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

      THE EFFECTS OF THE HIGH COST OF NATURAL GAS ON SMALL BUSINESSES AND
                          FUTURE ENERGY TECHNOLOGIES

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

                                    HEARING

                                   before the

                    SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

                                     of the

                          COMMITTEE ON SMALL BUSINESS
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED NINTH CONGRESS

                                 SECOND SESSION

                                   __________

                         WASHINGTON, DC, JUNE 28, 2006

                                   __________

                               Serial No. 109-59

                                   __________

             Printed for the use of the Committee on Small Business

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

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                          COMMITTEE ON SMALL BUSINESS

                     DONALD A. MANZULLO, Illinois, Chairman

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

                      J. Matthew Szymanski, Chief of Staff

              Phil Eskeland, Deputy Chief of Staff/Policy Director

                      Michael Day, Minority Staff Director

                    SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

    JEB BRADLEY, New Hampshire Chairman  JUANITA MILLENDER-McDONALD,
    SUE KELLY, New York                  California
    STEVE CHABOT, Ohio                   DANIEL LIPINSKI, Illinois
    THADDEUS McCOTTER, Michigan          ENI F. H. FALEOMAVAEGA, American
    RIC KELLER, Florida                  Samoa
    TED POE, Texas                       DANNY DAVIS, Illinois
    JEFF FORTENBERRY, Nebraska           ED CASE, Hawaii
    MICHAEL FITZPATRICK, Pennsylvania    MICHAEL MICHAUD, Maine
                                         MELISSA BEAN, Illinois

                               Adam Noah, Counsel

                                      (ii)

                                C O N T E N T S

                                  ----------

                                   Witnesses

                                                                       Page
    Kendell, Mr. James, Director, Natural Gas Division, Energy
      Information Administration, U.S. Department of Energy..........     3
    Cruickshank, Mr. Walter, Deputy Director, Minerals Management
      Service, U.S. Department of the Interior.......................     5
    Lonnie, Mr. Tom, Assistant Director, Bureau of Land Management,
      Minerals, Realty and Resource Protection Directorate, U.S.
      Department of the Interior.....................................     7
    Goodstein, Mr. Richard, Washington Representative, Air Products
      and Chemicals, Inc.............................................    17
    Uhlenburg, Mr. Jeff, President, Donovan Heat Treating Company....    19
    Wilkinson, Mr. Paul, Vice President of Policy Analysis, American
      Gas Association................................................    23
    Ungar, Mr. Lowell, Senior Analyst, Alliance to Save Energy.......    24

                                    Appendix

    Opening statements:
        Bradley, Hon. Jeb............................................    30
    Prepared statements:
        Kendell, Mr. James, Director, Natural Gas Division, Energy
          Information Administration, U.S. Department of Energy......    31
        Cruickshank, Mr. Walter, Deputy Director, Minerals Management
          Service, U.S. Department of the Interior...................    44
        Goodstein, Mr. Richard, Washington Representative, Air
          Products and Chemicals, Inc................................    56
        Uhlenburg, Mr. Jeff, President, Donovan Heat Treating Company    66
        Wilkinson, Mr. Paul, Vice President of Policy Analysis,
          American Gas Association...................................    70
        Ungar, Mr. Lowell, Senior Analyst, Alliance to Save Energy...    78

                                     (iii)

        THE EFFECTS OF THE HIGH COST OF NATURAL GAS ON SMALL BUSINESSES
                         ANDFUTURE ENERGY TECHNOLOGIES

                                  ----------

                            Wednesday, June 28, 2006

                       House of Representatives
              Subcommittee on Tax, Finance, and Exports
                                    Committee on Small Business
                                                         Washington, DC
        The Subcommittee met, pursuant to call, at 2:00 p.m., in
    Room 2360 Rayburn House Office Building, Hon. Jeb Bradley
    [Chairman of the Subcommittee] presiding.
        Present: Representatives Bradley, Kelly, Chabot and
    Millender-McDonald.
        Chairman Bradley. Good Afternoon. Welcome to the hearing we
    are going to have this afternoon. I welcome you to the Tax,
    Finance, and Export Subcommittee of the House Committee on
    Small Business. I am pleased to be working closely with my
    colleagues as we review the effects of the high cost of natural
    gas on small businesses and future energy technologies.
        I look forward to hearing about the insight that all of you
    on both of our panels can provide both an industry and a policy
    viewpoint. With that said, I would like to thank our
    distinguished witnesses for taking the time to come to
    Washington and be with us today.
        At the very core of a strong economy in our country is the
    availability of reasonably priced sources of energy. It is our
    responsibility as Members of Congress to ensure that government
    is not interfering with the development and deployment of these
    energy sources and ensure that these resources are being
    extracted in an environmentally responsible manner. Our
    strategies must enable the development and expansion of ideas
    and the success of entrepreneurs, both domestically and
    internationally.
        Currently, our small businesses are suffering from the high
    cost of natural gas which over the last year has risen to
    prices as high as $15 per million BTUs. To date, the average
    customer is paying more than twice as much as they did in 1999,
    and with demand predicted to increase by roughly 37 percent
    over the next 15 years, there is little relief in sight.
        These high prices are not only affecting businesses and
    consumers, but they are also hampering the technological
    advancements of our alternative fuel goals; specifically
    hydrogen. Natural gas and electricity are the primary energy
    sources for obtaining hydrogen. How can we realistically expect
    to advance the objectives of our alternative fuels strategies
    when we are providing one of the greatest obstacles ourselves
    through our energy policies?
        In my view, we need to increase our nation's natural gas
    supplies either through increased domestic production or
    greater importation of international supplies, and above all
    develop more energy efficient technologies.
        I am looking forward to hearing the testimony from our
    witnesses here today and I look forward to their thoughts on
    this very important topic. However, before we do so, let me
    take the opportunity to recognize the ranking member of this
    Committee for her opening statement, Mrs. Millender-
    McDonald.Thank you.
        [Chairman Bradley's opening statement may be found in the
    appendix.]
        Ms. Millender-McDonald. Thank you so much, Mr. Chairman,
    and thank you for convening this hearing. I would like to also
    thank all of our witnesses who are here today, one of whom is a
    business person in my district, Mr. Richard Goodstein so it is
    good to see all of you here.
        There is no question that energy costs have been climbing
    at steady and often shocking rates lately. Natural gas
    resources have the highest amount of volatility in price to
    date. Small businesses are heavy users of energy resources and
    it is no surprise to all of you here that the rising energy
    costs are having a profound and dramatic impact on our nation's
    entrepreneurs. Today's hearing will give us a chance to look at
    how small businesses are impacted by the current energy trends.
        Increasing demand, limited supplies, government
    deregulation and weather conditions have all contributed to the
    hike in energy prices. In fact, over the last 5 years, the cost
    of natural gas has jumped by 90 percent. The rising cost of
    energy is currently one of the top concerns among small
    business entrepreneurs.
        Small businesses often rely on energy resources for
    transportation and operational needs on a daily basis. The
    tight budget that many entrepreneurs work with leaves little
    flexibility to absorb energy price hikes. Farmers alone paid an
    extra $6 billion in energy related expenses in both the 2003
    and 2004 growing seasons with no relief projected in the
    future.
        It is clear then that the impact of the rising energy
    prices is having a great effect on small businesses. Energy
    related costs have resulted in the loss of 3 million
    manufacturing jobs since 1999 and the plastics industry has
    lost over $14.5 billion in business between 2000 and 2005 due
    to the high cost of natural gas. These trends have completely
    deflated small business owner's expectations for expansion and
    two-thirds of business owners are anticipating even lower
    profits in the future.
        Unfortunately, there is no easy way for small businesses to
    deal with these rising costs. Entrepreneurs seem to have very
    few choices; they can either increase the price of their goods
    or reduce services and restrict investments. My hope is that
    today's hearing will provide us the opportunity to discuss some
    of these challenges.
        Small businesses, as we all know, are the engine of our
    economy and deserve support and a fair chance to succeed.
    Natural gas price surges have created a severe disruption in
    the operation of small businesses and are impeding their
    ability to be viable and competitive in today's market place.
    With small firms being the nation's single largest employer, we
    need to do everything we can to make sure that they are able to
    thrive and be successful.
        I have the rest of this and I am not going to read it all.
    I have a long-winded staff and so they have provided me with a
    dissipation he wants me to complete. But I thank you all for
    being here. Mr. Chairman, we know that it is unacceptable for
    our nation's entrepreneurs to be in these types of challenging
    times and they deserve every effort to provide and we deserve
    to hear from them so that we can provide every effort to
    provide them with the tools that they need and I look forward
    to the witnesses' testimony. Thank you so much, Mr. Chairman.
        Chairman Bradley. Great. Thank you very much. Let me
    welcome the three panelists. First, Mr. James Kendell. He joins
    us from the U.S. Energy Information Administration where he
    serves as Director of the Natural Gas Division of the Office of
    Oil and Gas. He currently manages weekly, monthly, and annual
    natural gas data collections for the U.S. Government as well as
    short-term natural gas analysis and contributions to EIA Short-
    Term Energy outlook. Mr. Kendell, welcome.
        Our next witness is Mr. Walter Cruickshank. He is the
    Deputy Director of Minerals Management Service of the U.S.
    Department of the Interior. In his present capacity Mr.
    Cruickshank assists the MMS Director in the administration of
    programs to ensure the effective management of mineral
    resources located on the nation's Outer Continental Shelf
    including the environmentally safe exploration, development,
    and production of oil and natural gas and the collection and
    distribution of revenues from minerals developed on federal and
    Indian lands. Mr. Cruickshank, thank you also for being here.
        Lastly, on the first panel joining us is Mr. Tom Lonnie. He
    is from the U.S. Department of Interior. Mr. Lonnie serves the
    Bureau of Land Management's Assistant Director for Minerals,
    Realty and Resource Protection. In that position which he has
    held since July of 2003 Mr. Lonnie oversees the BLM's
    management of numerous key activities on public lands including
    the development of fluid minerals such as oil and gas and solid
    minerals such as gold, silver, copper, and coal. Mr. Lonnie,
    thank you for being here.
        We will start with you, Mr. Kendell. I would just remind
    all of you to try to keep your prepared remarks to five minutes
    and there will be more opportunity for questions. Thank you.

