[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




                          HARNESSING AMERICAN
                       RESOURCES TO CREATE JOBS
                       & ADDRESS RISING GASOLINE
                      PRICES: DOMESTIC RESOURCES
                         AND ECONOMIC IMPACTS

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

                           OVERSIGHT HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                        Thursday, March 17, 2011

                               __________

                           Serial No. 112-12

                               __________

       Printed for the use of the Committee on Natural Resources









         Available via the World Wide Web: http://www.fdsys.gov
                                   or
          Committee address: http://naturalresources.house.gov


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                     COMMITTEE ON NATURAL RESOURCES

                       DOC HASTINGS, WA, Chairman
             EDWARD J. MARKEY, MA, Ranking Democrat Member

Don Young, AK                        Dale E. Kildee, MI
John J. Duncan, Jr., TN              Peter A. DeFazio, OR
Louie Gohmert, TX                    Eni F.H. Faleomavaega, AS
Rob Bishop, UT                       Frank Pallone, Jr., NJ
Doug Lamborn, CO                     Grace F. Napolitano, CA
Robert J. Wittman, VA                Rush D. Holt, NJ
Paul C. Broun, GA                    Raul M. Grijalva, AZ
John Fleming, LA                     Madeleine Z. Bordallo, GU
Mike Coffman, CO                     Jim Costa, CA
Tom McClintock, CA                   Dan Boren, OK
Glenn Thompson, PA                   Gregorio Kilili Camacho Sablan, 
Jeff Denham, CA                          CNMI
Dan Benishek, MI                     Martin Heinrich, NM
David Rivera, FL                     Ben Ray Lujan, NM
Jeff Duncan, SC                      John P. Sarbanes, MD
Scott R. Tipton, CO                  Betty Sutton, OH
Paul A. Gosar, AZ                    Niki Tsongas, MA
Raul R. Labrador, ID                 Pedro R. Pierluisi, PR
Kristi L. Noem, SD                   John Garamendi, CA
Steve Southerland II, FL             Colleen W. Hanabusa, HI
Bill Flores, TX                      Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Charles J. ``Chuck'' Fleischmann, 
    TN
Jon Runyan, NJ
Bill Johnson, OH

                       Todd Young, Chief of Staff
                      Lisa Pittman, Chief Counsel
                Jeffrey Duncan, Democrat Staff Director
                   Rick Healy, Democrat Chief Counsel
                                 ------                                











                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Thursday, March 17, 2011.........................     1

Statement of Members:
    Hastings, Hon. Doc, a Representative in Congress from the 
      State of Washington........................................     1
        Prepared statement of....................................     3
    Markey, Hon. Edward J., a Representative in Congress from the 
      State of Massachusetts, Prepared statement of..............    28
        Prepared statement of....................................    85

Statement of Witnesses:
    Caruso, Guy, Senior Advisor, Energy and National Security, 
      Center for Strategic and International Studies.............    41
        Prepared statement of....................................    42
    Foss, Michelle Michot, Ph.D., Chief Energy Economist, 
      University of Texas........................................    29
        Prepared statement of....................................    31
    Newell, Hon. Richard G., Administrator, Energy Information 
      Administration, U.S. Department of Energy..................     4
        Prepared statement of....................................     6
    Pierce, Brenda S., Program Coordinator, Energy Resources 
      Program, U.S. Geological Survey, U.S. Department of the 
      Interior...................................................    13
        Prepared statement of....................................    14
    Rusco, Frank, Director, Natural Resources and Environment, 
      U.S. Government Accountability Office......................    44
        Prepared statement of....................................    46
        Highlights of testimony..................................    51
    Whitney, Gene, Ph.D., Energy Research Manager, Congressional 
      Research Service...........................................    18
        Prepared statement of....................................    20
                                     


 
OVERSIGHT HEARING ON ``HARNESSING AMERICAN RESOURCES TO CREATE JOBS AND 
    ADDRESS RISING GASOLINE PRICES: DOMESTIC RESOURCES AND ECONOMIC 
                               IMPACTS.''

                              ----------                              


                        Thursday, March 17, 2011

                     U.S. House of Representatives

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              


    The Committee met, pursuant to call, at 10:02 a.m. in Room 
1324, Longworth House Office Building, Hon. Doc Hastings, 
[Chairman of the Committee] presiding.
    Present: Representatives Hastings, Bishop, Lamborn, 
Wittman, Broun, Fleming, Thompson, Denham, Rivera, Duncan of 
South Carolina, Tipton, Gosar, Southerland, Flores, Harris, 
Landry, Fleischmann, Johnson, Markey, Kildee, DeFazio, Holt, 
Bordallo, Costa, Sutton, and Hanabusa.

 STATEMENT OF HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WASHINGTON

    The Chairman. The Committee will come to order. The Chair 
announces the presence of a quorum. Today, the Committee on 
Natural Resources is meeting to hear testimony on Harnessing 
American Resources to Create Jobs, and Address Rising Gasoline 
Prices: Domestic Resources and Economic Impacts.
    Under Rule 4[f], opening statements are limited to the 
Chairman and the Ranking Member of the Committee, so that we 
can hear from our witnesses more quickly. So I ask for 
unanimous consent that any Member that desires to have an 
opening statement in the record shall be granted, and without 
objection, so ordered.
    The Chair will recognize himself for an opening statement. 
Every American is feeling the pain from rising gasoline prices. 
There is no escaping it. It costs more to drive to work, and it 
costs more to run errands. It costs more to take the kids to 
school.
    Even those who do not own a car are paying more for 
groceries and other goods because of the transportation costs 
to get products to market. The Natural Resources Committee has 
jurisdiction over all Federal lands, both onshore and offshore.
    This is where the majority of America's energy reserves are 
located, and also where the Obama Administration has done the 
most to block energy production. The purpose of today's hearing 
is to examine how to harness these energy resources on Federal 
lands to help create jobs and address the issue of rising 
gasoline prices.
    A recent report from the Congressional Research Service 
detailed just how large our energy reserves are in the United 
States. Our combined recoverable oil, natural gas, and coal 
resources total 1.3 trillion barrels of oil equivalent, the 
largest in the world, more than Saudi Arabia, China, and Iran.
    And this figure does not even account for our vast oil 
shale reserves in the West, which the United States Geological 
Survey estimates to be greater than one-and-a-half trillion 
barrels of oil.
    The best way for the United States to insulate itself long 
term from unpredictable world events and rising gasoline prices 
is to produce more energy here at home.
    We have the resources to produce our own energy, and we 
have the best and latest technology to accomplish this safely, 
but for some baffling reason, this Administration is choosing 
not to do so.
    Since the President's earliest days in office, his 
Administration has blocked, delayed, hindered, and obstructed 
energy production across America, from coast to coast, onshore 
and offshore, all the way to Alaska.
    This Administration has canceled leases in Utah, delayed 
oil shale production in Colorado, imposed a de facto moratorium 
on the Gulf of Mexico, blocked offshore energy on both the 
Atlantic and Pacific coasts, retroactively withdrew a permit 
for a coal mine in West Virginia, blocked energy production on 
tribal lands throughout the country, and impeded both onshore 
and offshore production in Alaska, and the list goes on and on.
    All of these actions cost American jobs and lead to higher 
gasoline and energy costs. Incredibly, the President and the 
White House have been telling a very different story, but their 
rhetoric does not match reality.
    The White House has even been touting statistics on 
increased United States oil production, but they are trying to 
claim credit for actions that took place long before President 
Obama took office.
    An increase in oil production today is the result of pro-
energy policies of previous Administrations, not this one. Less 
production, higher gasoline prices, jobs being shipped 
overseas, and deeper dependence on foreign countries, these are 
the real results of this Administration's policies.
    I am a firm believer in expanding all types of American 
energy, from solar and wind, to hydro and biomass. However, 
oil, natural gas, and coal are integral parts of our daily 
lives, and are used for far more than just fuel and 
transportation.
    They enable millions of Americans to heat their homes in 
the winter. They are essential ingredients in producing 
plastics, tires, farm fertilizers, computers, and other high-
tech devices, even Blackberries and iPhones that Members and 
staff can never seem to put down, are in this category.
    I announced yesterday my intention to introduce bills that 
will help produce more energy by putting people in the Gulf 
back to work, and reversing this President's offshore drilling 
ban.
    These will be the first of several bills that will be 
introduced. We are working on an array of specific proposals 
that will be introduced as part of the American Energy 
Initiative.
    So really it all comes down to one very simple choice. Do 
we want to produce our energy here in America, and create 
American jobs, or do we want to jeopardize our national 
security by deepening our reliance on foreign countries for 
energy? To me, the answer is not a difficult one.
    So with that, since I see that the Minority, and some of 
their Members are not here, and in fact, I now know why. The 
Ranking Member is on the Floor of the House, I see, and so 
modern innovations allow me to see that. You don't see it, but 
I see it.
    And so when he comes back, we will give him the opportunity 
to make his statement. I am advised that we are going to have 
votes here in as short as 10 minutes. That happens in this 
process, but I want to call the first panel, and I see that 
they are seated.
    We have The Honorable Richard G. Newell, Administrator of 
the United States Energy Information Administration; Ms. Brenda 
Pierce, who is the Energy Resources Program Coordinator for the 
United States Geological Survey; Mr. Gene Whitney, Manager of 
Energy Research, Congressional Research Service; Dr. Michelle 
Foss, Chief Energy Economist, Center for Energy Economics, 
Bureau of Economic Geology, Jackson School of Geosciences, 
University of Texas; Mr. Guy Caruso, Senior Advisor, Energy and 
National Security Center for Strategic and International 
Studies; and Mr. Frank Rusco, Director, Natural Resources and 
Environment, Government Accountability office.
    So we will proceed with our panel right now, and I would 
like to recognize Richard Newell. And I might mention that 
under the rules that we have here, we have a timing mechanism 
there.
    Your full statement will appear in the record, but I would 
like to ask you if you would keep your oral testimony to five 
minutes. When the green light is on, it means that you have up 
to four minutes. When the yellow light goes on, there is one 
minute, and when the red light goes on, I would ask you to 
close up your remarks if you could. So, Mr. Newell, you are 
recognized for five minutes.
    [The prepared statement of Chairman Hastings follows:]

          Statement of The Honorable Doc Hastings, Chairman, 
                     Committee on Natural Resources

    Every American is feeling the pain from rising gasoline prices. 
There's no escaping it.
    It costs more to drive to work, costs more to run errands, and 
costs more to take the kids to school. Even those who don't own a car 
end up paying more for groceries and other goods because of 
transportation costs to get products to market.
    The Natural Resources Committee has jurisdiction over all federal 
lands--both onshore and offshore. This is where the majority of 
America's energy reserves are located and also where the Obama 
Administration has done the most to block American energy production.
    The purpose of today's hearing is to examine how to harness these 
energy resources on federal lands to help create jobs and address 
rising gasoline prices.
    A recent report from the Congressional Research Service detailed 
just how large our energy reserves are in the United States. Our 
combined recoverable oil, natural gas, and coal resources total 1.3 
trillion barrels of oil equivalent--the largest in the world. More than 
Saudi Arabia, China and Iran.
    And this figure doesn't even account for our vast oil shale 
reserves in the West, which the U.S. Geological Survey estimates could 
be greater than 1.5 trillion barrels of oil.
    The best way for the United States to insulate ourselves long-term 
from unpredictable world events and rising gasoline prices is to 
produce more American energy here at home.
    We have the resources to produce our own energy and we have the 
best and latest technology to accomplish it safely. But, for some 
baffling reason this Administration is choosing not to do so.
    Since the President's earliest days in office, his Administration 
has blocked, delayed, hindered and obstructed energy production across 
America--from coast to coast, onshore and offshore, and all the way up 
to Alaska.
    This Administration has canceled lease sales in Utah, delayed oil 
shale production in Colorado, imposed a de facto moratorium in the Gulf 
of Mexico, blocked both the Atlantic and Pacific coasts from offshore 
energy production, retroactively withdrew a permit for a coal mine in 
West Virginia, blocked energy production on tribal lands throughout the 
country and impeded both onshore and offshore production in Alaska. The 
list goes on and on...
    All of these actions cost American jobs and lead to higher gasoline 
and energy prices.
    The President and the White House have been telling a very 
different story. But their rhetoric doesn't match reality.
    The White House has even been touting statistics on increased U.S. 
oil production. But they are trying to claim credit for actions that 
took place long before President Obama took office. An increase in oil 
production today is the result of the pro-energy policies of previous 
Administrations, not this one.
    The Obama Administration's energy policies are moving us backwards. 
This is why future projections show a decline in U.S. production and an 
increase in imports.
    The Energy Information Administration's projections show total U.S. 
crude oil production declining by 110 thousand barrels per day in 2011 
and 130 thousand barrels per day in 2012.
    Less production, higher gasoline prices, jobs being shipped 
overseas and deeper dependence on foreign countries--those are the real 
results of the Obama Administration's energy policies.
    I'm a firm believer in expanding all types of American energy--
everything from solar and wind, to hydropower and biomass. However, 
oil, natural gas and coal are integral parts of our daily lives and are 
used for far more than just fuel and transportation. They enable 
millions of American to heat their homes in winter. They are essential 
ingredients in producing plastics, tires, farm fertilizers, computers 
and other high-tech devices. Even the Blackberries and iPhones that 
Members and staff can never seem to put down belong in this category.
    I announced yesterday my intention to introduce bills that will 
help produce more American energy by putting people in the Gulf back to 
work and reversing the President's offshore drilling ban.
    These will be the first of several bills. We are working on an 
array of specific proposals that will be introduced as part of the 
American Energy Initiative.
    So, it all comes down to one very simple choice: Do we want to 
produce our energy here in America and create American jobs in the 
process, or do we want to jeopardize our national security by deepening 
our reliance on foreign countries for energy? The answer is not a 
difficult one.
                                 ______
                                 

