion of promoting conservation toward the goal of reducing 
dependency and reducing costs. But I have reviewed the energy 
bill just passed by Congress, and I don't see it. I don't see a 
real and meaningful Federal policy with respect to conservation 
for individuals and for businesses. And when I say real and 
concrete, I mean meaningful financial incentives, meaningful 
incentives to really pull back or reduce significantly our 
consumption.
    Any thoughts with respect to that by any of you?
    Ms. Watson. Well, I think the--when we speak of the energy 
bill being comprehensive, I would like to defend the fact that 
it is comprehensive; and the bill begins with conservation, 
looks at supply and includes both renewable energy, fossil 
fuels, future sources such as hydrogen and methane hydrates and 
then looks at research and reports to develop energy. And as to 
conservation there are several measures in there.
    Now, what is meaningful is certainly in the eyes of the 
beholder. But there are measures there for Federal agencies 
with our fleet, and the Federal agency is the largest consumer 
of energy in the Nation. So these directives to Federal 
agencies to make their buildings and their fleets more 
efficient will have an important impact on energy supply.
    And I will tell you that the administration right now in 
light of Hurricane Katrina is looking at these conservation 
measures in the short term, and the direction of the energy 
bill is in there and it is an important prong. Now, it 
certainly is not what everybody wanted, but it is something 
more than minimal.
    Mr. Higgins. You know what I think it does now? Here's what 
I think it does. I think it provides just enough incentive for 
the development of alternative energy sources to say that we 
are doing something, and disproportionately provides incentives 
to the status quo. And the problem with that for me is that it 
doesn't change anything. It doesn't change anything. Because we 
are talking about it today, we probably talked about it last 
year at this time and the year before, and we'll be talking 
about it 10 years hence; because I think when you look at our 
whole dependence on energy sources, be it natural gas or 
foreign oil, we're really stuck. Unless we take aggressive 
measures to promote aggressive measures, real measures to 
promote real conservation, we'll continue to be stuck in this 
rut.
    The people who are held hostage are not the people who are 
being talked about here today, and that's the people who I 
represent, i.e., those who are going to get devastated in the 
next several months with not only extraordinarily high home 
heating costs, but extraordinarily high gasoline prices at the 
pump. And of this exacts a devastating impact on the economy of 
regions, particularly those that are most vulnerable in terms 
of climate, in terms of economics, but it is devastating the 
economy of this Nation as well.
    In my hometown we used to have a place, called Buffalo 
Color. Buffalo Color used to manufacture--a chemical company--
indigo dye, which was the supply source for all of the blue 
jean companies. One of the consequences of high natural gas 
prices is devastation of the chemical industry, including 
Buffalo Color in my community. So from an economic standpoint 
primarily, but there are so many other secondary impacts that 
filter through this economy that are really hurting us badly.
    I think it was Mr. Slocum who talked about other industries 
where problems had been identified, be it the financial or 
accounting industries, aggressive regulation followed which 
seemingly provided safeguards. I would rather not have to take 
into consideration more aggressive regulation of the energy 
industry. But toward the goal of greater transparency, toward 
the goal of greater accountability, toward the goal of fairer 
gas trading prices, that is something that this Congress needs 
to look at, because if we don't take more decisive action, more 
meaningful action, more real action, the problem is only going 
to get worse; because as all of you have agreed, the cost for 
natural gas increases roughly with the rate of inflation. As 
inflation increases, those prices will increase, and this is 
what will hurt our consumers and ultimately the world economy, 
and, more importantly, the U.S. economy.
    So, but I thank you. This was very helpful and you were all 
very informative and forthright. Thank you.
    Mr. Magruder. Mr. Chairman, I would like to comment on one 
statement earlier about all the incentives that were offered. I 
can guarantee you for an independent producer in the Rocky 
Mountain region, there were really no incentives offered in the 
energy bill other than greater flexibility on access, which we 
have talked about.
    We have a pilot project that was incorporated in the energy 
plan, energy bill, that identifies seven high-priority BLM 
offices in the Rocky Mountain region. That is really the only 
benefit that we truly gained.
    We actually lost ground. If you had to score the energy 
bill on our balance sheet, we actually lost ground. So it may 
be that deepwater drillers in 7,000 feet of water have an 
incentive. My hat's off to them for drilling in 7,000 feet of 
water and willing to take that type of risk. But in the Rocky 
Mountain region for the average driller and the average 
producer, other than the pilot program that the BLM is 
implementing right now to try to beef up the output of permits 
in the seven critical offices, really that's the benefit and 
that's the carrot that we are trying to bring to fruition. So 
the big question we have as an independent community, when will 
that be put in place?
    So if there is anything that you can do to help the BLM 
right now, it's to get behind that pilot program and make sure 
that's implemented. And I would seriously reconsider some of 
