[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
DRILLING FOR ANSWERS: OIL COMPANY PROFITS, RUNAWAY PRICES AND THE PURSUIT
OF ALTERNATIVES
=======================================================================
HEARING
before the
SELECT COMMITTEE ON
ENERGY INDEPENDENCE
AND GLOBAL WARMING
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
----------
APRIL 1, 2008
----------
Serial No. 110-30
Printed for the use of the Select Committee on
Energy Independence and Global Warming
globalwarming.house.gov
DRILLING FOR ANSWERS: OIL COMPANY PROFITS, RUNAWAY PRICES AND THE
PURSUIT OF ALTERNATIVES
=======================================================================
HEARING
before the
SELECT COMMITTEE ON
ENERGY INDEPENDENCE
AND GLOBAL WARMING
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
APRIL 1, 2008
__________
Serial No. 110-30
Printed for the use of the Select Committee on
Energy Independence and Global Warming
globalwarming.house.gov
U.S. GOVERNMENT PRINTING OFFICE
61-641 WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
SELECT COMMITTEE ON ENERGY INDEPENDENCE
AND GLOBAL WARMING
EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon F. JAMES SENSENBRENNER, Jr.,
JAY INSLEE, Washington Wisconsin
JOHN B. LARSON, Connecticut Ranking Member
HILDA L. SOLIS, California JOHN B. SHADEGG, Arizona
STEPHANIE HERSETH SANDLIN, GREG WALDEN, Oregon
South Dakota CANDICE S. MILLER, Michigan
EMANUEL CLEAVER, Missouri JOHN SULLIVAN, Oklahoma
JOHN J. HALL, New York MARSHA BLACKBURN, Tennessee
JERRY McNERNEY, California
------
Professional Staff
Gerard Waldron, Staff Director
Aliya Brodsky, Chief Clerk
Thomas Weimer, Minority Staff Director
C O N T E N T S
----------
Page
Hon. Edward J. Markey, a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 1
Prepared statement........................................... 3
Hon. F. James Sensenbrenner, Jr., a Representative in Congress
from the State of Wisconsin, opening statement................. 5
Hon. Earl Blumenauer, a Representative in Congress from the State
of Oregon, opening statement................................... 6
Hon. John Shadegg, a Representative in Congress from the State of
Arizona, opening statement..................................... 6
Hon. Jay Inslee, a Representative in Congress from the State of
Washington, opening statement.................................. 8
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 8
Hon. John Larson, a Representative in Congress from the State of
Connecticut, opening statement................................. 9
Hon. Candice Miller, a Representative in Congress from the State
of Michigan, opening statement................................. 10
Prepared Statement........................................... 12
Hon. Emanuel Cleaver II, A Representative in Congress from the
State of Missouri, opening statement........................... 21
Prepared Statement........................................... 22
Hon. John Sullivan, a Representative in Congress from the State
of Oklahoma, opening statement................................. 23
Hon. John Hall, a Representative in Congress from the State of
New York, opening statement.................................... 23
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 24
Hon. Jerry McNerney, a Representative in Congress from the State
of California, opening statement............................... 25
Hon. Hilda Solis, a Representative in Congress from the State of
California, opening statement.................................. 25
Prepared statement........................................... 27
Hon. Herseth Sandlin, a Representative in Congress from the State
of South Dakota, opening statement............................. 28
Witnesses
Mr. J. Stephen Simon, Senior Vice President, Exxon Mobil Corp.... 29
Prepared Statement........................................... 31
Answers to Submitted Questions............................... 187
Mr. John Hofmeister, President, Shell Oil Company................ 35
Prepared Statement........................................... 37
Testimony Attachment......................................... 47
Answers to Submitted Questions............................... 215
Mr. Peter Robertson, Vice Chairman, Chevron...................... 66
Prepared Statement........................................... 68
Answers to Submitted Questions............................... 236
Mr. John Lowe, Executive Vice President, ConocoPhillips.......... 89
Prepared Statement........................................... 91
Answers to Submitted Questions............................... 261
Mr. Robert A. Malone, Chairman and President, BP America, Inc.... 130
Prepared Statement........................................... 132
Answers to Submitted Questions............................... 311
Submitted Materials
National Petroleum Council, Hard Truths: Facing the Hard Truths
About Energy, 2007............................................. 356
Chevron Technology Ventures, Chevron Biofuels Research
Collaborations, 2008........................................... 329
Hon. Joe Barton and Hon. John Dingell letter of June 7, 2006 from
Lisa B. Barry.................................................. 353
DRILLING FOR ANSWERS: OIL COMPANY PROFITS, RUNAWAY PRICES AND THE
PURSUIT OF ALTERNATIVES
----------
TUESDAY, APRIL 1, 2008
House of Representatives,
Select Committee on Energy Independence and
Global Warming,
Washington, DC.
The Committee met, pursuant to call, at 12:00 p.m., in Room
210 Cannon House Office Building, Hon. Edward Markey [chairman
of the Committee] presiding.
Present: Representatives Markey, Blumenauer, Inslee,
Larson, Solis, Herseth Sandlin, Cleaver, Hall, McNerney,
Sensenbrenner, Shadegg, Walden, Miller, Sullivan, and
Blackburn.
Staff present: Morgan Gray.
The Chairman. The Select Committee on Energy Independence
and Global Warming is called to order, and we welcome all of
you to our very important hearing today.
Yesterday Americans saw that the price of gasoline hit a
record high price. Today on April Fool's Day, consumers all
over America are hoping that the top executives from the five
largest oil companies will tell us that these soaring gas
prices are just part of some elaborate hoax.
Unfortunately, it is not a joke. For nearly eight years
this administration's energy policy has been in the tank.
Shortly after President Bush took office, the price of oil was
under $20. A few weeks ago oil reached an all time record high
of $111, and currently trades at about $100 a barrel.
During the same period, the price of gasoline has nearly
tripled from $1.11 a gallon in 2002, to yesterday's all time
high when it hit $3.29 a gallon. And as we approach the summer
driving season, skyrocketing gas prices are likely to soar even
higher.
Each week American consumers go to the gas pump and pay the
price for this administration's failed energy policy. Twenty
percent of all households in America make less than $20,000 a
year. With gas prices at $3.29 a gallon, the poorest 20 percent
of American households are spending nearly ten percent of their
income just on gasoline.
American consumers also know that the major oil companies
are reaping a major financial windfall. Big oil's profits have
more than quadrupled over the last six years. Just last year
alone Exxon Mobil recorded more than $40 billion in profit, the
greatest corporate profit in history, and the five companies
sitting before us today netted a combined $123 billion in
profit in 2007.
And what is the oil industry doing with all of this profit?
Unfortunately, it goes as much to financial engineering as to
renewal engineering. Last year the five largest oil companies
spent more than $50 billion on schemes to prop up the price of
their stock, and as they rake in the profits at a record clip,
the major oil companies supported by the Bush administration
are opposing legislation that would take $18 billion in tax
breaks they currently receive and redirect it to renewable
fuels and clean energy.
In April of 2005, President Bush said, ``With $55 a barrel
oil, we don't need incentives for oil and gas companies to
explore,'' and that was true in 2005. With the price of oil now
doubled and our planet's thermometer rising, this
administration must end its opposition to the renewable energy
incentive package that the House passed last month.
So on April Fool's Day the biggest joke of all is being
played on American families by big oil while using every trick
in the book to keep billions in federal tax subsidies even as
they rake in record profits.
Three things must happen immediately in order to insure the
consumers can begin to get relief from high prices. First, the
poorest Americans are now spending an average of ten percent of
their income to pay for gasoline. We need the companies here
today to make a similar commitment to American families and
pledge to invest at least ten percent of their profits in
renewable energy and biofuels, to develop alternatives that
will help consumers.
Second, your companies and the Bush administration must
support, not oppose, legislation, that will unleash the
renewable revolution we need in order to become energy
independent and cut global warming emissions.
And finally, the Bush administration must stop filling the
strategic petroleum reserve during periods of high prices in
order to send a signal to the market and oil speculators that
Americans will not be held hostage by those high prices. For
too long this administration's energy policy has led to tax
breaks for big oil and tough breaks for American families.
American consumers should not have to break the bank to fill
the tank.
The American people deserve answers, and it is time for big
oil to go on record about these record prices.
And now I would like to recognize the Ranking Member of the
Select Committee, the gentleman from Wisconsin, Mr.
Sensenbrenner.
[The prepared statement of Mr. Markey follows:]
Mr. Sensenbrenner. Thank you, Mr. Chairman.
Today's hearing is about high gas prices, and it is an
issue that my Wisconsin constituents understand all too well.
Due to a host of factors, including one of the highest gasoline
taxes in the nation, my constituents pay some of the highest
gas prices in the nation. In fact, just yesterday the American
Automobile Association showed that gasoline is more expensive
in my district than it is in Manhattan. In both places gas is
at least 50 cents a gallon higher than it was at this time last
year.
Already reports are showing that Wisconsin residents may
soon be feeling even more pinched due to rising fuel costs. The
Capital Times in Madison reported that freight truck drivers
are feeling the weight of higher diesel prices, citing data
from AAA Wisconsin that shows diesel averaging $4.08 a gallon,
up more than 50 cents from just last month.
The story correctly notes that about 80 percent of the
goods shipped in the U.S. use diesel powered trucks. The truck
drivers are feeling the pinch, but it is being passed on to all
of us. In fact, the high price of oil is one reason why my
local investor owned utility, We Energies, is asking state
regulators to approve a rate hike.
It is not surprising that gas and oil prices are going up.
Worldwide demand is skyrocketing, too. Not only is there an
increasing need for energy resources in this country, but
countries like China and India have energy demands that far
exceed their historical needs.
One thing we know for sure is that the worldwide demand for
energy resources is going to keep growing in the future and
that we need an energy policy that will allow us to meet those
needs without slowing the economy.
Last May the Select Committee had a hearing on rising gas
prices where we heard about the big impact that the oil and gas
companies have on the economy. Everyone knows the impact that
gasoline can have on goods in the market, but we also heard
that these companies create a lot of good jobs and their
expanded investment in market driven research and technology
only serves to create more jobs.
The oil companies that we will hear from today are going to
be called on to help meet the rising global energy demand.
Naturally they are looking for new sources of traditional
fossil fuels, and it is my hope they will continue to bring
these new energy sources on line. Unfortunately, many of those
sources are on unstable parts of the world with unsavory
leadership, places like Nigeria and Venezuela.
But from their testimony today, it is clear that the oil
companies are looking for new sources of energy like wind,
solar, and biofuels. There is a growing market for these new
technologies. These executives know what the future holds both
from their own studies and from groups like the National
Petroleum Council. They know that their companies will have to
be able to draw on diverse sources of energy in order to meet
the rising demand.
Now, I, too, believe that energy diversity must be a key
part of U.S. energy strategy, and that includes traditional
fossil fuels in addition to renewable energy, improved energy
efficiency, and nuclear power. Any reasonable energy policy
must recognize that we need affordable supplies of energy, and
that oil and gas must continue to play a dominant supply role
for the foreseeable future.
I look forward to today's testimony from our witnesses who
are striving to meet the challenge of securing energy in an
insecure world and yield back the balance of my time.
The Chairman. Okay. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon, Mr.
Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
I appreciate the opportunity to hear from the witnesses
about their ideas about how to increase the use of renewable
and alternative energy sources and reduce our dependence on
oil.
You framed part of the question. People are, I think,
understandably anxious about issues, the juxtaposition of
record profits while paying more from the pump, and I look
forward to people clarifying that part of the equation.
But it leads to a discussion about what subsidies, if any,
oil companies actually need to continue to be successful and at
what part of the energy business. We have seen the industry
capable of making profit selling existing cost effective
technology, but still we see billions of dollars in subsidies
from the American taxpayer, one of which it never really was
intended to get when we made the change in 2004 repealing an
export subsidy that was in violation of the WTO rules. The oil
and gas industry was explicitly not eligible for the repealed
subsidy, yet through the magic of the legislative process found
themselves included in the replacement benefit, a bonus to the
industry that was already booming, and as you quoted President
Bush, oil at $55 a barrel he said did not need incentives for
oil and gas companies to explore.
I am interested in being able to explore with our witnesses
at what point an industry becomes sufficiently mature that it
no longer needs as much taxpayer help, and what parts of the
businesses that are represented here today do need specific
subsidies to be profitable.
In the written testimony that I have reviewed, you describe
a robust renewable and alternative energy program that
virtually all of the companies are involved with now and
express support for renewing tax credits for the production of
wind and solar power.
I personally believe that this is where we should be
putting scarce taxpayer resources, not into existing technology
which probably no longer needs our help, but in areas where the
cost of production and the curve of cost effectiveness is not
quite as clear.
And I look forward to being able to explore with our
witnesses how we have passed this point and where we need to go
in the future to maximize our entry into a renewable,
sustainable future.
Thank you, Mr. Chairman.
The Chairman. Thank you.
The gentleman's time has expired. The Chair recognizes the
gentleman from Arizona, Mr. Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman, and I assume that we
are working under the rule that if I abbreviate my opening
statement I get more time to ask questions?
The Chairman. I think it is an all or nothing.
Mr. Shadegg. It is an all or nothing situation. Very well.
Well, then it is an all.
Thank you very much, Mr. Chairman, for holding today's
hearing. I think it is extremely important for us as Members of
Congress, as well as for all Americans to understand the myriad
of reasons for today's extremely high oil prices and the
consequent high price of gasoline.
In that respect, this hearing is very timely considering
that oil prices recently reached a $112 per barrel high just a
few weeks ago. I am extremely interested in this issue as
representing a western state where we travel great distances
and our commutes are dramatically longer than those of my
colleagues who represent states along the East Coast. These
issues are extremely important to me.
And I also find that there is a sad lacking of basic
economic understanding both here in the United States Congress
and in the nation at large. There are many issues, I believe,
which are contributing to the high price of oil and the
consequent high price of gasoline.
I have in the past tried to encourage further construction
of refining facilities without much luck. I believe we are
relying on oil for many uses that would be better suited to
other fuels.
I am concerned that if you look at both the issues of
supply and demand, we face a myriad of problems. We face
government imposed restrictions on supply. There are many, many
places, I think, that all of us know here in America where we
have known reserves of supply, but we are not allowed for
various political reasons to go and look.
Just over a year ago this Congress looked at trying to get
either oil production or natural gas production on the Outer
Continental Shelf at distances far enough off the shore where
it would be literally unknown to anybody on land, and yet we
could not enact that legislation.
In the Air Mountain West where I live, we have thousands of
acres of land that are locked up, and we walk away from that
supply at a time when demand around the world is growing
dramatically. China has moved quickly toward being a developed
nation. It has an incredible demand for all commodities,
including oil, and as that demand goes up, of course, that
creates a greater demand around the world.
The result of this is, I believe, not surprising, and it is
a spike in the cost of oil for Americans and a spike in the
cost of gasoline for my constituents who are deeply concerned
about the issue. As my colleague, Mr. Sensenbrenner, noted, we
are forced regrettably to rely on nations that are not our
friends to supply oil, and it is my understanding at least that
U.S. oil companies control less than ten percent of the world's
proven oil reserves, leaving American consumers often subject
to oil prices determined largely by foreign countries and in
some instances by foreign countries who are not our friends and
who use that money to oppose us.
Obviously, we have a tremendous interest in exploring
alternative forms of energy. I am keenly interested in that
myself and would like to hear what you have to say about it. I,
however, do not believe that funding alternative energies by
taxing current forms of energy serves American consumers well.
And with that, I yield back the balance of my time.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee.
Mr. Inslee. Thank you.
Just as I was walking in this room I had a fellow from
Virginia, told him where I was headed into, and he said,
``Congressman, I own stock in one of those companies, but give
them hell anyway.''
And I thought it was kind of indicative of what you know is
the public sentiment out across the country, but I think that
public sentiment is not because Americans do not understand the
laws of supply and demand and we know that demand is going up
with China and India and supply is somewhat limited. It is
because of these two great abuses that they feel are going on
that create this great anger besides just the price rise, and
that is, first, they cannot understand when they're paying 328
or 344 out in my State of Washington at the pump why then you
then reach into their pockets and take out another $18 billion
on April 15th out of their tax bill. They cannot understand
that.
And when they ask me to give you H., I think that is one of
the reasons, because Americans believe and I think rightfully
so that if you were going to give awards for taxpayer abuses,
this would win the Heisman and the Oscar and the Nobel Prize,
to reach into Americans' pockets at tax time to take this when
these prices are going up like this.