  STATEMENT OF HON. RICHARD G. NEWELL, ADMINISTRATOR, UNITED 
    STATES ENERGY INFORMATION ADMINISTRATION, UNITED STATES 
                      DEPARTMENT OF ENERGY

    Mr. Newell. Thank you, Mr. Chairman. I appreciate the 
opportunity to appear before you and the Committee today. The 
Energy Information Administration is the statistical and 
analytical agency within the United States Department of 
Energy. EIA does not promote or take positions on policy 
issues, and has independence with respect to the information 
and analysis that we provide.
    Therefore, our views should not be construed as 
representing those of the Department of Energy, or other 
Federal agencies. Starting with the near term for oil and 
gasoline markets, EIA expects continued tightening of world oil 
markets over the next two years, particularly in light of 
recent events in North Africa and the Middle East, the world's 
largest oil producing region.
    Our latest forecast issued earlier this month projects that 
regular gasoline at the retail pump will average $3.70 per 
gallon this summer, and $3.56 per gallon for the entire year, 
which is about 77 cents per gallon higher than last year's 
level.
    There is significant regional variation in gasoline prices, 
and there is also significant uncertainty surrounding these 
forecasts as discussed in my written testimony.
    In considering how energy markets might be affected by the 
issues being considered in this hearing, it is important to 
recognize important differences in the markets for oil and 
natural gas.
    The prices of oil and gasoline produced from it generally 
reflect conditions on the world oil market, including the 
global balance between supply and demand, and concerns related 
to actual and potential supply disruptions.
    In contract, the price of natural gas is largely determined 
by the balance of supply and demand in North America. For this 
reason, I will address natural gas and oil separately, starting 
with natural gas.
    In 2010, overall United States natural gas production 
increased, while prices were generally stable. We expect these 
trends to continue, although natural gas prices can be volatile 
often due to weather related events.
    The current United States natural gas market reflects the 
tremendous growth in shale gas production, which more than 
doubled between 2008 and 2010, and in 2010 represented 22 
percent of total natural gas production in the United States.
    United States approved reserves of natural gas grew by over 
63 percent in the last decade, and have now reached the highest 
level since 1971. EIA sees considerable potential for continued 
growth in shale gas production, with shale gas production 
projected to supply nearly half of United States natural gas 
production by 2035.
    EIA's 2011 annual energy outlook reference case, which 
assumes the continuance of current laws and regulations, 
projects a continued increase in natural gas production over 
the next 25 years, with United States net imports of natural 
gas expected to fall from 11 percent of consumption in 2010, to 
only about one percent of consumption by 2035.
    Because domestic shale gas resources are located primarily 
under private and state lands, we would not expect access 
issues on Federal lands to have a major effect on our 
projections for United States natural gas production, reserves, 
or prices.
    Let me now turn to issues surrounding oil production and 
markets. When considering the effects of changes in future oil 
production, it is important to recognize that resource access 
does not typically translate into immediate or near term 
production.
    In addition, the impact on market prices depends not only 
on the magnitude and timing of actual production flows, but 
also on the magnitude relative to global liquid supply, which 
is currently about 88 million barrels per day.
    In the short term, oil markets constantly react to many 
competing factors in a global context, and it is extremely 
difficult to disentangle the near term impact of mid- to long-
term developments in the context of oil markets that see 
typical daily price movements in the range of one to two 
percent, and much higher fluctuations at times.
    Long term, we would not expect additional volumes of oil 
that could flow from resources on Federal lands due to greater 
access to have a large impact on oil and gasoline prices.
    This is due to the globally integrated nature of the world 
oil market, and the more significant long-term responsiveness 
of oil demand and supply to price movements, compared to short-
term responsiveness.
    Given the increasing importance of OPEC supply and the 
global oil supply and demand balance, another key issue is how 
OPEC production would respond to any increase in non-OPEC 
supply, potentially offsetting any direct price effect of 
increased United States production.
    Of course, greater domestic crude oil production, no matter 
what the cause, be it increased development, higher resource 
potential in current known fields, or wider application of 
advanced technology, would impact local economic activity and 
net oil imports.
    My written testimony provides additional information on 
EIA's resource estimates and projections. Mr. Chairman, and 
Members of the Committee, this concludes my testimony. I would 
be happy to answer any questions.
    [The prepared statement of Mr. Newell follows:]

              Statement of Richard Newell, Administrator, 
      Energy Information Administration, U.S. Department of Energy