the actions that we could possibly implement and take 
immediately, drilling on existing locations in the Rocky 
Mountain region, that could offer additional production also.
    Mr. Issa. Thank you.
    And with that, we would recognize the gentleman from the 
drilling of oil and natural gas region, the gentleman from 
Texas, Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman. My questions are for 
Mr. Caruso, Ms. Watson, and Mr. Zenker. And it has to do with 
the liquefied natural gas market.
    Just a few months ago, I had an opportunity to go to South 
America on a narcoterrorism fact-finding trip. But while we 
were down there we were lobbied, and pretty heavily, about the 
existence of a lot of liquefied natural gas in South America 
and its availability and how cheap it was if we could just find 
a way to get it into the United States.
    Just recently, in Secretary Norton's comments about the 
storm in the gulf, she talked about the fact that there is 
really no world market yet for liquefied natural gas.
    Could you comment about that whole market and did the 
energy bill effectively address that issue? How long would it 
take for those markets to kick in if we were equipped to have 
docking stations, etc.?
    Mr. Caruso. Yes, that's an excellent point. I think our--
the Energy Information Administration and, I think, Mike 
Zenker's presentation from CERA today are pretty much in 
agreement that if we are going to meet the kind of demand 
outlook that most forecasters are expecting, LNG will have to 
play a huge role in the supply of LNG from the existing 
facilities in Trinidad. Algeria and Nigeria will need to be 
supplemented. We expect to see a lot coming from Qatar in the 
Persian Gulf. But there is also, as you point out, potential 
from South America--Peru, Bolivia, Venezuela in particular--in 
addition to the existing facilities in Trinidad.
    So we're looking for a quadrupling of the amount of LNG 
coming into this country compared with what it is today over 
just the next 10 to 15 years. So we need to do our part, which 
is building regassification facilities, which are I think well 
underway, with a large number already approved by FERC and the 
Coast Guard.
    But the supply side also needs to be dealt with, and that 
is the point you have made about gas in South America and 
elsewhere that needs to be liquefied. So we're looking for LNG 
supplies to, we think, put some downward pressure on gas 
prices, but that is going to take time. We don't see a 
substantial amount of LNG increments beyond the existing 
facilities until about late 2007 and the beginning of 2008.
    Mr. Marchant. Do you find that--is there a built-in 
disincentive for the drillers and the domestic producers who 
are the same people that are importing the liquefied natural 
gas and regassifying it and putting in the pipelines? Are they 
the same companies?
    Mr. Caruso. Some are. You know, there are some of the major 
oil and gas companies that are investing in regassification as 
well as those who are not, who are more directly involved in 
the foreign supply such as British Gas and others. But I would 
say a substantial share of the new regassification facilities 
are also the existing oil and gas companies.
    And the point of the energy bill, there was a section in 
that bill that did facilitate the permitting of regassification 
under FERC jurisdiction, which I think will be helpful, 
although as we found in Ms. Watson's comments that there are 
still a number of other hurdles with respect to State and local 
opposition as well.
    Mr. Marchant. Thank you.
    Mr. Zenker. If I could add to that. Certainly these prices 
have triggered a huge enthusiasm to build LNG in North America. 
We've gone from LNG not really being even an issue for North 
American natural gas 5 years ago, to the point where we have 
far more terminals than are needed. This industry has 
demonstrated again and again that it will do a good job of 
overbuilding the market and pressing prices back down quite 
rapidly.
    With LNG, I think what some of the overseas owners of gas 
are looking at, is that just a few years ago gas prices in the 
United States were too low to justify the construction of these 
terminals. So while there's a lot of enthusiasm, there's also a 
lot of risk in putting a $5 billion liquefaction cargo 
container and regassification terminal program together.
    That said, I agree with Mr. Caruso that enthusiasm is 
translating into construction. We are going to see huge growth 
in shipments of LNG into the United States. That's starting 
already. Unfortunately that's a few years out. The big new 
volumes are in 2008. And we have more terminals under 
construction in the United States than we are going to need. 
That's the good news.
    The tricky part is that the supply piece, the areas that 
you visited, that's going to be the pacing item, the building 
of what are called the liquefaction facilities to put the 
cargoes in, the liquefaction, the LNG tankers and then 
transport to the United States. Our long-term price outlook 
suggests that LNG is going to significantly dampen prices in 
2008, so it's a very critical part of the outlook.
    Mr. Slocum. If I may add something on LNG. I am sure that 
Congress has held many hearings talking about the dangers to 
national security of being reliant on OPEC member nations for 
our crude oil supplies. I can safely predict that if all of 
these LNG facilities are constructed in the United States, 10 
or 15 years from now Congress will be holding hearings about 
how did we allow our country to become reliant on OPEC for 
natural gas. Because that is where the LNG is going to be 
coming from; from OPEC. So I think that is a very important 
consideration to make.
    Also, the energy bill that was passed in August greatly 