       STATEMENT OF JAMES KENDELL, NATURAL GAS DIVISION, ENERGY
         INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

        Mr. Kendell. Mr. Chairman and Members of the Committee, I
    appreciate the opportunity to appear before you today. The
    Energy Information Administration is an independent,
    analytical, and statistical agency within the U.S. Department
    of Energy. We are charged with providing objective, timely, and
    relevant data, analyses, and projections for the use of
    Congress, the Administration, and the public.
        Although we do not take positions on policy issues, our
    work often assists policy makers in their deliberations.
    Because we have an element of statutory independence, our views
    are strictly those of the EIA and should not be represented as
    those of the Department or the Administration.
        Much of my testimony today is based on our weekly, monthly,
    and annual statistics, as well as the June 2006 Short-Term
    Energy Outlook. Before turning to the outlook through 2007 I
    will briefly review the major forces affecting current natural
    prices.
        High prices continue to dominate natural gas markets,
    although current wellhead prices are below the 2005 record
    levels. Factors contributing to these historically high price
    levels include record high crude prices, increased demand for
    natural-gas-fired electric power plants, depletion of natural
    gas resources, and major supply disruptions as a result of
    Hurricanes Katrina and Rita last summer.
        Despite the high prices, residential and commercial gas
    consumers used about the same amount of natural gas in 2005 as
    in 2004. Industrial consumption declined by about 8 percent but
    that was nearly offset by a 6 percent increase in natural gas
    use by electric power generators.
        Looking at the four factors affecting natural gas prices,
    first the most recent increase in crude oil prices began in
    2004 when they almost doubled from 2003 levels. Crude prices
    averaged more than $56 a barrel in 2005 and roughly $66 a
    barrel for the first 5 months of 2006. So far in June we have
    seen prices hover around $70 a barrel.
        Second, natural-gas-fired electric power generation
    increased more than 70 percent between 1993 and 2004. This new
    gas-fired generating capacity reflects attractive environmental
    performance, siting ease, high efficiencies, relatively low
    capital costs, and relatively low natural gas prices of the
    1990s when many of these plants were planned.
        Third, despite record drilling for natural gas, production
    has failed to increase proportionately. A key question facing
    producers is whether natural gas resources in the mature on-
    shore lower-48 States have been exploited to a point at which
    more rapid depletion rates eliminate the possibility of
    increasing, or even maintaining, current production levels at a
    reasonable cost.
        Fourth, the hurricane related shut-ins contributed to
    declining production as the paths of five major hurricanes
    passed through the Gulf of Mexico significantly disrupting
    natural gas production, some of which continues today.
        According to EIA's Short-Term Energy Outlook released on
    June 6, natural gas prices are projected to be lower through
    the rest of the year relative to the corresponding 2005 levels.
    The expected average for 2006 for Henry Hub spot prices of
    $7.74 per mcf is down by $1.12 from last year's average.
        Commercial natural gas prices, however, are expected to be
    higher than the average commercial price of $11.58 in 2005.
    Recovery in natural-gas-fired intensive industrial output
    following the 2005 hurricanes is likely to contribute to the
    growth in natural gas consumption this year and next. Domestic
    dry natural gas production is projected to increase slightly in
    2006 and 2007.
        Total net liquified natural gas imports are expected to
    increase more from the 2005 level of 631 bcf to 710 in 2006 and
    950 bcf in 2007.
        Mr. Chairman, Members of the Committee, this completes my
    testimony. I would be happy to answer any questions that you
    might have.
        [Mr. Kendell's testimony may be found in the appendix.]

     STATEMENT OF WALTER CRUICKSHANK, MINERALS MANAGEMENT SERVICE,
                    U.S. DEPARTMENT OF THE INTERIOR

        Mr. Cruickshank. Thank you, Mr. Chairman and Members of the
    Subcommittee. I appreciate the opportunity to appear here today
    to discuss the role of the Department of the Interior in
    meeting America's demand for natural gas.
        As you noted in your opening statements, high natural gas
    prices caused by tight domestic supplies not only hurt
    consumers but also mean losses for agricultural, manufacturing,
    and many other businesses both large and small.
        The Department of the Interior manages the resources that
    provide a third of our nation's energy from traditional sources
    such as oil, natural gas and coal, to renewable sources such as
    geothermal and wind. Within the Department several agencies
    play a significant role in helping America meet its natural gas
    needs: The Minerals Management Service, the Bureau of Land
    Management, the U.S. Geological Survey, and the Assistant
    Secretary for Indian Affairs.
        I will address the roles of MMS and the Geological Survey
    and Mr. Lonnie will then discuss his programs.
        Minerals Management Service is responsible for managing the
    energy and mineral resources on the Outer Continental Shelf, or
    OCS, which refers to the offshore areas beyond state waters. We
    have a focused and well-established mandate to balance the
    benefits derived from the exploration and development of energy
    and mineral resources with environmental protection and safety.
        The OCS is a major supplier of oil and natural gas for
    domestic markets and contributes more natural gas than any
    state other than Texas. Natural gas production from the OCS
    exceeds 10 billion cubic feet a day, or about 21 percent of our
    domestic natural gas production. These production levels were
    effected by hurricanes Katrina and Rita last year. Since the
    onset of Katrina through last week over 800 billion cubic feet
    of natural gas production was shut in, or about 22 percent of
    the annual production from the Gulf of Mexico. As of last week
    about 9 percent of daily natural gas production remained shut
    in in the Gulf of Mexico.
        Nevertheless, within the next five years we expect offshore
    production of natural gas will continue to grow to more than 23
    percent of domestic production. A vast majority of this new
    production will come from deep water areas of the Gulf of
    Mexico and from deep wells drilled beneath the shallow waters
    of the Gulf.
        In recent years the strongest trend on the OCS has been the
    growth in deep water production. By deep water we are talking
    about water depths of 1,000 feet or more, almost twice the
    height of the Washington Monument. In fact, industry is now
    drilling in water depths of over 10,000 feet, or about two
    miles.
        Deep water activity in the Gulf has been a major success
    story with over 90 projects having come online. Natural gas
    production from deep water has grown to about 3.7 billion cubic
    feet per day, an increase of well over 600 percent over the
    last 10 years. We expect it will be several more years before
    deep water areas have reached their full potential.
        Another 10 percent of gas production in the Gulf comes from
    deep wells drilled more than 15,000 feet below the sea bed in
    shallow waters of the Gulf. We began encouraging exploration of
    these deep horizons in 2001 and there were about 15 new deep
    gas discoveries announced over the last two years.
        We expect OCS natural gas production will continue to grow
    in the future because of the amount of estimated undiscovered
    resources remaining there. Earlier this year we released our
    estimates of undiscovered recoverable natural gas resources
    underlying the OCS. The estimate is for 420 trillion cubic feet
    of gas. To put that in perspective, compare it to domestic
    production from all sources last year of less than 20 trillion
    cubic feet.
        Access to these resources is achieved through the five-year
    OCS oil and gas leasing program.
        The OCS Lands Act requires the Secretary of the Interior to
    prepare and maintain a schedule of proposed oil and gas lease
    sales for the nation. Our goal is to develop a program that is
    responsive to the nation's energy needs, protects the human,
    marine, and coastal environments, and addresses public
    concerns.
        We are currently in the middle of a two-year process of
    developing the program for 2007 to 2012. Our next step will be
    to release a proposed program and draft EIS this summer with a
    proposed final program and final EIS being delivered to
    Congress in the first quarter of 2007.
        I would briefly like to address the vital role of the
    United States Geological Survey in assessing and evaluating the
    nation's energy resources. The Geological Survey provides
    impartial scientific information regarding our geologically
    based energy resources such as oil, gas, coal, and geothermal.
        In its recent national assessment of undiscovered oil and
    gas resources onshore and beneath state waters, the survey
    estimated over 600 trillion cubic feet of technically
    recoverable natural gas. This gas is not the only potential
    resource out there; for the longer term, the Survey is looking
    at something called methane hydrates which are ice-like solids
    in which water molecules have trapped natural gas molecules.
        The Survey estimates that the in-place resources
    domestically of these hydrates amount to 200,000 to 300,000
    trillion cubic feet, a number that is obviously substantially
    larger than the 1,000 trillion cubic feet of conventional
    natural gas resources believed to exist in this country.
        Hydrates are a major resource priority for the Geological
    Survey. They are a member of a multi-agency task force that is
    working with states and industry to conduct state-of-the-art
    research to increase our understanding of these resources,
    their potential, their recoverability, and production
    characteristics, and various other issues associated with
    bringing them to market.
        Mr. Chairman, this concludes my remarks and I would be
    happy to answer any questions you may have.
        Chairman Bradley. Thank you.
        Mr. Lonnie.
        [Mr. Cruickshank's testimony may be found in the appendix.]

