[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


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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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