And, secondly, Americans are concerned that even though we
know, we know we have to wean ourselves off of oil and gas,
that global warming demands this, even though Americans know
that we are the most innovative people on the face of the
earth, we are still seeing a very, very small as a percentage
of your revenues investment in the clean energy technologies
that Americans know that we can perfect to really create a
clean energy revolution in this country.
So I hope that we will produce some thoughts about that. I
will give you one saving grace. I know this to be a difficult
hearing for you. I am not going to ask for your home phone
numbers, and that could be the most effective regulatory system
we have, but that is the one break you will get today.
Thank you.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon, Mr. Walden.
Mr. Walden. Thank you very much, Mr. Chairman, and thank
you for holding this hearing.
I want to welcome our witnesses, and we look forward to
your testimony.
I share the concerns you have already heard from members of
both sides of the aisle. Certainly in a district that spans
70,000 square miles, I can tell you I am hearing a lot from
folks I represent, farmers and ranchers and others who commute
extraordinarily long distances, about the price of fuel.
You know that. We hear it for diesel as well, especially in
the farm community. The inputs into our agricultural products
are a real problem.
What I would like to get to today is to find out how do we
overcome this. Now, I am a big supporter of renewable energy
and have been before it was even popular. Over the last month I
bought my second hybrid vehicle. I now drive one in Oregon and
one here in Washington, DC, and with all due respect, I have
cut my payments to you by 66 percent with my new one in Oregon.
I want to know though how we do both. How do we meet the
oil and gas needs of today in America while we develop the
renewable energy sources, the biofuels, the alternatives that,
frankly, are being developed in my district and elsewhere
around the country? How do we get those going while we still
meet this demand?
And we know part of the price spike we are paying on the
world market is related to the devalued dollar. I mean, that is
basic economics. You see it. We import so much. How do we get
America more energy independent? How do we rely less on imports
from foreign countries, many of whom, quite frankly, let's be
honest, do not like us very well, Venezuela among them? So how
do we develop our own resources?
What can we do to help in that effort rather than just
throw rocks at you and your profits, which I think probably a
lot of them have come from most of our districts? I want to
know how we solve the problem.
That is what Americans want us to do here. We can gang up
on you all, and certainly that will happen probably today, as
you well anticipate, but I want to get beyond that and know how
do we fix the problem in America so that we are energy
independent, so we are secure in this country, so that we have
the oil and gas we need as well as develop the renewables so
that over the span we can grow out of an oil-based economy.
Thank you, Mr. Chairman.
The Chairman. Thank you.
The gentleman's time has expired. The Chair recognizes the
gentleman from Connecticut, Mr. Larson.
Mr. Larson. Thank you, Mr. Markey, and thank you for
conducting this hearing, and thank you gentlemen for joining us
today.
Let me start with saying that I believe that the laws of
supply and demand, especially as relates to oil, are completely
broken and malfunctioning. I would like to know your opinion on
this. I would like to know whether you think that, in fact,
speculators are driving up the cost, and paper is to account
for a number of the reasons that let's say senior citizens have
to turn over their entire Social Security check in order to pay
for oil that is delivered to their homes in the Northeast.
And inasmuch as you receive 107 billion annually in
taxpayer dollars, do you think that that is appropriate? I
believe that the Independent Connecticut Petroleum Association
is outraged, these rock-ribbed Republicans screaming that this
whole situation has been nothing more than manipulation around
greed, and they see it day in and day out with the customers
that they are attempting to make deliveries to who are getting
their homes foreclosed on, cannot afford prescription drugs,
cannot afford to buy the food necessitated for their living,
and yet are turning over their Social Security checks so that
they can pay for their fuel.
That is the kind of problem that we are in, and lastly,
with three percent of the reserves entirely in this nation, is
it possible, do you believe that we can actually drill our way
to energy independence?
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentlelady from Michigan, Mrs. Miller.
Mrs. Miller. Thank you, Mr. Chairman.
This Committee was formed to study the issue of global
climate change, how it impacts society, how it impacts our
environment, and today we are going to hear from the leaders of
companies that many in the environmental movement blame for
many of the challenges that we face today. Of course, these are
the big oil companies.
And in the difficult economy that our nation faces, this is
the one industry that is thriving more than ever because of the
incredibly high cost of oil. And everybody complains about the
high cost, including probably every member of Congress as well,
but I will say this at the outset. I think we should all take a
very good look in the mirror as to some of the culprits about
some of the high costs. We have done nothing as a Congress to
advantage ourselves of our own domestic supply of energy
resources in places like the ANWR or offshore reserves that
would make us much less dependent on foreign oil.
We have not made it very much easier to site new refineries
that could increase the supply of gasoline and reduce prices,
and we have regulated ourselves to an extent that drives prices
up.
But we have asked many in industry to make sacrifices and
new investments, and many of them have actually responded. Our
domestic auto manufacturers have borne the brunt, quite
frankly, of this effort, and they are responding. They have
heard the call. They have shouldered the mandates, and they are
responding.
Many other American companies and industries are also
responding as well. But despite all of this effort, our economy
is still overly reliant on oil. The big oil companies continue
to reap huge benefits.
And I say this. I believe this very strongly, that before
we are members of Congress or before we are oil executives or
what have you, before we are anything else, we are all
Americans. And every American has a responsibility to help
reduce our dependence on foreign energy sources and also to
conserve energy.
And I hope on this Committee that we all are very familiar
with the record profits being reaped by the oil industry, which
in fact stand in very sharp contrast to the financial
situations of many other industries who have been asked to make
sacrifices to help us solve our energy problems. I hope that
your companies, who are in a position really to be a major
player in a brighter economic environmental future, that you do
the right thing with these profits.
Simply having these profits fatten the checkbooks of a few
instead of investing for the good of us all is down the wrong
path. You are in the position to invest in new, cleaner
technologies that will not only change your industry, but could
change the entire world if you have the courage and the
foresight to do so.
And if you do not have that courage, if you refuse to
change with America, then I believe you are going to see a
backlash from your customers, the American people who are sick
and tired of paying huge prices at the pump only to see your
companies swimming in their money, and you are going to see a
backlash from other industries that are being decimated by high
fuel prices.
And because of that, you will also see a backlash from this
Congress that could go further than just the elimination of tax
breaks that you currently enjoy when we see that your companies
have made combined profits of over $123 billion last year
alone.
And I also think you will see a backlash from your
shareholders who will bear the brunt of the pain if you do not
evolve to other energy technologies that will eventually
replace oil as a primary energy source. So I hope that what we
will hear today is not just a defense of record profits or a
casting of blame on others for high prices or defensive tax
breaks without the needs of good corporate citizenship or
sticking your head in the sand and denying the effort to bring
about alternatives to oil, and I look forward to all of your
testimony.
Thank you, Mr. Chairman.
The Chairman. The gentlelady's time has expired.
[The prepared statement of Mrs. Miller follows:]
The Chair recognizes the gentleman from Missouri, Mr.
Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Chairman and Ranking Member Sensenbrenner, thank you
for this meeting.
I think all of you are already hearing what is going on at
home. We have been on a break. It has actually been a work
break for most of us, and one of the things that we hear over
and over again is what are you guys going to do about the high
price of gasoline, and I spoke with a woman about a week ago
who earns $18,000 a year and cannot afford to fill up her tank
to get to work. Kansas City, Missouri does not have mass
transit. We only have buses, and so she is about to lose her
job because she cannot afford to get to it. And so she is
losing all the way around.
And with the skyrocketing price of a barrel of oil and
people paying more than $3 a gallon in Missouri, the anger
level is rising significantly, and my concern is that we not
have a dialogue today about, you know, whose fault it is. I
think I came here prepared to hear everyone say, ``It is not
our fault,'' but I think it is the fault of people in this
room, and I think something can be done.
The perception is terrible. I mean people talk about the
perception of Congress, and you know, our approval ratings.
Your approval ratings are lower than ours, and that means you
are down low, and I think you probably have the lowest approval
ratings in the nation.
So I am hoping that before this session is over you can
raise your approval ratings by giving some real answers.
Thank you, Mr. Chairman. I yield back the balance of my
time.
The Chairman. Great. The gentleman's time has expired.
[The prepared statement of Mr. Cleaver follows:]
The Chair recognizes the gentleman from Oklahoma, Mr.
Sullivan.
Mr. Sullivan. Thank you, Mr. Chairman.
And I am really glad that you are here today. I appreciate
you taking the time to come here to discuss climate change and
energy independence. We want to see our country move toward
energy independence, but we want to do it in a way that does
not sacrifice jobs in America.
Congressman Cleaver, I, too, was on a break recently, and I
heard people talking about things, but one of the biggest
things I heard about when I was home is that people are
concerned about their food prices going up because of ethanol.
They think that they are using all of the corn in this country,
that people are going to the grocery store. A loaf of bread
costs a lot of money right now, and that is one of the ways we
tried to address it, and I think that that is a big problem. I
heard that more than people talking about gas prices, actually,
talking about a loaf of bread. You know, that is a big problem.
I want to thank again all of you for being here. Also, Mr.
Lowe from ConocoPhillips, I appreciate you being here. The
ConocoPhillips is in my district. It is a big company, and they
employ a lot of people.
One of the things, too, I get tired of hearing about, is
everybody, all politicians, you cannot hear a political speech
almost daily without someone saying big oil, big oil. I guess
every politician has to have a tangible devil to fight, but I
get tired of hearing that.
I do want to hear about what you guys have to say about
what is going on, and I appreciate you, again, for being here
and taking the time to discuss this very important issue.
Thank you.
The Chairman. Great. The gentleman's time has expired. The
Chair recognizes the gentleman from New York State, Mr. Hall.
Mr. Hall. Thank you, Mr. Chairman, and thanks to all of our
witnesses for being here.
As we all know, the price of oil has been rising at a
dizzying pace for the last several years, recently shattering
the all time high and hovering above $100 per barrel. The
numbers and impacts on both sides of the equation are
staggering. Today the average price of regular unleaded gas in
the United States is $3.29, up 60 cents from just last year.
In New York the situation is even worse with the cost at
over $3.40, and my constituents talk about the rockets and
feathers syndrome where the price seems to go up like a rocket
and when it comes down, it kind of comes down like a feather,
not quite so fast.
President Bush may not have known about the concern that
gas was going to break the $4 mark, but with prices already
well above $3 before the summer, most Americans do not need to
be reminded. They already see the impact on their bottom line
every day.
On the other side of the coin, we have the companies you
gentlemen represent before us today. Since 2002, the combined
profits of the five largest oil companies have quadrupled. Last
year they made over $123 billion, shattering dollar records of
their own. During this hearing there will be a great deal of
discussion trying to explain away these profits saying we need
to reinvest. We are a big company. Per dollar we do not make
that much more than anybody else.
But the bottom line is that these are the biggest profits
in corporate history and that if the oil companies are not
making a killing off of these prices, who is? Certainly not the
average family that pays more than it can afford to drive to
school or for Dad to drive to work. Something is wrong, and we
need to fix it. We need to stabilize our economy, give working
families a break, and take action to mitigate climate change.
On this last front I am encouraged that some of the
witnesses have expressed support for a carbon reduction plan
and support for and indeed investment in renewable and
alternative energy sources. I hope we will be hearing today
about how you can follow through and work with Congress to
shape a policy that will take on climate change and also save
our constituents from the squeeze they are current caught in
the middle of.
Thank you very much, Mr. Chairman. I yield back.
The Chairman. I thank the gentleman from New York. His time
has expired.
And the Chair recognizes the gentlelady from Tennessee, Ms.
Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman.
I want to thank each of you for coming before us today, and
my hope is that our Committee will have a reasoned discussion
with you and that we will benefit from your experience and from
your expertise and insight.
I also hope that we are not going to sit here and try to
place blame for what may be causing this. We have a problem to
solve, and the problem is the high cost at the pump.
Now, since January '07, we have passed new energy taxes,
new mandates, new burdens, new regulatory burdens on energy
companies trying to impose and move toward renewable energy,
and it would appear that we are not getting the results that we
want from some of those actions because we have seen gas go
from $2.26 a gallon up to $3.29, where it is today.
We have seen over a 44 percent increase on the family
budget. For every one dollar that gallon of gas goes up, that
costs the family, an average family, about $600 directly out of
their pocketbook.
You all know the prices of crude, and today they are
hovering right around $100. So there are some that would like
to place blame on all of you and would place extra taxes on
you, but I have got a question that I would like to pose, and
it is this. If we take those actions, if we put more taxes on
you and more regulation and more compliance, would it put this
nation at risk for even more dependence on foreign, unfriendly
sources of oil?
What about a carbon tax or a cap and trade system? What is
that going to do to the American public? We all know that
America has the capacity to become energy independent and help
lower energy cost. Do we have the national will to do this?
We all know we have vast coal, oil, and gas resources lying
on or within our land and off the coast, and these can be
developed, and our allies to the north are developing access to
one of the world's largest sources of natural energy resources
in the Canadian shale oil.
Let's not be shortsighted. Let's put the family first.
Let's not let fear grip and manipulate our policies. We have a
problem to solve. We need to work together on this.
I yield the balance of my time.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman.
I also want to thank the witnesses for joining us today on
this critical topic, particularly to thank Mr. Robertson for
coming here to represent Chevron, which is located in my
congressional district in San Ramon, California.
Well, it is obvious that businesses must show profits and
be accountable to their shareholders. We seem to have a perfect
storm of factors that have led us to the topic we are
considering today, record high oil prices, record high profits
for oil companies and clear evidence that the Earth's
atmosphere is warming.
But I am hopeful today's hearing will help us better
understand exactly what the industry's perspective on these
issues is and as someone with a background in renewable energy,
I do not believe that the oil and natural gas companies should
be at odds with the renewable industry. The two should work in
concert, and that makes perfectly good business sense.
While petroleum resources are limited, renewable resources
have the potential to address our nation's long-term energy
needs. So by investing in renewable energy, oil and gas
companies can look toward the future and can pioneer
initiatives with your resources that will give us significant
long-term dividends.
We know that progress is being made by companies such as
Chevron, which is investing in energy efficiency, geothermal,
hydrogen, and biofuels. This approach should be more widely
adopted, in my opinion, and embraced across the board. The
companies' representatives today have at their disposal the
resources necessary to move forward securing our nation's long-
term energy future, and what we need now is a commitment and
vision to make that happen.
Again, I look forward to your testimony and yield back to
the Chair.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Solis.
Ms. Solis. Thank you, Mr. Chairman, and thank you for
having this important hearing.
And also welcome to our witnesses. While I do not pretend
to lay blame on you specifically, I do lay blame on the fact
that our constituents certainly need to have some questions
answered.
And how is it that I can explain when I go back home,
coming back from our recess, that the price of a gallon of
gasoline in my district, East Los Angeles, San Gabriel Valley,
working class blue collar, is upwards of $3.69 a gallon. For
diesel it is over $4.00.
And the questions that I get from people, especially our
truckers because we have a very busy port in Los Angeles and
much of that transaction occurs through my district, so people
are going broke; they are going bankrupt. But they want to know
why is it that these folks are making such a heavy profit, a
large profit over a small span of time, and that money then,
and also those profits, cannot be redirected into renewable
energy and fuels and hopefully increase the ability to create
new green collar jobs.
Every time that we keep away from the message of creating
and investing in the United States with renewable energy, I
think we are losing upwards of 100,000 jobs. At least that is
what I am being told.
So I am just asking you to please step up to the plate.
Help us find those answers to our questions. Help us look for
other alternatives, and the suggestions that I do not want to
hear are that we are going to keep drilling where we already
know, folks in our district particularly, California, do not
want to allow for more drilling along our coast and opening up
old refineries like in the City of Wittier.
Nixon Country it used to be known as, where we have some
oil fields owned by, I think, Chevron.
So I would just leave you with that and ask you to please
keep in mind the constituents that we represent, and yield back
the balance of my time.
[The prepared statement of Ms. Solis follows:]
The Chairman. The gentlelady's time has expired, and the
Chair recognizes the gentlelady from South Dakota, Ms. Herseth
Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman, and thank you
to our witnesses for being here today at this hearing.
Yesterday, as we know, light sweet crude for May delivery
was trading above $101 per barrel on the New York Mercantile
Exchange, and these developments continue to be shocking and
financially burdensome for families and businesses across the
country, especially rural America like South Dakota, the state
that I represent here in the Congress, since people drive such
long distances daily to get to work, to get their kids to
school, to transport goods for their small businesses.
The average price for a barrel of oil in January of '02,
about six years ago, was less than $20 a barrel. So even if we
discount all of the other problems, whether they are
geopolitical, environmental, supply, that flow from our
addiction to oil, its price volatility alone seems to me
dictates that we must more aggressively move to diversify our
energy sources.