     STATEMENT OF TOM LONNIE, BUREAU OF LAND MANAGEMENT, MINERALS,
    REALTY AND RESOURCE PROTECTION DIRECTORATE, U.S. DEPARTMENT OF
                              THE INTERIOR

        Mr. Lonnie. Thank you for the opportunity to speak to you
    today about the BLM's oil and gas management program. I would
    like to highlight some of the important points about the BLM's
    energy and minerals programs.
        Demand for energy in this country has outstripped domestic
    energy production and we must find ways to reduce our energy
    consumption and increase our energy efficiency and domestic
    energy production. Under the Mineral Leasing Act the BLM is
    responsible for managing oil and gas leasing on approximately
    700 million acres of BLM and other federal lands, as well as
    private lands where the mineral rights have been retained by
    the Federal Government.
        The BLM works to ensure the development of mineral
    resources is in the best interest of the nation. The BLM's oil
    and gas management program is one of the major mineral leasing
    programs in the Federal Government. The BLM administers over
    45,000 oil and gas leases of which 23,000 are currently
    producing. Domestic production from the 74,000 federal and
    Indian on-shore oil and gas wells accounts for 18 percent of
    the nation's natural gas and five percent of the nation's oil
    with sales values exceeding 19.6 billion in fiscal year 2005.
        The BLM manages the federal lands that are available for
    leasing and administers the leases. In 2003 we released the
    Energy Policy and Conservation Act Report, also known as EPCA.
    This study by the BLM, USGS, Department of Energy, and the U.S.
    Forest Service was done at the request of Congress. EPCA
    identified five basins in Montana, Wyoming, Utah, Colorado, and
    New Mexico as containing the largest on-shore resource of
    natural gas in the country and the second largest resource
    after the outer continental shelf.
        These on-shore basins contain an estimated 140 trillion
    cubic feet, enough to heat 55 million homes for almost 30
    years. More than half of these lands are under federal
    management. EPCA shows us that approximately 36 percent of the
    federal land is not available for leasing and 64 percent is
    available for leasing with some restrictions associated with
    oil and gas operations.
        Domestic production of natural gas on-shore has been
    increasing over the last three years. In Fiscal Year 2003 2.4
    trillion cubic feet of natural gas were produced from Federal
    lands. In Fiscal Years 2004 and 2005 2.8 trillion cubic feet
    and 2.9 trillion cubic feet respectively were produced.
        In addition to the Federal on-shore leases, the BLM
    supervises the operational responsibilities for 3,700 producing
    Indian oil and gas leases. In FY 2005 322 million cubic feet of
    natural gas were produced from American Indian lands. The
    demand for on-shore oil and gas is reflected in the dramatic
    increase in the number of applications for permits to drill,
    also called APDs. The number of APDs received by the BLM has
    increased every year since 2002 and we anticipate this trend to
    continue through 2007 and beyond.
        The BLM received 8,351 APDs in 2005, up from 4,585 APDs in
    2002. Our current projection is that we will receive over 9,700
    in 2006 and over 10,500 in 2007. We are proud of our progress
    that we have made in response to this increasing demand. In
    2005 we processed 7,736 APDs, a record number.
        The Energy Policy Act of 2005 is a comprehensive piece of
    energy legislation addressing conservation, energy supply from
    oil, gas, coal, oil shale, and renewal sources, distribution of
    energy, and research into future forms of energy. The BLM is
    playing a role in each of these areas. The Energy Policy Act of
    2005 contains several provisions through which the BLM is
    working to improve the APD permit processing, expedite oil and
    gas leasing, and ensure national gas production on public lands
    in an environmentally-responsible manner.
        BLM is working with other regulating agencies to develop a
    one-stop permitting process for oil and gas activities. The
    objective of grouping the appropriate agency personnel is to
    create a more efficient and effective process for issuing
    permits for oil and gas.
        In closing, as our nation's energy needs continue to
    increase, the BLM is positioned to do its part in helping to
    meet this need. That concludes my comments. Thank you for the
    opportunity to speak and I would be happy to respond to any
    questions.
        [Mr. Lonnie's testimony may be found in the appendix.]
        Chairman Bradley. Thank you all very much. We are joined by
    Sue Kelly from New York.
        Sue, do you have an opening statement? Sorry to hit you up
    before you even sit down but wanted to give you an opportunity.
    Great.
        Let me start out with questions first of Mr. Kendell. NOAA
    is predicting a fairly active hurricane season again this year.
    Perhaps not quite as catastrophic as last year. We will find
    out. You indicated about nine percent of the natural gas is
    still shut in in the Gulf. What kind of projections do you have
    for what might happen in a relatively active hurricane year as
    to what might be shut in? And then how would you think that
    would affect prices?
        Mr. Kendell. Of course, predicting the location and
    intensity of hurricanes is always difficult but in our latest
    Short-Term Energy outlook, we looked at the latest national
    Oceanic and Atmospheric Administration forecast which came out
    May 22nd. We looked at all the major hurricanes since 1960 and
    how much oil and gas was actually shut in. Then given the level
    of their prediction, our estimate is that somewhere between
    zero and 203 bcf would be shut in or lost to production this
    hurricane season. That is, of course, less than a quarter of
    what we lost for Rita and Katrina.
        We have not directly estimated the price impact of that
    outer level of loss of 203 bcf. There is one major consulting
    firm that has taken our number and they estimate that the loss
    of 203 bcf would mean a price increase at the wellhead of about
    $3.70 but that is not EIA work. That is just derived from our
    work.
        Chairman Bradley. Again, to Mr. Kendell, with the
    relatively high levels of gas in storage now, can you hazard as
    to why prices haven't dropped off more?
        Mr. Kendell. I think the first point is that we have seen
    prices drop off quite a bit. You in your opening statement
    mentioned that we were at $15 at the wellhead in December and
    now we are down to about $6. I think if you look at our long-
    term energy outlook, which I used to work on, we do expect
    prices to come down to, say, $4.40 or $4.50 over the next 10
    years or so but we don't expect prices to ever reach the
    historic 1990 levels of $2 or $3. I covered in my testimony
    some of the factors.
        In the short-term people are worried about weather. They
    are worried about what if we have some hurricanes, what if we
    have some hot weather, are we going to have enough gas. In the
    longer term people are worried about the difficulty of supply.
    I talked about depletion effects. People are worried about a
    surge in demand and the competition between oil and gas. What
    if commercial and industrial consumers start demanding more and
    will there be more gas in the long-term?
        Chairman Bradley. Sort of an open question for any of you
    if you would like to comment on it. Given the rise of combined
    cycle electricity, which I think all of you touched on as
    impacting demand significantly, in particular my area of the
    country in the northeast there hasn't been a single generating
    facility built in the last 10 years that I am aware of, at
    least that is a significant base load plan that isn't natural-
    gas-fired. How do you see that going into the future affecting
    the longer-term trends?
        Mr. Kendell. It certainly is going to put some pressure and
    continue to put pressure on natural gas prices. The good thing
    about combined- cycle plants is that they are much more
    efficient than the natural gas boilers that we used to have in
    place 30 years ago. Because of the two cycles they are more
    efficient than turbines. I think the electric industry is
    trying to use the natural gas in the most prudent way possible.
    It does mean that they are really tied to natural gas. Many of
    the plants that used to be dual fueled are no longer, as I
    mentioned. That could create some difficulties.
        Mr. Cruickshank. Mr. Chairman, I would just add with
    respect to your part of the country in particular, one of the
    things we are doing at the Department of Interior is trying to
    encourage the growth of renewable energy. Last year MMS
    received authority to develop a program for offshore renewable
    energy, wind and wave and other sorts of energy.While that is
    unlikely to make a big difference in supply in the near-term,
    over time if those facilities are built, they can reduce the
    pressure on demand for natural gas to generate electricity.
        Chairman Bradley. See my time is up, I would just indicate
    what a controversial item the offshore wind facility has been
    in the Nantucket area. I'm glad to see that the Coast Guard
    reauthorization did not automatically nix that. It has large
    potential and, at least in my view, it ought to be permitted
    based on scientific data and the impact on navigation and
    really not political and not aesthetics.
        With that, I am happy to recognize Ms. Millender-McDonald.
        Ms. Millender-McDonald. Thank you so much, Mr. Chairman.
    This is a very interesting topic. In fact, we have been
    speaking on this for quite sometime and in the statement that
    Mr. Kendell has presented to us today, he speaks about the
    world oil prices and we know that the crude oil is really up
    and down, up and down. The most recent increase in crude oil
    prices began in 2004, as you have indicated, Mr. Kendell.
        In my opening statement I did mention that natural gas
    resources have the highest amount of volatility in price to
    date. With all of this going and according to the Energy
    Information Administration, natural gas prices are projected to
    rise by over 6 percent between 2006 and 2007. Do you expect
    this trend, if you can give this type of projection, to
    continue in the future and will prices remain stable or become
    more volatile?
        Mr. Kendell. In addition to having a Short-Term Energy
    outlook, which I testified about today, we also do an Annual
    Energy Outlook. What this shows is that we expect that actually
    prices will decline a little bit through the year 2016 and then
    to hit about $4.50 in 2016, and then gradually go up to around
    $5.40 by 2030. Of course, this is kind of a steady-state
    forecast and it doesn't include a lot of these volatility
    events that people are so concerned about.
        Ms. Millender-McDonald. So 2016 we will see kind of like a
    steady stable flow. Is that what I'm hearing here? About 2016
    it will kind of stabilize itself?
        Mr. Kendell. In constant dollars. I was just reminded that
    this forecast is in 2004 dollars.
        Ms. Millender-McDonald. Okay. All right.
        Mr. Kendell. We expect actually over the long-term and
    that's because the current high prices are bringing on a
    substantial amount of drilling. We are getting new LNG