    Mr. Chairman and Members of the Committee:
    I appreciate the opportunity to appear before you today to address 
the issue of rising gasoline prices and the role of available domestic 
oil and natural gas resources.
    The Energy Information Administration (EIA) is the statistical and 
analytical agency within the U.S. Department of Energy. EIA collects, 
analyzes, and disseminates independent and impartial energy information 
to promote sound policymaking, efficient markets, and public 
understanding regarding energy and its interaction with the economy and 
the environment. EIA is the Nation's premier source of energy 
information and, by law, its data, analyses, and forecasts are 
independent of approval by any other officer or employee of the United 
States Government. The views expressed in our reports, therefore, 
should not be construed as representing those of the Department of 
Energy or other Federal agencies.
    My testimony today focuses on several aspects of the hearing topic, 
including EIA's near-term outlook for energy prices; EIA's evaluation 
of U.S. resources, reserves, and production of oil and natural gas; and 
ways in which domestic supply levels of oil and natural gas may 
influence energy markets and prices over different time horizons.
The outlook for energy prices in 2011 and 2012
    Oil, including gasoline and other products produced from it, and 
natural gas together provided more than 60 percent of total U.S. 
primary energy use in 2010. While both oil and natural gas are 
internationally traded commodities, the market for oil is much more 
globally integrated than the market for natural gas, reflecting the 
fact that transport costs and logistical barriers for moving oil and 
oil products around the world are typically far lower relative to their 
value than is the case for natural gas. Differences in the degree of 
global integration for oil and natural gas markets mean that while the 
price of oil and gasoline produced from it generally reflect conditions 
on the world oil market--including the global balance between supply 
and demand and concerns related to actual and potential supply 
disruptions--the price of natural gas is largely determined by the 
balance of supply and demand and market conditions within North 
America. This key difference between oil and natural gas markets 
affects both the divergent trends in current and projected prices, 
discussed in this part of my testimony, and the effect of domestic 
resource development in the more distant future.
    The discussion which follows is based on EIA's March Short-Term 
Energy Outlook, issued on March 8. It therefore does not reflect the 
impacts of recent and contemporaneous events in Japan, which can be 
expected to affect energy markets. The net effect of those events is 
too current to ascertain at this time.
    Starting with the outlook for oil and gasoline markets, which we 
recognize is of great concern to both the Committee and the American 
people in light of recent developments, EIA expects continued 
tightening of world oil markets over the next two years--particularly 
in light of the recent events in North Africa and the Middle East, the 
world's largest oil producing region. The current situation in Libya 
increases oil market uncertainty because much of that country's 1.8 
million barrels per day of liquids production, which represents about 2 
percent of total world supply, has been shut in and it is unclear how 
long this situation will continue. Many participants in oil markets 
remain concerned that the unrest in the region could continue to 
spread. This concern, along with other factors influencing prices, is 
reflected in the prices of spot market crude oil and related futures 
and options contracts, as discussed below.
    Crude oil and wholesale gasoline prices. West Texas Intermediate 
(WTI) and other crude oil spot prices have risen about $15 per barrel 
since mid-February partly in response to the disruption of crude oil 
exports from Libya. Continuing unrest in Libya as well as other North 
African and Middle Eastern countries has led to the highest crude oil 
prices since 2008. As a result, EIA has raised its monthly Short-Term 
Energy Outlook forecast for the average cost of crude oil to refiners 
to $105 per barrel in 2011, $14 higher than in the February edition of 
the Outlook. The wholesale price of gasoline is closely linked to the 
price of crude oil, and the average wholesale price forecast for 
gasoline in 2011 is $2.91 per gallon, 39 cents per gallon higher than 
projected in the February Outlook. EIA projects a further small 
increase in crude oil prices in 2012, with the refiner acquisition cost 
for crude oil averaging $106 per barrel.
    Retail gasoline prices. The recent rapid increase in crude oil and 
wholesale gasoline prices has led to a significant rise in the retail 
price of gasoline at the pump. Absent a near-term decline in crude oil 
prices, motorists currently experiencing a jump in pump prices will 
likely see further increases from now through the spring since the 
recent increase in crude oil prices has not yet been fully passed 
through to retail gasoline prices. EIA expects the retail price of 
regular-grade motor gasoline in the United States to average $3.56 per 
gallon in 2011, 77 cents per gallon higher than the 2010 average, and 
$3.57 per gallon in 2012. EIA projects gasoline prices will average 
about $3.70 per gallon during the peak driving season (April through 
September) in 2011 with considerable regional and local variation.
    While EIA strives to provide accurate forecasts, it is important to 
recognize that there is significant uncertainty surrounding these 
projections. For example, as of March 3, the current market value of 
futures and options contracts for gasoline was suggesting about a one-
in-four chance that the national monthly average retail price for 
regular gasoline could exceed $4.00 per gallon during summer 2011. EIA 
regularly tracks the uncertainty regarding future oil and gasoline 
prices implied by the market price of energy-related derivatives in a 
Market Price and Uncertainty Report that is issued alongside each 
month's Outlook.
    Natural gas prices. Unlike oil prices, which reflect world market 
conditions, natural gas prices in the United States are largely 
determined by the balance of supply and demand within North America. 
Strong growth in the U.S. supply of natural gas in recent years, led by 
increased production of shale gas, which grew from 2.7 billion cubic 
feet (bcf) per day in 2006 to an estimated 13.3 bcf per day in 2010, 
has contributed to a significant moderation in natural gas prices. The 
price of natural gas at the Henry Hub in Louisiana, a major trading 
point for natural gas, averaged $4.39 per million British thermal units 
(Btu) in 2010 and is forecast to average $4.10 per million Btu in 2011. 
Since an average barrel of crude oil contains 5.8 million Btu of 
energy, the projected $4.10 per million Btu natural gas price projected 
for 2010 is less than $25 per barrel when expressed in ``oil 
equivalent'' terms. The fact that natural gas is so much cheaper than 
oil in energy-equivalent terms has strongly encouraged users with an 
option to switch from oil to natural gas to do so. Given the abundant 
natural gas resource in the United States, one important issue for the 
future is the prospects for natural gas to make inroads into more uses 
of energy.
    EIA expects modest declines in natural gas production through 2011 
because of a falling gas-directed drilling rig count in response to 
lower prices. While EIA expects total 2011 natural gas consumption will 
remain close to 2010 levels, expected increasing consumption in 2012, 
led by strong growth in the electric power sector, contributes to 
higher prices and to an economic incentive for producers to resume 
drilling. EIA expects the natural gas market to begin to tighten in 
2012, with the Henry Hub spot price increasing to an average of $4.58 
per million Btu.
    Current and near-term domestic liquids production and imports. 
Domestic crude oil production, which increased by 150,000 barrels per 
day in 2010 to 5.51 million barrels per day, is forecast to decline by 
110,000 barrels per day in 2011 and by a further 130,000 barrels per 
day in 2012. The 2011 forecast includes production declines in Alaska 
of 60,000 barrels per day in 2011 and an additional decline of 10,000 
barrels per day in 2012 because of maturing Alaskan oil fields. EIA 
expects production from the Federal Gulf of Mexico (GOM) to fall by 
240,000 barrels per day in 2011 and by a further 200,000 barrels per 
day in 2012. These production declines in Alaska and the GOM are 
partially offset by projected increases in lower 48 non-GOM production 
of 190,000 barrels per day and 70,000 barrels per day in 2011 and 2012, 
respectively.
    EIA expects slow growth in fuel ethanol production over the next 2 
years. Ethanol production increases by a projected 40,000 barrels per 
day, to 900,000 barrels per day in 2011, followed by an additional 
10,000 barrels per day increase in 2012.
    Liquid fuel net imports, including both crude oil and refined 
products, fell from 57 percent of total U.S. consumption in 2008 to 49 
percent in 2010, primarily because of the decline in consumption during 
the recession and rising domestic production. EIA forecasts that liquid 
fuel net imports will average 9.7 million barrels per day in 2011 and 
10.0 million barrels per day in 2012, comprising 50 percent and 52 
percent of total consumption, respectively.
    Current and near-term natural gas production and imports. Total 
marketed natural gas production grew strongly throughout 2010, 
increasing from 59.7 Bcf per day in January to an estimated 63.8 Bcf 
per day in December. The large price difference between petroleum 
liquids and natural gas on an energy-equivalent basis contributes to an 
expected shift towards drilling for liquids rather than for dry gas. 
Projected natural gas production in 2011 is 0.8 percent higher than in 
2010 as an increase of 1.0 Bcf per day in the lower-48 States is 
partially offset by a decline of 0.5 Bcf per day in the GOM. However, 
expected increasing consumption in 2012, led by strong growth in the 
electric power sector, contributes to higher prices and to an economic 
incentive for producers to resume drilling. Total domestic natural gas 
production is projected to increase by a further 0.9 percent in 2012. 
EIA expects U.S. reliance on natural gas imports will decline from 7.0 
Bcf per day in 2010 to 6.5 Bcf per day in 2012, or from 11 percent to 
10 percent of consumption.
Longer-term perspective on U.S. resources, reserves and production of 
        oil and natural gas
    Domestic oil and natural gas production. In the Annual Energy 
Outlook 2011 (AEO2011) Reference case, which assumes the continuance of 
current laws and regulations in place of fall 2010, EIA projects total 
U.S. crude oil production will remain above the 2009 level of 5.4 
million barrels per day through 2035, increasing to 6.0 million barrels 
per day by 2017 and remaining near that level throughout the rest of 
the projection period. The primary contributors to this growth are 
onshore shale oil development and enhanced oil recovery in the short-
term, and deepwater offshore production in the mid- to long-term. Note 
that here ``shale oil'' refers to oil in liquid form that is trapped in 
rock of low porosity, in contrast to ``oil shale'' which refers to 
kerogen, which is a solid form of hydrocarbon found in Wyoming, Utah 
and Colorado.
    Oil production from shale plays, particularly the Bakken shale in 
North Dakota, has been rising rapidly. Using horizontal drilling and 
hydraulic fracturing, operators increased Bakken production from about 
3,000 barrels per day in 2005 to 137,000 barrels per day in 2009 and 
225,000 barrels per day in 2010. Oil production from other shale plays 
is also growing. In Eagle Ford, for example, production increased from 
under 100 barrels per day in 2006 to roughly 22,000 barrels per day in 
2010. EIA projects shale oil production in the Bakken, Eagle Ford, 
Austin Chalk, and Avalon formations in 2035 to be 0.6 million barrels 
per day, more than double the current level.
    Additionally, there is a significant opportunity for growing crude 
oil production using enhanced oil recovery (EOR) techniques that inject 
carbon dioxide (CO2) into reservoirs that had previously 
been tapped by conventional drilling. In 2010, EIAs estimates that 
281,000 barrels per day of crude oil, accounting for more than 5 
percent of total U.S. crude production, was produced using 
CO2-based EOR techniques. This reflects rapid growth from a 
2004 production level of 206,000 barrels per day. In its AEO2011 
Reference case, which assumes no new policies to reduce CO2 
emissions, EIA projects that U.S. crude oil production using 
CO2-based EOR techniques will grow to 0.4 million barrels 
per day by 2015 and 1.1 million barrels per day in 2025. In a scenario 
where a cost is associated with carbon emissions, additional carbon 
capture would likely occur that would, in turn, result in additional 
crude oil to be produced using CO2-based EOR techniques. 
Several of the carbon capture and storage demonstration plants being 
built around the United States are being partly paid for by the 
production of crude oil using this technology.
    The lower 48 offshore was a major source of U.S. crude oil 
production in 2010, with the vast majority (1.6 million barrels per 
day) coming from the GOM. In the AEO2011 Reference case, drilling in 
the deepwater GOM Outer Continental Shelf (OCS) is expected to resume 
in 2011, resulting in increasing Gulf crude oil production after 2012, 
reaching 1.9 million barrels per day by 2018. EIA projects that total 
lower 48 offshore production will account for 1.8 million barrels per 
day of the total U.S. crude oil production of 5.8 million barrels per 
day in 2035.
    Shale gas. The growth in shale gas production in recent years is 
one of the most dynamic stories in U.S. energy markets. A few years 
ago, many analysts foresaw a growing U.S. reliance on imported sources 
of natural gas, and significant investments were being made in 
regasification facilities for imports of liquefied natural gas (LNG). 
Today, the biggest questions are the size of the shale gas resource 
base (which by most estimates is vast), the price level required to 
sustain its development, and the extent to which technical or 
environmental factors might dampen its development. Beyond those 
questions, the level of future domestic natural gas production will 
also depend on the level of natural gas demand in key consuming 
sectors, which will be shaped by prices, economic growth, and policies 
affecting fuel choice.
    Natural gas. Annual natural gas production is projected to increase 
from 21 trillion cubic feet of dry gas to 26 trillion cubic feet 
between 2009 and 2035 as a result of continued exploration and 
development of shale gas resources. Shale gas is the largest 
contributor to the growth in production, while production in tight 
sands, coalbed methane deposits, and offshore waters remain relatively 
stable from 2009 to 2035. By 2035, shale gas production accounts for 46 
percent of U.S. natural gas production, up from 16 percent in 2009. 
While production from tight sands and offshore resources do not 
contribute to the total growth in production, they remain an important 
source, contributing 23 and 11 percent respectively in 2035.
    Domestic oil and natural gas proven reserves and technically 
recoverable resources. Reserves are those volumes of oil and natural 
gas that geological and engineering data demonstrate with reasonable 
certainty to be recoverable in future years from known reservoirs under 
existing economic and operating conditions. Technically recoverable 
resources are an estimate of the total amount of oil and gas, both 
known and unknown, that is technically producible using currently 
available technologies and industry practices. EIA's crude oil and 
natural gas production projections are based on specific assumptions 
regarding technically recoverable resource assumptions. Estimates of 
technically recoverable crude oil and natural gas resources are highly 
uncertain and change over time as new information is gained through 
drilling, production, and technological and managerial development.
    The domestic crude oil and natural gas industry has undergone a 
technological revolution that has revitalized the resource base in the 
onshore lower-48 states. The use of horizontal drilling in conjunction 
with hydraulic fracturing has greatly expanded the ability of producers 
to profitably produce crude oil and natural gas from low permeability 
geologic formations, particularly shale formations. As a result of this 
technological revolution, natural gas reserves grew 63 percent between 
2000 and 2010, increasing from 167.4 trillion cubic feet at the start 
of 2000 to 272.5 trillion cubic feet at the start of 2010, the highest 
level since 1971. This increase in reserves occurred despite cumulative 
production of 246.7 trillion cubic feet during the 10-year period 
between those estimates. Even though total U.S. crude oil reserves have 
declined slightly over the same period, decreasing from 22.0 billion 
barrels at the start of 2000 to 20.7 billion barrels at the start of 
2010, additions to oil reserves still replaced over 93 percent of 
cumulative production of 19.6 billion barrels over the decade. Notably, 
states with drilling focused on shale oil have experienced a growth in 
crude oil reserves. The primary example is North Dakota where proved 
crude oil reserves have increased from 270 million barrels in 2000 to 
over 1.0 billion barrels in 2010, most of it in the Bakken formation.
    Total U.S. technically recoverable crude oil resources are 
estimated to be 219 billion barrels in the AEO2011 Reference case, 
including 21 billion barrels of proved reserves. Resources in areas 
where drilling is officially prohibited (for example, national parks) 
are not included. It is estimated that there are nearly 24 billion 
barrels of technically recoverable crude oil in the Bakken and three 
other shale formation plays.
    Focusing on natural gas, the growing importance of shale gas 
resources is reflected in the AEO2011 energy projections, with 
technically recoverable shale gas resources estimated at 862 trillion 
cubic feet. Given a total natural gas resource base of 2,543 trillion 
cubic feet in the AEO2011 Reference case, shale gas resources 
constitute 34 percent of the domestic natural gas resource base 
represented in the AEO2011 projections and 50 percent of lower 48 
onshore resources. EIA estimates the remaining onshore non-associated 
natural gas technically recoverable resources in tight gas formations 
at 455 trillion cubic feet, coalbed methane at 138 trillion cubic feet, 
and other more conventional resources at 352 trillion cubic feet. The 
lower 48 offshore and Alaska are each estimated to contain nearly 300 
trillion cubic feet of technically recoverable natural gas resources.
Impacts of greater access
    When considering the effect of increased access to Federal lands, 
it is important to recognize that access does not typically translate 
into immediate or near-term production. The impact of greater access on 
market prices depends in part on actual production flows, on 
differences in the extent of global integration in oil and natural gas 
markets that have been discussed above, and on how a decision to 
increase access might affect market expectations--a factor that is very 
difficult to assess in today's supply environment. In the short-term, 
oil markets react to many competing factors in a global context, and it 
is extremely difficult to disentangle the near-term impact of mid-to-
long-term developments in the context of oil markets that see typical 
daily price movements in the range of 1-2 percent, and much higher 
fluctuations at times. Long term, we do not project additional volumes 
of oil that could flow from greater access to oil resources on Federal 
lands to have a large impact on prices given the globally integrated 
nature of the world oil market and the more significant long-term 
compared to short-term responsiveness of oil demand and supply to price 
movements. Given the increasing importance of OPEC supply in the global 
oil supply-demand balance, another key issue is how OPEC production 
would respond to any increase in non-OPEC supply, potentially 
offsetting any direct price effect.
    In the longer-term, greater domestic crude oil production no matter 
the cause--increased development on Federal lands, higher resource 
potential in current known fields, or wider application of advanced 
technology--would impact local economic activity, net oil imports, and 
the associated U.S. international trade balance resulting from oil 
imports.
    Access to offshore federal resources. As of January 2009, the mean 
estimate of technically recoverable crude oil resources located in 
Federal offshore areas of the lower-48 states is 64.1 billion barrels. 
Of this amount, 3.7 billion barrels are estimated to exist in the 
Eastern/Central Gulf of Mexico region that is still under a Federal 
leasing moratorium.\1\ In addition, the mean estimate of technically 
recoverable resources of crude oil located in the Alaska OCS area is 
26.6 billion barrels. Note that these and other technically recoverable 
resource estimates provided here tend to be higher than resource 
estimates from the USGS because the USGS estimates only include 
undiscovered resources, where as the EIA estimates used for modeling 
purposes also include proved reserves, inferred reserves, and 
undiscovered resources in areas not yet assessed by the USGS. In 
addition, the resource estimates provided here do not reflect recent 
downward revisions by USGS to resource estimates for the National 
Petroleum Reserve Alaska.\2\
---------------------------------------------------------------------------
    \1\ These resource figures are based on the oil resource profile 
used for EIA's AEO2011 energy projections, including resources in the 
North Atlantic, North Pacific, and Central Pacific OCS where EIA's 
projections assume that leasing does not occur before 2035.
    \2\ In October 2010, the USGS revised NPRA oil resources to 0.9 
billion barrels from 10.6 billion barrels and gas resources to 52.8 
trillion cubic feet from 61.4 trillion cubic feet. Note that this would 
not affect EIA modeling results because these resources do not get 
developed in the current Annual Energy Outlook.
---------------------------------------------------------------------------
    From the above, it is evident that the Eastern/Central Gulf oil 
resources now subject to a formal leasing moratorium represent only a 
small part of the Federal OCS. Even if the moratorium that restricts 
leasing in this region were to be lifted, lags associated with the 
awarding of new Federal offshore leases and with the exploration and 
development of such leases suggest that production would be unlikely to 
occur until after 2020.
    Given that OCS areas not under any leasing moratorium are estimated 
to account for over 95 percent of the total mean estimate of 
technically recoverable OCS resources, perhaps the most significant 
Federal OCS development issues relate to those areas that are already 
open to Federal oil and gas leasing. One such issue revolves around 
when newly available offshore areas, particularly in the Pacific and 
Atlantic, will be made available to oil and gas producers in future 
Federal lease sales. Areas where OCS leasing has been available for 
many years--including the Western Gulf, most of the Central Gulf, and 
Alaska--hold the vast majority of estimated technically recoverable OCS 
oil resources. The AEO2011 generally assumes that both leasing and 
regulatory approvals in areas where OCS leasing has been available for 
many years will proceed in a manner that supports their continued major 
contribution to overall U.S. oil production. Were leasing and/or 
regulatory processes to slow or speed up significantly, projected OCS 
production could be reduced or increased from the level of 1.5 to 2 
million barrels per day that is projected in the 2014 though 2035 
period in the AEO2011 Reference case.
    Access to onshore federal resources: ANWR. The Arctic National 
Wildlife Refuge (ANWR) is not open to petroleum development, and is 
therefore not included in the AEO2011.\3\ However, if legislation were 
enacted in the near term that approved oil and natural gas leasing in 
the 1002 Area, one could potentially see ANWR oil production starting 
soon after 2020. This timetable reflects the time required to obtain 
leases, drill an initial exploratory well, develop a production 
development plan if a commercial oil reservoir has in fact been 
discovered, construct the feeder pipelines, fabricate oil separation 
and treatment plants and transport them to the North Slope by ocean 
barge, construct drilling pads, drill to depth, and complete the wells.
---------------------------------------------------------------------------
    \3\ The technically recoverable resource estimate of 10.4 billion 
barrels for ANWR is not included in the 219 billion barrels total 
estimate for the U.S.
---------------------------------------------------------------------------
    Based on this timetable and the assumption that the largest ANWR 
fields would be the first to go into production, peak ANWR oil 
production could occur around 2030 at about 700,000 to 800,000 barrels 
per day. In this scenario, the greatest impact on crude oil prices 
could occur around peak ANWR production with oil prices projected to be 
perhaps about one percent lower as a result.
    Access to onshore federal resources: lower-48 states. The AEO2011 
estimates that total onshore lower-48 technically recoverable oil 
resources available for development are 113.9 billion barrels (as of 
January 1, 2009), including about 6.6 billion barrels located on 
Federal lands with lease stipulations in addition to standard lease 
terms--which is about 6 percent of total onshore lower-48 oil 
resources.\4\ Federal lease stipulations dictate what oil and natural 
gas producers can and cannot do on Federal lands. Oil and natural gas 
producers can employ a variety of technologies to comply with such 
stipulations, such as drilling extended reach wells to avoid drilling 
in sensitive habitat areas, drilling multiple wells from a single 
drilling pad to minimize the surface area disturbed, using water 
purification equipment to clean produced water before it is discharged, 
or replanting indigenous species to restore the land. While lease 
stipulations may tend to increase costs, they do not preclude oil and 
natural gas production on Federal lands. Given the relatively modest 
volume of the oil resources on these lands--compared to total U.S. oil 
resources--changing lease stipulations on Federal lands is unlikely to 
have a significant long-term impact on U.S. oil production or prices.
---------------------------------------------------------------------------
    \4\ The 6.6 billion barrel figure does not include any oil 
resources estimated to exist under Federal lands that are deemed to be 
forever precluded from oil and natural gas leasing, such as those under 
national parks.
---------------------------------------------------------------------------
Interaction between production and prices
    When exploring the possibility of substituting domestic resources 
for international resources or substituting one domestic fuel for 
another, it is important to consider the current distribution of fuels 
used in sectors of the U.S. economy. Three-quarters of liquid fuels 
(both petroleum and biofuels) are used for transportation and most of 
the remaining liquid fuels are used in industrial activities, primarily 
as feedstock for petrochemical production. Natural gas is used in 
roughly equal portions in industry, buildings and electricity 
generation. Over 90 percent of coal generates electricity, with most of 
the remainder used for metals and cement processing. Nuclear, 
hydroelectric, wind and solar energy is used exclusively for generating 
electricity. Starch and oil- rich biomass is used to generate liquid 
transportation fuels and the remainder of biomass is burned for heat 
and electricity generation.
    Natural gas demand tends to be somewhat more price responsive in 
the short-run than petroleum demand in the United States, mainly 
because of a larger presence of natural gas in sectors where a moderate 
range of substitution possibilities exist (i.e. the industrial and 
power sectors). Nevertheless, demand shocks (in particular from 
weather) can have powerful feedback effects on natural gas demand 
through domestic natural gas prices, sometimes neutralizing output 
effects from the demand shock that might otherwise be supposed to ensue 
(e.g. electric power sector demand for natural gas during the heating 
season). Also, because near-term domestic natural gas market 
equilibrium tends to depend much less on the availability of foreign 
supplies at the margin compared to petroleum, demand shocks 
(particularly due to winter weather) will tend to induce sharp natural 
gas price increases that encourage reductions in consumption, most 
notably in the industrial sector.
    Competition among fuels in the United States. Interfuel competition 
driven by price differences is most likely in the three sectors that 
use natural gas because of the expanding recoverable natural gas 
resources which are expected to provide sustained lower prices relative 
to oil. Over the past decade the share of electric generation fueled by 
natural gas has been increasing, driven by lower new plant construction 
costs for natural gas relative to coal and recently by lower natural 
gas prices. Many existing coal plants are economical even at very low 
natural gas prices, but there is also a significant portion of older 
and/or less efficient coal plants whose production will decline when 
gas prices are low enough, reflecting the trade-off in the generation 
mix that has been experienced in the past few years. Construction costs 
for all new plants have risen dramatically in recent years, but the 
construction cost increases have been much more significant for new 
coal plants, which are more capital intensive and utilize more complex 
engineering technologies, relative to gas-fired turbines and combined 
cycle plants.
    The potential for natural gas to compete with oil in the transport 
sector--whether directly or indirectly as electricity--depends on the 
price differences between the fuels, the vehicles, and the fueling 
infrastructure. Currently 97 percent of energy for transportation is 
provided by fossil liquids and biofuels and only 3 percent is supplied 
by natural gas. Most of this natural gas is consumed in the operation 
of pipelines (primarily in compressors) and a small amount is consumed 
as vehicle fuel for buses and taxis. There is great uncertainty 
surrounding how effective proposed legislation would be in stimulating 
the deployment of natural gas vehicles even though operating costs may 
be significantly lower compared to diesel and gasoline. Natural gas 
vehicles face significant range and infrastructure limitations, in 
addition to higher upfront capital costs, that drastically diminish the 
market for natural gas vehicles even in the presence of tax credits for 
capital, infrastructure, and fuel.
    In the AEO2011 Reference case, which reflects current laws and 
regulations, EIA projects the sale of 12,100 new light-duty natural gas 
vehicles and 26,000 new heavy-duty natural gas vehicles (representing 
2.8 percent of total new heavy-duty vehicle sales) in 2035. Without a 
greatly expanded consumer market for natural gas vehicles based on 
infrastructure expansion, tax credits for natural gas vehicles will 
probably only impact sales for a niche market in both light- and heavy-
duty vehicles. One AEO2010 side case examined the impact of 
implementing tax incentives for vehicles, fueling stations and fuel--
starting in 2011 and beginning to phase out in 2027--on heavy-duty 
natural gas vehicle sales, and found that sales could reach 270,000 
(representing 35 percent of total new heavy-duty vehicle sales) in 
2035.
    Oil and gasoline price shocks impact on the U.S. economy. There are 
three primary channels through which oil price shocks affect real 
economic activity. First, and arguably most important, is a rise in the 
import bill for imported oil, which reduces U.S. incomes, wealth, and 
aggregate demand. Second, a redistribution of domestic income from 
consumers to producers occurs, with mixed effects that are likely 
negative on balance. Third, a lower level of output can be produced 
with the existing stock of capital and supply of labor as firms 
economize on energy inputs. This effect, while difficult to quantify, 
has considerable longer-term importance.
    However, the effects of oil price shocks on the economy depend 
importantly on the nature of the shock. Increases in oil prices caused 
by strong demand are less damaging to overall activity than those 
caused by a supply shortage. Increases in oil prices that are expected 
to be temporary have smaller consequences on activity than those that 
are perceived to be persistent.
Conclusion
    In addition to preparing the Reference case projections that are 
reviewed above, the full Annual Energy Outlook to be published this 
spring will include a large number of sensitivity cases that examine 
the impact of different market, technology, and policy assumptions. 
Several of these sensitivity cases will address the implications of 
alternative assumptions about the level of technically recoverable 
resources and access to those resources.
    This concludes my testimony, Mr. Chairman and members of the 
Committee. I would be happy to answer any questions you may have.
                                 ______
                                 