Now, I strongly believe one solution to this oil addiction
is an increased use of domesticly produced biofuels, such as
ethanol, which have the potential to meet a significant portion
of our nation's energy needs over the coming decades if we put
the proper policies in place. This includes the robust and
aggressive renewable fuel standard passed last December that
drives the development and large scale production of cellulosic
ethanol in the decades to come.
And I just would have to note for my colleagues on the
Committee, I know Mr. Sullivan mentioned the concern of his
constituents about food prices. It has been shown that it has
been energy prices associated with the processing and the
transport of food far more than the cost of the commodities,
such as corn and wheat, that are substantially driving up costs
of food, and perhaps what we should evaluate, Mr. Chairman, and
that is some of what we have been trying to do and some of what
we have proposed in energy policies that have passed the House
as it relates to reevaluating some of the policies we put in
place years ago, including in 2005, but before that.
Because for those of you who do not represent agriculture,
our farm policies, most of them, kick in when prices are low.
So we save taxpayers money when we are not paying loan
deficiency payments or counter cyclical payments, when the
price of corn is where it has been, over $4 a bushel, the price
of wheat, the price of soybeans with what they have been.
And so we need to look at doing the same thing when it
looks like other commodities' prices are so volatile and going
up, to reevaluate how we spend taxpayer dollars when prices are
high and when they are low, and we will look forward to getting
your thoughts on that, as well as your thoughts on biofuels
distribution and production across the country.
Thank you, Mr. Chairman.
The Chairman. The gentlelady's time has expired and all
time for opening statements from the Members has been
completed. So now we will turn to our panel, and we will give
each one of them an opportunity to make an opening statement
before this Committee.
Our first witness today is Mr. Stephen Simon, Senior Vice
President for ExxonMobil. Mr. Simon has over 40 years of
experience in the oil industry, 35 of them spent with Exxon. He
has served in his current role as Senior Vice President since
2004.
We welcome you, Mr. Simon. Whenever you are ready, please
begin.
STATEMENT OF STEPHEN SIMON, SENIOR VICE PRESIDENT, EXXON MOBIL
CORP.; ACCOMPANIED BY JOHN HOFMEISTER, PRESIDENT, SHELL OIL
COMPANY; ROBERT ROBERTSON, VICE CHAIRMAN, CHEVRON; JOHN LOWE,
EXECUTIVE VICE PRESIDENT, CONOCOPHILLIPS; AND ROBERT A. MALONE,
CHAIRMAN AND PRESIDENT, BP AMERICA, INC.
STATEMENT OF STEPHEN SIMON
Mr. Simon. Thank you, Chairman Markey, Ranking Member
Sensenbrenner, and members of the Committee.
The world's economy runs on energy. Americans depend on it
every day to fuel their cars, heat their homes, and power their
businesses. Because energy is so important, all of us have a
responsibility to engage in an open, honest, informed debate
about our energy future that is grounded in reality and intent
on finding viable solutions.
In that spirit, I would like to make three points during my
allotted time. First, our earnings, although high in absolute
terms, need to be viewed in the context of the scale and
cyclical long-term nature of our industry, as well as the huge
investment requirements.
Second, stable tax and regulatory policies are essential to
encouraging needed investments. Imposing punitive taxes on
American energy companies which are already paying record taxes
will discourage the sustained investments needed to continue
safeguarding U.S. energy security.
Third, all reliable and economic forms of energy are needed
to meet growing needs, but the pursuit of alternative fuels
must not detract from the development of oil and gas.
Allow me to elaborate on each point in turn.
Because of the massive scale of our industry, our
profitability in absolute terms is large, particularly in the
current up cycle, but in 2007, the oil and gas industry earned
on average about 8.3 cents per dollar of sales, near the Dow
Jones Industrial Average of major industries of 7.8 cents per
dollar of sales.
Because ours is a commodity business, earnings rise and
fall in cycles. We are currently in an up cycle, strongly
influencing our current profitability, but we have seen up and
down cycles before. In 1980 crude oil prices reached record
levels, approaching the equivalent of over $100 a barrel in
today's dollars, and many were predicting that oil prices would
soar to over $250 a barrel in today's dollars, but those
predictions were wrong.
By the mid-1980s, prices had fallen dramatically and the
industry was in dire straits. Ours is a long-term business with
energy projects requiring enormous investments spanning decades
that must carry through both the up and down cycles.
Over the last 25 years, we have invested $355 billion,
which is more than we earn. In the last five years alone, we
have invested almost $89 billion, including about $25 billion
in North America. Over the next five years, Exxon Mobil plans
to invest at least $125 billion.
We depend on high earnings during the up cycle to sustain
this level of investment over the long term, including the down
cycles.
Regarding taxes, currently the energy industry pays record
levels. While our worldwide profits have grown, our worldwide
income taxes have grown even more. From 2003 to 2007, our
earnings grew by 89 percent, but our income taxes grew by 170
percent. Over the last five years, Exxon Mobil's U.S. total tax
bill exceeded our U.S. earnings by $19 billion.
A recent survey by Tax Notes of 80 leading U.S. companies
revealed that these companies had an average income tax rate of
30 percent. Exxon Mobil's effective income tax rate in 2007 was
44 percent.
To discriminate against American energy companies, as the
proposed changes to Section 199 in the foreign tax credit due
would not only add to these taxes, but also impact investment
in future energy supplies by redirecting needed capital and
creating competitive disadvantages for American energy
companies competing overseas.
Taxes should be fair, stable, and pro competitive,
principles these proposals violate.
Finally, regarding alternatives, the International Energy
Agency forecast that oil and gas will continue to meet about 54
percent of global energy demand in 2030. Alternative fuels also
play an important role, but the IEA forecast that renewable
energy sources, such as biofuels, wind, solar and geothermal
combined, will account for only about two percent of global
energy supply in 2030, again, an indicator of the scale
required.
These findings are closely aligned with our own Energy
Outlook of 2007, which I respectfully submit into the records
of this proceeding for the Committee's consideration.
The market is the most effective means of determining the
future energy mix in a way that maximizes supply and minimizes
cost. Government mandates and subsidies distort market forces
and impeded technological innovation. Raising taxes on oil and
gas production to subsidize alternatives will likely lead to
less overall energy production, not more.
And as many independent observers are now noting, such
mandates can have unintended consequences, continuing to
provide Americans with the energy they need reliably and
responsibly is a challenge Exxon Mobil employees are determined
to meet. Government can help by creating a level playing field
and promoting fair, stable, pro competitive regulatory and tax
policies.
It is this kind of leadership that is needed to meet our
nation's energy challenges.
Thank you.
[The statement of Mr. Simon follows:]
The Chairman. Thank you, Mr. Simon.
Our next witness is Mr. John Hofmeister. He is the
President of the Shell Oil Company and has led that company
since March of 2005.
We welcome you, Mr. Hofmeister, and if you could move in a
little bit closer to the microphone, I think it would help
everyone.
STATEMENT OF JOHN HOFMEISTER
Mr. Hofmeister. Chairman Markey, Ranking Member
Sensenbrenner, members of the Committee, I welcome the
opportunity to be here today.
If there is no objection, I will summarize the statement I
have submitted for the record.
This hearing comes at the end of Shell's 18-month national
dialogue on energy security. We traveled to 50 cities engaging
more than 15,000 Americans in a dialogue on energy security. We
heard what you are hearing. Americans are worried about the
rising cost of energy.
Mr. Chairman, I believe you have said that the nation's
energy challenge requires a commitment on the scale of the
Manhattan Project during World War II or the Space Program of
the 1960s. I agree.
The price of a barrel of light sweet crude has gone up 300
percent in four years. This increase is due to a combination of
factors which are for the most part not controlled or much
influenced by the actions of oil companies, for example, growth
in global demand for oil, geopolitical events affecting
international supply, developments in the financial market
contributing to the rise in prices, skyrocketing cost of
materials, labor, and engineering services, a shortage of
capacity in energy services and materials, more difficult
access to oil and gas resources around the world.
Available energy resources are found in difficult or
hostile areas, and closer to home, U.S. energy resources are
unavailable.
Today I will talk about three aspects of the energy
challenge: first, what is the energy supply-demand outlook;
second, what is Shell doing to meet the energy challenge; and,
third, what policy makers can do.
First, the energy supply-demand outlook is sobering. Demand
is increasing unrelentingly. Although oil and natural gas will
be used to meet more than half of our energy needs for decades,
U.S. oil and gas production has fallen steadily for the last 35
years. Why? Because government policies place domestic oil and
gas resources off limits. The U.S. government restricts supply
to U.S. consumers.
The result, we import more oil to meet our growing demand.
In 2006, we imported 3.7 billion barrels of oil, more than
seven times the amount imported in 1970. This brings me to my
second point, what Shell is doing to meet the energy challenge.
We are making significant capital investment to produce
more energy and more kinds of energy to meet global demand.
Today we have doubled the number of new projects under
construction that we had in 2004. Last year we spent some 25
billion on capital investment worldwide to develop energy
projects.
This year Shell will spend between $28 and $29 billion, the
largest capital expenditure program in the oil and gas energy.
Wind, we are involved in 11 wind projects across Europe and
the United States where we have wind farms in six states with
more under development.
Solar, Shell is an international developer of thin film
solar technology to generate electricity from the sun's energy.
Biofuels, Shell is the world's largest blender of biofuels
by volume and one of the world's largest distributors of
transport biofuels. Shell is a leader in the development of
advanced biofuels, such as cellulosic ethanol.
Hydrogen, Shell is a leader in developing transportation
solutions with hydrogen. We operate the nation's first
integrated gasoline hydrogen station nearby here at our Shell
station on Benning Road. We also have proprietary gasification
technology to convert coal and biomass into cleaner fuel. We
lead in gas to liquids technology to produce cleaner
transportation fuels. We hold a leadership position in the
production of liquefied natural gas, here in the U.S.,
including at two existing LNG terminals.
But Shell continues to be an industry leader in the deep
water Gulf of Mexico. Note that the costs of deep water
exploration and production are immense and rising. Last year,
for example, the average daily cost for a deep water
exploration well in the Gulf of Mexico per day was $759,000.
Shell has a world class manufacturing organization to
better meet customer demand of finished products. In the U.S.
our joint venture at Motiva is spending around $7 billion to
double the capacity of its refinery at Port Arthur, Texas. When
finished, it will be one of the largest refineries in the U.S.
and the world.
In oil sands and oil shale, Shell is investing in the
technology and infrastructure to develop vast oil sands in
Canada and oil shale in the United States.
To my third point, what can policy makers do to meet the
energy challenge? First, the oil and gas development can occur
in an environmentally responsible way. In 2006, Congress opened
new areas in the Gulf of Mexico to exploration and development.
More such access is warranted so that U.S. consumers can have
access to U.S. natural resources.
Congress also provided energy producing states and local
coastal communities with a revenue stream to help ensure
economic and environmental stability. Such revenue sharing
should be made available to all areas adjacent to offshore
development.
Second, we need all forms of energy, plus conservation and
energy efficiency. I commend Congress for including stronger
CAFE provisions and other conservation measures in the 2007
energy bill. Congress should continue to encourage
conservation.
Third, Shell supports reducing greenhouse gases through a
cap and trade program coupled with sector approaches. We must
work now to address CO2 emissions as we make the
transition from fossil fuels to new energy sources.
Thank you, Mr. Chairman. I'll be happy to answer questions.
[The statement of Mr. Hofmeister follows:]
The Chairman. Thank you, Mr. Hofmeister.
Our next witness is Mr. Peter Robertson, who is the Vice
Chairman of Chevron. He has served as Vice Chairman of the
board of Chevron since 2002. He has spent 15 years with that
company.
We welcome you, sir.
STATEMENT OF PETER ROBERTSON
Mr. Robertson. Thank you.
Good afternoon, Mr. Chairman, Ranking Member Sensenbrenner,
and members of the Committee. My name is Peter Robertson, and I
am Vice Chairman of Chevron Corporation, and I am here today
proudly representing 59,000 Chevron employees, 27,000 of whom
work here in the United States.
I appreciate the opportunity to discuss the energy issues
that are very much on your minds and those of all Americans. I
will address three issues: rising oil prices; our commitment to
providing energy, including renewables; and policies to insure
that we enhance our energy security.
Four years ago we sent a letter to members of Congress, the
administration, cabinet members, as well as trade associations
and think tanks. It foreshadowed the issues we face today and
included concrete ideas for action. The letter said we face a
new reality: volatility, high prices, greater competition for
resources, and heightened geopolitical risks.
Today this new reality is here, and it is costing us. All
Americans feel the pain of $100 oil, and it is not just at the
pump. Everything is more expensive. People are concerned about
rising costs and rightly so.
The world is consuming oil at an ever increasing rate, and
it is projected to continue. There are a billion people who
enjoy our standard of living, and there are billions more
striving for the same.
The current system is straining to meet their needs. There
is dramatically reduced spare capacity, and there is no room
for error. Any disruption or perceived threat of disruption
typically sends prices up, and the declining value of the
dollar has only worsened the situation. The situation is not
sustainable, and it is time to take urgent action.
So what are we doing? Chevron produces almost one billion
barrels of oil equivalent a year, and as large as that number
sounds, it serves less than three percent of world demand. And
in the U.S. our refineries produce six billion gallons of
gasoline each year, another large number, but that is less than
five percent of America's gasoline consumption.
Between 2002 and 2007, Chevron invested approximately $73
billion in new energy supplies, more than we earned. This year
we will spend another $23 billion, including 2.3 billion in
U.S. refining and marketing activities. We have added one
million gallons a day in gasoline capacity over the last two
years.
Let's talk about renewable energy. Today Chevron is the
world's largest producer of geothermal energy. Between 2007 and
2009, we plan to spend $2.5 billion on renewables and energy
efficiency services. We formed a range of partnerships to
pursue next generation biofuels. Let me give you one example.
We teamed up with Weyerhaeuser Corporation because we need
partners. They know plants; we know fuels. Together we provide
the unique combination necessary to meet this challenge.
But it will take time to have a meaningful impact. A large
biofuels plant in the U.S. produces in a year what one of our
refineries produces in a single week. The enormous scale of the
energy system means that we must continue to bring traditional
energy supplies to market even as we accelerate the development
of renewables.
But increasing supply is only one important step. We also
need to aggressively moderate demand. America needs to become a
nation of energy savers. Chevron Energy Solutions has completed
more than 800 energy efficiency and renewable energy projects,
largely in public facilities, reducing emissions and saving on
average nearly 30 percent in energy and operational costs.
In closing, I want to emphasize what we can do together to
help consumers. The National Petroleum Council study involved
1,000 participants, scientists and NGOs, industrial consumers,
and policy experts. It recommended five strategies ranging from
moderating demand to expanding supply, to increasing research.
It has given us sound, sensible, achievable solutions. Now we
need action.
We strongly urge you to implement its recommendations, but
first we need to change our nation's conventional wisdom about
energy development and use. On the demand side, our country
needs to value energy as a precious resource. We need a ``made
in America'' solution enabled by everything from human
ingenuity to smart buildings, to advanced vehicles.
On the supply side, we need to be sensitive to the scale
and time frames required to alter the energy mix. We need to
help to open up the 85 percent of the outer continental shelf
that is off limits. We cannot expect other countries to expand
their resource development to meet our need as we limit our
development without good reason.
And we need your help in dealing with inefficiencies in the
gasoline market. There are 17 boutique fuel requirements across
the country. More requirements on fuels are being added through
renewable fuel mandates and proposed climate policies. These
important policies must be advanced in a way that Americans can
afford.
The time for action is now. During the five minutes it took
me to deliver my remarks, the world has consumed the energy
equivalent of 35 million gallons of oil equivalent. Our
collective leadership and ingenuity can set a path for true
progress.
At Chevron we will continue to do our part.
Thank you very much.
[The statement of Mr. Robertson follows:]
The Chairman. Thank you, Mr. Robertson.
Our next witness is John Lowe. He is the Executive Vice
President of ConocoPhillips. Over the last eight years he has
held the multiple senior level positions with that company.
We welcome you sir. Whenever you are ready, please begin.
STATEMENT OF JOHN LOWE
Mr. Lowe. Thank you.
Good afternoon, Mr. Chairman. We appreciate the opportunity
to come before the Committee to discuss our alternative fuels
investments, as well as our investments to meet current energy
needs.