    terminals built. We expect LNG to be coming in. In this
    forecast we expect the Alaskan natural gas pipeline to start
    moving gas in 2015. All those things put downward pressure on
    natural gas prices in the long-term.
        Ms. Millender-McDonald. Of course, Long Beach is one that
    has been tapped for LNG but it is quite a volatile
    circumstance, I suppose, at this time. In fact, the city
    council is really very uncertain about that at this point. I
    want to go back to Mr. Cruickshank. The National Energy Policy
    the President has indicated includes directives to versify and
    increase energy supplies. He encourages conservation, of
    course, and ensure adequate energy distribution.
        When he speaks about directives to versify and increase
    energy supplies, I am reminded of the Interior Department
    manages the resources that provide a third of our nation's
    energy. Given that, these resources include fossil fuel such as
    coal, oil, and natural gas, as well as renewable resources and
    geothermal steam and wind.
        I put an amendment in to the Energy Bill to talk about
    geothermal because that is one source of energy that California
    can resurrect quickly to help us to become more independent
    than dependent. I wanted to get your thoughts on given that the
    President is suggesting that we diversify because of natural
    gas and where it is volatile at this point, what are your
    thoughts on these other resources that I have just outlined?
        Mr. Cruickshank. I will speak a bit but a lot of those
    resources are on-shore and under BLM's jurisdiction.
        Ms. Millender-McDonald. That is correct.
        Mr. Cruickshank. The Department of the Interior as a whole
    is very supportive of increasing renewable energy production
    from federal lands and is taking steps both onshore and
    offshore to create the conditions where renewable energy can be
    developed. That said, even if they grow rapidly it will be
    quite some time before they make a substantial contribution to
    the nation's energy supply. We are going to remain dependent on
    fossil fuels for quite a long time to come, even as we develop
    renewable energy.
        Ms. Millender-McDonald. Far beyond what natural gas can
    bring in, the stability of that about 2016?
        Mr. Cruickshank. Most of what I have heard is for at least
    the next 20 years we will still be dependent on traditional
    sources of fuel.
        Ms. Millender-McDonald. Is that right?
        Mr. Cruickshank. Even though renewable energy will account
    for a growing share of our production.
        Ms. Millender-McDonald. Right. Geothermal. What are your
    thoughts on that? Or if Mr. Lonnie wants to answer that.
        Mr. Lonnie. I think I mentioned as part of the Energy
    Policy Act that was passed last August we, the BLM, and the
    Minerals Management Service, are currently rewriting our
    regulations to somewhat simplify the leasing process and the
    accounting process associated with geothermal.
        We have numerous leases pending on-shore in Nevada,
    California, and also in Oregon and Washington. We view that as
    an important energy source in terms of diversity. In addition,
    there were several other provisions of the Act that we had
    already started embarking upon such as oil shale. Oil shale in
    the west, and this is primarily in Utah, Wyoming, and Colorado,
    estimated that there are about 800 million barrels of oil
    technically recoverable. We have started the research and
    development program on that and we currently are in the process
    of reviewing six or seven nominations for RD&D projects.
        Shell Oil believes based on testimony that I have heard
    they think they can have a commercial production by the next
    decade. Other projects we have got, we have got numerous wind
    projects on-shore in Idaho, Wyoming, and also in Montana that
    we are currently processing which would amount to small size
    coal power plants upon approval. We also have existing wind
    projects that are producing energy in California and others.
        We developed a solar energy policy that is in existence if
    companies want to come in and place solar panels beyond land in
    certain areas. We have developed through contracting what the
    best areas for wind energy as well as solar energy are in the
    western United States. In addition, the BLM leases coal and the
    coal leased by the BLM accounts for probably 50 percent of the
    electricity generated in the west.
        Ms. Millender-McDonald. Mr. Chairman, may I just ask one
    quick question here? Gentlemen, you have all outlined where we
    are going with renewable energy or resources or sources along
    with all of the other fossil fuel, natural gas. You can see how
    this impacts your small business entrepreneurs. How soon can we
    expect any relief for them to continue to do their due
    diligence given all the volatility of where we are and where we
    plan to go and the years it seems that it will take before we
    come to come to some type of level of stability? Good question?
    Confused questions?
        Mr. Kendell. Good question. This year we expect prices to
    be less than the comparable time last year, assuming we don't
    have a hurricane, and assuming we don't have a terrible hot
    spell. I don't know that we are ever going to get to a position
    from now on where natural gas prices are stable the way they
    were in 1920 or the way they even were in the '90s.
        Ms. Millender-McDonald. Not until about 2016 and then that
    is also something that is not predictable.
        Mr. Kendell. Sure. What I said was that our long-term
    forecast shows them just falling off very slightly by 2016 and
    then start rising to about almost $6.00 in constant dollars by
    2030. We don't expect the prices to necessarily be stable from
    month to month or even year to year. I mean, these long-term
    forecasts take out a lot of that volatility. Natural gas has
    become a commodity and it is no longer as heavily regulated as
    it was in the '40s and '50s so we are going to see volatility.
        Ms. Millender-McDonald. Unfortunately. Anymore comments?
    No? Thank you so much, Mr. Chairman.
        Chairman Bradley. Congresswoman Kelly.
        Ms. Kelly. Thank you, Mr. Chairman.
        Mr. Kendell, I represent New York's Hudson Valley. There
    are a lot of small businesses there and they are in the
    agriculture industry. They produce fresh fruits, vegetables,
    dairy commodities, as well as nurseries. Michael Sweeten is a
    small business owner in my district and he is also the town
    supervisor in the town of Warwick, New York. He has heard
    frequently from other business owners that he is not the only
    one feeling the pinch.
        Mr. Sweeten has operated a green house and nursery
    operation for more than 30 years and this is the worst time he
    has had in his whole career because of the rising energy cost.
    He wrote me in December of 2005 explaining the problem with
    energy cost for small businesses. In 2004 he paid about 73.5
    cents per 100 cubic feet. That jumped to 105 per ccf for a few
    months. Then it settled down to 85 percent per ccf through
    August of 2005.
        In August of 2005 it jumped to $1.11 per ccf. In September
    it rose to $1.57 per ccf. In October it hit $1.78 per ccf. That
    is an increase of 60 percent in two months. Compared to the
    fall of 2004 his cost of gas has risen 109 percent. It took
    your agency three months until March 2006 to reply to my
    inquiries regarding this spike in prices.
        Once the Department of Energy did reply, the agency blamed
    it on the infrastructure lost in last summer's hurricanes and
    said there was an increase in demand. I understand that but
    before the two worst hurricanes, the price had already jumped
    more than 25 cents. For a constituent in a small business that
    paid $7,000 more in the spring of 2006 than the same period for
    the spring in 2005 and he is using less natural gas, the simple
    supply and demand argument really doesn't cut it.
        The Assistant Secretary said in a response finally that we
    got that there had been no change in demand, but that is not
    what the small businesses of this constituent have been telling
    me. They are saying that they are doing everything possible to
    use less simply because the cost is so high. Even if the costs
    tend to go down as you stated in your testimony, and in your
    testimony here you state on page 7, ``Natural gas prices
    trended downward between mid-December 2005 and early March
    2006.``
        Then you also further state, ``This past winter was
    relatively mild resulting in unusually high storage
    inventories.`` Why is my constituent paying $7,000 more in the
    spring of 2006 then he was paying in 2005? Can you explain what
    you are trying to do here and can you explain at least to help
    me explain to the small businesses I represent about these
    enormous spikes in prices?
        Mr. Kendell. I'm sorry that DOE didn't get back to you in a
    more timely fashion. Next time send it to EIA and we will get
    back to you more quickly. Greenhouses in particular are
    significantly affected by the natural gas prices and it is very
    difficult for companies that rely on one fuel such as natural
    gas to respond to events like the hurricanes. I mean, the
    hurricane aftermath was really at the root of these enormous
    price increases that he saw.
        Ms. Kelly. But this had already gone up 25 cents before the
    hurricanes.
        Mr. Kendell. Right.
        Ms. Kelly. It was rising before the hurricanes. Why?
        Mr. Kendell. That is one of the reasons why prices continue
    to be high now. People are anticipating that there might be
    hurricanes. They are anticipating that there might be warm
    weather. If you look at the prices that are being paid in the
    future's market for next winter, the prices are about $4.00 in
    excess of what they are now. What that does is give people an
    incentive to put natural gas in storage. There is an incentive
    to buy gas, to put it in storage, and it puts demand pressure
    on the price and keeps it up.
        Ms. Kelly. So you are saying to me, if I understand you
    correctly, that in your testimony you are talking about a
    downward trend in prices for early 2006. Small business owners
    are not seeing this. Then you are saying that your data are
    showing that people are storehousing this. If they are
    storehousing gas, are you saying that they are prepared to put
    in high reserve inventories and they are holding those
    inventories in case we might have a hurricane? In case they can
    then drive up the price? How is that allowable?
        You talk about market forces. If these people are
    increasing their inventories, how about all these small
    businesses out there and the people are trying to heat their
    homes who need that gas at a lower price now? What you are
    saying to me is you have a distorted market force that is at
    work here.
        Mr. Kendell. As I said to the Chairman, the prices have
    come down significantly. We had prices of about 15 dollars in
    December and now they are down to six.
        Ms. Kelly. That is wonderful but how about my guy who is
    paying $7,000 more this year than he did last year for the same
    era that you are saying the prices are down?
        Mr. Kendell. Right. Well, it is sort of like being on the
    scale. I get on the scale and it says 200 pounds and then the
    next month is says 180, I think it is great.