    The Chairman. That is absolutely perfect timing, Mr. 
Newell. If that is a template for how we are going to do this, 
this is going to be a wonderful hearing. Thank you very much. 
Now the pressure is on Ms. Pierce. Ms. Pierce, you are now 
recognized for five minutes.

    STATEMENT OF BRENDA S. PIERCE, ENERGY RESOURCES PROGRAM 
  COORDINATOR, UNITED STATES GEOLOGICAL SURVEY, UNITED STATES 
                   DEPARTMENT OF THE INTERIOR

    Ms. Pierce. Thank you, Mr. Chairman, and Members of the 
Committee, thank you for the opportunity to appear here today 
to discuss with you the United States Geological Survey's role 
in studying, understanding, and assessing domestic energy 
resources.
    The USGS conducts scientific investigations and assessments 
of geologically based energy resources, including conventional 
and unconventional resources. The mission of the USGS Energy 
Resources Program is to understand the processes critical to 
the formation, accumulation, occurrence, and alteration of 
geologically based energy resources, to conduct scientifically 
robust assessments of those resources, and to study the impact 
of energy resource occurrence and/or production on the use of 
both environmental and human health.
    The results from these scientific studies are used to 
evaluate the quality and distribution of energy resource 
accumulations, and to assess energy resource potential of the 
Nation, exclusive of the Federal offshore waters, and that is 
ANWR, and the petroleum resource potential of the world.
    One important goal of USGS domestic energy activities is to 
conduct research and assessments of undiscovered, technically 
recoverable, oil and natural gas resources of the United 
States, exclusive of the Federal Outer Continental Shelf.
    The amount of undiscovered, technically recoverable, 
resources changes over time because of advances in geological 
understanding, changes in technology and industry practices, 
and other factors.
    This necessitates that resource assessments be periodically 
updated to take into account such advances. Recent examples 
include the USGS assessment of the Balkan formation in the 
United States portion of the Wollaston Basin.
    This assessment, released in 2008, shows an estimated 3 to 
4.3 billion barrels of undiscovered, technically recoverable, 
oil, compared to the USGS 1995 mean estimate of 151 million 
barrels of oil.
    Our geologic understanding of this space has evolved since 
1995, and significant technological advances redefine what was 
technically recoverable in 2008, as compared to 1995.
    Another example is the USGS assessment of gas hydrates on 
the Alaskan north slope. As a result of advances in our 
understanding of this emerging resource, the USGS assessment 
estimates a mean of 85.4 trillion cubic feet of technically 
recoverable gas from gas hydrates on the Alaskan north slope.
    Recent challenges remain to determine if this technically 
recoverable resource will be economically recoverable, but 
current multi-organizational, including the USGS, and multi-
disciplinary efforts focusing on overcoming these obstacles, 
the USGS is conducting a systematic inventory of the 
technically and economically recoverable coal resources of the 
significant minable coal beds in the United States, to provide 
a comprehensive estimate of how much of the Nation's coal 
endowment is actually accessible for development, and available 
under certain market conditions and mining constraints.
    The first basin being assessed is the Powder River Basin of 
Wyoming and Montana. The USGS assessment of the Powder River 
Basin will be the most thorough and comprehensive inventory of 
the Nation's most significant coal basin to date.
    This inventory, with the others on the schedule, will 
provide policy and decision makers with important information 
and valuable planning tools. The USGS also evaluates renewable 
resources, such as geothermal energy.
    The USGS recently completed a national geothermal resource 
assessment, the first one in more than 30 years. The USGS 
assessment also indicates that full development of conventional 
identified systems could expand geothermal power production by 
about 260 percent of the currently installed geothermal total 
in the United States.
    The estimate for unconventional Enhanced Geothermal 
Systems, or EGS, is more than an order of magnitude larger than 
the combined estimates of both identified and undiscovered 
conventional geothermal resources. If successfully developed, 
EGS could provide an installed geothermal electric power 
generation capacity equivalent to about half of the currently 
installed electric power generating capacity of the United 
States.
    Energy resources, research, and assessments, are 
traditional strengths of the USGS. As the Nation's energy mix 
evolves, and USGS will continue to seek ways to expand its 
research and assessment portfolio to better include a 
comprehensive sweep of energy resources.
    USGS resource assessments and research can provide valuable 
information for the public and government discourse about the 
energy resource future of the Nation. The USGS looks forward to 
working with Congress to examine these challenges and 
opportunities.
    Thank you for this opportunity to provide an overview of 
USGS research and assessments of geologically based energy 
resources, and I would be happy to answer any questions.
    [The prepared statement of Ms. Pierce follows:]

 Statement of Brenda S. Pierce, Program Coordinator, Energy Resources 
    Program, U.S. Geological Survey, U.S. Department of the Interior