ConocoPhillips favors developing all forms of energy,
conventional, renewable, and alternative. However, we recognize
that even with aggressive implementation of alternative energy,
most sources estimate that fossil fuels must still supply two-
thirds of world energy in 2030. We cannot attain an alternative
energy future in a few short decades. Global energy demand is
too high. Technological development and infrastructure
construction take too long, and the cost would be too great.
This makes it essential that we build the political will to
utilize our fossil fuel resources. We must also develop the
ability to use them in cleaner forms, and we must disavow the
misconception that alternative sources can quickly and easily
assume the energy burden.
ConocoPhillips is already preparing for the future. Our
reinvestments into our business continue exceeding our income.
We earned $12 billion in 2007, but reinvested $13 billion, and
we have over $15 billion in investments planned for 2008.
In North America, we are spending billions of dollars to
expand supplies by developing the Canadian oil sands and
building infrastructure to transport the oil to the U.S. In
pursuit of natural gas, we are conducting major drilling
programs and building pipelines in two LEG re-gas terminals.
Downstream we are increasing our refining capacity and
ability to produce cleaner fuels.
You have also asked us to describe our efforts in renewable
and alternative energy. Although these are currently not part
of our core businesses, ethanol represents five percent of our
U.S. gasoline volumes, making us one of the nation's largest
ethanol blenders and users.
We are test marketing E85 and biodiesel. We have produced
renewable diesel fuel. We are working to develop biofuels from
agricultural waste. We are funding university research into the
next generation of renewable fuels like cellulosic ethanol.
We are evaluating opportunities to invest in solar, wind
and geothermal power. To make electric vehicles more practical,
we are developing better materials for lithium ion batteries
and to transform coal and petroleum coke into clean burning
synthetic natural gas, we have developed proprietary technology
and have two multi-billion dollar projects planned.
This Subcommittee is also charged with addressing climate
change. ConocoPhillips favors congressional enactment of a
mandatory framework to reduce carbon emissions, and we are
actively researching potential carbon capture and storage.
These efforts show what can be achieved by the industry's
technical, financial, and human resources.
Our capabilities must not be undermined by punitive tax
measures or counterproductive policies like those that threaten
our co-venture with Tyson Foods. Two years ago we formed a
unique relationship with Tyson to develop a new technology to
produce renewable diesel from byproduct animal fats. Unlike
most biofuels, our product can be transported by pipeline.
Congress enacted an incentive for the feedstock, but the
House is attempting to deny us equal treatment in utilizing
this incentive, which is afforded to all other biodiesels. This
would make our technology uncompetitive.
If Congress intends to encourage meaningful alternative
fuels development, it is critical that all related tax policies
and mandates be feedstock and technology neutral, and that R&D
efforts not be undermined. The market should decide which
technologies go forward.
Hopefully, government and industry can move beyond today's
all too often adversarial relationship. There is much we can do
together to increase supplies, encourage efficiency, develop
alternatives, and address climate change. But have no doubt.
The U.S. is engaged in a global race. Other countries are
working cooperatively with their energy industries to secure
new supplies. Unless our domestic companies are allowed to
compete on level ground, we run the risk of marginalizing U.S.
oil and gas industry and ultimately undermining U.S. energy
supply.
Mr. Chairman, this concludes my statement. Thank you.
[The statement of Mr. Lowe follows:]
The Chairman. Thank you, Mr. Lowe.
And our final witness is Mr. Robert Malone, who is the
Chairman and President of BP America. Mr. Malone has led BP
America since 2006.
We welcome you, sir. Whenever you are ready, please begin.
STATEMENT OF ROBERT A. MALONE
Mr. Malone. Thank you, Mr. Chairman, Ranking Member
Sensenbrenner, members of the Select Committee.
Good afternoon. My name is Bob Malone, and I am the
Chairman and President of BP in America.
We are the nation's largest producer of domestic oil and
gas and one of the nation's largest energy investors. We expect
to spend here in the United States $30 billion over the next
five years to expand and extend production of natural gas from
the Rocky Mountains west to renew critical oil and gas
infrastructure on the North Slope of Alaska, to continue
development in the deep water Gulf of Mexico, and to increase
gasoline production from key midwest refineries.
In the area of alternative energy, we are nearly doubling
the capacity of our Frederick, Maryland solar plant, the
largest integrated solar manufacturing facility in the United
States.
By the end of this year we expect to have 1,000 megawatts
of U.S. wind power capacity on line, increasing to 2,400
megawatts by the end of 2010. That is enough to power more than
700,000 homes.
We are already one of the largest blenders of ethanol in
the nation. However, over the next decade, we will invest more
than 500 million in the search for a new generation of biofuel
that contains more energy, has less impact on the environment,
and which is not made from a food crop.
We know high energy prices are having an adverse impact on
our nation's economy and your constituents and our customers.
We cannot change the way the world market relies and this
nation relies on 60 percent of its oil from foreign countries.
But we can work with this Congress, with the administration,
and with governments and consumers across this nation to move
towards greater energy security and a lower carbon energy
future.
To be clear, BP America is working hard to expand and to
diversify U.S. energy supply and is committed to reducing the
environmental impact of both energy production and consumption.
Our operations span the country, and many employ technologies
that did not even exist a decade ago.
Our investment across the entire energy spectrum is huge.
Over the last five years, we have invested $31.5 billion in
development of U.S. energy security. During 2007, we invested
three-quarters of a billion dollars or ten percent of our
capital budget on alternative energy.
But the hard truth is that even the major improvements in
energy efficiency with the rapid growth of solar wind and
biofuels, the United States will consume more oil, more natural
gas and coal in 2030 than it does today. The United States with
five percent of the world's population consumes 25 percent of
the world's daily oil production.
The U.S. should produce more of the energy it consumes, and
it has a responsibility to use that energy wisely. U.S. energy
policy must address both energy supply and energy demand. On
the supply side, we support incentives for alternative energy,
but taxing one form of energy to encourage production of
another will reduce our ability to keep up with the growing
U.S. energy demand. The result will be less investment, less
production, tighter energy markets, and potentially even higher
prices at the pump.
This nation should be encouraging production of all forms
of energy, especially oil an gas. On the demand side we have to
encourage conservation and drive energy efficiency.
Mr. Chairman, members of the Committee, in the notice of
this hearing you expressed a desire for a real conversation
about energy. I am here on behalf of BP to have that
conversation. The energy challenge facing this nation is
enormous. BP is serious about bringing new sources of oil and
gas to the U.S. market. We are also serious about building a
sustainable, profitable alternative energy business that is
capable of delivering the clean, affordable power that
consumers want.
My company stands ready to work with you and others to
address the energy and environmental needs of this nation.
Thank you.
[The statement of Mr. Malone follows:]
The Chairman. Thank you, Mr. Malone, very much, and that
completes the time for opening statements from our witnesses.
And now we will turn to recognize members of the Committee
for questions of the panel. The Chair will recognize himself
for five minutes for that purpose.
Mr. Simon, last year Exxon Mobil reported $40 billion in
profits, $28 billion in stock buy-backs, $7.5 billion in
dividends and executive compensation, but all I can really find
is no more than a commitment of $100 million in investment in
renewables over the next ten years. Why is that, Mr. Simon? Why
is your company not investing in renewables?
Mr. Simon. Well, thank you, Mr. Chairman, for giving me the
opportunity to address the area of alternative fuel. When you
go back to the year 2000-2001, we as a corporation recognized
that we had a huge challenge in front of us not only as a
corporation, but as an industry in meeting a significant growth
in energy requirements, estimated about 40 percent in the year
2030 compared to 2005, while still managing the risks
associated with climate change as driven by the increase in
greenhouse gas emissions.
At that time we looked at every component, every facet of
alternative energy. We had our best and brightest minds, the
scientists and engineers of the highest caliber in our
corporation look at it on a fundamental basis. We looked at it
all the way from production, on the one hand, all the way
through consumption, on the other. We called a well to wheels
analysis. We looked at it on an energy basis, on the energy
balance.
The Chairman. How much have you invested in renewable
energy, Mr. Simon, for 2008? What is your budget for renewable
energy at Exxon Mobil.
Mr. Simon. And I will get to that, Mr. Chairman.
The Chairman. I only have five minutes. It is important for
us to get it out on the table. What is the investment in
renewable energy, please?
Mr. Simon. Recognizing that we needed to do something of a
great magnitude, the current generation of fossil fuels do not
work. What we did was we said we needed the best and brightest
minds from all walks of life, and we initiated the global
climate and energy project at Stanford University, which is
about----
The Chairman. And how much money are you paying for that?
Mr. Simon [continuing]. A $100 million investment over----
The Chairman. One hundred million dollars, but you made $40
billion last year.
Mr. Simon. Mr. Chairman, putting more money into something
does not necessarily equal progress.
The Chairman. Well, Shell is putting money into wind. BP is
putting money into renewables, and we are not talking about 100
million over ten years. We are talking about billions of
dollars which are being invested. Why is Exxon Mobil resisting
the renewable revolution that is being embraced by other
companies even in the oil and gas sector?
Mr. Simon. Our analysis is that we are not going to be able
to meet the challenge that you would like to meet and I would
like to meet with current generation. That is our assessment.
We need to leapfrog current generation technology. We need to
have breakthroughs that are world changing, and that is what
the objective of our global climate and energy project is at
Stanford University. We have 40 breakthrough programs underway
looking at every aspect of renewables.
We are looking wind. I mean solar. We are looking at
biofuels, biomass.
The Chairman. We do not have time, Mr. Simon. Okay? We have
got people you heard in my opening statement. For the poorest
20 percent in America it is now ten percent of their income
going to paying their gasoline bill. So as these consumers are
at the pump being tipped upside down and having money shaken
out of their pocket, your message to them is that you cannot do
anything for them, that you are about to begin a partnership to
think about what you are going to do about a renewable energy
agenda, and that is not going to send any message that we are
going to put pressure on OPEC that we are about to change
business in our country.
Mr. Simon. Well, if we are going to have a kind of impact
that you and I want longer term, it is going to take
breakthroughs, and that is what we are trying to do there.
That does not say that we cannot do something to try to
address the price at the pump today. About 80 percent of that
price or 70 percent of that price is crude oil. What can we do
there? One thing, we can moderate demand in terms of the
transportation sector.
The Chairman. But you cannot have it both ways, Mr. Simon.
You cannot, on the one hand, be nickel and diming renewables at
Exxon Mobil and at the same time be recording $40 billion worth
of profits and simultaneously fighting our efforts to move over
the billions of dollars into the research in renewables which
this country needs to break its dependence on imported oil. You
cannot do that, Mr. Simon.
Exxon should make a commitment that they are going to put
ten percent of their profits into renewables so that America
has a comprehensive strategy to fight that dependence upon
imported oil. Are you willing to make that kind of a
commitment?
Mr. Simon. Mr. Chairman, we continue to look at that area.
If we identify an area where we think it can have the impact
that you are alluding to, we will do that, but we have studied
all forms, even anticipating some improvements, and the current
technologies just do not have an impact, any kind of
appreciable impact on this challenge that we are trying to
meeting.
The Chairman. Mr. Simon, that is just going to be a
continuation of a policy of tax breaks for the oil companies
and tough breaks for consumers at the pump, and that just does
not work.
OPEC has us over a barrel, and you are saying you are going
to study the issue for another ten years, and with all due
respect to Stanford, you have competitors here on this panel
who are already investing in multi-billion dollar strategies in
alternative energy, and I just think that it is time to move to
this new agenda for the sake of our country and for the
consuming public that really does feel as they have been short
changed in terms of protecting them against what looks like to
be a devastating, long-term prospect of paying $3.29, $4.29 and
more at the pump for the indefinite future.
My time has expired. I turn to recognize the gentleman from
Wisconsin, Mr. Sensenbrenner.
Mr. Sensenbrenner. Thank you very much, Mr. Chairman.
One of the things that I learned when I got to Congress is
that we do not have the power here to repeal the law of supply
and demand. Obviously demand is up, particularly as a result of
the increased demand in emerging economies like China and
India. Supply is restricted, partly due to the fact that we
have not been able to build new refineries in this country to
increase supplies to consumer, and then as a result of our low
interest policy, which we need to prevent a complete collapse
of the housing market, you see the value of the dollar tanking
on overseas markets, and the OPEC nations who do sell us oil
are not going to want to get paid in cheaper dollars.
Now, all of that on the table and not too much we are able
to do about it either in Congress or on your side of the table,
what do each of the five of you think is the single most
important policy that Congress can make to increase supply and
thus take the pinch off of higher prices?
You can start, Mr. Simon.
Mr. Simon. Well, Congressman, I do not think there is any
silver bullet here.
Mr. Sensenbrenner. Well, we know that, but I am asking you
to prioritize, and I have got three and a half minutes left and
you have got four colleagues that want to speak.
Mr. Simon. To me it would be to open access to supplies
that are currently off limits. We have 31 billion barrels, 105
trillion cubic feet of natural gas. That is enough to power ten
million automobiles and heat 15 million homes here in the
United States for over 100 years.
Mr. Sensenbrenner. Okay. Mr. Hofmeister.
Mr. Hofmeister. I think the Congress should look at short-
term, medium-term and long-term solutions in a comprehensive
strategy that would take into account everything from more
access to the new and developing technologies of the future. If
we do not look at it short term, medium term, long term, we
will suffer enormously in the next several years from a
shortage, a continuing shortage of hydrocarbons.
Mr. Sensenbrenner. Mr. Robertson.
Mr. Robertson. Well, I think there are a lot of things that
the Congress can do. I think, you know, starting to leave an
efficiency message to the American people is the first most
important thing, but after that, I think we need access to all
kinds of energy supplies, renewables and oil and gas.
The single biggest thing I think would be to open up the 85
percent of the offshore acreage in the United States that is
currently unattainable. I think it is unrealistic to ask the
rest of the world to open up their areas without us doing the
same ourselves.
Mr. Sensenbrenner. Mr. Lowe.
Mr. Lowe. Yes, we need to support all forms of energy, but
particularly as my colleagues have said, we need more access
here in the United States.
Mr. Sensenbrenner. Mr. Malone.
Mr. Malone. Congressman, access is number one, but I would
also emphasize the huge potential that sits north of us in
Canada, as we have the Saudi Arabia of North America sitting
there ready to provide us with needed energy.
Mr. Sensenbrenner. Okay. Now, that all being said, I guess
the common thread that I have heard from each of you is that we
need more access, and you have all alluded to where the access
is.
If you got the access, would you have the refining capacity
to be able to increase the supply to the consumer and thus at
least take the pressure off of ever increasing prices? We have
not built a new refinery in this country in 30 or 35 years. So
if you have the access but you cannot refine it, how do you get
the product to the consumers at at least the same price if not
a lower price?
Why don't we start with Mr. Malone?
Mr. Malone. Access, for example, two of our projects are to
expand our existing refineries with the use of access being
allowed on Canadian heavy crude. Both of those, that will
result in something like 2.2 to 2.5 million gallons a day more
gasoline. So physically we can expand our refineries, which we
have been doing for years.
Mr. Sensenbrenner. Mr. Lowe.
Mr. Lowe. Yes, we are spending billions of dollars to
expand not only the capacity of our refineries, but also the
capability of our refineries to run these heavier crudes, but
we have encountered significant difficulties. Even though we
are trying to increase capacity and produce cleaner fuels, we
have encountered significant difficulty in permitting these
projects.
Mr. Sensenbrenner. Mr. Robertson.
Mr. Robertson. The U.S. use of oil in the last few years
has been about flat. So if we produce more oil and gas in the
United States, we would have to import less. We have the
refining capacity in the United States to deal with the market
today, I think. So I think the issue is around if you produce
more oil in the United States, more on the world market, prices
directionally are lower. We import less.
Mr. Sensenbrenner. Mr. Hofmeister.
Mr. Hofmeister. I mentioned the $7 billion investment that
is currently ongoing in Port Arthur, Texas. This will more than
double the size of a refinery and take it to over 600,000
barrels a day, one of the world's largest. I think we have the
refining capacity to meet future demand.
Mr. Sensenbrenner. My time is up, but can I ask Mr. Simon
to put his two cents worth in?
Mr. Simon. We have expanded our capacity at a rate 50
percent higher than industry. We do not think we will have any
issues in terms of continuing to expand our existing capacity
sufficient to meet demand in the future.
Mr. Sensenbrenner. Thank you.
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentleman from Oregon, Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Chairman.
I would just make a request. Mr. Simon, not now because you
wouldn't have time to explain it and I would like to see it on
paper, if you could just explain? Have someone submit to the
Committee the accounting assumptions that are used to explain
how you pay more in taxes than you earn in the United States,
what assumptions you are making about downstream business
versus upstream profits overseas would be very useful for me.