impedes the ability of State governments to adequately oversee 
the construction of these LNG facilities. I personally work 
with about 100 community organizations across the country that 
have raised significant concerns, and their ability in our 
democracy to have adequate oversight over the permitting and 
construction of these facilities is hampered by the energy 
bill, which gives FERC exclusive jurisdiction over the 
construction of these facilities.
    Mr. Marchant. Thank you very much.
    Mr. Issa. Before I recognize the ranking member, I should 
disclose that I was on the Energy and Commerce Committee as a 
member at the time that we recognized that there are NIMBYs; 
and I guess you pronounce them NIAOBYs, the ones that are not 
in anyone's back yard. If any of you have ever tried to put an 
LNG facility in, what you discover is there is no back yard 
that wants it. There never will be a back yard that wants it. 
I'm not saying there won't be a small city, but there'll always 
be somebody in the area that doesn't want it.
    So at least from this Member, on a bipartisan basis, I 
actually think that one of the things that the Congress has 
done that was very important was centralizing to the Federal 
Government the authority, recognizing that the gentleman from 
California, the gentleman from Michigan, Mr. Dingell, and all 
the rest of us, certainly hear from our home but are filtered 
through the greater national need.
    I would like to, before I pass it on, just have one quick 
question. Mr. Zenker, if I understood correctly, you said there 
are too many facilities being built, physically under 
construction. My understanding is there are zero in California 
and as all of us from California know, there isn't enough 
capacity right now to guarantee natural gas coming in from the 
gulf area. So if I could modify what I think I heard you say 
is, in some places there is an excess of construction, well, at 
least in California there isn't any construction and we are an 
area at the end of the pipeline. Is that correct?
    Mr. Zenker. Yeah, that's a good clarification, Mr. 
Chairman: And to followup on that, you are right that we're 
seeing a growing concentration of the new construction of LNG 
receiving terminals in the gulf, specifically in two Louisiana 
parishes and in the eastern portion of Texas, and not in the 
consuming markets of California or the eastern seaboard. When I 
said we are, maybe the more appropriate term would be we're 
seeing enough construction of regassification terminals 
relative to the liquefaction facilities that are coming on, 
that will not be the constraint in bringing LNG to the market. 
However, we aren't seeing them built in the consuming markets.
    Mr. Issa. Thank you. With that, I'd recognize the 
gentlewoman from California, Ms. Watson.
    Ms. Watson of California. Thank you so much, Mr. Chairman.
    In noticing during Katrina, the fact that many people could 
not escape the depressed area of New Orleans because, a, they 
didn't have automobiles or, b, they could not afford the 
gasoline, and all of us saw lines as long as 5 miles with 
people waiting 5, 8 hours just to get gas, and then to get to 
the pump and see the prices. Well, I call that gouging. So I 
know that there is a great deal of profit attached to the 
production of energy, be it natural gas, be it gasoline or 
whatever.
    I want to know--and I am going to direct this one to Mr. 
Tyson Slocum because he is here representing Public Citizen--
what can we do in terms of public policy, Mr. Slocum, to 
protect our environment, to address the demand, and to make 
these different kinds of sources of energy affordable?
    Mr. Slocum. Representative Watson, first of all, you are 
absolutely correct that there is indeed a strong correlation 
between the record profits being enjoyed by oil companies and 
the record prices being charged to consumers. The EIA compiles 
information, for example, on profit margins in the U.S. 
refining industry. In the 1990's they were consistently around 
$0.20 a gallon profit margin. In 2004 that profit margin had 
jumped to $0.40 per gallon. And because large oil companies 
like Exxon Mobil and Chevron Texaco and BP are monopolies, 
they're vertically integrated. They have oil production in the 
United States and all over the world. They own oil refineries. 
They have other downstream mechanisms. You've got a lot of 
control over the market.
    As I mentioned in my testimony, it's not just Public 
Citizen coming to that conclusion, it's the U.S. Government 
Accountability Office, which showed in a study in May 2004, 
that recent mergers have directly led to high gas prices and, 
in fact, the largest five oil companies operating in the United 
States today have enjoyed profits of $254 billion since 2001. 
That's a very healthy profit margin.
    So what can be done about it? Well, first of all, we 
clearly need to do something about demand. Our Nation's fuel 
economy is worse today in 2005 than it was in 1987. That's 
because of our appetite for fuel-inefficient automobiles like 
SUVs that have a loophole from the standard fuel economy rate. 
This is where the energy bill really failed to address the 
fundamental problem, because the United States is the largest 
consumer of oil in the world. We use 25 percent. So unless we 
address that, we are not going to be able to get our way out of 
this crisis. Remember, the United States is the third-largest 
crude oil producing Nation in the world and we are one of the 
largest natural gas producers. Even if we doubled our oil 
production to match that of Saudi Arabia, we'd still be 
importing half of our oil. So we are never going to be able to 
produce our way to independence, and that's where the energy 
bill fails the logic test. We need to address demand.
    Second, I think that we should order an immediate 
investigation into allegations of price gouging by oil 