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear here today to discuss with you the U.S. 
Geological Survey's role in studying, understanding, and assessing 
domestic energy resources.
Role of the U.S. Geological Survey in Energy Resource Assessments
    The USGS conducts scientific investigations and assessments of 
geologically based energy resources, including conventional resources 
(oil, gas, and coal), emerging resources (gas hydrates), underutilized 
resources (geothermal), and unconventional resources (shale gas, shale 
oil, tight gas, tight oil, coalbed methane, and heavy oil). The USGS 
also conducts research on the effects associated with energy resource 
occurrence, production, and (or) utilization. The mission of the USGS 
Energy Resources Program is: (1) to understand the processes critical 
to the formation, accumulation, occurrence, and alteration of 
geologically based energy resources; (2) to conduct scientifically 
robust assessments of those resources; and (3) to study the impact of 
energy resource occurrence and (or) production and use on both 
environmental and human health. The results from these scientific 
studies are used to evaluate the quality and distribution of energy 
resource accumulations and to assess the energy resource potential of 
the Nation (exclusive of Federal offshore waters) and the petroleum 
resource potential of the world.
    The results from these studies provide impartial, robust scientific 
information about energy resources that directly supports the U.S. 
Department of the Interior's (DOI's) mission of protecting and 
responsibly managing the Nation's natural resources. USGS information 
is used by policy and decision makers, land and resource managers, 
other federal and state agencies, the energy industry, foreign 
governments, nongovernmental groups, academia, other scientists, and 
the public. Recent examples of USGS domestic research and assessments 
include the first-ever estimate of undiscovered, technically 
recoverable gas from natural gas hydrates and the first national 
geothermal assessment in more than 30 years.
    It is important to note the distinction between the terms 
``resource'' and ``reserves.'' Resource is a concentration of naturally 
occurring solid, liquid, or gaseous hydrocarbons in the Earth's crust, 
some of which is, or potentially is, technically and (or) economically 
extractable. Reserves specifically refer to the estimated quantities of 
identified (discovered) petroleum resources that, as of a specified 
date, are expected to be commercially recovered from known 
accumulations under prevailing economic conditions, operating 
practices, and government regulations. Primarily, the USGS conducts 
assessments of undiscovered, technically recoverable oil and gas 
resources. The USGS also conducts select assessments of economically 
recoverable resources. These resources include coal and oil and gas in 
frontier areas such as Arctic Alaska. Economically recoverable 
resources are a subset of technically recoverable resources and are 
generally less than the technically recoverable amount.
USGS National Research and Assessment Activities
USGS National Oil and Gas Resource Activities
    One important goal of USGS domestic energy activities is to conduct 
research and assessments of undiscovered, technically recoverable oil 
and natural gas resources, both conventional and unconventional, of the 
United States (exclusive of the Federal outer continental shelf). These 
are resources that have yet to be found (drilled), but if found, could 
be recovered using currently available technology and industry 
practice.
    The purpose of USGS assessments is to develop robust, geology-
based, statistically sound, well-documented estimates of quantities of 
petroleum resources having the potential to be added to reserves and 
thus contribute to the overall energy supply. The USGS uses resource 
assessment methodologies that are thoroughly reviewed and externally 
vetted so as to maintain the transparency and robustness of the 
assessment results. To further the transparency and understanding of 
what we do, the USGS petroleum resource assessment methodology is 
published and is available online at http://energy.cr.usgs.gov/oilgas/
noga/methodology.html.
    The USGS distinguishes between conventional and unconventional 
petroleum accumulations for purposes of research and resource 
assessment (Figure 1), as they are very different types of resources 
with very different geologic and physical characteristics. Briefly, a 
conventional gas accumulation is one that is defined by discrete field 
boundaries and is typically outlined by dry or uneconomic wells. An 
unconventional accumulation is one in which gas saturation is regional 
in extent, is in extremely low permeability rock, and typically 
requires stimulation (fracturing) to produce the gas. Estimated 
ultimate resource recoveries are typically lower in unconventional 
wells than in conventional wells. Many shale gas, tight gas, and 
coalbed gas accumulations can be described using these characteristics.
    The amount of undiscovered, technically recoverable resources 
changes over time. There are several reasons for this, including: (1) 
technological developments and advances regarding the discovery and 
production of petroleum resources, (2) scientific advances regarding 
geologic understanding, and (3) reserve growth. Advances in geologic 
understanding, as well as changes in technology and industry practices, 
necessitate that resource assessments be periodically updated to take 
into account such advances. One example of this change is the USGS 
assessment of the Bakken Formation in the U.S. portion of the Williston 
Basin. This assessment, released in 2008, shows an estimated 3.0 to 4.3 
billion barrels of undiscovered, technically recoverable oil, compared 
to the USGS 1995 mean estimate of 151 million barrels of oil. Our 
geologic understanding of this basin evolved since 1995, but 
significant technological advances redefined what was technically 
recoverable in 2008 as compared to 1995. This phenomenon is equally 
true for natural gas assessments such as that of the Barnett Shale and 
others, which have shown significant increase in the volumes of 
technically recoverable gas resources. Much of the technology developed 
for production of gas in the Barnett Shale was used to develop the oil 
in the Bakken Formation. The Barnett Shale Newark East field now ranks 
first in the United States in estimated 2009 proved reserves and is 
first in total production, having recently surpassed the San Juan 
Basin.\1\
    Another example of significant changes in assessments over time is 
the USGS assessment of gas hydrates on the Alaskan North Slope. Gas 
hydrates are a crystalline solid formed of water and gas; they look and 
act much like ice, but they contain huge amounts of methane, which may 
be a potential energy resource. Substantial investments in gas hydrate 
research now support categorizing some accumulations of gas hydrates as 
technically recoverable. As a result of advances in our understanding 
of this resource, the USGS assessment estimates a mean of 85.4 trillion 
cubic feet of technically recoverable gas from gas hydrates on the 
Alaska North Slope (this total is included in the mean conventional gas 
estimates outlined below). Research challenges remain to determine if 
this technically recoverable resource will be economically recoverable, 
but current multi-organizational (including the USGS) and multi-
disciplinary efforts are focused on overcoming these obstacles.
    Reserve growth is a well-documented phenomenon in the United States 
and is a major component of the updates to the Nation's remaining oil 
and natural gas resources, especially in conventional fields. In fact, 
most additions to world oil reserves in recent years are from growth of 
reserves in existing fields rather than new discoveries. Reserve growth 
occurs for a variety of reasons, including: (1) extensions of existing 
fields, infill drilling and new field discoveries and (2) application 
of new recovery technologies and improved efficiency. The assessment of 
the resource endowment, which includes both undiscovered resources and 
reserves from discovered fields and reservoirs, requires estimation of 
reserve growth. The USGS has recently developed a state-of-the-art 
methodology and approach for better quantifying domestic and global 
contributions of reserve growth to the petroleum resource endowment and 
is actively engaged in estimating this important component of the 
resource endowment
    The current USGS mean estimates for technically recoverable oil and 
gas resources of the onshore and State waters portion of the United 
States are as follows:\2\
    Mean technically recoverable conventional oil resources--31.7 
billion barrels
    Mean technically recoverable unconventional oil resources--6.1 
billion barrels
    Mean technically recoverable conventional gas resources--356.9 
trillion cubic feet
    Mean technically recoverable unconventional gas resources--399.4 
trillion cubic feet
    The Department of the Interior's Bureau of Ocean Energy Management, 
Regulation, and Enforcement has responsibility for evaluating resources 
in the Federal Outer Continental Shelf; their current oil and gas 
estimates for the U.S. Outer Continental Shelf are as follows:\3\
    Mean technically recoverable conventional oil resources:
                Alaska--26.61 billion barrels
                Atlantic--3.82 billion barrels
                Gulf of Mexico--44.92 billion barrels
                Pacific--10.53 billion barrels
    Mean technically recoverable conventional gas resources:
                Alaska--132.06 trillion cubic feet
                Atlantic--36.99 trillion cubic feet
                Gulf of Mexico--232.54 trillion cubic feet
                Pacific--18.29 trillion cubic feet
USGS National Coal Resource Activities
    The USGS is conducting a systematic inventory of the technically 
and economically recoverable coal resources of the significant minable 
coal beds in the United States, to provide a comprehensive estimate of 
how much of the Nation's coal endowment is actually accessible for 
development and available under certain market conditions and mining 
constraints. The first basin being assessed is the Powder River Basin 
in Wyoming and Montana.
    Within this effort, the USGS completed an assessment of the 
technically and economically recoverable coal resources in Wyoming's 
Gillette coalfield, the most prolific coalfield in the Nation and a 
part of the Powder River Basin. By utilizing an abundance of new data 
from coalbed methane development in the region, the USGS was able to 
produce the most comprehensive assessment to date of this area. The 
Gillette area accounts for nearly 40 percent\4\ of the Nation's current 
coal production, making it the single most important coalfield in the 
United States. The USGS assessment indicates that there is a total of 
165 billion tons of original coal resources in the six coal beds 
included in the evaluation. Original coal resource is the total amount 
of coal in-place before production. Of that original resource, 10.1 
billion tons (6 percent) can be classified as economically recoverable 
resources at the current average estimated sales price. However, about 
67 billion additional tons are estimated to be recoverable assuming 
increased market prices will support the higher costs needed to recover 
deeper coal. The USGS has just released the assessment of the Northern 
Wyoming Powder River Basin, an area north of the Gillette coalfield. 
The total original coal resource in the Northern Wyoming Powder River 
Basin assessment area for 24 coal beds assessed was calculated to be 
285 billion tons. Available coal resources are estimated at about 263 
billion tons (about 92.3 percent of the original coal resource). 
Available coal resource is the amount of the original resource that is 
accessible for mine development under current regulatory and land-use 
constraints. Recoverable coal was determined for seven coal beds to 
total about 50 billion tons. The economically recoverable portion of 
the coal resources was determined to be about 1.5 billion tons of coal 
(about 1 percent of the original resource total) for the seven coal 
beds evaluated. The analysis and results for the Southwestern Wyoming 
Powder River Basin area is currently in review, and the analysis of the 
Montana portion of the Powder River basin has begun.
    The USGS assessment of the Powder River Basin will be the most 
thorough and comprehensive inventory of the Nation's most significant 
coal basin to date. This inventory, with the others on the schedule, 
will provide policy makers a valuable planning tool needed to develop 
long-term energy strategies and provide decision makers with important 
information about what coal resources are currently or potentially 
technically and economically recoverable.
USGS National Geothermal Resource Activities
    In addition to petroleum and coal resources, the USGS also 
evaluates renewable resources such as geothermal energy. The USGS 
recently completed a national geothermal resource assessment, the first 
one in more than 30 years. The USGS evaluated 241 moderate- and high-
temperature geothermal resources capable of producing electricity. The 
USGS assessment\5\ estimates the following domestic geothermal 
resources:
        (1)  9,057 Megawatts-electric (MWe) of power potential from 
        conventional, identified geothermal systems,
        (2)  30,033 MWe of power generation potential from 
        conventional, undiscovered geothermal resources, and
        (3)  a provisional estimate of 517,800 MWe of power generation 
        potential from unconventional Enhanced Geothermal Systems (EGS) 
        resources.
    The USGS assessment results indicate that full development of the 
technically recoverable conventional, identified systems could expand 
geothermal power production by approximately 6,500 MWe, or about 260 
percent of the currently installed geothermal total of more than 2,500 
MWe in the United States. The provisional resource estimate for 
unconventional EGS is more than an order of magnitude larger than the 
combined estimates of both identified and undiscovered conventional 
geothermal resources and, if successfully developed, could provide an 
installed geothermal electric power generation capacity equivalent to 
about half of the currently installed electric power generating 
capacity of the United States.
    Because of the significant potential of unconventional geothermal 
resources to contribute to domestic energy resources, ongoing research 
at the USGS focuses on refining our understanding and characterization 
of EGS and improving the assessment methodology to incorporate the 
latest advances in EGS technology. The USGS is also working with the 
Department of Energy to characterize geothermal resources in 
sedimentary basins, particularly low temperature resources that were 
not included in the most recent assessment. Additionally, the USGS is 
working with the Bureau of Land Management to acquire new data and 
develop a more refined understanding of geothermal potential on Federal 
lands.
Conclusion
    Energy resources research and assessments are a traditional 
strength of the USGS. As the Nation's energy mix evolves, the USGS will 
continue to seek ways to expand its research and assessment portfolio 
to better include a comprehensive suite of energy sources, including 
hydrocarbon-based (for example, unconventional gas from coal, oil and 
gas from shale, and gas from hydrates) and nonhydrocarbon-based sources 
(for example, geothermal resources and uranium) and to address the 
effects of such resources on land use, ecosystem health, and human 
health. USGS resource assessments and research can provide valuable 
information for the public and government discourse about the energy 
resource future of the Nation. The USGS looks forward to working with 
Congress as it examines these challenges and opportunities.
    Thank you for this opportunity to provide an overview of USGS 
research and assessments of geologically based energy resources. I 
would be happy to answer your questions.

References
    \1\ EIA http://www.eia.doe.gov/pub/oil_gas/natural_gas/
data_publications/crude_oil_
natural_gas_reserves/current/pdf/top100fields.pdf
    \2\ USGS http://energy.cr.usgs.gov/oilgas/noga/
assessment_updates.html
    \3\ BOEMRE http://www.boemre.gov/revaldiv/RedNatAssessment.htm
    \4\ BLM http://www.blm.gov/wy/st/en/programs/energy/Coal_Resources/
PRB_Coal/
production.html and EIA http://www.eia.doe.gov/cneaf/coal/page/special/
tbl1.html
    \5\ USGS http://pubs.usgs.gov/fs/2008/3082/pdf/fs2008-3082.pdf




    
Figure 1. Conceptual diagram illustrating the different geologic 
settings between conventional and unconventional (sometimes called 
``continuous'' because they are continuous across the basin) resource 
accumulations (http://pubs.usgs.gov/fs/fs-0113-01/fs-0113-01.pdf).
                                 ______
                                 
    The Chairman. Thank you very much. Boy, this is an all-star 
panel now, I will tell you. Next, Dr. Gene Whitney, from Energy 
Research at the Congressional Research Service. You are 
recognized, sir, for five minutes.