I appreciate the couple of references that were made to the
demand side of the equation. Mr. Hofmeister, I don't think you
got to it in your testimony on page 9, but you talked about
land use and demand management and how people use the
automobile, notions about some very specific things that we
need to think about in terms of 17 boutique. I mean, these are
important things for us to hear.
But there are two points, I guess, that I would like to
just zero in on. There are implications here that if we just
opened up all our sensitive areas to oil exploration, that
somehow we wouldn't be in the fix that we are in today. But
your testimony referenced the fact that we are five percent of
the world's population with three percent of the world's proven
reserves. And we are consuming 25 percent of the world's oil
supply.
Do any of you think any circumstance that we wouldn't be in
a serious situation today given those facts and that we are
going to need to change it in the future? Anybody think this is
sustainable?
Mr. Robertson. Well, I think in my testimony, I think I
said it is not sustainable.
Mr. Blumenauer. Does anybody think the current situation is
sustainable? Thank you.
Mr. Simon. Well, I certainly feel that we are going to be
able to meet increased requirements given access and given the
opportunity to do so.
Mr. Blumenauer. Which is different than the current
situation of being sustainable with 25 percent. Is there any
reason that any of you think that American technology,
conservation, demand management, that over the next 10 or 15
years, we can't at least come close to what other countries are
doing in western Europe, in Japan? Is there any reason we can't
come close to reducing our per capita energy utilization over
the next 10 or 15 years with those mechanisms?
Mr. Robertson. I think we can do an awful lot on demand
management. I think I said that was the most important thing
that we can do.
Mr. Blumenauer. But can we catch up with the Japanese----
Mr. Robertson. Yes.
Mr. Blumenauer [continuing]. And the Europeans over the
next 10 or 15 years?
Mr. Robertson. Yes, I think absolutely. We have a company
called Chevron Energy Solutions that delivers energy efficiency
services to other public agencies and to companies. They have
done 800 projects over the last few years. Many of them
involved putting in solar panels, putting in fuel cells,
putting in whatever it takes that particular facility to reach
their energy use.
Mr. Blumenauer. Mr. Robertson, I appreciate your
clarification. I think that is very important. I appreciated
what a number of you said in terms of diversifying and to being
truly global energy companies.
Mr. Robertson. But there is----
Mr. Blumenauer. Now, I would like----
Mr. Robertson. And the energy cost is 30 percent on average
of the places they have been.
Mr. Blumenauer. What I would like to do is just with my
remaining seconds is to clarify on the last point because you,
some of you more aggressively than others, understand that the
future is going to be weighted in significant ways towards
renewable energies, towards solar, towards--some of you are
doing geothermal now--biofuels, wind.
I am curious at what point the mature part of your
business, the oil production, which didn't even have the
manufacturing benefit up until 2004, at what point it is mature
enough that we can focus the subsidy on areas of the emerging
energy business and, in fact, many of you are involved with
that appear to need it more, like wind and like solar. At what
point do we make that switchover?
Mr. Hofmeister. I think in the first instance, Congressman,
your time frame of 10 to 15 years is too short. I think there
is too much to be done to change behaviors, technology, and to
refleet America, so to speak.
We don't have the benefits of the dense housing that exists
in other parts of the world. So we have long commutes. We don't
have the benefits of mass transit systems.
But, coming to your more recent question, I think that the
issue that is most troubling in terms of the 199 withdrawal is
a fact that the Congress is punishing 5 companies by name. I
think that there is a----
Mr. Blumenauer. My point is, at what point do you no longer
need it and it can be shifted to areas that do?
Mr. Hofmeister. You know, we are mature already. We are
successful as a company. I testified two years ago that we are
not asking for a----
Mr. Blumenauer. And wind and solar are not yet as mature?
Mr. Hofmeister. Wind and solar have lots of obstacles to
overcome, even though we are investing today and moving as
rapidly as we can. There is not enough turbine manufacturing.
There are not enough transmission lines to make wind viable in
terms of rapid growth.
Mr. Blumenauer. Thank you. I see my time has expired. I
appreciate your clarification.
Mr. Chairman, I appreciate your indulgence. I guess my only
concern is that we ought to be serious about taking this as
something in terms of the time frame being too long. I think 10
to 15 years may be actually that we don't have that much time
as gasoline goes to $5 and $10 a gallon, a supply becomes more
tenuous, as the global warming reality sets in.
And I suspect with your help and with a couple of
reauthorization bills and a national strategy for
infrastructure, I think we could put these pieces together
sooner. I don't know that we have a choice.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Arizona, Mr.
Shadegg.
Mr. Shadegg. Thank you, Mr. Chairman.
Gentlemen, this is a hearing structured to deliver a fair
amount of criticism to you. It seems Congress is good at that
and not necessarily good at pointing a finger at itself.
I want to ask you about a policy that this Congress enacted
which I think deserves some criticism itself. It is my
understanding that as a result of a loophole in the U.S. Tax
Code, we have created a policy now recognized as splash and
dash, where we created an incentive to produce biodiesel and
enacted policies which provide that if you add as little as one
gallon of biodiesel to 99 gallons of diesel produced by
standard means and then you export that fuel, the U.S.
government will provide you a dollar a gallon subsidy. This has
become known as splash and dash.
It has cost the American taxpayers, I believe, $30 million.
Several attempts have been made to repeal this by the Congress
in the last few years. None have done so. I understand Senator
Schumer is working on a repeal.
I would like to just begin by asking each of you if you are
familiar with that and if you think there is any justification
for that kind of a waste of American taxpayer dollars.
Mr. Simon. Congressman, our position is that we do not need
and should not have incentives to encourage us in the
renewables area. If there is an opportunity there and it will
make sense, it ought to stand on its own. And free enterprise
will go after it.
Mr. Shadegg. Are any of you aware of this splash and dash
practice, where biodiesel is added?
Mr. Robertson. Yes.
Mr. Shadegg. Yes, sir, Mr. Robertson?
Mr. Robertson. I am aware of it. I think you characterized
it probably right. We haven't taken advantage of it and don't
need it.
Mr. Shadegg. My characterization is quite accurate, then?
Mr. Robertson. It is pretty accurate, yes.
Mr. Shadegg. And it is costing the American taxpayers as a
result of this subsidy. And, as I understand it, the diesel
fuel is actually then being exported. So the----
Mr. Robertson. I don't know. I can't confirm the number
that you said in terms of the millions of dollars, but I think
your characterization of it as a way to export and take
advantage of credit is right.
Mr. Shadegg. I certainly hope that that kind of a loophole
can be closed very quickly and that it makes no sense for us to
be subsidizing foreign use of our diesel fuel to encourage the
production of biofuels here in the United States. And it is my
understanding that it has that economic impact. It is a dollar
per gallon by simply adding one gallon of biodiesel to 99
gallons of regular diesel.
Mr. Simon, can you tell me what percentage of the world's
ten biggest oil companies or natural gas companies are owned or
operated by foreign governments?
Mr. Simon. Well, if you look at the top companies, only
about 2 of the top 13, as I recall, are national oil companies.
And the rest of them are international oil companies.
Mr. Shadegg. And do you know what percentage of the world's
proven reserves U.S. oil companies control?
Mr. Simon. Well, I know what it is in terms of national oil
companies. It is about six percent. I am sorry. The
international companies is six percent. National oil companies
is about 80 percent.
Mr. Shadegg. Mr. Hofmeister, you testified that U.S. oil
production has declined, I believe you said, over the last--I
am not sure if you said decade. While our demand has gone up,
our production has gone down.
Mr. Robertson, you explained that we have enacted
increasing policies to restrict access to fuel supplies here.
And you expressed concern about the rest of the world being
asked to produce more energy supplies while we are restricting
access to energy supplies here.
One of my colleagues up here said, well, perhaps you were
suggesting that the answer is that we be allowed to drill in
every sensitive area. I suspect there are areas that are less
sensitive than others. And I suspect that or I would like to
know, is there a correlation between the number of areas that
have been reserved or locked off over the last decade and the
decline in production and are there areas that you could point
to where we could be exploring, either of you or any of you,
where we could be exploring for reserves or using reserves that
are there to increase production here in the United States
without doing environmental damage?
Mr. Robertson. Well, I mean, you know, one of the things
that I would point out is that the offshore, most of the
offshore, in the United States has not been looked at with
modern technology in many, many, many years. It was really
1980s and 1970s technology, seismic technology, that looked at
that.
So the first thing that I think would make sense to do--and
the government, frankly, could do this--is sponsor a seismic
survey of the offshore, of the entire continental shelf of the
United States. And then at least you would be talking about
facts.
You would know what was prospective and what wasn't
perspective. You could look at the areas that were
environmentally sensitive and the areas that aren't
environmentally sensitive. And you could zero in and be
debating on real information, as opposed to worrying about the
whole offshore, because it is pretty clear that there are going
to be some areas that are prospective for drilling and there
are going to be some areas that aren't.
So at least you could narrow the playing field, it seems to
me, very dramatically and figure out where the likelihood of
America's opportunity is.
Mr. Shadegg. And do you believe that is substantial?
Mr. Robertson. I believe it is substantial, very
substantial, yes.
Mr. Simon. Mr. Hofmeister.
Mr. Hofmeister. Absolutely. I think knowing what we know
from past surveys, I think the API estimates there are more
than 100 billion barrels of reserves that are not coming from
what some people might term sensitive areas. These are outer
continental shelf deposits that have been there for geological
areas.
And not having had access for some 30 years, we have seen
this steady increase in imports and steady decline in American
production. We have geared our exploration and production to
around the world, rather than the United States.
Mr. Shadegg. I thank you for your testimony. I assume
technology has improved in that 30 years in terms of protecting
the environment.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee.
Mr. Inslee. Thank you.
First off, we need to say something good about the industry
here. One point of this hearing, I want to congratulate BP for
meeting their Kyoto CO2 reduction targets of their
internal operations within, I think, three or four years,
showing that this can be done. It is a good example for the
rest of us.
I want to ask,--this is a question to all of you--did you
or any of your associates participate in the secret Vice
President Dick Cheney Energy Task Force in 2001?
Mr. Robertson. We did not.
Mr. Hofmeister. I testified previously the answer is no.
Mr. Simon. No.
Mr. Malone. Yes.
Mr. Inslee. And, Mr. Malone, could you make your documents
related to that, secret meetings, available to the Committee?
Mr. Malone. Yes, sir.
Mr. Inslee. Thank you. We would make that request.
Mr. Simon, listening to your testimony makes me even more
convinced that we need to act to create an incentive for
decision-makers and industry to really make real investments in
the clean energy revolution, rather than relatively small ones.
And the reason I say that is that listening to you, as far
as I can tell, you are spending less than half a percent of
your gross revenues on clean energy research. Is that right?
Mr. Simon. It would be a very modest amount. I would
acknowledge that. But I would not acknowledge that we are not
doing a lot to address greenhouse gas emissions.
Mr. Inslee. Well, considering that we have to cut our
greenhouse gas emissions 80 percent in this country below our
levels by 2050, would you agree that if your company continues
on its present course, it will fall several hundred orders of
magnitude short of what we have to do to prevent cataclysmic
global climate change?
Mr. Simon. Well, the assumption there that that is required
in order to do that, I would----
Mr. Inslee. How is it going to happen? I mean, oil isn't
going to, all of a sudden, become clean. We need to do the
research to figure out these technologies.
Mr. Simon. No, but the fact is that we are going to have
oil and gas and coal. And it is going to constitute about 80
percent of the energy equation.
With that as a given, how do we then address and do what we
can to mitigate greenhouse gas emissions with that being the
case?
Mr. Inslee. Would you agree with me, sir, that if Exxon
continues on its present course of having less than one-half of
one percent of its revenues associated with clean energy
sources other than oil and gas, that the world is going to
suffer significantly unless Exxon and its like changes its
behavior?
Mr. Simon. No, I don't agree with that. And I think we can
do a lot more in terms of emitting greenhouse gas emissions by
focusing on the areas that we are, transportation, efficiency
improvements being one.
Mr. Inslee. So if you don't put research dollars into it,
is it going to come from the oil fairy somehow? These new
technologies are going to show up?
Mr. Simon. No.
Mr. Inslee. We have got to put some real money in this,
don't we?
Mr. Simon. Given the fact that, again, we got oil and it is
in our equation and it is going to be a significant factor, we
are focusing on how do we make the use of that oil much more
efficient.
Mr. Inslee. Well, let me suggest--I hope that you will go
take from this hearing a much more optimistic viewpoint of our
capability.
You mentioned the money you are putting into Stanford. I
was at Stanford last weekend talking to their scientists. And I
was very excited by going over a report called a renewable
energy solution to global warming presented by Mark Jacobson,
Atmospheric Energy Program, Department of Civil and
Environmental Engineering, Stanford University.
And what they concluded--and I will just read you a couple
of sentences in the summary--``The U.S. could replace all on-
road vehicles with battery electric vehicles powered by 71,000
to 122,000 5-megawatt wind turbines less than the 300,000
airplanes the U.S. produced during World War II. Wind battery
electric vehicles could reduce U.S. carbon dioxide by 25.5
percent. Solar battery electric vehicles can reduce it by 23.4
percent.''
Now, would you agree with me that this, a vision from
Stanford, the folks that you are giving some money to, is one
that the United States really needs and that with your
pathetically small research budget we are not going to meet
unless something changes?
Mr. Simon. No, I don't agree with that, Congressman. And I
would invite you to go look for yourself at what we are doing
in a global climate and energy project. I think you would find
it to be quite significant. It has long-term very significant
impacts in terms of what it can do on the energy equation and
greenhouse gas mitigation.
Mr. Inslee. We actually did ask your company to give us the
investments they were making in this, and you refused to give
it to us. But you have helped us by telling us it is less than
one-half percent.
Now, I can tell you that there are a lot of constituents
that think that that is an inadequate contribution to the
future of the planet Earth. And I just hope things change. And
obviously we have got to change them by changing this tax
policy.
Thank you.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon, Mr. Walden.
Mr. Walden. Thank you very much, Mr. Chairman.
I just have to ask this question because I know if my
constituents were here, they would ask it. With your record
high profits, have you thought of lowering the price of
gasoline with any of that?
I mean, I am a small business owner for 21 years. There is
that margin where you don't have to charge quite as much if you
are making a profit.
Mr. Hofmeister. Could I say something in favor of profits?
Profits are what enable capital investments to increase the
supply.
Mr. Walden. You are talking to a capitalist.
Mr. Hofmeister. Lowering our prices happens in many markets
based upon local supply and demand. The prices go up. The
prices go down. These prices are set at the street level in the
local marketplaces where they come from.
The global price of crude, however, is the real issue. That
is the real problem in the cost of gasoline. And the global
price of crude will not go down unless the supply increases.
Mr. Walden. Or the demand goes down. And that is what I
fear is happening in our country today. It is not that the
demand is going down because of conservation. The demand is
going down because our economy is taking a big hit. The people
are having to make some really tough choices.
You have got the independent truckers today that are
boycotting or striking to send a message. I mean, we are at a
very, very perilous time in our economy right now.
I am not against profits. Don't get me wrong. Again, I am a
small business owner for 21 years. I understand that it's
important to make the next set of capital investments. I also
understand the reinvestment can come to helping your consumers
once in a while, too, in terms of price where that is
appropriate.
Mr. Robertson, I have a question for you regarding ethanol.
I understand that Chevron blends--about 40 percent of gasoline
that you sell in the United States has ethanol in it. Can you
speak to us about the volatility in price that has specifically
been documents related to ethanol in that mix? Is that driving
gas up or not?
Mr. Robertson. I think ethanol prices have been pretty
erratic here in the last couple of years. And they were----
Mr. Walden. Is your mike on, sir?
Mr. Robertson. Yes, it is.
Mr. Walden. Okay.
Mr. Robertson. Ethanol prices have been pretty volatile
over the last couple of years, but I think it is a very small
part, frankly, of the price of gasoline. I think it has been
already testified 70 percent of the price of gasoline is crude
oil, 15 percent of the price of gasoline is taxes.
So the balance, effectively, if you take today $100 oil and
42 gallons is $2.50, 2.50 a gallon is crude oil, add 40 cents
for taxes, $2.90, there isn't much left. So I think, frankly,
even though ethanol is about five percent of our gasoline, that
volatility hasn't had that much of an effect.