        Ms. Kelly. What does that have to do with oil prices?
        Mr. Kendell. We have had a change in expectations. People
    in the past were used to seeing prices of $3.00 per 1,000 cubic
    feet. Now we have had a whole series of changes in the market.
    In my testimony I talked about depletion. I talked about the
    effects of the hurricanes.
        Ms. Kelly. Wait a minute. You have just contradicted
    yourself, sir. You just told me that people were adding to
    their inventories and holding it and now you are talking about
    depletion.
        Mr. Kendell. I am talking about depletion in production. I
    am not talking about inventory. I am talking about production.
        Ms. Kelly. Depletion of production.
        Mr. Kendell. Depletion of gas resources.
        Ms. Kelly. But people are stockpiling gas reserves in their
    inventories now.
        Mr. Kendell. That is further downstream. Once the gas is
    produced, it is put into pipelines and it is put into storage
    facilities. What the gas industry does over the summer is
    stores natural gas so that people have it during the winter
    when most people in the north need it.
        Ms. Kelly. I understand that. You still haven't answered--I
    have asked you several questions and I really don't feel you
    have answered them. I want to go back to the fact that it
    sounds to me when you say that the reserve inventories are high
    right now so I don't understand when you say that they are high
    now. We had production, didn't we, to produce that?
        Mr. Kendell. Yes, we did.
        Ms. Kelly. Where was that production a few months ago when
    he was still paying very high prices, 109 percent more than he
    paid the year before? Where was that production? Did production
    increase in the last two months? The last three months?
        Mr. Kendell. We had a significant amount of production shut
    in because of the hurricanes and we are still down about 9
    percent from what the Gulf normally produces. Prices are set at
    the margin. If the gas is not available, people will bid for
    the last cubic foot of gas and bid prices up. If we have any
    kind of disruption in the system, we are going to see increased
    prices.
        Ms. Kelly. The increased prices started before the
    hurricanes so you haven't answered that question. The thing
    that I really find confusing is the fact that the Department of
    Energy doesn't seem to be doing anything to try to keep a close
    contact to control prices here for these people because if we
    have a heavy winter in the northeast, there will be people who
    in my district will make a choice between whether they stay
    warm or whether they eat.
        It is not just a greenhouse question. It is a question of
    survival for some people and I believe it is incumbent upon the
    Department of Energy to try to help right now before we get
    into that kind of a situation. If people are stockpiling
    natural gas right now, are you helping them in such a way that
    they will be able to meter that gas out at a lower price? What
    can you do to help us? What are you doing to help us? Those are
    two questions I really would like to hear your answers to.
        Mr. Kendell. Unfortunately EIA is not a policy making
    organization. We don't really control the flow of natural gas.
    The flow of gas is controlled--
        Ms. Kelly. Are you making recommendations to the DOE?
        Chairman Bradley. Congresswoman Kelly, let me interrupt for
    a moment. EIA is the Energy Information Agency and they do
    projections on the long-term and short-term trends of the price
    of everything from renewable fuels to oil and gasoline.
        Ms. Kelly. Those projections--
        Chairman Bradley. Some of your questions, I think, would
    better be addressed to the Department of Energy as opposed to
    EIA which is an adjunct of that.
        Ms. Kelly. But the Department of Energy is going to make
    their decisions based on exactly what this man's perceptions
    are of the reality of the market. That is my point.
        Chairman Bradley. I understand your point. Since you are
    six minutes over your allotted time--
        Ms. Kelly. Sorry.
        Chairman Bradley. --I would like to recognize Congressman
    Chabot.
        Mr. Chabot. It gets pronounced all kinds of ways.
        Chairman Bradley. Yes, I know.
        Mr. Chabot. I always tell people I don't care how they
    pronounce it as long as they vote for. That is especially
    important this year.
        I appreciate the testimony, gentlemen. I want to apologize.
    This is the third hearing I have had in the last half hour. I
    am trying to get around to all of them so I will make it a
    point to review all your testimony but I don't want to start
    cross examining anybody here without having had an opportunity
    to read it so I want to thank you for any effort that you can
    make to keep prices down so small businesses can be productive
    and hire people. We are all for that. I want to thank the
    Committee for doing that and I yield back the balance of my
    time.
        Chairman Bradley. All right. I will allow one more question
    for each of the panelists before we move on to the next panel.
    I would like to ask and any of you can answer this as you
    chose.
        Ms. McDonald has to leave for another hearing.
        Ms. Millender-McDonald. Thank you, Mr. Chairman. I, like
    Mr. Chabot and others, are moving from one Committee to the
    other. I just happened to be leaving this Subcommittee ranking
    membership to go to a Full Committee ranking membership with
    the Senate. I must leave but I would like to thank all of you
    for being here. This is an important hearing, Mr. Chairman, and
    I would like to see if we can follow up on this again sometime
    soon.
        I would like to introduce Mr. Richard Goodstein who will be
    the second panelist who is from my district, although he is
    Washington's representative of the Air Products and Chemicals,
    Inc., in my district. We welcome you here. I am sorry that I
    cannot listen to the hydrogen part of your natural gas and
    hydrogen but we will be in communication with you as we have
    always. Thank you so much for being here and thank all of the
    witnesses, those who are with us and those who are to come.
    Thank you all so much.
        Chairman Bradley. Thank you. Let me just put this last
    question out then for myself. Would any of you talk about the
    role of LNG, how increasing it is going to be in importance,
    the lack of terminals for processing LNG, how that plays into
    it.
        Mr. Kendell. We are anticipating that liquified natural gas
    is going to be very important in the long-term, not so much in
    the short-term. As I testified, we expect LNG imports to
    increase from 651 bcf in 2005 to 710 this year and 950 in 2007.
    The important part of LNG is that it makes more supply
    available to us. When we have more supply, that tends to put
    downward pressure on prices and I think that it is important
    for consumers to recognize that relationship.
        Chairman Bradley. Any further questions for this panel?
    Yes, Congresswoman Kelly.
        Ms. Kelly. There are other aspects of energy that I have
    not heard you discuss. Interesting aspects of things like
    lowhead hydropower and other things that no one seems to be
    talking about when we are talking about alternative sources of
    energy. People talk about wind and water. Well, water also
    includes things like lowhead hydropower and for years there
    have been lowhead hydropower dams all over the nation and we
    could certainly increase that. Has anybody in the DOE done any
    studies on that?
        Mr. Kendell. Again, EIA has not looked at that. Among the
    renewables we expect that wind and geothermal are going to
    provide the major contributions to energy supply. There have
    been studies of lowhead hydro in DOE over the years but it is
    limited by the sites. You need a good site before you can
    undertake a project.
        Ms. Kelly. That indicates what you said earlier that you
    didn't look at biomass to energy either.
        Mr. Kendell. Of course, we do look at biomass in our long-
    term forecast. You are welcome to pick up a copy of our Annual
    Energy Outlook or look at it on the web. We do try to cover all
    the different sources of energy and look at the prices, look at
    the cost involved in each of the production sources.
        Ms. Kelly. Is there any hope on anything other than wind
    and--
        Mr. Kendell. Actually, there is. Looking at wood and
    biomass we have capacity going up three percent a year through
    2030. We have co-firing with wood at power plants going up an
    enormous amount, as well as solar thermal and solar
    photovoltaic. Municipal solid waste goes up 1.3 percent. So
    there are a whole variety of renewable sources that are going
    up. I think one of the points we made in the panel earlier is
    that we are locked into fossil fuels for the foreseeable future
    because the fossil fuels continue to be less expensive, less
    costly than these renewable alternatives.
        Ms. Kelly. Thank you. That is very helpful.
        Chairman Bradley. And I would just add when we are talking
    about renewables, nonhydro renewable electricity generation
    represents about what, 2 percent of our overall generation so
    we could increase it several fold and it would still be a very
    small percentage of our overall energy mix.
         Let me thank this panel very much for being here this
    afternoon. You have triggered significant discussion and we
    appreciate your participation. Thank you again.
        We will take a couple of minutes to get the second panel
    seated and then I will welcome those folks, too.
        Chairman Bradley. The second panel consist of Mr. Richard
    Goodstein who joins us from the Air Products and Chemicals,
    Inc. where he serves as a Washington representative. Air
    Products is the world's largest generator of hydrogen as a fuel
    and a key player on the path to a hydrogen economy. Mr.
    Goodstein has been deeply involved in Federal Government policy
    on hydrogen working closely with relevant Congressional
    committees and key federal agencies. Thank you very much for
    being here and we appreciate your testimony.
        Next we have Mr. Jeff Uhlenburg. I hope I got that correct.
    Thank you. Jeff is from Donovan Heat Treating Company, a
    commercial heat treater out of Philadelphia. Mr. Uhlenburg is
    the President of this small manufacturing company and serves as
    the trustee on the Board of Metal Treating Institute. Thank you
    for joining us here this afternoon.
        The third panelist is Mr. Paul Wilkinson from the American
    Gas Association. Mr. Wilkinson has served as Vice-President of
    Policy Analysis for 23 years. Mr. Wilkinson in his role at AGA
    is responsible for the development and implementation of AGA's
    analysis program including AGA's activities in the gas supply,
    gas demand statistics, economics, and environmental areas.
    Thank you for being here.
        Lastly, Mr. Lowell Ungar. He is here today from the
    Alliance to Save Energy where he has served as the Senior
    Policy Analyst since 2003. In his capacity Mr. Ungar is active
    in appropriations issues for federal energy efficiency
    programs, utility, DSM policies, and appliance and fuel economy
    standards. Prior to joining the alliance Mr. Ungar has worked
    on Capitol Hill in both the House and Senate. Thank you for
    being here this afternoon. So, please.