          STATEMENT OF GENE WHITNEY, Ph.D., MANAGER, 
        ENERGY RESEARCH, CONGRESSIONAL RESEARCH SERVICE

    Dr. Whitney. Mr. Chairman and Members of the Committee, on 
behalf of the Congressional Research Service, I would like to 
thank the Committee for its invitation to testify today to 
address the subject of rising gasoline prices and domestic 
resources.
    Domestic energy production contributes to the economic 
vitality of the Nation, and reduces reliance on foreign energy 
sources. Much of our domestic energy production takes place on 
Federal lands, or on the Federally owned Outer Continental 
Shelf.
    Congress has worked hard to ensure that resources developed 
on Federal lands provide revenues to the American people 
through lease purchase, rents, and royalties, but energy 
production, like many industrial processes, involves some risks 
to human health and safety, and to environmental quality.
    Thus, numerous laws have been passed in recent decades to 
ensure that energy production in the United States is done in a 
safe and responsible manner. Policies have been established 
through statute, and through Federal agency rulemaking to 
provide controlled access to Federal lands, and to regulate the 
activities of energy production.
    The purpose of my testimony today is to describe the 
responsibilities and authorities of the Federal Land Management 
Agencies, and through that description, to outline the 
processes that energy companies must navigate in order to 
explore for, develop, and produce oil in the United States.
    There is an ongoing tension between the expansion of energy 
production, in which companies seek access to Federal lands and 
waters to find and produce oil, and regulation by Federal 
agencies to ensure the exploration and production proceeds 
safely, and with minimal environmental impact.
    This tension has been especially high in the wake of the 
deep water Horizon event. Access to onshore Federal lands for 
energy exploration and production is managed primarily by the 
Interior Department's Bureau of Land Management, and by the 
United States Forest Service, and the Department of 
Agriculture.
    Resources on the Federal Outer Continental Shelf are 
managed by the Bureau of Ocean Energy Management Regulation and 
Enforcement in the Department of the Interior. Each of these 
agencies develops land use plans and resource management plans 
that determine how and when Federal lands and offshore areas 
are developed.
    The plans for onshore development seek to accommodate 
various uses of public lands, including energy and minerals 
development, grazing, recreational activities, timber 
harvesting, and preservation of wildlife habitat and waterways, 
among others.
    Offshore development must coexist with fisheries, shipping, 
recreational activities, and preservation of marine ecosystems. 
Resource management plans are developed with public input, and 
must comply with the requirements of the National Environmental 
Policy Act, the Endangered Species Act, Air and Water Quality 
Regulations, and several other applicable statutes and 
regulations.
    Each resource management plan includes a schedule of energy 
and mineral leases for the planning units. Leases for oil and 
gas on Federal lands and offshore are sold at public auction. 
The winning bid for a particular parcel purchases the lease, 
and gains the right to produce oil and gas from the lease area.
    The leaseholder must pay rent on the leased lands and 
royalties are paid on any oil and gas produced. A portion of 
these royalties is shared with the States. The owner of a lease 
must obtain a permit to drill on the lease.
    The permitting process is also guided by a number of laws 
and regulations, including several new requirements instituted 
by the Interior Department after the deep water Horizon 
incident.
    The process of approval of an application for a permit to 
drill is affected by the ability of Federal agencies to process 
the application, as well as the ability of the permit applicant 
to meet the requirements for approval.
    Other non-procedural issues may delay or prevent oil and 
gas development from proceeding on a particular lease, 
including a shortage of drilling rigs or other equipment, a 
shortage of skilled labor, or issues associated with the 
company's financial strategy.
    Legal challenges against the government or against the 
energy company might also delay or prevent development on 
Federal leases. In summary, the process of leasing Federal 
lands and waters, the approval of permits to drill, and the 
logistics of exploration and production are lengthy and complex 
processes, subject to a large number of laws and regulations, 
which make simple characterizations of the overall process 
difficult.
    Thank you for the opportunity to provide this information 
on behalf of the Congressional Research Service. I will be glad 
to answer any questions.
    [The prepared statement of Dr. Whitney follows:]

          Statement of Gene Whitney, Energy Research Manager, 
                     Congressional Research Service

    Mr. Chairman and Members of the Committee, on behalf of the 
Congressional Research Service, I would like to thank the Committee for 
its invitation to testify today to address the subject of this hearing, 
``Harnessing American Resources to Create Jobs and Address Rising 
Gasoline Prices: Domestic Resources and Economic Impacts.''
Introduction
    Energy companies seeking to develop energy resources in the United 
States must comply with a number of state and federal requirements, 
including environmental and safety regulations and a permitting process 
that allows them to explore for and produce oil and natural gas, or 
other energy resources. I would like to briefly discuss issues of 
access, permitting, and regulation that affect domestic energy 
production. Because the hearing is focused on rising gasoline prices, I 
will concentrate primarily on domestic oil production. Furthermore, 
because we are discussing federal policy, I will focus primarily on 
energy development on federal lands and on the federally owned Outer 
Continental Shelf. Many of these processes and requirements I describe 
for oil development could be similar for other fossil fuels or for 
deployment of certain renewable energy technologies. The purpose of 
this testimony is to illustrate the responsibilities and authorities of 
the federal land management and regulatory agencies, and through that 
illustration to demonstrate the processes that energy companies must 
navigate in order to explore for, develop, and produce oil in the 
United States.
Access to Resources on Federal Lands and Outer Continental Shelf
    Access to onshore federal lands for energy exploration and 
production is managed primarily by the Interior Department's Bureau of 
Land Management (BLM) and by the U.S. Forest Service (USFS), which is 
an agency of the Department of Agriculture. BLM manages over 245 
million acres of federal land, plus 700 million acres of subsurface 
mineral estate. Most BLM lands are in the western United States. The 
USFS manages 193 million acres of national forests. Other land 
management agencies such as the National Park Service or the Fish and 
Wildlife Service manage lands that are mostly, but not entirely, off 
limits to energy development by statute or by Executive Order. BLM and 
USFS develop and maintain management plans for the lands under their 
jurisdiction per the Federal Land Policy and Management Act of 1976 and 
the National Forest Management Act of 1976, and those plans are open to 
public input. The USFS is currently in the process of revamping its 
planning process.
    Development of onshore federal oil and natural gas resources 
includes five phases:\1\
---------------------------------------------------------------------------
    \1\ http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/
leasing_of_onshore.html
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        1.  Land Use Planning (development of a Resource Management 
        Plan)
        2.  Parcel Nominations and Lease Sales
        3.  Well Permitting and Development
        4.  Operations and Production
        5.  Plugging and Reclamation
    The process of developing a 5-year Resource Management Plan for 
each unit of federal lands may require months or years to complete, and 
the plans must comply with the requirements of the National 
Environmental Policy Act (NEPA), the Endangered Species Act (ESA), air 
and water quality under Environmental Protection Agency regulations, 
and several other applicable statutes enacted by Congress.
    The steps in developing a Resource Management Plan (RMP) include 
the following:\2\
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    \2\ http://www.blm.gov/wo/st/en/prog/planning/
frequently_asked_questions.html#4
---------------------------------------------------------------------------
         1.  Issue a Notice of Intent to Prepare the RMP
         2.  Conduct Scoping (i.e. public process to assist in the 
        identification of planning issues)
         3.  Analyze the management situation
         4.  Develop alternatives to address planning issues
         5.  Analyze the effects of the alternatives
         6.  Select a preferred alternative
         7.  Prepare a draft RMP/draft environmental impact statement 
        (EIS)
         8.  Provide a 90-day public comment period
         9.  Prepare a proposed RMP/final EIS based on comments 
        received
        10.  Provide a 30-day public protest period upon publication of 
        the proposed RMP/final EIS
        11.  Approve the RMP through a record of decision once the 
        protests have been resolved
        12.  Implement, monitor, and evaluate plan decisions
    Each plan must include an environmental evaluation process under 
the NEPA rules. The plans attempt to accommodate varied uses of public 
lands, including energy and minerals development, grazing, recreational 
activities, timber harvesting, preservation of wildlife habitat and 
waterways, preservation of cultural heritage sites, wild land fire 
mitigation, among others. This multiple-use approach results in some 
areas being fully available for energy development via a set of leasing 
and permitting processes, some areas are available but restricted in 
timing or surface occupancy, and some areas are placed off limits to 
energy development.
    An inventory of oil and natural gas resources and leasing 
restrictions on federal lands was completed in 2008 by a consortium of 
federal agencies \3\ in response to the Energy Policy Act of 2000, as 
amended by the Energy Policy Act of 2005. That inventory, reported in 
phased publications (the main publication was ``Inventory of Onshore 
Federal Oil and Natural Gas Resources and Restriction to Their 
Development'' released in 2008), listed nine categories of access to 
federal lands ranging from complete inaccessibility to full access 
under standard leasing terms. See Table 1. Of the 279 million acres of 
federal land surveyed, 60% was inaccessible, 23% was accessible with 
restrictions, and 17% was accessible under standard lease terms. The 
largest proportion of inaccessible lands includes lands withheld from 
leasing by Executive Order or statute, inaccessibility based on 
discretionary decisions made by the land management agency (which may 
include endangered species habitat and historical sites), lands that do 
not yet have a completed management plan, and lands that do not afford 
surface occupancy.
---------------------------------------------------------------------------
    \3\ Inventory of Onshore Federal Oil and Natural Gas Resources and 
Restriction to Their Development, Prepared by the U.S. Departments of 
the Interior, Agriculture, and Energy, 2008, http://www.blm.gov/wo/st/
en/prog/energy/oil_and_gas/EPCA_III.html.
---------------------------------------------------------------------------
    Access to offshore areas for energy development is managed by the 
Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), 
which is ``the federal agency responsible for overseeing the safe and 
environmentally responsible development of energy and mineral resources 
on the Outer Continental Shelf''.\4\ The Outer Continental Shelf Lands 
Act of 1953 (OCSLA), as amended, provides for the leasing of OCS lands 
in a manner that protects the environment and returns revenues to the 
federal government. BOEMRE manages about 1.7 billion acres of the OCS, 
divided into 26 planning areas. Certain parts of the OCS are off limits 
to oil and gas development by statute or Executive Order, including 
shipping lanes, certain military operational zones, and National Marine 
Sanctuaries. In addition to NEPA, ESA, and other laws applied to 
onshore planning, the planning process for offshore areas is subject to 
compliance with additional statutes and regulations relevant to the 
ocean environment, coastal zone management, fisheries, and marine oil 
spill regulations, among others.
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    \4\ http://www.boemre.gov/aboutBOEMRE/
---------------------------------------------------------------------------
The Oil and Natural Gas Leasing Process \5\
---------------------------------------------------------------------------
    \5\ http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/
leasing_of_onshore/og_leasing.html
---------------------------------------------------------------------------
    Subsequent to the completion of a Resource Management Plan, 
individual parcels within the planning area may be nominated for oil 
and natural gas leasing. The leasing process follows the Minerals 
Leasing Act of 1920 as amended, the Federal Land Policy and Management 
Act of 1976, the Federal Onshore Oil and Gas Leasing Reform Act of 
1987, and the Onshore Oil and Gas Order No. 1 of 2007. Anyone may 
nominate a parcel for lease, but the parcel is only subject to lease if 
it is available, and any stipulations from the RMP must be attached 
before the parcel is placed for sale. Lease sales are held quarterly by 
each state BLM office, are open to the public, are announced in 
advance, and are conducted via competitive auction. Bonus bids are 
often entered for areas with particularly high resource potential, and 
these bonus bids may reach millions of dollars. The winner of a bid for 
a particular parcel gains the right to explore, drill, and produce oil 
and gas from the lease area. As long as there is one producing well on 
the parcel, the lease is valid for ten years. The lease holder must pay 
rent ($1.50 to $2.00 per acre per year) on the leased lands, royalties 
are paid on any oil and gas produced, and those royalties are split 
between the state and federal government.
    BLM launched a series of reforms to its leasing process in 2010. 
These reforms were in response to an increasing rate of protests on 
leases, and in an effort to increase public and stakeholder input into 
the leasing process. According to the Department of the Interior, BLM 
launched the reforms ``in an effort to improve protections for land, 
water, and wildlife and reduce potential conflicts that can lead to 
costly and time-consuming protests and litigation of leases,'' \6\ and 
``for ensuring orderly, effective, timely, and environmentally 
responsible leasing of oil and gas resources on federal lands. The 
leasing process....will create more certainty and predictability, 
protect multiple-use values when the Bureau of Land Management makes 
leasing decisions, and provide for consideration of natural and 
cultural resources as well as meaningful public involvement.'' \7\
---------------------------------------------------------------------------
    \6\ http://www.doi.gov/news/doinews/BLM_energy_reform.cfm
    \7\ http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas.html
---------------------------------------------------------------------------
    BOEMRE follows a series of 5-year programs for oil and gas lease 
sales on the OCS, and the most recent plan extends from 2007 to 2012. 
However, two lawsuits filed in 2007 resulted in a court order that 
required the Department of the Interior to ``'conduct a more complete 
comparative analysis of the environmental sensitivity of different 
areas.' The Court found the Department failed to properly analyze the 
environmental sensitivity of different areas of the OCS, thus hindering 
Interior's ability to comply with the balancing requirement specified 
in the OCS Lands Act, which directs the Secretary of Interior to 
consider `the relative environmental sensitivity and marine 
productivity of the different areas of the outer Continental Shelf.''' 
\8\ The Interior Department subsequently released a Revised Program for 
2007-2012 in December of 2010 that is intended to address the issues of 
environmental sensitivity. Because of the timing of the program 
revision, the revised program was also informed and influenced by the 
explosion and subsequent oil spill from the Deepwater Horizon on April 
20, 2010. For example, there is recognition that certain environmental 
baselines in the Gulf of Mexico have changed as a result of that spill. 
Also, some leases scheduled in the original program were cancelled and 
others were combined and/or rescheduled. The revised program does not 
include information from the National Academy of Engineering study of 
the Deepwater Horizon incident, nor from the President's Oil Spill 
Commission.
---------------------------------------------------------------------------
    \8\ http://www.boemre.gov/5-year/RelatedLitigation.htm
---------------------------------------------------------------------------
    Lease holders are to be fully informed about the requirements for 
compliance with appropriate statutes and regulations. As stated in the 
report, Inventory of Onshore Federal Oil and Natural Gas Resources and 
Restriction to Their Development 2008, ``All oil and gas leases on 
Federal lands, including those issued with only the standard lease 
terms, are subject to full compliance with all environmental laws and 
regulations. These laws include, but are not limited to, the National 
Environmental Policy Act, Clean Water Act, Clean Air Act, Endangered 
Species Act, and National Historic Preservation Act. While compliance 
with these laws may delay, modify, or prohibit oil and gas activities, 
these laws represent the values and bounds Congress believes 
appropriate to manage Federal lands.'' \9\
---------------------------------------------------------------------------
    \9\ Inventory of Onshore Federal Oil and Natural Gas Resources and 
Restriction to Their Development, Prepared by the U.S. Departments of 
the Interior, Agriculture, and Energy, 2008, http://www.blm.gov/wo/st/
en/prog/energy/oil_and_gas/EPCA_III.html.
---------------------------------------------------------------------------
Drilling Permit Process:\10\
---------------------------------------------------------------------------
    \10\ http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/
leasing_of_onshore/og_permitting.html
---------------------------------------------------------------------------
    Once a lease has been acquired, the owner of the lease must obtain 
a permit to drill on the lease. The permitting process is guided by 
NEPA, the Onshore Oil and Gas Order No. 1 of 2007, the Energy Policy 
Act of 2005, and an internal body of BLM standards and guidelines--The 
Surface Operating Standards and Guidelines for Oil and Gas Exploration 
and Development 2007--referred to as The Gold Book. The Gold Book 
contains requirements in the Code of Federal Regulations at 43 CFR 3000 
and 36 CFR 228 Subpart E; Onshore Oil and Gas Orders, and Notices to 
Lessees. BOEMRE uses a series of Notices to Lessees to communicate the 
regulatory expectations contained in the Code of Federal Regulation for 
offshore drilling.\11\
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    \11\ http://www.boemre.gov/ntls/
---------------------------------------------------------------------------
    The lease holder may not disturb the surface of the leased parcel 
until necessary permits have been acquired. The leaseholder must file 
an application for permit to drill (APD) which includes a surface use 
plan of operations. The APD package consists of: \12\
---------------------------------------------------------------------------
    \12\ http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/
best_management_practices/
    gold_book.html
---------------------------------------------------------------------------
        1.  Form 3160-3, Application for Permit to Drill or Reenter
        2.  Surface use plan of operations
        3.  Drilling plan
        4.  A well plat certified by a registered surveyor
        5.  Evidence of bond coverage
        6.  Operator certification
        7.  Original or electronic signature
        8.  Other information required by order, notice, or regulation
    Under NEPA, operations expected to have significant environmental 
impacts require an environmental impact statement (EIS). Other 
activities may be analyzed with a less extensive environmental 
assessment (EA), which sometimes reveals the need for a full EIS. 
Certain activities that are deemed to have little or no net 
environmental impact may be covered by categorical exclusions under 
NEPA. Section 390 of the Energy Policy Act of 2005 created a set of new 
categorical exclusions that apply to onshore oil and gas exploration 
activities. These new categorical exclusions were intended to reduce 
the paperwork required in the permitting process and to speed the APD 
process. BLM inspects the parcel to identify potential environmental 
impacts or other concerns. When BLM is satisfied that applicable 
statutes and regulations have been complied with, it may approve the 
APD for a period of two years or until the lease expires, whichever is 
first.
    Permitting of offshore oil and gas wells is similar to the onshore 
process, but has been controversial since the Deepwater Horizon 
disaster in the Gulf of Mexico. In June 2010, Interior Secretary 
Salazar issued a series of new, more rigorous, requirements for 
drilling in the OCS.\13\ These new rules require energy companies to:
---------------------------------------------------------------------------
    \13\ http://www.doi.gov/news/pressreleases/Interior-Issues-
Directive-to-Guide-Implementation-of-Stronger-Safety-Requirements-for-
Offshore-Drilling.cfm
---------------------------------------------------------------------------
          Show certification by the operator's Chief Executive 
        Officer that they are conducting their operations in compliance 
        with all operating regulations and that they have tested their 
        drilling equipment, ensured that personnel are properly 
        trained, and reviewed their procedures to ensure the safety of 
        personnel and protection of the environment;
          Provide certification from a Professional Engineer--
        before beginning any new drilling operations using either a 
        surface or subsea blowout preventer (BOP) stack--of all well 
        casing and cement design requirements, including that there are 
        at least two independent tested barriers for the well, and 
        adhere to new casing installation procedures;
          Provide independent third-party verification, before 
        drilling any new well, that the BOP will operate properly with 
        the drilling rig equipment and is compatible with the specific 
        well location, borehole design and drilling plan;
          Provide independent third-party verification that 
        shows that the blind-shear rams installed on the surface or 
        subsea BOP stack are capable of shearing the drill pipe in the 
        hole under maximum anticipated surface pressures;
          Adhere to new inspection and reporting requirements 
        for BOP and well control system configuration, BOP and well 
        control test results, BOP and loss of well control events, and 
        BOP and loss of well control system downtime;
          Receive independent third-party verification, before 
        spudding a new well, of re-certification of BOP equipment used 
        on all floating drilling rigs to ensure that the devices will 
        operate as originally designed, and that any modifications or 
        upgrades conducted after delivery have not compromised the 
        design or operation of the BOP;
          Have a secondary control system for subsea BOP stacks 
        with remote operated vehicle (ROV) intervention capabilities, 
        including the ability to close one set of blind-shear rams and 
        one set of pipe rams. The subsea BOP system must have an 
        emergency shut-in system in the event of lost power, as well as 
        a deadman system and an autoshear system;
          Conduct ROV Hot Stab Function Testing of the ROV 
        Intervention Panel on subsurface BOP stacks; and
          Provide documentation that the BOP has been 
        maintained according to the regulations.
    At the end of September 2010, Secretary Salazar ordered that any 
well drilled in deep water must comply with two new drilling and 
workplace safety measures, which expanded on the earlier rules:\14\
---------------------------------------------------------------------------
    \14\ http://www.doi.gov/news/pressreleases/Salazar-Announces-
Regulations-to-Strengthen-Drilling-Safety-Reduce-Risk-of-Human-Error-
on-Offshore-Oil-and-Gas-Operations.cfm
---------------------------------------------------------------------------
        The Drilling Safety Rule, effective immediately upon 
        publication, makes mandatory several requirements for the 
        drilling process that were laid out in Secretary Salazar's May 
        27th Safety Report to President Obama. The regulation 
        prescribes proper cementing and casing practices and the 
        appropriate use of drilling fluids in order to maintain well 
        bore integrity, the first line of defense against a blowout. 
        The regulation also strengthens oversight of mechanisms 
        designed to shut off the flow of oil and gas, primarily the 
        Blowout Preventer (BOP) and its components, including Remotely 
        Operated Vehicles (ROVs), shear rams and pipe rams. Operators 
        must also secure independent and expert reviews of their well 
        design, construction and flow intervention mechanisms. . ..