Mr. Walden. Okay. I appreciate that. I used to chair the
Forestry Subcommittee and have been very interested in your
partnership with Weyerhaeuser in terms of biofuels. And I know
my colleague from South Dakota and I both have been real
interested in trying to correct a wrong in the energy bill that
passed. It said woody biomass of federal forest lands or unless
it has grown specifically for biomass, doesn't count toward
renewable fuels standard, which seems sort of bizarre if we are
serious about getting to the next generation of fuels.
Can you talk to us about any breakthroughs you are seeing
on cellulosic development, where we can turn woody biomass into
a fuel we can burn in our vehicles at an economic rate?
Mr. Robertson. You know, I don't think I can tell you much
about any new breaks. I mean, the JV with Weyerhaeuser is
relatively new, although we have been working with them for
about a year.
Mr. Walden. Right.
Mr. Robertson. The thing that is important is they have got
a huge amount of forestry, obviously, and timberland in the
United States----
Mr. Walden. Right.
Mr. Robertson [continuing]. And a lot of knowledge on
chemistry of forest products. We have got a lot of knowledge on
fuels and the chemistry of fuels. And we are pretty convinced
that, working together, we can come up with something that we
can create, make into a commercial scale project. But at the
moment, it is really about technology and about trying to find
the breakthrough.
We have also got a whole series of partnerships with
universities: one in Georgia Tech, which deals with forest
products; one in UC California, Davis because they have got
different kinds of agricultural projects there; one in Texas,
so different places, trying different kinds of feed stocks. But
I can't report any breakthroughs yet. It is not that the
science doesn't work. It is the scale, the scaling.
Mr. Walden. Right.
Mr. Robertson. We have got the science in lots of places.
We just----
Mr. Walden. I think it holds great promise, indeed.
Mr. Robertson. Yes, I think it is great promise.
Mr. Walden. Mr. Malone, while you are here, I also serve on
the Energy and Commerce Committee and the Oversight
Investigation Subcommittee. And we did some oversight hearings
on your pipe issue up in Alaska. Can you give us an update on
the security of that piping system up there?
Mr. Malone. Thank you, Congressman. I remember the hearings
well.
Yes. Excellent progress. As you know, we said we would have
it done in two years. Because we have to do it during the
winter season, with our partners, the lines have now been
replaced.
We are finishing up the last bit of it. It will be done on
schedule, maybe even ahead of time. We actually have oil
flowing through the one section of the new transit line.
Mr. Walden. And the last time I was in Alaska, there was a
discussion about the end of the Prudhoe Bay oil because the
amount it takes to come down the pipeline may get to a point
where it is just not adequate to flow. Can you give us an
update on the status of that and the effect to the market when
that happens?
Mr. Malone. Well, first of all, there are lots of
opportunities. Again, there are several of us producing up
there. But from our perspective, we see a 50-year future if we
are able to move into some of the heavier oils and also the in-
field enhancements that we have.
We originally thought we would recover somewhere around 25-
30 percent of the oil. This field has the potential actually to
recover 65 percent. So right now we are working as hard as we
can to continue the flow from Prudhoe Bay.
Mr. Walden. Thank you. And thank you, Mr. Chairman, for
your indulgence.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Connecticut, Mr.
Larson.
Mr. Larson. Thank you, Mr. Chairman. And thanks to all of
the witnesses as well for your testimony.
I want to make an assumption. I think it is pretty broad
but pretty clear that your primary responsibility, your primary
fiduciary responsibility, is to the shareholders of your
companies. And when you make decisions based in the free
enterprise system and in the marketplace, it is based on
results for the shareholders. Is that a fair assumption? Is
there anyone who would disagree with that?
When we make decisions--and a lot of our decisions are
policy decisions based on the citizens that we are sworn to
serve. And there was a lot of testimony and very productive
testimony. And thank you for that.
I want to get back to this whole issue of supply and
demand. In my district, the independent Connecticut petroleum
dealers' association is saying that whole system has gone
amuck. The laws of supply and demand are not operating on the
street, as you were alluding to, Mr. Hofmeister.
I understand in general what you are saying, but in the
instance of particularly oil and gas, we have seen this
speculation. We see people who do not either receive or store
oil but are pushing paper forward and causing the artificial
rise in price of oil.
Do you agree with the independent petroleum council or are
they way off base here? Start with Mr. Simon. We will go right
down the line.
Mr. Simon. When you look at the fundamentals of our
business, Congressman, the supply/demand fundamentals, our
assessment would be the price should be somewhere around $50-55
a barrel. There is a disconnect.
To me, there are three factors that contribute to that. One
is the monetary issue, the weaker dollars we have already
talked about. The other is geopolitical risk. And the third, we
believe, is speculation. And you could probably break that into
three parts. And it is about 30 to 40 percent of----
Mr. Larson. Would most of you agree with that assessment or
would you alter your assessment? Most of you would agree with
those three factors? I would agree with those three factors.
What would you do about the----
Mr. Robertson. I think the price of the dollar is part of
it as well.
Mr. Larson. Okay. What would you do about the speculators?
Mr. Robertson. What would I do about--I mean----
Mr. Malone. How do we get rid of the Jim Fisks and Jay
Goulds of the crude oil? How do we stop this artificial
influctuation of prices?
Mr. Robertson. Well, I agree with what was just said, that
the main things that I think are driving the price of oil are
the huge demand in the world, the reduction in spare capacity
in the world, the price of the dollar.
Mr. Larson. Because of the economy, we have just witnessed
that demand is lessening here. Hopefully through conservation,
demand will lessen as well. And, yet, we see----
Mr. Robertson. We are part of a world system. And the----
Mr. Larson. We are part of a world system, but here in this
country, we are responsible to our citizens. And how do we say?
As I said at the outset, how do you turn to the lady who has to
turn over an entire Social Security check to pay for her oil
bill? That the laws of supply and demand are in effect?
How do we deal with the fact that people can in this system
manipulate the price in such a manner that, even through all of
your good efforts--and then it has us saying to you, in turn,
``Hey, what do you need that tax cut--what are spending? What
are we giving you a tax break of $107 billion for?''
People at Augie & Ray's in my hometown are asking that very
question.
Mr. Robertson. We have chosen by our policy to be dependent
on oil from overseas. That is our choice. We chose not to
develop our own resources in this country. That was our choice.
And the fact of the matter is we are part of the world. We are
part of the growing demand in the world. And we----
Mr. Larson. As long as it is more profitable. What
incentive is there for you to develop alternatives as long as
it is profitable and you are able to get the rates that you are
currently able to get? And if your sworn fiduciary
responsibility is to provide the greatest return for your
shareholder, geez, I don't know,----
Mr. Robertson. We are spending a lot of----
Mr. Larson [continuing]. But it seems to me like, hey, if I
were one of your shareholders, I would be saying, ``You know,
they are not doing a bad job. I am getting a pretty good yield
on my dollar here.''
But if I am a citizen of this country, I am saying, ``We
are not making out so well here.''
Mr. Robertson. Our shareholders only get return if the
customers are being satisfied with the product. If we don't
sell a product that our customers want, that our shareholders
are going to----
Mr. Larson. This is a matter of customers not--they don't
have a choice here. When it is between heating your home or
freezing to death, that is not much of a choice. You know, when
it comes down to whether or not you are able to get back and
forth to work, that is not much of a choice.
Mr. Robertson. Oh, I understand----
Mr. Larson. It is what my grandfather says. Trust everyone
but cut the cards. And somewhere in here, there is a
disconnect. We need your help in trying to fix this disconnect.
Mr. Stupak was here, who left, also has proposals that are
talking about the manipulation of the market. I guess----
Mr. Robertson. We are doing our damnedest to fix this. We
are spending as much money as our company can with our human
people that we have and the infrastructure that exists. We are
spending as much as we can to produce energy for the people in
this country and the people in the world. We don't know how
to----
Mr. Larson. My time is up, but I would be interested if
you, all of you, could in writing--I would love to hear your
opinions on what you would do to the speculative side of this
market that distorts the entire market and your integrity as
well.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentle lady from Michigan, Mrs.
Miller.
Mrs. Miller. Thank you, Mr. Chairman.
And I did mention in my opening statement and I would then
agree with some of the comments that have been made by some of
our witnesses here that we have made a choice as a nation,
unfortunately in my estimation, not to advantage ourselves of
much of our own energy supplies. And that is to our own
disadvantage, I think.
But, however, we have made that choice as a nation. But, as
has been mentioned, we are in a global market for energy. And
so my first question would be in regards to supply.
Being from Michigan, a border state, we look across to our
wonderful neighbors in Canada. And we see all of the oil sands
that are there. One of you mentioned about the oil sands.
I am just wondering, what is the actual percentage of our
foreign supply that we get to the United States actually comes
from Canada now? In regards to the oil sand, could any of you
tell me generally what you think the potential might be there
for an increase in the supply to us from Canada? And I also
have an interest--I mean, I have heard, for instance, that
China is up there trying to lock down a contract for as much as
they can of the oil sands.
And then also in regards to the process of refining, I
believe it is Shell that is going to be about 20 miles from my
district, actually, on the Canadian side was building a very
large refinery for the oil sands, the Canadian oil sands. I am
not sure who I am directing this to.
Mr. Lowe.
Mr. Lowe. ConocoPhillips is the largest landholder in the
Canadian oil sands. And we have a number of different
projects----
The Chairman. Is your microphone on, Mr. Lowe?
Mr. Lowe. Yes. Sorry.
The Chairman. If you could move in a little bit closer,
please?
Mr. Lowe. ConocoPhillips is the largest landholder in the
Canadian oil sands. We have a number of very good projects,
each multibillion-dollar projects, that we are advancing. And
we believe that ultimately the Canadian oil sands can supply
about 20 percent of the U.S.'s oil needs.
But we are going to have to develop our refining
infrastructure and our pipeline infrastructure to make sure we
can get that crude into our refineries and make sure our
refineries can process the heavier crude.
Mrs. Miller. Twenty percent? What is it currently how much,
approximate percentage?
Mr. Lowe. It is relatively small.
Mrs. Miller. I see.
Mr. Robertson. I will make a comment. The U.S. uses about
20, a little over 20, million barrels a day of oil. Today there
are about 2 and a half million barrels a day of oil comes from
Canada.
So our largest importer, our largest imports of oil, come
from Canada. Second largest come from Mexico. But the oil
sands, as was described, could potentially be two or three
million barrels a day, maybe higher than that. So they could
double the input from Canada and be 10 percent or 15 or 20
percent of U.S. demand.
Mrs. Miller. When do you see that happening? I mean, what
time frame? Two years?
Mr. Robertson. No, no.
Mrs. Miller. A hundred years?
Mr. Robertson. Ten, 15, 20 years.
Mrs. Miller. I see. Mr. Malone.
Mr. Robertson. It is going to build up over time.
Mr. Malone. I just wanted to add that, you know, we have
two Midwest refineries, one in Indiana, one in Ohio, that
through either joint ventures now or through supply agreements,
we are going to expand both those refineries to take on a
significant, essentially completely have a Canadian crude for
the Midwest, again including your state, it is somewhere in the
area of 2.6 million gallons more a day. So the supply is there.
Mr. Hofmeister. I think a point should be made that the oil
sands are successful because of a national energy strategy that
was developed by our neighbor to the north. We have the same
opportunity in this country to develop a national energy
strategy.
The United States is blessed with more than a trillion
barrels of potentially recoverable resource in the oil shale of
Colorado, Utah, and Wyoming.
We have, Shell has, been in that region for more than 20
years testing, experimenting, environmentally sound ways to
potentially extract that resource. And we do not see support
coming forward to make that a reality in terms of national
policy. And it might be something for Congress to consider.
Mrs. Miller. Congress doesn't always do well in national
policy. And, Mr. Hofmeister, I know in your testimony, you said
you applauded the higher CAFE standards. But the domestic auto
industry, my personal observations are, we are going to end up
bankrupting the domestic auto industry because of the mandates
that we put on it. But I appreciate what you have said there.
I only have 30 seconds left. What about China? We keep
hearing about China up there contracting for the oil sands.
Does anybody have any comment on that and what is happening
there that might shut us out of the supply?
Mr. Robertson. I don't see they are going to shut us out of
the supply. I mean, China is in many ways just like the United
States. They are competing in the world for energy supplies. We
are competing with them. They are investing in projects around
the world, just like we are.
They are investing in Canadian projects, like we are. But I
don't think there is any shutout by Canada. In fact, most of
the oil in Canada mostly like is going to come south to the
United States.
Mr. Simon. I would agree with that. I think we also have to
be careful about passing legislation here that would cut us off
from that supply of heavy tar sands and heavy oil from Canada,
which I think is a real issue that Congress needs to address.
Mrs. Miller. Thank you, Mr. Chairman.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from Missouri, Mr.
Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman. I am going to try to
ask short questions and so I can get short answers in my time.
My father worked all of his life. He never earned more than
$25,000 a year. And there were years that he actually worked
three jobs, most of the time just two. He sent four children to
college. He is 86 years old.
There will be people like my father all over the country.
And I will have some of them at a meeting next Saturday when I
do my monthly coffee with the congressmen.
Mr. Simon, what can I say to them to help them understand
how Lee Raymond received a $400 million severance package from
ExxonMobil, which translates into $141,000 a day? What do I say
next Saturday to the people who come to my meeting who are
struggling to get to work now because they can't afford to put
gasoline in their car?
Can you help me get them to understand how it is okay for
Mr. Raymond to get a $400 million package and they struggled
and oil company profits are at an all-time high?
Mr. Simon. Well, I would hope that would be behind us by
now, Congressman, but I would just----
Mr. Cleaver. Why?
Mr. Simon [continuing]. Point out, as we have said before--
--
Mr. Cleaver. Why?
Mr. Simon. Because that is in the past. It hasn't been
adhered recently. What----
Mr. Cleaver. Well, we can only talk about gas prices from
yesterday. I mean, everything we talk about here is in the
past.
Mr. Simon. Well, I agree, but yesterday is a lot different
than, let's say, when that occurred. But I believe, as we
testified before, when you break down that, I think there was a
misconception of how much of that was due to past, how much of
it was due to future, and how much was due to current earnings
there. And I think it was blown out of proportion.
Mr. Cleaver. So you think I should tell people in my
district and probably all over the country that the $400
million package was blown out of proportion?
Mr. Simon. I think when you look at it, Congressman, and
you break it down and you look at that pay package relative to
others that were doing the same kind of jobs, you would
consider it was competitive. And it was done by outside
directors. There was not management involved in that at all.
And they looked at others to make sure we are competitive.
Mr. Cleaver. This is a rhetorical question. Whatever
happened to shame?
Since we are having difficulty providing access that I
think all of you agreed that we need, are any of you right now
going back to oil wells that were tapped out or deemed to be
somewhat unprofitable when oil was sold at a far less price? I
mean, are any of you now unplugging or upgrading old wells?
Mr. Robertson. Well, we are certainly going back to
facilities that maybe oil fields that are producing and looking
at the opportunity to put more technology into those oil fields
and more ways to extract more from those wells.
So, for example, in the San Joaquim Valley in California,
where we have a big field, that field has now been producing
for 100 years. It is likely to get up to--originally we
probably thought we would be able to recover 320 percent of the
oil that is in that field. Today we are looking at ways to get
up to 80 percent.
So more technology, higher prices obviously lead to the
opportunity to put more money and more technology into existing
fields that can make them last a lot longer and make them
increase the production. So in that sense, yes.
Mr. Cleaver. We could get the impression that the oil
industry is struggling. I mean, if you listen, you don't think
it is struggling.
Mr. Hofmeister. I think we struggle for access,
Congressman. We struggle for access in which we can have
appropriate investments that are making the return on that
investment worthwhile.
In other words, we are looking for the ample reserves. We
could spend an awful lot more money with very low return if we
were looking in the old fields in which a lot of that oil has
already been extracted.
I agree with my colleague that there are wonderful
technical opportunities to get more from existing fields, but
until the nation has a means by which we could use, for
example, CO2 for enhanced oil recovery in the large
quantities that would be necessary, many of these old fields
will not have the ability to produce a lot more oil.
Mr. Cleaver. All of your companies are doing well, right?
Mr. Robertson. Well, we are working darned hard. I mean, we
have got a big challenge to meet. We have got the world,
including this country, that needs a lot of energy. And we are
spending and putting more human energy into these investments
into these projects than we ever have before. So life is not
easy.
Mr. Cleaver. Well, you are stuck in the 85.13. I think
Exxon was 85.45 closed out yesterday. That doesn't sound much
like a struggle.
Mr. Robertson. I didn't say it was a struggle. I said we
were working hard to try and solve a problem that exists.
Mr. Cleaver. Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oklahoma, Mr.
Sullivan.