companies. We already have evidence presented by the Federal 
Trade Commission in March 2001 that major U.S. oil companies 
were intentionally withholding supply from the market in order 
to drive prices up. However, because no evidence of collusion 
was found, there was no violation of antitrust law, a clear 
loophole in our Nation's antitrust system.
    I think that critical commodities, whether they be Enron's 
control over electricity, whether it be natural gas companies, 
or whether it be oil companies, should not be able to 
intentionally withhold supplies in the market. That should be 
illegal and I think that an immediate investigation should be 
commissioned by Congress.
    Ms. Watson of California. Let me just do a followup 
question. You said that it should be illegal. What would be, or 
who would be the body that would declare those activities 
illegal? Where do you see--who has the authority to do that?
    Mr. Slocum. Well I think the Department of Justice would be 
reasonable. I mean, they enforce our Nation's laws, and I think 
that you can have some clear laws on the books that oil is a 
critical commodity in the U.S. economy and should be treated as 
such. It should be treated a little differently, especially 
when people like Federal Reserve Chairman Alan Greenspan talk 
about the severe negative economic consequences of sustained 
high energy prices.
    So there is a national public interest involved here in 
making sure that there is a direct connection between high 
prices and supply and demand. Clearly supply and demand are 
driving higher prices, but I think that an investigation is 
warranted to find out whether or not there is anything going on 
above and beyond that.
    Ms. Watson of California. Now, this I am just putting out 
for anyone who wants to address it. But I missed your testimony 
and I'm sorry that I did that, particularly my relative over 
there, Watson. But do you think that our laws are adequate when 
it comes to conservation and environmental protections? What do 
we need to do so that in our quest for energy sources we do not 
continue to pollute our environment?
    And by the way, I live in Los Angeles under the flight path 
going to LAX, and they start to reduce their gasoline as they 
come in toward the airport. You can go outside and you can run 
your hand across the panes and it's black. So I know that gets 
into my carpeting, it gets into my nostrils, and everybody 
else's that lives in my household. So our environment certainly 
has been changed because of our use of these fuels and all.
    So what do you suggest in terms of conservation? Do we have 
laws on the books already to take care of this? How do we 
protect our environment, therefore protecting the health of our 
citizens? Anyone want to comment?
    Ms. Watson. Well, I think we, as I said in my testimony and 
in answer to some of the questions, we have a number of Federal 
laws on the books to protect the environment that Congress has 
passed over the last 30 years setting standards for clean water 
and clean air, protecting our cultural history, history of our 
Nation. We have laws to protect wildlife, endangered species, 
as well as other wildlife. So we try to balance the protections 
of those important values, that quality of life that comes from 
a clean and healthy environment with the quality of life that 
comes from affordable energy.
    You spoke eloquently of the impacts on the elderly and the 
poor in our Nation from high energy prices. High energy prices 
coming from a tight supply impact our quality of life. Equally 
so, a bad environment impacts our quality of life. And the 
trick for a Federal manager such as myself is trying to find 
that right balance so that we protect the environment but get 
the energy that our citizens need to have a quality of life 
that they can afford.
    I think we have good environmental laws in place. We heard 
testimony that the processes that we have can sometimes pile up 
one on top of each other and really impede our ability to get 
energy out in the timeframe that we need it. Right now we have 
high demand and lack of supplies: Can we work within this web 
of laws to get the energy out in time to get the prices down so 
they don't impact your constituents? That's the difficulty.
    Ms. Watson of California. Can we do more?
    Ms. Watson. I think we can always do more. I think that we 
as American citizens can do more to conserve. I think that we 
in this room, many of us are leaders, and I think we all can 
lead by example and help educate the folks.
    One of the things that I have found in my job is that many 
of our citizens don't understand much about energy, where it 
comes from, how we can impact our use of it. A simple thing, 
turning down the thermostat can have a huge impact. Turning 
lights out in a room. Again, California set an example when 
they had their energy crunch. They had a campaign of education 
to their citizens. They were able to reduce energy consumption 
between 6 and 12 percent, which had an impact and helped them 
get through their crisis. I think we do more in that arena. The 
energy bill points a direction there.
    The President's energy policy also has conservation prongs. 
We in the Federal agencies can and have been doing that. 
Industry has done that over the last 30 years. But we all can 
do more and I think it's a public education effort that we need 
to engage in.
    Ms. Watson of California. I come from a State--we come from 
a State where we love our automobiles. Our automobiles speak of 
who we are. You know, you don't ask a person what kind of work 
they do or what's their family history. You ask what kind of 
car do you drive. I always use this test when I go into a high 
school auditorium speaking to students, you know: How many of 
you drive? How many of you want to drive? And it never fails, 