      STATEMENT OF RICHARD GOODSTEIN, AIR PRODUCTS AND CHEMICALS,
                                  INC.

        Mr. Goodstein. Thank you Chairman Bradley, Congresswoman
    Kelly, and I hope actually to get a chance, even though I
    didn't have it in my prepared comments, to address the question
    that was so vexing in terms of you getting your answer but I
    hope to get to that later, and Congressman Chabot.
        Thanks to all of you for joining us today for the
    opportunity to, in my case, speak about the promise of hydrogen
    as a fuel of the future, the importance of natural gas in
    pursuit of a hydrogen economy, the challenges posed by high and
    volatile prices for natural gas, and what Congress can do about
    all this both short and long-term.
        I am, as the Chairman said, the Washington representative
    for Air Products, the world's largest generator of hydrogen and
    this was pursuant to an invitation to the National Hydrogen
    Association of which we are members and thank you very much.
        Air Products has 60 hydrogen generating and processing
    facilities throughout the world. More miles of hydrogen
    pipeline than anyone else, an unparalleled safety record, and a
    50 percent market share in hydrogen globally. It is also the
    largest manufacturer of equipment essential to making liquid
    natural gas which we have been talking about.
        You will recall that President Bush embraced the promise of
    hydrogen in his State of the Union Address in 2003. A hydrogen
    economy truly would transform the nation freeing the U.S. from
    the dependence on foreign oil, helping Americans breathe clean
    air, ending our unsustainable trade imbalance, and allowing for
    reduced defense posture that is currently predicated on massive
    oil imports.
        To achieve all of these remarkable objectives, the country
    will need the building block for hydrogen today which is a
    dependable supply of natural gas. Most of the hydrogen supplied
    by air products is generated through a process of reforming
    natural gas, natural gas from the local gas company coming in,
    pure hydrogen going out. I have a picture attached to my
    testimony. Air Products has a number of these what are called
    steam methane reformers mainly in the Gulf Coast and we
    actually have a couple in Congresswoman Millender-McDonald's
    district.
        Because hydrogen fuel cells are much more efficient than
    car engines today, hydrogen made from natural gas is a good
    source of fuel for vehicles and can move the U.S. out of the
    grip of OPEC. Emissions from a hydrogen fuel vehicle are water
    vapor, nothing more. In a hydrogen economy air emissions and
    the need to regulate them would largely be a relic of an older
    age. Think about that.
        In policy circles hydrogen is often discussed as if it were
    an option merely for the future but, in fact, hydrogen is
    generated in enormous quantities for industrial purposes today.
    You will see attached to my testimony a map showing hydrogen
    facilities throughout the country.
        All these little circles and triangles and so forth depict
    in one fashion or another the fact that there is hydrogen
    available. Not necessarily in dispensable form but it exist in
    virtually every state in the union. In some cases, especially
    in Southern California, hydrogen is available as a vehicle fuel
    at prices competitive with gasoline today.
        Air Products has developed over 40 hydrogen fueling
    stations throughout the world, mainly in the U.S. This is my
    last show and tell. I have attached a picture of what they look
    like. Not unlike a standard pump at a fueling station. In fact,
    the Secret Service let President Bush dispense hydrogen from
    one of them on Benning Road about two miles from here not long
    ago so it is safe.
        The point is that between the existence of technology to
    dispense hydrogen and the existing network of hydrogen
    facilities around the country, the development of a hydrogen
    fueling infrastructure is quite feasible. The Holy Grail in the
    hydrogen world is totally renewable hydrogen where renewable
    energy such as hydropower, biomass, solar, wind, and others are
    used to generate the electricity to separate the oxygen from
    the hydrogen molecules and water. Until the price of renewable
    hydrogen is substantially reduced, hydrogen will largely be
    derived from natural gas.
         It will be years before the demand for hydrogen is high
    enough to effect overall demand for natural gas so, again,
    hydrogen's development is not really going to put a crimp in
    the overall demand in the U.S. for natural gas. Nonetheless,
    count Air Products among the many who believe that increased
    access to domestic natural gas supplies is an important
    objective for many reasons.
        First, as we have heard, generating hydrogen and other
    gasses, what we do for a living, requires considerable amounts
    of electricity and high natural gas prices are driving up
    electricity costs for your farmers, for businesses, and
    obviously for people in their households.
        Second, Air Products is a large chemical manufacturer. We
    have been suffering along with other chemical companies from
    the high prices of natural gas over the past several years. As
    one example, Air Products terminated methanol production at a
    chemical plant in Pensacola and began importing from Trinidad.
    We weren't happy about it. We didn't like moving those jobs
    offshore but in a global competitive market we really had no
    choice.
        What can Congress do about all this? For starters, we ask
    Congress to realize that hydrogen is delivering and will
    deliver on its promise relatively soon. There are many members
    of Congress who have no qualms about supporting drilling for
    oil in Alaska even though everybody believes that first drop of
    oil won't be available to American consumers for 10 years.
        Yet, the Department of Energy predicts that hydrogen will
    be in a commercial phase about 10 years from now. Cars, buses,
    cell phone towers, lap tops, small generators will increasingly
    be powered by hydrogen so we submit that anyone willing to wait
    on oil from Alaska should see hydrogen's potential in the same
    time frame.
        Because hydrogen's benefits such as clean air and energy
    and dependence are largely common to all of us, free market
    forces alone won't do the job. The Federal Government needs to
    be arm-in-arm with the private sector to do what the Federal
    Government only can do tax preferences, loan guarantees, R&D
    spending, and developing codes and standards, and to be sure
    drilling for natural gas in an environmentally sensitive manner
    and in states that want it is important to maintain as a source
    of hydrogen for many years to come.
        With appropriate Government support the U.S. can develop
    and maintain an edge over foreign competition in this very new
    field of hydrogen and fuel cell technologies. These
    technologies will not only clean up our own country but what a
    great export for the U.S. to have. Hydrogen has great promise
    and is more here now than many think. Thank you for spending
    the Subcommittee's time on this important subject and I look
    forward to any questions. Thank you.
        [Mr. Goodstein's testimony may be found in the appendix.]

       STATEMENT OF JEFF UHLENBURG, DONOVAN HEAT TREATING COMPANY

        Mr. Uhlenburg. Thank you for allowing me to come here today
    to speak and testify. My name is Jeff Uhlenburg and I am the
    President of Donovan Heat Treating in Philadelphia. We are
    commercial heat treaters and we have 15 employees located in
    Philadelphia, Pennsylvania. I am a member of the National
    Association of Manufacturers. NAM is the largest broad-based
    industrial trade association in the country. Our members are in
    every industrial sector and every state. I am also, as
    Congressman Bradley mentioned, a trustee on the board for the
    Metal Treating Institute for which I have been involved for
    over 25 years.
        I have also been very involved in the energy issues in my
    company and natural gas purchasing for over 25 years. Heat
    treating basically requires only three things, metal, furnaces,
    and heat. I'm here today to talk to you today about the heat
    part. The process generally takes one to three days in a modern
    plant. Natural gas is by far the most common fuel used in heat
    treating today with 95 percent of all furnaces using new gas.
        At Donovan's we fire five furnaces with gas. One burns as
    much as 16 million BTUs per hour. Gas is the easiest, most
    consistent, most reliable fuel to use. That is why it is used
    so much in heat treating and many other industrial processes.
    Natural gas is normally our second largest expense and has been
    since 2003, the largest being labor.
        Prices for gas has risen more than 600 percent since the
    '90s from $2.00 per BTU to around $6.00 per BTU today and they
    were as high as $15 in the fall of '05. Even before last year's
    hurricanes the price of gas has nearly doubled in 2005 alone.
    Our plant in Pennsylvania was cut off from natural gas three
    times in the last five years.
        We slowed down, we ran as best we could with propane as an
    alternate fuel, and the propane cost converted to natural gas
    was almost $20 in mcf. The gases started flowing again but the
    disruption and the supply and speculative bidding has caused
    the price to nearly double to $14. Recently, our gas bill hit
    an all time record in October and November of 2005. How are we
    handling it? We are continuing to run now because we are
    obligated to finish jobs that we have started for our
    customers.
        We announced a substantial price increase in January so the
    price of heat treating is going up. We also expected sales to
    slow down soon and we had tentatively planned to shut down some
    of our production. We thought that the gas would be its most
    expensive. We did have a fairly mild January and that didn't
    exactly happen but the price is nowhere where it should be
    presently.
        We alternated our work crews, though, so that we actually
    had to lay off almost each one of our workers for a short
    period of time. This is our story and it is not much different
    from a lot of other manufacturers that I know, especially other
    heat treaters. Our energy bills may be higher than theirs but
    their cost pressures are just as real.
        Cost of manufacturing are already very high here in the
    United States and this kind of increase will push some
    businesses over the edge. You have already heard, or will soon
    here, about other manufacturers moving offshore because of
    energy costs. I know you are hearing a lot from constituents
    about the high cost of gasoline since the current cost of
    natural gas is the equivalent of $7 a gallon for gasoline. Just
    wait until the heating bills come in again this coming winter.
        What happened to cause this pricing problem? It is easy to
    blame it on the hurricanes and all but the problem goes much
    deeper. In my opinion the natural gas shortage began five years
    ago or more when electric utilities around the country quit
    building new generation except those units fired with natural
    gas. They did so for a good reason.
        It was the easiest way to satisfy the clean air regulations
    and environmental pressure from neighborhood activists. Why not
    take the easy road? But a gas-fired generator uses a tremendous
    amount of gas. At the same time that usage was going up the oil
    and gas industry was constrained from drilling in the most
    promising areas of our country to find the needed supply to
    supply the increases.
        Without that extra supply it was inevitable that we would
    see prices going up. What the hurricanes did was take a dismal
    pricing situation and basically multiply it by two. The storms
    have also pointed out the national folly of forcing most of our
    gas infrastructure through one area of our country. What do we
    need to do as a country? We didn't get into this hole overnight
    and we are not going to get out of it that quickly either. At a
    recent NAM board meeting the consensus was that we really
    needed to develop our entire energy portfolio to take the
    pressure off of natural gas.
        Long-term, say 20 to 25 years, we need to diversify our
    baseload of electricity which would include increased
    construction of clean coal and nuclear power plants. This will
    help relieve the pressure on natural gas for manufacturing,
    home heating, and peak power generations of electricity.
        Our goal reserves are the world's largest. I know that as a
    native of Pennsylvania. We sit on top of one of the largest
    coal reserves in the world. Being equal to about Saudi Arabia's
    oil reserves on a BTU equivalent we have about a 250-year
    supply with greater opportunities for coal use and
    transportation and industry production on the horizon.
        There are also new applications for coal and transportation
    fuel as well called a liquid technology pioneered by Germany
    almost a century ago and perfected more recently in South
    Africa. This offers the prospect of a new chapter in U.S.
    energy use.
        Because of clean coal technology, emissions from coal fire
    utilities are 40 percent below the level of the 1980s. Carbon
    sequestration technology and gasification technologies are
    being used to create hydrogen energy also as Mr. Goodstein
    pointed out.
        Additionally, we need more clean nuclear energy. Nuclear
    energy is a secure source that the nation can depend upon.
    Unlike some other energy sources it is not subject to
    unreliable weather or climate conditions, unpredictable cost
    fluctuations, or dependence on foreign suppliers. It produces
    no controlled air pollutants such as sulphur and particulates
    or greenhouse gases.
        Finally, renewable sources of energy hold exciting promise
    for the future but much R&D is needed to take the place of that
    if that goal is to be reached. We are a fossil fuel based
    economy as pointed out here. In order to make a shift away from
    these fuels a significant government expenditure needs to take
    place to build that infrastructure. The NAM is not opposed to
    renewable fuels but we believe the Government policy should not
    mandate their use but encourage and provide incentives and
    allow the market place to work.
        In the intermediate term when you increase the supply of
    oil and gas, the extra supply will eventually bring down the
    consumer prices to increase the supply we need to open up the
    development of the Outer Continental Shelf, or OCS, and allow
    the states that permit offshore drilling to receive a large
    portion of the substantial revenue that comes with it.
    Currently 85 percent of all federally controlled coastal waters
    are off limits to energy production due to a federal moratoria
    that has blocked the state's access to our reserves.
        The OCS, as pointed out earlier, has over 420 trillion
    cubic feet of natural gas resources, enough to heat 100 million
    homes for 60 years and enough oil to drive 85 million cars for
    35 years. Congress should list federal restrictions that
    prevent states from developing these resources and doing so
    would increase the much needed domestic energy supplies and
    reduce prices, allow states to control their offshore energy
    resources, allow coastal states to benefit from energy
    development by sharing royalties resulting in hundreds of
    millions of dollars in local revenue, encourage the building of
    a gas pipeline from Alaska.
        Short-term these are the things we can do right now. Allow
    companies like ours to have fast-track environmental permitting
    to switch to other kilns, boilers, whatever they use in their
    processes as long as they meet reasonable environmental
    standards for hazardous air pollutants. Businesses can then
    move quickly through the regulatory hurdles and things that
    they encounter.
        Open the additional LNG terminals as soon as possible has
    great potential. Finally, conservation and efficiency is
    something each and everyone of us can do right here and right
    now which should be part of any company's normal course of
    business because it makes good business sense.
        The Government's role should be to provide the mechanisms
    to encourage and educate manufacturers. We believe the EPA's
    Energy Star Program and the Department of Energy's industrial
    technologies programs are two such programs that provide the
    right mix of hands on education and creative problem solving.
        As I said earlier, we will not get out of this hole quickly
    or easily but I believe that Congress holds the key to long-
    term energy independence and lower prices for oil and gas.
        Manufacturers cannot compete with electric utilities for
    natural gas. Most utilities have an automatic pass-through of
    higher fuel bills to their customers.
        Manufacturers that compete in a global economy do not have
    that luxury. If we don't turn this situation around, the end
    result will be continued loss of paying jobs in the United
    States, lower tax receipts, and increased imports. I urge you
    to think long-term and make good decisions for the entire
    country on this critical issue.
        I thank you, Mr. Chairman and members of the Committee for
    the opportunity to present the NAM's and my company's view
    today.
        Chairman Bradley. Great. Thank you very much.
        Mr. Wilkinson.
        [Mr. Uhlenburg's testimony may be found in the appendix.]