Mr. Sullivan. Thank you, Mr. Chairman. And thanks again for
being here.
I believe that global warming is occurring. I think that
man has something to do with it. It doesn't have everything to
do with it but has a part to play in this. And we want to see a
reduction in greenhouse gas emissions as we go forward in the
future. And I am trying to kind of boil down what everyone here
has said in my mind.
What I think you are basically saying--and I want to see if
this is a true statement--is that you believe that we want to
spur domestic production, looking at other areas to drill in or
explore in, and for gas and oil mainly to displace the oil and
gas that we get from other countries.
You said, I think Mr. Hofmeister said or one of you said,
that 80 percent of the reserves are owned by foreign companies,
national companies. Is that true? Is it something like that?
Mr. Robertson. More than that.
Mr. Sullivan. More than that? So, really, you guys
collectively represent about, I guess, less than ten percent of
the global reserves?
Mr. Robertson. Chevron is 0.6 percent of the global----
Mr. Sullivan. I thought it was more than that, actually.
Mr. Robertson. Chevron is 0.6 percent of global oil and gas
reserves.
Mr. Simon. We are 6.
Mr. Sullivan. So, really, it is a national security issue.
We want to displace that. And you are saying that you are not
opposed to moving into renewable fuels, into alternative fuels?
You are doing research and development in that. You want to
move in that direction and get those accomplished.
But I think, Mr. Hofmeister, again, you said that--and I am
for that, too. I want to see us move away from gas and oil
eventually in the future, you know, towards renewable fuels. I
am for that. But we can't even do it immediately. I mean, in
the short term, you said 15 to 20 years to develop this
technology. And we need to do that.
I guess my question is I am for all of these renewables. I
am for alternative fuels. I think we need to move in that. But
basically you are saying that oil and gas are still going to be
very much a part of the equation as we move into this new
frontier of alternative fuels.
And all of you are willing to do that. All of you think
that is what we are trying to do. Would that be a fair
statement to say?
Mr. Hofmeister. I think it is important for the American
people to understand the scale of what is going on in the U.S.
economy. Ten thousand gallons of oil a second is consumed in
this country, 60 billion cubic feet of gas a day. If we stack
those cubic feet on top of each other, it would be from here to
the moon and back 25 times. Twenty rail cars of coal are burned
a minute in this country. This is every minute of every day and
every second of every day.
And so the scale of the massive amounts of hydrocarbons
that are consumed to support the world's largest economy and
one of the most creative and innovative economies is absolutely
necessary. And the demand for electricity continues to rise
across this country. We may see a dip in liquid fuel demand
because of prices currently and other economic factors, but to
be able to move to an alternative requires the technology to
make it possible to make it commercial.
What is slowing the movement to alternatives is the lack of
commerciality yet. In other words, people aren't making a
profit at it. People are investing in it, but they are not yet
making a profit.
As we get up larger scale, as we learn more up the maturity
curve, I think we will make a lot of money in alternative and
renewable energies. And the technology will be a propulsion
engine for the nation's economy in the future.
Mr. Simon. Congressman, I would want to support your
comment. When you look at our outlook, if you look at the
National Petroleum Council study, if you look at the IEA
outlook, oil and gas will continue to represent the dominant
source of energy, at least up through the year 2030. If you
look at total fossil fuels, including coal, about 80 percent.
That is where it is today.
I think when you look at any outlook in terms of the impact
of renewables, it is going to be very, very small, down in the
two percent, three percent range.
Mr. Sullivan. Well, I am from Oklahoma. And I remember when
I was in college in the 1980s. I remember a lot of people were
petroleum land management. They got out of it.
I know that I have seen people lose jobs. I have seen
people get out of this industry. I have seen it hurt my
community by people, the down turn by low oil prices. I
remember it was $9 a barrel, $16 a barrel. People panicked. The
state wasn't getting the revenues that they needed.
So you guys are making record profits right now, but have
you ever lost money? You have lost money, too. Would that be a
true statement? You have lost money.
Mr. Robertson. Yes. I mean, I was there and head of our
North American Division in 1999 when we closed the books and
our earnings were zero, zero for North America.
Mr. Sullivan. How does your equity investment rate of
return compare to other industries, for example? Have you ever
done any analysis on that?
Mr. Robertson. Well, as was I think already said, our
profits per dollar of sales, which is a typical way of looking
across industries, is about 8.3 cents per dollar sales. The
average for the U.S. is 7.8.
Mr. Sullivan. Another thing, if I could mention, how many
people domestically do each one of you employ? And do you offer
retirement benefits and then health insurance?
Mr. Hofmeister. At Shell, we have about 250,000 people who
have jobs because of Shell every day in America. We have about
25,000 working directly for Shell, but in our gas stations, our
Jiffy Lube stores, tens of thousands of additional people work.
Mr. Robertson. We have 27,000 Chevron employees in the
United States. The average worker, salaried worker, is about
$125,000 a year. The average hourly worker is about $75,000 a
year. They all have pension plans, and they all have health
plans.
Mr. Sullivan. Anyone else?
Mr. Simon. We have about 30. And I would echo what they
said in terms of if you look at the pension plan and the amount
paid.
Mr. Malone. Thirty-eight thousand and a multiple of roughly
four times contractors in support, a multiple even higher than
that, health care pension plans.
Mr. Lowe. Congressman, the point I would make is kind of
one of the points you are making. When I started working at
Phillips Petroleum Company in 1981, we had over 9,000 employees
in Bartlesville. We went through some rough times. In 1998, we
were down to 2,000 employees in Bartlesville. That was due to
tough times.
Mr. Sullivan. Thank you very much.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman.
With varying degrees of emphasis, each of you has indicated
that you have investments in renewable or energy-efficient
technology. What I would like to see is what your vision in the
long term and the short term is as your companies make up in
relation to oil versus alternative new energy technologies,
starting with Mr. Robertson.
Mr. Robertson. Well, you know, we are supportive of the
data that was in the National Petroleum Council study that
basically said in 2030, 85 percent of the world's energy would
still come from coal, oil, and gas. So we think we are probably
in a fossil fuel environment for some time.
We are spending something like--we are going to spend two
and a half billion dollars over the next two years in the area
of renewables and energy efficiency. And I think the biggest
opportunity--and we have been talking a lot about supply here.
And I know that the biggest opportunity for us, frankly, I
think, as a country and maybe as a world is in energy
efficiency and using energy more wisely. So I think that, you
know, the evidence from our company that goes around doing
these projects with public agencies is that we can get 30
percent reduction in use of energy from these projects.
Our own evidence inside our company, we are now 27 percent
more energy-efficient than we were 15 years ago. And most of
that time we were expecting oil to be $20 a barrel. So there is
an opportunity for us all to become a whole lot more energy-
efficient.
And, frankly, I still think the number one issue, the
number one thing that the--and the Congress did some things in
the last energy bill in terms of energy efficiency and
appliance standards and those things, but I think in terms of
leading the nation, leading the nation, towards becoming a set
of energy savers and becoming a--this being a scarce resource,
that is the biggest source of energy as far as I am concerned.
Mr. McNerney. Thank you, Mr. Robertson.
Mr. Hofmeister, do you think that we have reached a maximum
output possible of oil in historical terms? And if so, do you
believe that the Alaska and offshore resources would change
that peak oil timing at all?
Mr. Hofmeister. I do not subscribe at all to peak oil
theory. I think it is a theory that is based upon very narrow
assumptions. I think if you look at the National Petroleum
Council study, which has been referred to, or other studies
around the world, the idea of moving from 80 million, 85
million barrels of production today, which we do, to somewhere
near 110-115 million barrels a day is in the focus of most
international oil companies and do believe and certainly Shell
believes that the world can produce significantly more oil than
it does today, even while the focus is on other alternatives.
Mr. McNerney. So what is the bottleneck, then? Why are we
such a logjam to oil prices?
Mr. Hofmeister. I think that is an excellent question. I
think there are bottlenecks around the world where, for
example, within nations that are oil-exporting nations, where
national oil companies dominate, access from international oil
companies is limited in many cases.
I think the United States is probably the world's best
example of having lots of resources that are not permitted to
be developed. And so we are not able to go into 85 percent of
the outer continental shelf, for example.
Mr. McNerney. So you don't think that the Hubbard's results
are accurate or reflect reality?
Mr. Hofmeister. Not at all because, in addition to what I
have described in terms of what is out there, that theory makes
no remarks with respect to unconventional oil, such as oil
sands or oil shale.
Mr. McNerney. What do you think the makeup of your company
will be in terms of oil versus other alternatives?
Mr. Hofmeister. Well, we were part and parcel of the
National Petroleum Council study, as were other companies. And
I subscribe to the outcomes of that study that by 2030, we will
still be dominantly a hydrocarbon economy.
Mr. McNerney. All right. I am finished with my questions.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentlelady from Tennessee, Ms.
Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman. I am tempted to ask
for his extra time, but I won't.
I want to thank you all very much for being here. I am
struck by the fact that you have mentioned many times that we
have all made choices, our nation has made choices when it
comes to energy policy. And those choices have consequences.
And I think that some unwise choices 20-30 years ago are
yielding what we are seeing today.
And we need to realize that sometimes policy, we need to
take a long-term view. And I appreciate that you all are
willing to come here and sit down with us and begin to get our
hands around this problem and get this thing solved.
I want to just ask you a couple of quick things, but I want
to start with this. When a consumer buys a gallon of gas and
they are paying their $3.29 at the pump, we know that 69
percent of that is going to crude. And if anybody disagrees
with this, I want you to pipe up and tell me. We know that 13
percent of that is going for taxes and that 18 percent is there
to cover refining, distribution costs, and marketing. Does
anyone disagree with those percentages and allowances? [No
response.]
Ms. Blackburn. So would it be true that the government
actually makes the most as a single entity out of a gallon of
gas, that they are realizing the most? Mr. Simon.
Mr. Simon. That is correct.
Ms. Blackburn. That is correct? Okay. Because I think it is
so interesting that that is where a lot of the money goes and
that is affecting what we are paying at the pump.
I want to come back to a point that was also made about
comprehensive strategy because we have to find out how we are
going to deal with this. And I am going to borrow from you, Mr.
Hofmeister. I think you are exactly right: short-term, mid-
range, and long-term.
What I would like to hear from you is what you all are
doing in each of those categories. And I am not going to ask
for you to sit here and articulate anything right now because
we know some of the things that you are doing for alternatives
and for future. I would like to have this in the form of just
one sheet when we are talking with individuals.
You didn't cause all of this problem. Policy has caused
part of this problem. You all may be partly to blame. The House
and the Senate and the administration can all be partly to
blame in this. The problem is we weren't looking far enough
down the road early enough to address it. And, as I said, that
should have been a few years back.
We do need to work on something that is a comprehensive
strategy for this country that is going to consider supply,
demand, that takes into account a global marketplace, takes
into account that you all are dealing with companies that are
owned by governments, that are not independently owned.
So I am going to ask you all to submit that to us, what you
are doing that you think will give us the greatest impact in
the short term, where your mid-range focus is as we look toward
2030 and we look toward our fossil fuel needs moving toward
2030, what you are doing there, the policies that would help us
with that and then long term the policies and the actions that
we can take that create the environment for you to do your
best. I would like to hear that.
And then my last question that I wanted to touch on,
windfall profits tax, like the ones that were proposed last
year, how would that affect your bottom line? And what would it
do to fuel prices? Mr. Malone, I will start with you. And let's
just work down the line.
Mr. Malone. Well, we are investing dollar for dollar in
this country. So you take a dollar more in taxes. It is going
to be a dollar left available for investment.
Ms. Blackburn. Very good.
Mr. Lowe.
Mr. Lowe. Yes, same for us.
Ms. Blackburn. Same?
Mr. Lowe. It just reduces the amount of supply.
Ms. Blackburn. Okay.
Mr. Robertson. I think what this Committee is after is
increasing supply of energy, not reducing. I think that would
reduce it.
Ms. Blackburn. Okay.
Mr. Hofmeister. I think windfall profits were tried before.
And it has resulted in some of what the problem is we face
today: lack of supply. And I would also say we are dollar for
dollar in the United States.
Ms. Blackburn. Mr. Simon.
Mr. Simon. I would say the same. The policy if you tax
something, you are going to get less of it.
Ms. Blackburn. Okay. And, Mr. Simon, I want to clarify one
thing. In your testimony, you said from '03 to '07, your
earnings grew by 89 percent, but your income taxes grew by 170
percent. Over the last 5 years, ExxonMobil's U.S. total tax
bill exceeded your U.S. earnings by $19 billion.
Mr. Simon. That is correct.
Ms. Blackburn. That is correct?
Mr. Simon. That is correct.
Ms. Blackburn. Okay. Thank you, sir.
Mr. Chairman, thank you. I yield back.
The Chairman. Great. The gentlelady's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Solis.
Ms. Solis. Thank you.
I have been listening attentively to many of your
statements regarding different investments that you all have
made. And I want to particularly commend BP, Mr. Malone,
because I had an opportunity on a visit with this Select
Committee. We visited the Chancellor Merkel and some folks,
some business folks, out there and had a very extensive
discussion with your representative about solar panels and
investments here in the United States and collaboratives that
you have with universities. And it seems to me that you made an
investment a long time ago, maybe a decade ago, that you were
going to address this issue of green gases and how
CO2 is affecting our entire environment.
I failed to understand why your other colleagues haven't
been able to maybe come up to speed in that same vein. And I
wonder what led you, then, to make those kinds of decisions, to
make those investments because you are a global market.
Obviously your tentacles are everywhere but especially in
the EU. And because there are dramatic changes occurring there
with governments, I think that has, in my opinion, given you
the impetus to do more.
So if you could just touch on that? Because what I am
trying to sense here is that we are not doing enough to create
an incentive so that your other colleagues would do the same.
But I see that happening in Europe. Tell me what you see.
Mr. Malone. Well, just a couple of comments. Yes, early on,
my company--although the science was incomplete, we made the
policy decision that we could not take the risk with global
warming while we are waiting for science to settle. And that
was our decision seven years ago. What we have been asked----
Ms. Solis. Would you put a price on that risk at that time?
Was there a risk factor there----
Mr. Malone. No.
Ms. Solis [continuing]. For you to fail?
Mr. Malone. No.
Ms. Solis. No?
Mr. Malone. No.
Ms. Solis. Okay.
Mr. Malone. No. But we knew that we were in the carbon
business. And we knew that our business emits greenhouse gases
and that we needed to start. And we implemented--a number of
things have been referenced here internally.
I think the important thing, though, there is a missing
link now. We are seven years down the road. And we still don't
have any way to price and market carbon in this country. So,
even though you can do some things internally, we are now faced
with these refineries we are talking about with greenhouse gas
emission increases of CO2. And if you can't
sequester it, there is no market mechanism for us to be able to
move forward.
So seven years later, we do have the ability to have acted
on a piece of legislation. And we are hoping to be a part of
that.
Ms. Solis. Okay. One of my other concerns is that most of
you here talked about the barriers that federal government or
maybe even local government has put up roadblocks for you to
develop those current leases that you have. Could you tell me
specifically why you have not been able to develop those leases
that you currently have that have about 80 percent of the oil,
the U.S. oil, that is available? And I will go to Mr. Simon.
Mr. Simon. I don't know of any that we are not developing.
Those that we already have access to, developing in as rapid a
fashion as we can.
Ms. Solis. Go on to the next.
Mr. Hofmeister. Leases are generally a ten-year time
horizon. And during that period of time, we are continuously
evaluating where we can best use our technology and science to
develop those leases.
Sometimes ten years isn't long enough because of the
tremendous capital expenditure that is necessary. For example,
in the Gulf of Mexico, it is easily a billion dollars now for a
major deep water project in just one lease.
Ms. Solis. But then how do you explain your record profits
that are well over one billion----
Mr. Hofmeister. Well, the profits----
Ms. Solis [continuing]. That can't be redirected in some
way or apportioned?
Mr. Hofmeister. The profits are cumulative around the
world, but in the case of, let's say, the Gulf of Mexico, we
are limited by the amount of manpower that we have. We don't
have the kind of human resource that can do all of the leases
simultaneously. And so we do----
Ms. Solis. So the obstacle isn't from the federal
government. It is a market obstacle. That is your obstacle.
Mr. Hofmeister. The federal government's obstacle has been
to prohibit the granting of leases in the outer continental
shelf more broadly. Had we had the confidence that we could do
more leasing, we would be scaling up our operations to go after
more leases.
Mr. Robertson. I am not sure whether there is a
misunderstanding here, but certainly all the leases that we
have--that we have spent money on with the government--we are
working on and trying to develop.