every hand goes up. Either they drive or they want to drive. I 
ask them what is the speed limit, and somebody will say 50, 
somebody will say 75. I said, you're all wrong; it's whatever 
we say it is.
    Do you know we control everything that has to do with the 
car? We tell you how many passengers can ride in it, how you 
have to ride in it, what beverages you can have in it, what 
condition they have to be in, what color you paint it, how much 
you pay for it in terms of taxes, where you park it, on and on 
and on. That starts bringing something home to them.
    What I feel is that we probably are the greatest violators 
in the State of California. My colleague, I don't know how many 
cars you have, but you can only drive one at a time.
    Mr. Issa. Fuel consumption is not based on how many are in 
the garage, it is based on how many miles you drive and how 
much mileage they get.
    Ms. Watson of California. And what kind of fuel you have to 
put in it. Our kids--you are right, I am saying all of this in 
support. We have to do a better job of educating. Does anybody 
know about these doughnuts? That means you drive as fast as you 
can, you spin on the rims. You can see it. They do it at 4 
a.m., by the way, from 1 a.m., to 4 a.m. You can see--I guess 
the rubber on the wheels--and that is using energy.
    So, I think one way is to really do a better job in our 
elementary schools. But if any of the rest of you--I mean, if 
you own six cars that use diesel fuel and you can only drive 
one at a time, and when you get out there, you are expending 
all of that time, or maybe each one of your kids drives one. I 
am just wondering what we can do, because we really have a 
challenge.
    Mr. Zenker. Representative Watson, if I could add to that.
    Ms. Watson of California. Yes.
    Mr. Zenker. I am also from California. I did live through 
the California electricity crisis. California did set an 
interesting but cautionary example for energy conservation. 
Just for historical precedent, American consumers have trimmed 
on a per customer basis about 30 percent of natural gas per 
household since 1970.
    So these are the effects of energy efficiency programs 
implemented for appliances, building codes, and so forth. Home 
heaters--water heaters have become much more efficient.
    In terms of what has been implemented to cause very 
immediate or measurable impacts in the short term, California 
is often held out as a leading example. But living in 
California and having followed the energy markets during that 
crisis, we saw that consumption of electricity in natural gas 
continued unabated and grew through the crisis until we finally 
faced real blackouts. Utilities implemented an incentive 
program called the 20/20 program, which finally put an 
incentive on top of increased prices in front of consumers. 
They responded by cutting--9 percent is the number that we came 
up with, electricity consumption in one-quarter, very swift 
change and an almost equal amount of natural gas.
    However, when those incentives are removed, gas and 
electricity consumption rebounded to near pre-crisis levels. So 
it showed that continuous incentives are required to cause 
continuous conservation by consumer, at least in the current 
mindset.
    Mr. Issa. Thank you. Being a San Diegan, very specifically, 
part of California, we delivered almost from the beginning of 
the crisis, far more than the 6 to 9 percent, because our 
prices went up immediately. Unfortunately, and I am not trying 
to be partisan here, the history uniquely was it was probably 
the only time in which there was a short supply while wholesale 
price went up, retail prices were maintained, and as a result, 
consumption didn't go down. We simply had Representative Watson 
and my constituent--deliverers of electricity, go bankrupt. But 
we share with some regularity comments about Enron, WorldCom 
and other companies that have abused the public trust. But 
certainly Pacific Gas & Electric was abused by a system that 
said that you will pay for and you will sell for the same 
amount, even when it becomes subsidizing retail price to where 
you are delivering the electricity for less than you pay for it 
wholesale. Hopefully, we will all learn that when it comes to 
conservation, that is not the right way to attain it.
    I am being cautioned by my able staff that it is time to 
bring this session to a close. With your indulgence, members of 
the subcommittee will be submitting additional questions in 
writing.
    But with that, I want to thank all the panelists for their 
candid remarks in addition to their written testimony. Today 
our witnesses confirmed that domestic production and current 
imports do not give us the flexibility and supplies to meet 
demand and reduce prices from the high level they are--the 
unbelievably high level they have now obtained. The 
vulnerability of concentrating much of our energy 
infrastructure in one region, the Gulf of Mexico, is another 
real issue that was brought up here today.
    We must also insure that demand is not spurred by becoming 
more dependent on natural gas for new electricity. Natural gas 
is an efficient fuel that is essential to our economy. The 
choices we make affect our industry's competitiveness, our 
employment and the prices we pay to heat and cool our homes.
    We must stay focused. We must insure that we make the tough 
choices to meet our energy needs, both on the supply and on the 
conservation side. Natural gas supplies are too important to 
our country to do otherwise.
    We will hold the record open for 2 weeks from this date for 
those who may want to submit for possible inclusions. With 
that, once again, I would like to thank the panel, and we stand 
adjourned.
    [Whereupon, at 4.45 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T4769.052