        The Workplace Safety Rule requires operators to have a Safety 
        and Environmental Management System (SEMS), which is a 
        comprehensive safety and environmental impact program designed 
        to reduce human and organizational errors as the root cause of 
        work-related accidents and offshore oil spills. The Workplace 
        Safety Rule makes mandatory American Petroleum Institute (API) 
        Recommended Practice 75, which was previously a voluntary 
        program to identify, address and manage safety hazards and 
        environmental impacts in their operations.
    The oil and gas industry has argued that responsible developers can 
address the problems associated with the Deepwater Horizon accident by 
eliminating the mistakes that led to the blowout, so that mitigating an 
uncontrolled blowout is not necessary. However, BOEMRE insisted that no 
drilling permits would be issued unless the new requirements were met. 
On February 28, 2011, Noble Energy received the first permit to drill 
in deep water since the April 20, 2010, event after demonstrating that 
they could meet the new standards set by BOEMRE.
Operation, Production, Shutdown and Reclamation \15\
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leasing_of_onshore/og_reclamation.html
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    Only after the permit to drill has been obtained can the energy 
company begin development and production. No ground is broken or 
drilling started until all of the above requirements are met. Onshore 
development generally requires some road building to gain access to the 
optimal drill site on the lease. A well pad is excavated and graded, 
along with mud pits and support buildings. Depending on the location 
and the nature of the resource, pipelines must sometimes be constructed 
to the well site for production. During the development and production 
period, federal inspectors visit the drilling or production site 
periodically to ensure that the terms of the drilling permit are in 
compliance with applicable laws and regulations, and to ensure that the 
operation is safe and minimally disruptive. Drilling normally lasts for 
a few weeks or months, but production may continue for many years. 
During the production period, federal inspectors generally inspect the 
production site at least every three years to monitor surface 
disturbances and any potential health, safety, or environmental 
concerns. Violations may result in corrective measures, fines, or 
halting of production in severe cases.
    When production has ended, the site must be reclaimed according to 
specific standards described in the Gold Book and in the Onshore Oil 
and Gas Order No. 1 of 2007. A reclamation plan is included in the 
original permitting documents, and that reclamation plan must be 
executed after production stops. The goal of reclamation is ecosystem 
restoration, including restoration of the natural vegetative community, 
hydrology, and wildlife habitats. In addition to surface reclamation, 
the well itself must be sealed and plugged so that no contamination can 
flow into groundwater aquifers or to the surface. Federal inspectors 
continue to inspect the site through the completion of the reclamation 
process.
Offshore Drilling Moratoria and the Effects of the Deepwater Horizon 
        Disaster
    For several decades, the only OCS areas open for oil and gas 
exploration were areas in the central and western Gulf of Mexico, and 
certain areas off the coasts of southern California and Alaska. 
Currently, with some exceptions for marine sanctuaries and monuments, 
no portion of the federal OCS has a permanent moratorium on oil and gas 
leasing and development. While there are some areas under temporary 
development bans, such as suspensions and moratoria directed by either 
legislative and executive powers, most of the OCS is free of moratoria 
restrictions and considered permissible for offshore leasing activity.
    Aspects of moratorium policy (either establishing or lifting 
temporary bans on oil and gas exploration and development) are derived 
from legislative and executive powers to direct offshore leasing 
activities. A shift in both legislative and executive moratoria policy 
during the 111th Congress signaled an end to moratoria measures that 
had banned development in some OCS areas since the early 1980s. 
Legislative moratoria enacted annually by Congress for about 27 years 
as part of annual Department of the Interior appropriations acts 
expired on September 30, 2008. In areas where OCS leasing restrictions 
were changed, some preliminary oil and gas leasing activity has 
commenced, but no lease sales have been held.
    Support for three national objectives coalesced in 2009, resulting 
in the removal of most congressional and executive constraints on oil 
and gas exploration and development: (1) promoting domestic energy 
production to improve the nation's energy security, (2) enhancing 
federal revenue, and (3) spurring innovation and diversification in 
ocean energy technologies to help create new jobs. The shift in 
moratorium policy along with two other developments--the start of 
federal offshore renewable ocean energy projects (e.g., offshore wind 
farms) and expanded oil and gas prospecting in deepwater areas--
increased the responsibilities of the federal offshore energy program.
    Around the world, changing ocean energy policies are affecting how 
nations govern offshore areas. Economic pressures and technological 
advances are driving changes in moratorium policy as the global search 
for energy reaches into deeper ocean waters. A number of countries are 
revisiting policies about offshore areas, and some countries are making 
claims to expand their reach for offshore resources. One venue for 
claims of this nature is the United Nations Convention on the Law of 
the Sea (UNCLOS). Although the United States has not ratified UNCLOS, 
the State Department has taken measures to address the U.S. extended 
continental shelf areas in a manner not inconsistent with the UNCLOS 
process. These measures signal changes in U.S. policies about 
moratorium areas.
    In March 2010, President Obama expressed the intent of the 
Administration to open selected OCS areas to leasing for oil and gas 
production, including areas in the eastern Gulf of Mexico, off the 
Atlantic coast, and in Alaska. Proponents for offshore oil and gas 
development viewed the President's actions skeptically, since moratoria 
had been lifted from all OCS areas, yet the Administration intended to 
offer lease sales in only certain portions, and then only in 2012.
    On April 20, 2010, the Deepwater Horizon rig, in the process of 
drilling BP's Macondo well in 5,000 feet of water in the Gulf of 
Mexico, exploded and sank, killing eleven men and resulting in 
uncontrolled leakage of nearly 5 million barrels of oil and natural gas 
into the Gulf of Mexico before the well was capped on September 17, 
2010. Soon after the explosion and leak, President Obama imposed a six-
month ban on OCS drilling in water deeper than 500 feet so that an 
investigation could determine the cause of the Deepwater Horizon 
blowout and to ensure that necessary oversight and regulation 
enforcement were in place. A month later, Judge Martin Feldman, a U.S. 
District Court judge in Louisiana, responded to a lawsuit filed by a 
coalition of offshore drilling equipment providers and struck down the 
drilling ban, saying that the Administration had failed to justify the 
need for such ``a blanket, generic, indeed punitive, moratorium'' on 
deep-water oil and gas drilling.\16\ Judge Feldman also cited the 
severe economic impact that a drilling ban would have on Gulf 
communities, but environmental groups and supporters of the fishing 
industry opposed the ruling. The Administration appealed the ruling, 
but the 5th Circuit U.S. Court of Appeals rejected the appeal on July 
8, 2010. Interior Secretary Ken Salazar reimposed the moratorium later 
in July, citing more extensive justifications than used for the first 
moratorium. The Administration finally lifted that moratorium 
voluntarily in October, 2010. Opponents of the moratorium contend that 
there continues to be a de facto moratorium in place, citing the lack 
of drilling permits issued in the Gulf of Mexico.
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    On February 2, 2011, Judge Feldman ruled that the Obama 
Administration acted in contempt by failing to resume issuing deepwater 
permits after he struck down the Administration's ban on deepwater 
drilling as being overly broad, followed by a failed appeal. On 
February 17, 2011, he ordered the Department of the Interior to address 
five pending drilling permits within 30 days. The Administration 
appealed that order on March 2, 2011. On March 12, 2011, a drilling 
permit was issued to BHP Billiton PLC, one of the five pending 
applicants. As of March 14, 2011, three days from the 30-day deadline, 
no additional permits had been issued. Thus, the tension continues 
between the Administration's desire to implement drilling and safety 
rules to ensure that there is no repeat of the Deepwater Horizon 
accident, and the desire by the oil and gas industry, supported by 
court actions, to resume the permitting of deepwater exploration and 
development.
Other factors
    In addition to the leasing, permitting, and production processes 
conducted by federal agencies, a number of other issues may arise in 
the oil and gas leasing process that delay or prevent oil and gas 
development from taking place, or might account for the large number of 
leases held in non-producing status. There could be a shortage of 
drilling rigs or other equipment, a shortage of skilled labor, or 
problems with financing. Legal challenges against the government or 
against the energy company might delay or prevent development. 
Typically, many leases are in the development cycle (e.g., conducting 
environmental reviews, permitting, or exploring) but not producing 
commercial quantities of oil at a particular time.
    As described above, the lease and permit processes, as well as the 
regulatory frameworks for both onshore and offshore exploration, 
drilling, and production of oil and natural gas are evolving over time. 
Some part of the planning, leasing, and permitting process is currently 
changing in the three major federal leasing agencies: BLM, USFS, and 
BOEMRE. In addition, the BOEMRE (formerly Minerals Management Service) 
is undergoing an agency reorganization in the wake of the Deepwater 
Horizon incident last year. Under the new organization, BOEMRE will be 
comprised of three separate, independent entities to promote energy 
development and to manage leasing, to regulate offshore drilling, and 
to collect revenues owed to the federal government. Additional staff 
and resources have been requested to increase the oversight of offshore 
exploration and development, and some of the agency changes are 
scheduled to be implemented within the next year. As the reorganization 
and associated changes proceed, it will be incumbent upon the oil and 
gas companies to remain abreast of each development and to comply with 
each change in the planning, leasing, permitting, and enforcement 
process.
    Thank you for the opportunity to provide this information on behalf 
of the Congressional Research Service. I will be glad to answer any 
questions you may have.