         STATEMENT OF PAUL WILKINSON, AMERICAN GAS ASSOCIATION

        Mr. Wilkinson. Good afternoon and thank you for this
    opportunity to discuss this very critical issue with you today.
    AGA represents 197 local energy utilities that deliver gas to
    over 56 million homes, businesses, and factories throughout the
    country.
        I should note at the outset that local gas utilities do not
    profit at all from higher natural gas prices. We want what our
    customers want, adequate supplies at reasonable prices. Natural
    gas provides 40 percent of the energy consumed by small
    businesses in this country. The percentage would be
    significantly higher if we excluded lighting from which gas
    does not compete.
        Gas is used for space and water heating, cooking, clothes
    drying, cooling, dehumidification, small scale electricity
    generation, and a variety of other applications. The price of
    natural gas has more than doubled for small business customers
    since 1999. Further, natural gas prices have been subject to
    great volatility for the past five years. High prices have
    placed a strain on all small businesses forcing some to curtail
    operations or shut down entirely.
        Price volatility has made planning and budgeting extremely
    difficult for small businesses as energy comprises a
    significant share of total operating cost. It is critical that
    we begin to aggressively address the problem that has
    confronted small businesses for half a decade now. We urge the
    Congress to act decisively and swiftly to increase the supply
    of natural gas.
        Gas production is not keeping pace with demand and prices
    have risen dramatically. Prices will only come down when we
    increase the supply of natural gas in the market place. The
    natural gas market was very stable in the '80s and in the '90s.
    Prices tend to fluctuate around an equilibrium of about $2 per
    million BTU. In fact, natural gas prices when adjusted for
    inflation fell during that period.
        Just within the past year we saw $6.00 gas prices last June
    jump to $9.00 in August largely as the result of hot weather
    that pushed more gas into electricity generation. Prices spiked
    to $14 as a result of the hurricane disruption in September.
    They fell to about $11.00 in the early winter but a cold snap
    in December shot them right back up to $15. In January they
    fell back to the $7.00 range due to the warmest weather on
    record for that month. Today they remain around $6.00 per
    million BTU.
        My point is that natural gas prices now respond immediately
    and dramatically to weather. There is no longer any slack in
    the system to accommodate sudden changes in supply or demand.
    The system is constantly running at full throttle and,
    therefore, a sudden change in supply or demand means a dramatic
    change in price. It is simply not good public policy to allow
    the whims of Mother Nature to dictate who can and you cannot
    heat their home or business or which plants will operate and
    which will shut down or to determine who will and who will not
    have a job.
        I urge the Congress to begin to rectify this situation.
    Ending the absolute moratorium on offshore drilling is an
    important step in the right direction. In my view there is no
    question that we must do this. Natural gas is produced in a
    safe, efficient, and environmentally responsible fashion. We
    are talking about activity 50 to 100 miles offshore. It will
    not be seen, heard, nor smelled. No tankers, no barges, no
    spills.
        I live in a coastal state and I appreciate the need to
    protect our beaches but I know this is no threat. I also know
    that a continued failure to act will only cause higher prices,
    added financial strain to millions of small businesses and
    homeowners, result in more unemployment and the continued
    deterioration of our economic base.
        Failure to counteract these problems when we have the
    ability to do so with little or no adverse impact is, in my
    opinion, unconscionable. Energy efficiency must continue to
    play a key role in terms of easing the price pressure on
    natural gas markets. It is clear that natural gas customers
    throughout the country have been lowering their thermostats,
    tightening their homes and businesses, and installing more
    efficient gas appliances since the first oil embargo in the
    1970s.
        As a result, and as proof, the average commercial
    establishment using natural gas today uses roughly 25 percent
    less gas than it did in 1980. But energy efficiency alone is
    not the answer. Energy efficiency alone will not stop small
    businesses and factories from shutting down. It will not stop
    the layoffs that result of these shutdowns, and it will not
    adequately relieve the pain suffered by 65 million households
    throughout the country due to unjustifiably high natural gas
    prices.
        There are a number of steps that must be taken in order to
    bring natural gas markets back into balance. I understand that
    the Congress does not have full control over all of it but we
    must unlock domestic sources of natural gas both on-shore and
    offshore and allow gas producers to explore for and produce gas
    more expeditiously.
        We must begin construction of a natural gas pipeline from
    Alaska now. We can't afford to discuss the project for another
    30 years. We must permit and build new LNG receiving terminals
    and not just in the Gulf Coast.
        Further, given that our access to natural gas supplies is
    so constrained it is not wise to continue to rely on natural
    gas to provide 90 percent or more of our new electricity
    generation capacity. The mix of fuels used to generate
    electricity must be diversified including increased use of
    solar and wind technologies, the use of clean coal technologies
    like IGCC, and the use of nuclear power.
        Thank you and I would be happy to respond to any questions
    you might have.
        Chairman Bradley. Mr. Ungar, I'm sorry.
        [Mr. Wilkinson's testimony may be found in the appendix.]