[GRAPHIC] [TIFF OMITTED] T4769.053

[GRAPHIC] [TIFF OMITTED] T4769.054

[GRAPHIC] [TIFF OMITTED] T4769.055

[GRAPHIC] [TIFF OMITTED] T4769.056

[GRAPHIC] [TIFF OMITTED] T4769.057

[GRAPHIC] [TIFF OMITTED] T4769.058

[GRAPHIC] [TIFF OMITTED] T4769.059

[GRAPHIC] [TIFF OMITTED] T4769.060

[GRAPHIC] [TIFF OMITTED] T4769.061

[GRAPHIC] [TIFF OMITTED] T4769.062

[GRAPHIC] [TIFF OMITTED] T4769.063

[GRAPHIC] [TIFF OMITTED] T4769.064

[GRAPHIC] [TIFF OMITTED] T4769.065

[GRAPHIC] [TIFF OMITTED] T4769.066

[GRAPHIC] [TIFF OMITTED] T4769.067

[GRAPHIC] [TIFF OMITTED] T4769.068

[GRAPHIC] [TIFF OMITTED] T4769.069

[GRAPHIC] [TIFF OMITTED] T4769.070

[GRAPHIC] [TIFF OMITTED] T4769.071

[GRAPHIC] [TIFF OMITTED] T4769.072

[GRAPHIC] [TIFF OMITTED] T4769.073

[GRAPHIC] [TIFF OMITTED] T4769.074

[GRAPHIC] [TIFF OMITTED] T4769.075

[GRAPHIC] [TIFF OMITTED] T4769.076

[GRAPHIC] [TIFF OMITTED] T4769.077

[GRAPHIC] [TIFF OMITTED] T4769.078

[GRAPHIC] [TIFF OMITTED] T4769.079

                                 