And obviously we work the biggest prospects. I mean, once
you get a lease, then you do some work on it. You do some
seismic work. You do some drilling. And you see which ones are
the best to develop. And we develop them. After a period of
time----
Ms. Solis. But there are different stages of that
development.
Mr. Robertson. Yes, but after a period of time----
Ms. Solis. And not all of them are----
Mr. Robertson. After a period of time----
Ms. Solis. The spigot isn't open on all of them is what I
am trying to get at.
Mr. Robertson. After a period of time if we don't do
something, we have to turn it back to the government. So we are
working on the leases.
You asked another question about so many years ago. Twenty
years ago Chevron started developing geothermal energy in
California. Today Chevron is the largest geothermal energy
company in the world. It is still relatively small in the scale
of the world's energy business, but it is 1,200 megawatts of
power.
So I think we have been doing this for many, many years.
Ms. Solis. Mr. Chairman, could I just ask----
Mr. Robertson. It makes a difference.
Ms. Solis [continuing]. If we could get from the witnesses
a listing of those current leases and at what stage they are at
so I have a better understanding of what is in existence, what
is being utilized, and what isn't?
The Chairman. Okay. The gentlelady has propounded that
request. Would the witnesses at the table be willing to----
Mr. Lowe. A short example, when lease acreage has become
available; for example, two Gulf of Mexico deep water lease
rounds last fall, a recent Chukchi Sea lease round off Alaska--
ConocoPhillips has been high bidder on a billion dollars for
those leases. So we are starved for access. Access really is
the issue.
The Chairman. We would ask for that information to be
provided for the record to the Committee.
The gentlelady's time has expired.
The gentleman from Oklahoma. For what purpose does the
gentleman seek recognition?
Mr. Sullivan. Mr. Chairman, I would like to ask unanimous
consent to enter the National Petroleum Council's book, ``The
Hard Truths About Energy.'' If I could submit this?
The Chairman. Without objection, it will be included in the
record.
[The book offered by Mr. Sullivan follows:]
Mr. Sullivan. Thank you, sir.
The Chairman. Thank the gentleman.
The Chair recognizes the gentlelady from South Dakota, Ms.
Herseth Sandlin.
Ms. Herseth Sandlin. Thank you, Mr. Chairman.
On March 24th, Patrick Barta wrote in the Wall Street
Journal that ``Without biofuels, oil prices would be even
higher'' than they are now. His report cited Francisco Blanch
at Merrill Lynch as observing that, according to the piece,
``oil and gasoline prices would be about 15 percent higher if
biofuel producers weren't increasing their output,'' meaning
oil would be priced above $115 per barrel.
Do each of you agree with Blanch's analysis, ``Yes'' or
``No''? And if not, why not?
Mr. Lowe. I think there is an argument there. Roughly five
percent of liquid fuels are now ethanol in this country, some
small amounts of biodiesel. I think there would be some impact,
but I don't know that it would be 15 percent.
Mr. Robertson. I think any amount of additional energy in
the world will directly lower prices. So more oil would lower
prices. More gas would lower prices, more coal, more biofuels.
So I have no doubt that it has some marginal effect. I would be
very surprised if it is as big as you suggest.
Mr. Lowe. Certainly directionally I would agree. That is
why we need all forms of energy.
Mr. Malone. I would agree.
Mr. Simon. I would just point out I think you have got to
look at the cost associated with producing biofuels versus
gasoline out of crude. If you look at $5 per bushel of corn
price today and $100 per barrel crude, the production cost of
biofuels is about $3.15 a gallon. And crude is $2.70. So it is
hard for me to see how that would have a positive impact in
terms of the price of gasoline that people pay in terms of the
biofuels there.
Ms. Herseth Sandlin. So you don't agree, Mr. Simon, that it
has any impact whatsoever in light of what you claim to be the
production cost of corn ethanol today?
Mr. Simon. I think we have got to be careful if you think
you are lowering the price that the consumer pays at the pump
by mandating a higher cost liquid fuel that goes into
producing----
Ms. Herseth Sandlin. Right. I understand you probably have
been opposed to the renewable fuels standard either, the one
that we included in the 2005 Act or even the one that we
recently passed. Is that correct, Mr. Simon?
Mr. Simon. Our corporation does not think that mandates and
subsidies are the right approach.
Ms. Herseth Sandlin. What is the percentage of ethanol that
ExxonMobil blends in U.S. gasoline today?
Mr. Simon. Today we blend about eight percent.
Ms. Herseth Sandlin. Eight percent. And so you would be
blending that, even if there wasn't a renewable fuels standard?
Mr. Simon. No, that is not correct. I think if there were
not a renewable fuel standard, it would be lower than that.
Ms. Herseth Sandlin. And do any of your companies support
higher ethanol blends beyond E10 in light of recent studies
that suggest a blend of 20 percent and even 30 percent ethanol
increased fuel efficiency and do not pose any types of damage,
corrosive damage, to the vehicles, as some have suggested?
Mr. Robertson. Well, to start with, we are working in
California to get the limit raised from 5.7 percent, which is
today's limit in California because of environmental
restrictions, to 10 percent. So that is the first place we have
got to go.
I do believe that going over ten percent in the nation
would stretch the food system to the point that you don't want
to go any further. So we have the first generation, second
generation ethanol from cellulosic conversion. And we are
working as hard as we know how to generate that kind of
technology and to produce that kind of stuff.
So going beyond ten percent across the country would not
work in today's environment.
Ms. Herseth Sandlin. You mentioned the impact on food
prices. And I think that there was perhaps some suggestion of
this, Mr. Simon, in a comment you made in your opening
statement about developing renewable fuels and leading to
unintended consequences.
Mr. Simon. Yes.
Ms. Herseth Sandlin. Do any of you have any independent
analysis that you can share with the Committee that it has been
the cost of the price per bushel of corn or wheat that has
directly led to the increase in food prices and what percentage
that constitutes versus energy costs associated with processing
or transporting the food?
Mr. Robertson. I do not that I am aware of.
Ms. Herseth Sandlin. None of you have any independent
analysis to make that claim?
Mr. Simon. I think there have been independent studies done
in that regard, but we certainly don't have them.
Ms. Herseth Sandlin. Okay. But you tend to cite----
Mr. Simon. I believe based on all that I have read from
lots of different places that the price of food has been
impacted by the requirement to turn a lot of corn into ethanol.
Ms. Herseth Sandlin. And would you also agree with the
statement, though, that the price of food is also affected by
increased energy costs?
Mr. Simon. Sure.
Ms. Herseth Sandlin. But you haven't done any independent
analysis that would break down the percentages associated with
energy versus other commodities?
Mr. Simon. I have not.
Ms. Herseth Sandlin. Okay. Well, my time is up. So I will
yield the remainder of my time. Thank you, Mr. Chairman.
The Chairman. Okay.
Ms. Herseth Sandlin. Oh, one last question. Are any of the
other four companies, other than ConnocoPhillips, test
marketing E85 or biodiesel?
Mr. Hofmeister. Yes. Shell has a test market in Chicago
where we are looking at consumer acceptance of the product.
Mr. Robertson. We have got a test going with the State of
California with several hundred vehicles that are running on
E85. And we sell E85 at a very small number of service stations
around the country.
Mr. Simon. We have E85 at only about 30 service stations.
Mr. Malone. We have limited E85. We are waiting on some
pump approvals. But we do have it under the canopy now.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from New York State, Mr.
Hall.
Mr. Hall. Thank you, Mr. Chairman. And forgive me if my
questions were already asked by somebody. I was across the
street at another hearing.
I wanted, first of all, to comment on my colleague and my
friend from Tennessee, who is no longer here, Ms. Blackburn's
statement that the actions of Congress so far on energy have
not gotten results. And I would just point out that, as I
understand it, the attempt by the House to take back the $14
billion the previous Congress had given in tax breaks to oil
companies has not passed the other body or been signed by the
President. So that has no effect on what is going on.
And, secondly, the energy bill we passed with the CAFE
standards increased was signed in December, just a couple of
months ago. And, therefore, we are looking at 2020 before that
goal is supposed to be reached. So one couldn't reasonably
expect that that action would already be doing much visibly.
Here is a question. I have got a constituent who called one
of our offices in Carmel, New York and said, ``I just bought
myself a flex fuel vehicle. Where can I get some flex fuel?''
And our staff had to disappoint her by telling her that, to our
knowledge, there were only two pumps in New York at the time
selling E85.
And the question is, to the extent that you have stations?
I understand many gas stations are independently operated, but
many others are run under the flag of your companies.
Could you or would you have a policy or make a commitment
to have at least one biofuel pump at each gas station? And if
not, why not? Forgive me if you have already answered that
question but maybe Mr. Simon and then down the row.
Mr. Hall. No, I would not make that commitment. We don't
make a biofuel. Therefore, we cannot warranty it. And,
therefore, we would not want to sell it under our brand. We do
not deny our dealers the right to do so, but they simply cannot
do that under our brand.
Mr. Hall. Okay. Thank you very much.
Mr. Hofmeister.
Mr. Hofmeister. I mentioned a few minutes ago that we do
have a pilot project at company-owned stations in Chicago in
which we are testing the market acceptance of E85. I must say
that the results are very poor to date from a consumer
acceptance standpoint.
But we do not prohibit our independent dealers and
franchisees across the nation from making a decision to put a
pump on their site.
Mr. Hall. Thank you very much. I am sorry for cutting you
off. I just have a short time here.
Mr. Robertson. Yes. I mean, the----
Mr. Hall. Same?
Mr. Robertson. The vast majority of service stations in the
United States flying a Chevron flag are independently owned.
Mr. Hall. Right.
Mr. Robertson. They are entitled to put in----
Mr. Hall. If they want, they can do it?
Mr. Robertson [continuing]. A fuel pump if they want. They
have to make sure that it doesn't interfere with the brand, but
they can do that. And some have.
Mr. Hall. Okay.
Mr. Lowe. Yes.
Mr. Hall. Mr. Lowe.
Mr. Lowe. ConnocoPhillips is test marketing E85.
Potentially we have identified over 2,500 sites. But, as Mr.
Hofmeister noted, so far the consumer acceptance hasn't been
very----
Mr. Hall. And, Mr. Malone.
Mr. Malone. We do have sites that are non-BP-owned that
have E85. We don't prohibit it. We are very concerned, though,
about the UL listing on the pump.
Mr. Hall. Right. Okay. Diesel obviously is a different
kettle of fish. I mean, I am burning similar fuel, burning 20
percent biodiesel in my home heating oil. And it doesn't seem
to require an adjustment to the system. I have friends who have
driven off-the-lot diesel vehicles made in America that were
driven actually on 100 percent biodiesel from wood in this
particular instance.
I wanted to ask if you--I am sure you are all familiar with
the Fischer-Tropsch reaction and the use by the Nazis during
World War II to make liquid fuels from coal. There have been
some studies recently showing that this can be done taking
carbon dioxide from the air and especially in parts of the
country where there is nearly constant sunshine or nearly
constant wind to use renewables as the driver for this process.
Are you aware of this or is this among the things that any
of you are studying? Mr. Hofmeister, maybe you would go first
on that.
Mr. Hofmeister. Our work thus far has been on solid
materials, not gaseous materials other than natural gas, which
we are turning into a liquid form for fuel purposes.
Mr. Robertson. Well, we have a global joint venture with
Sasol of South Africa, who have been the main users of Fischer-
Tropsch technology. And we are building a gas-to-liquids plant
using Fischer-Tropsch technology. But I am not aware of a
system that can take carbon dioxide out of the air if that is
what you were saying.
Mr. Hall. It might be worth looking into. And it would be a
huge public relations boon not to mention, I think, a
moneymaker for you.
And the last question I guess I would ask you because it is
amazing how fast five minutes run out, I wanted to ask you if I
could be imprecise here, if you are making, say, $2 gazillion
of profit in a given time period, would you consider using half
a gazillion or a quarter of a gazillion or whatever, however
much of your advertising budget.
Now that a number of you have said conservation is
important, demand management is important, would you as a
patriotic move and for the good of I think all of us in the
United States, certainly our national security, use some piece
of your advertising budget to tell people that they should
conserve, that it is patriotic to conserve and that it is
certainly good for----
Mr. Hofmeister. Shell does that in all of its 14,000
branded stations across the country currently.
Mr. Robertson. I think if you have been looking at Chevron
advertising, you see a lot of our conservation but absolutely.
Mr. Lowe. Yes, we are already doing it.
Mr. Malone. We are already doing it.
Mr. Simon. We are a strong proponent of using our products
more efficiently and work hard to educate the public in that
regard.
Mr. Hall. I will be looking for that advertising more.
Thank you.
Thank you, Mr. Chairman.
The Chairman. Okay. The gentleman's time has expired. And
all time for questions by the members of the Select Committee
has expired. But Mr. Stupak has been waiting for 2 hours and 40
minutes to ask questions. And Ms. Jackson-Lee has been a more
recent arrival. But out of courtesy to them, I make a unanimous
consent request that they be allowed as guests of the Select
Committee to ask questions of the witnesses who are testifying
before us today.
Mr. Sensenbrenner. Mr. Chairman, reserving the right to
object, I am not sure that a committee can by unanimous consent
suspend a House rule that applies to the Committee. And I am
looking specifically at House rule 11(2)(g)(ii)(c), which says
that other members are welcome at committees but in a non-
participatory manner.
And I would ask the Chair to withdraw the unanimous consent
request because I don't think that it is proper and in
compliance with the rules to waive a House rule in a committee.
The Chairman. Well, if the gentleman would yield----
Mr. Sensenbrenner. I yield.
The Chairman [continuing]. Under House custom, any one of
its rules can be waived by unanimous consent. And, again, I
remake that proposal to the members of the Committee----
Mr. Sensenbrenner. Well----
The Chairman [continuing]. That we waive the rule by
unanimous consent.
Mr. Sensenbrenner. Well, reclaiming my time, I don't think
that we can waive a House rule in committee. I think that that
requires an action by the House, largely through the Rules
Committee. So I object.
The Chairman. The Chair hears an objection. And, as a
result, the Chair is constrained by that objection to recognize
the guests of the Committee.
Mr. Stupak. Jim, if you were going to object, why didn't
you tell us three hours ago?
Mr. Sensenbrenner. Well, I move to strike the last word. I
did not know that there would be this request that would be
made. It was not cleared with the minority.
The Chairman. I apologize to the gentleman from Michigan. I
appreciate the----
Mr. Stupak. No apologies necessary. What goes around comes
around.
The Chairman [continuing]. Position that the gentleman has
been----
Ms. Jackson Lee. I thank you for extending the offer, Mr.
Chairman. It is an important issue. And we are here for that
reason. I was here starting from 1:00 p.m. Thank you.
The Chairman. Thank the gentlelady.
So we have reached the conclusion of this hearing. I would
say to the oil company executives that, as President Kennedy
used to say, to those whom much is given much is expected.
There has been a windfall of revenues, which has fallen to the
oil companies represented here over the last several years. It
is highly likely to continue this year and into the indefinite
future.
I think that with that great opportunity that you have been
given, there is a responsibility that you have to discharge. As
I asked earlier, there should be a commitment that each of you
make. I would recommend that it be ten percent of your profits
go into renewable energy projects.
We will not be able to solve this global climate challenge
unless you do so. You are the leading energy companies in our
country and in the world. We cannot solve this problem without
your full participation.
And, similarly, consumers will not be able to deal with
this issue without your focused attention upon them. The
poorest, the working class are going to be devastated. They
will have to choose between heating and eating. We are reaching
that point in our country. And it is your responsibility to
deal with this issue in a responsible fashion.
To the extent to which you don't have to take all of this
as profit and you can lower your prices, I think you should do
so. To the extent to which you can deal with this as an issue
of speculation in the marketplace and you can support the
deployment of the strategic petroleum reserve, which I
recommend as a way of piercing this speculative bubble, I
recommend that you take that position.
I recommend that you take any position that helps the
consumer and that will help this renewable energy revolution.
But that is up to you. But all I can tell you is--and I can
predict this with a guarantee--that this is the first of many
hearings that you are going to have this year before the
Congress.
My father always said try to start out where you are going
to be forced to wind up anyway. And so I am asking you each to
deal with that issue of the amount of your profits that you put
into renewable energy resources this years and for every
subsequent year and to also deal with this issue of how it is
going to affect blue collar and poor citizens of our country.
We thank you each for your testimony here before us today.
And, with that, this hearing is adjourned.
[Whereupon, at 2:46 p.m., the foregoing matter was
concluded.]