           STATEMENT OF LOWELL UNGAR, ALLIANCE TO SAVE ENERGY

        Mr. Ungar. Thank you, Mr. Chairman. My name is Lowell Ungar
    and I am representing the Alliance to Save Energy, a
    bipartisan, nonprofit coalition of more than 100 business,
    government, environmental, and consumer leaders including some
    organizations represented here today.
        We are honored to have Congressman Ralph Hall, Zach Wamp,
    and Ed Markey among our vice chairs and many small businesses
    among our supporters.
        I am here to tell you how energy efficiency is the
    quickest, cheapest, and cleanest way both to help small
    businesses manage natural gas prices and to help bring those
    prices under control.
        Mr. Chairman, you and the other witnesses here have starkly
    described the impacts of high gas prices and their origin in
    part in an excess of demand over supply. Yet, energy efficiency
    has helped keep direct natural gas use by homes and businesses,
    that is, natural gas use in the homes, not for electricity,
    help keep that use pretty flat for the past three decades even
    as our economy has more than doubled in size.
        Energy efficiency is the nation's greatest energy resource.
    We now save more energy each year from energy efficiency than
    we get from any single energy source including natural gas. In
    fact, if we tried to run today's economy without the energy
    efficiency measures taken since 1973, we would need 43 percent
    more energy than we use now and our natural gas supply shortage
    would be much, much worse.
        The potential of energy efficiency to reduce energy price
    volatility, energy security concerns and environmental impacts
    in the future, is even greater. The National Petroleum Council
    concluded in 2003 that supply from traditional North American
    natural gas production will not be able to meet projected
    demand and that ``greater energy efficiency and conservation
    are vital near-term and long-term.``
        In a recent analysis by the American Council for an Energy
    Efficient Economy found that just a small reduction in natural
    gas use over the next few years could reduce wholesale natural
    gas prices by as much as one quarter. Because natural gas
    supplies are so tight, the potential impact of the energy
    efficiency is magnified.
        I would like to highlight four energy efficiency measures
    that can reduce natural gas use and help small businesses.
    First, the energy policy act of 2005 included an important set
    of tax incentives for highly efficient buildings and equipment.
    These incentives can reduce U.S. natural gas use by 1.6
    trillion cubic feet through 2020 while helping small businesses
    make, sell, and use energy efficient technologies.
        However, the incentives are in effect for too short a time.
    A large commercial building initiated when the bill was signed
    last August will not be finished before the commercial building
    deduction expires in December of 2007 and, therefore, simply
    could not use that deduction.
        The Alliance strongly supports extending the incentives as
    soon as possible with certain improvements.
        Second, several effective federal programs help small
    businesses be more energy efficient and thus reduce both price
    pressure and impacts on natural gas. Energy Star was mentioned
    earlier. It works with thousands of small businesses across the
    country to encourage sales of energy efficient products and
    homes.
        In the university-based industrial assessment centers, part
    of the industrial technology program at the Department of
    Energy, train university students and use them to conduct
    plant-wide energy assessments for small and medium-sized
    businesses. The administration has proposed to cut funding for
    both of these and for other efficiency programs. More funding
    rather than less for these programs would be one of the
    quickest and most effective ways of addressing the natural gas
    situation.
        Third, many utilities have found that helping their
    customers including small businesses to save a kilowatt hour of
    electricity or a therm of natural gas is cheaper than producing
    and delivering that energy. Several states such as Texas,
    Connecticut, and Nevada, are now developing innovative policies
    to set performance standards for utility energy efficiency
    programs.
        As a focus for federal policy the energy efficiency
    resource has several advantages. It is available everywhere and
    available for both natural gas and electricity. It is cost
    effective and flexible and the potential energy and monetary
    savings are enormous.
        Fourth, appliance standards have saved more natural gas
    than any other policy. The largest current opportunity is to
    require efficient residential furnaces in the northern states
    such as yours, but these furnaces may not be cost effective in
    all of the warmer states. Legislation would be useful to
    clarify that the Department of Energy could set separate levels
    for heating and cooling equipment in two different climate
    regions.
        Building energy codes also are very important for saving
    natural gas. All of these codes are usually set at a state
    level. There are federal standards for manufactured housing and
    for homes with federally subsidized mortgages. These standards
    are very weak and need updating.
        Consumers and businesses in this country have been hit by
    the worse energy price shocks in many years for natural gas and
    also for gasoline and in some areas for electricity. The
    Alliance urges Congress to seize the opportunity now due to the
    high prices to enact significant energy efficiency measures
    that will benefit small businesses, the rest of the economy,
    the environment, and energy security for years to come.
        Thank you, Mr. Chairman. I would be happy to answer any
    questions.
        [Mr. Ungar's testimony may be found in the appendix.]
        Chairman Bradley. Well, I guess I am here by myself so I
    have free reign of questioning.
        Let me start first with you, Mr. Goodstein. You indicated
    in your testimony commercial phase-in of greater use on a
    commercial basis of hydrogen as a decade away. Then you went on
    to say that in order to jump start more of a hydrogen economy
    and fuel cells and automobiles and fueling stations and things
    like that needed to be jump started, tax incentives for R&D,
    for facilities, building codes, loan guarantees. I think those
    were the things you mentioned. If you had your druthers what
    kind of federal limits on spending or how costly are some of
    these tax incentives, loan guarantees likely to be phased-in
    over that 10-year period?
        Mr. Goodstein. Let me tell you what it's not and then I
    will answer your question. People talk about the move toward a
    hydrogen economy needing to be something like an Apollo Program
    or a Manhattan Project. You hear those terms. President Bush
    has committed in the State of the Union address $1.2 billion in
    extra spending over five years. The Apollo Program cost $170
    billion in today's dollars over 11 years.
        We don't have that kind of money but it seems to me again
    when you look at all the savings in environmental protection
    and defense posture and so forth, money is fungible so if we
    had -- if we could bring on a hydrogen economy sooner instead
    of a 50/50 cost share which is what the R&D now with the
    Department of Energy entails, maybe something slightly that
    brings more of an incentive toward companies like mine, or
    smaller companies that want to develop the storage capacity or
    the fuel cell that will bring -- I use the analogy think of the
    old Univac computer and today's laptop.
        That is where we are. We are actually closer to the Univac
    computer than the laptop but the capacity of these fuel cells
    is coming down rather rapidly thanks in part to the support of
    the Department of Energy, thanks to a lot of money that is
    being poured into labs of individual companies. The faster we
    can move that down the faster this technology will be out on
    the streets and doing all these wonderful things.
        There have been bills that have been put forward $5.7
    billion as opposed to $1.2 over five years in a kind of
    combination of incentives, guarantees, etc. We are not so pie
    in the sky as to say we are looking at an Apollo Program but we
    think that dollar per dollar this is a very good use of the
    Federal Government's resources.
        Chairman Bradley. If I can move to you, Mr. Uhlenburg. Your
    company is a small manufacturing company. Are you able to hedge
    your natural gas contracting or are you totally at the will of
    the spot market pricing?
        Mr. Uhlenburg. We are subject to both. We originally bought
    local gas in Philadelphia and we were an interruptable
    customer. We are presently now on the open market and hedging
    our gas because it has been the only way to survive right now.
    When we were an interruptable customer we were interrupted at
    one point for 67 consecutive days and I had to go to propane
    where my cost went from approximately $4 mcf up to over 15 and
    as high as 20.
        I was not making profit at that time. It was only a matter
    of time until I would be out of business with that kind of
    numbers. Hedging has been the way of today and it takes a lot
    of time. You have to study the market and I have people to help
    me with that. It has been the way to survive in the world
    today. Yes, we are able to do that. It is one of the tacks that
    we use in order to survive.
        Chairman Bradley. Mr. Wilkinson, I asked the earlier panel
    to comment on the lack of LNG terminals. I'm from New Hampshire
    but I followed the New Bedford proposal with great interest
    because even though we in New England don't depend on for a
    large amount of our home heating fuel on natural gas, there is
    an increasing amount.
        As I said to the earlier panel, a huge amount of new
    electric generation of gas. The New Bedford proposal has been
    on the drawing board and it's been controversial. Could you
    just comment on lack of terminals and how big a roll that plays
    in our ability to import greater supplies of natural gas?
        Mr. Wilkinson. I personally think that LNG is the best hope
    that we have in the relatively near term. That is, we have
    terminals under construction today that will be online in 2008
    and 2009. I think we will have four or five terminals online
    out of the 40 proposed terminals in that time frame. I think
    that is the first opportunity to see any increased stability in
    the natural gas market place that Ms. Kelly was asking about.
        I am very skeptical that there will be many, if any,
    terminals on the east to west coast of the U.S. Perhaps in the
    southeast. I am very skeptical about the northeast. It is
    unfortunate because the cost of LNG is in part a function of
    price. One of the best things you could do to bring a low-cost
    energy to New England would be to have an LNG line running
    from, say, from Norway to the Northeast rather than shipping--
        Chairman Bradley. The country of Norway?
        Mr. Wilkinson. Yes--rather than shipping LNG down to the
    Gulf Coast and then paying the pipeline charge to move it up to
    New England. Unfortunately, with the opposition that we see in
    the northeast in particular, it is very difficult and I know
    that most or many of the major terminal builders are reluctant
    to even propose project in that part of the country. The one
    most successful terminal builder right now is Shaneer Energy.
        I spoke with the president of Shaneer Energy. He said he
    would not propose any project in the northeast no matter how
    much sense they made. He was going to Texas because they
    understand in Texas that those projects can be done in a way
    that was good for the State of Texas and good for the country
    and he wasn't going to waste $100 million trying to change
    public opinion.
        Chairman Bradley. Mr. Ungar, would you care to comment on a
    couple of bills in Congress? I know this is a little bit out of
    your field but there have been several bills in Congress as we
    developed the energy plan last year to insist upon a nationwide
    renewal portfolio standard, something that several New England
    states, not New Hampshire but a number of states in the
    northeast, have adopted. Any thoughts on that?
        Mr. Ungar. In general we don't take a position on supply
    site resources except to note, as I said, that energy
    efficiency programs that utilities run in many states
    throughout the country are already both very effective in terms
    of reducing the need for generation and very cost effective.
    Typically there is a very large range. These programs can often
    save electricity at the rate of 3 or 4 cents a kilowatt hour
    which is much cheaper than you can generate it from renewable
    or, in fact, pretty much any other resources.
        We certainly think it makes sense to incorporate efficiency
    resources. If you are going to look at any program to mandate
    or to fund alternative energy sources for electricity, we think
    it makes sense to look at efficiency as a cost effective
    resource that is available throughout the country and included
    in the program or as separate programs.
        Chairman Bradley. I have no further questions. If any of
    you would like to give concluding remarks, I would be welcome
    to hear them, too. Thank you.
        Mr. Goodstein. Let me just say, again, this was a great
    forum for an important issue that really had two heads, the
    whole natural gas impact on small business. And as you are
    looking towards future energy technologies, that is obviously
    vital. I think the point was made by myself and others that
    they are really kind of hand and glove efforts here and we
    certainly appreciate all the help that you can give that you
    can persuade your colleagues that this is effort that is worth
    making because, again, the consequences absent an effort like
    this are ones that we just don't want to contemplate.
        Mr. Uhlenburg. I would second that.
        Mr. Wilkinson. I would just say we have outlined a number
    of things that can be done to help this market. I think there
    is an important vote tomorrow in the house that can help in
    that regard. We are optimistic and hopeful that things will
    work out on the House side and then go forward in the Senate as
    well.
        Mr. Ungar. I would conclude that energy efficiency as a
    response to natural gas prices helps small businesses in three
    ways. First, it reduces the price by reducing the demand
    pressure on prices. Second, energy efficiency by the small
    businesses reduces energy bills regardless of price. Third,
    many, and most of the companies, that are carrying out these
    energy efficiency measures are small businesses themselves. It
    is an important market and potential area for small businesses.
    Thank you.
        Chairman Bradley. Let me conclude by thanking both this
    panel and the prior panel and the Committee looks forward to
    continuing to work with you on this, as I think you have all
    indicated, critically important subject.
        [Whereupon, at 3:47 p.m. the Subcommittee was adjourned.]
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