    The Chairman. Boy, I have to tell you that I am absolutely 
impressed with these three witnesses that have hit it right on 
the mark. We have to come up with a reward, I think, for that.
    Mr. Holt. If the Chairman would yield, we should point out 
that as these witnesses come in on time with their testimony, 
we judge testimony on both content and quality, and on both 
scores, they are doing well.
    The Chairman. Well, I am glad that you said that, Mr. Holt, 
because the next person to testify is the Ranking Member, who 
was not here. We have been called to vote, but we have time, 
and I want to give the courtesy to Mr. Markey to make his 
opening statement.
    Then we will break, and go to vote, and then come back. So, 
Mr. Markey, follow Mr. Rush's lead.

    STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman, and happy Saint 
Patrick's Day to you, Mr. Chairman. The reference in the title 
of this hearing to harnessing American resources is 
appropriate, because we are in a horse race.
    Rather than a blanket of roses at the finish line, the 
winner gets much more valuable prizes; lower unemployment, and 
lower energy prices for American families. There are two horses 
in this race; the old horse is the one that has been running 
flat out for decades, is ``Drill, Baby, Drill.'' That horse is 
owned by a syndicate of the richest international oil companies 
in the world, and OPEC.
    The second horse, a much more recent entry in the race, is 
clean energy. That horse is owned by the American people, in 
partnership with researchers, investors, and companies 
developing new technologies to produce energy from wind, solar, 
geothermal, hydropower, biomass, and other renewable sources.
    Now our Republican colleagues make plenty of claims about 
this race, but they are handicapping is highly suspect. First, 
they say that they want a fair race, and claim that they would 
be happy to see both horses win.
    This is their all of the above claim, but the truth is that 
our Republican friends have taken a terrible risk. They have 
bet it all on just one horse. They bet billions of dollars in 
subsidies and tax breaks, not to mention betting our economy 
and our future all on ``Drill, Baby, Drill.''
    In this Committee alone, the scorecard on all of the above 
stands at seven hearings, featuring ``Drill, Baby, Drill,'' and 
zero on clean energy. The Republican majority also claims that 
the Obama Administration is pulling back the reins on ``Drill, 
Baby, Drill.''
    The truth is that this Administration is riding that horse 
as hard and as fast as ever. Republicans want to debate 
permits, or acres, or 10 year projections, but let us just cut 
to the chase.
    The amount of oil and natural gas produced from our public 
lands has gone up every year of the Obama Administration, 
period. In fact, we have been riding this horse so long and so 
hard that we have left every other country far behind.
    Nobody has as much riding on ``Drill, Baby, Drill'' as we 
do; and last, our Republican colleagues claim that ``Drill, 
Baby, Drill'' can win this race. The truth is that despite the 
long head start, and despite the uneven field, and despite all 
the money that we have been riding on that horse, history has 
proven that ``Drill, Baby, Drill'' will never get us to the 
finish line.
    That horse has given us everything it has, more barrels of 
oil, and more cubic feet of natural gas, more acres under 
lease, more permits to drill, and no matter what we do, no 
matter how many subsidies or tax breaks we give, the price at 
the pump remains beyond our control.
    The harder we whip that horse the further away the finish 
line seems. At some point, we have to face facts. The 
Republican energy policy amounts to nothing more than beating a 
dead horse.
    So what might happen if we get serious, and we let clean 
energy out of the gate? Well, the first thing you need to know 
is that clean energy can catch up because it is incredibly 
fast.
    Just think about the speed of the arrival of the internet, 
or the elapsed time between the rotary dial phone and the 
iPhone, when this country puts its mind to something. The speed 
of innovation will take your breathe away.
    And unlike ``Drill, Baby, Drill,'' the longer we let clean 
energy run the cheaper it gets. There is a Moore's Law for 
solar that says that each time we double production, the cost 
of solar panels drops 18 percent.
    The investment that we make in this horse stands to be the 
best that we have ever made. The most important clean energy 
that can win, and the most important is that clean energy can 
win this race.
    While ``Drill, Baby, Drill'' runs in place, clean energy is 
moving forward. This horse will create new jobs, American jobs, 
developing American technology, and this horse can cut energy 
prices by reducing our oil imports.
    If we unleash clean energy, let her out of the starting 
gate, we will find ourselves in the winners circle in no time 
as a country looking over our shoulders at number two and 
number three in the world.
    That is our opportunity, and that is the conclusion of my 
opening statement, with 17 seconds left to spare. I thank you, 
Mr. Chairman.
    The Chairman. You were up to that challenge that was 
offered by Mr. Holt, and I thank the Ranking Member for that. 
We have two votes. The Committee will stand in recess until 
approximately 11 o'clock. Hopefully, we can do it before that, 
but no later than 11 o'clock. The Committee stands in recess.
    [Recess.]
    The Chairman. The Committee will reconvene. Our next 
witness is Dr. Foss, and I saw her just a moment ago. The 
Committee will be in recess momentarily.
    [Recess.]
    The Chairman. We will continue with our panel, and I want 
to thank all of you for bearing with us while we had votes on 
the Floor. So, at this time, I would like to introduce Dr. 
Foss, Chief Energy Economist at the University of Texas. Dr. 
Foss, you are recognized.

  STATEMENT OF DR. MICHELLE MICHOT FOSS, Ph.D., CHIEF ENERGY 
  ECONOMIST, CENTER FOR ENERGY ECONOMICS, BUREAU OF ECONOMIC 
  GEOLOGY, JACKSON SCHOOL OF GEOSCIENCES, UNIVERSITY OF TEXAS

    Dr. Foss. Thank you, Mr. Chairman, and thanks to you and 
Members of the Committee for once again inviting me to serve as 
a witness. Hydrocarbons are exceptional commodities. They 
improve living standards, and improve the quality of life.
    They are challenging to develop. They are commodities and 
so prices are variable. Prices are variable for many reasons, 
including actions and events. We are in a time which events are 
creating expectations about prices, and that leaves us with a 
number of questions on what do we do about this, and how do we 
manage it, and what kinds of things can we think about.
    To me, one of the most important things is to ensure that 
the domestic industry and production remain competitive, and 
this is a broad charter for both the industry and government.
    A good way to start is by understanding the industry 
business cycles. I view, and many people like me tend to view 
the industry cost structure on the basis of full, break even 
costs, not just what it costs to sink a drill byte, and drill a 
well, but to stay in business. All the cash costs that have to 
be carried by companies in order to do what they do to hold 
acreage and inventory, regardless of whether it is public or 
private leases, to pay for geological and geophysical staffs, 
engineering staffs, to explore, to do research, until you are 
finally ready to begin to develop a drillable prospect.
    Full break even finding and development costs are high, and 
have been rising for a number of reasons. Part of it is because 
of the kinds of resources. They are abundant. Unconventional 
resources are everywhere, but there are expenses.
    The reservoirs are complex, and so incremental costs of 
extracting additional barrels, or cubic feet of gas from those 
resources, can be expensive. As long as we have a high and 
rising marginal cost curve, then we will have price 
variability.
    So how do we manage that high and rising cost curve, and 
what are the kinds of things that we can do. One is to look at 
where we can increase production volumes, because the more that 
you can produce for a given dollar invested, the better off you 
are going to be.
    Natural gas offers one way to do that. We have an abundant 
natural gas base. It also has a high cost structure at present, 
but we can already see that there are some improvements being 
made, in terms of bringing costs down.
    We can understand that costs that companies face are 
affected by many things, such as policies, regulations, and 
other issues. We can understand better that companies need 
access to resources in order to be able to maintain portfolios 
of leaseholds that can be used to develop drillable prospects.
    Replenishing production is an essential part of maintaining 
competitiveness in the domestic business. Protecting private 
property rights and ensuring access to private lands is just as 
important as ensuring access to public lands.
    Our shale gas plays have succeeded largely because of 
private mineral ownership and the ability to negotiate access 
with private mineral owners and develop resources that way.
    But we have to look at public lands, especially in 
locations like the Gulf of Mexico, and reach a point in which 
we can feel comfortable that we can responsibly manage access 
to those resources, and maintain our critical science and 
technology base for offshore exploration, and continue to push 
the oil production renaissance that we seem to be having in the 
United States, in the Gulf of Mexico, and Balkan shales, and 
other plays.
    We can also debottleneck the industry. We have an 
interesting situation in which our domestic crude is priced 
lower than international crudes, and to a large extent it is 
because of infrastructure.
    So we need to continue to be able to expand oil and oil 
product pipelines, not just within the United States, but 
across our borders. We also need to understand the social 
economic benefits that the industry provides, and these are 
large and varied, and it includes jobs, not only directly in 
the industry, but also indirectly through service companies and 
local investments and procurement.
    The industry pays taxes. It is actually one of the larger 
tax paying entities. I wanted to just draw the Committee's 
attention to a report in the Wall Street Journal that matched 
our own research on this, to the degree to which the petroleum 
industry pays, perhaps up to a third of effective taxes for the 
United States, and much larger than internet based companies, 
which is interesting to think about since I don't think that I 
can put Facebook in my gasoline tank.
    The final thing is to just understand better how energy 
affects transportation systems, and the differences between 
some of the clean energy options that we would like to pursue, 
and energy density values in gasoline and diesel. Thank you.
    [The prepared statement of Dr. Foss follows:]

Statement of Dr. Michelle Michot Foss, Chief Energy Economist and Head, 
Center for Energy Economics, Bureau of Economic Geology, Jackson School 
                of Geosciences, The University of Texas

    Mr. Chairman and members of the Committee on Natural Resources, I 
am Michelle Michot Foss, Chief Energy Economist and Head of the Center 
for Energy Economics, based in the Bureau of Economic Geology, Jackson 
School of Geosciences at The University of Texas. I am pleased and 
honored to be selected as a witness for the Committee.
    Hydrocarbons are exceptional commodities, given the number and 
variety of essential products manufactured from these raw materials 
with relative ease. These essential resources improve living standards 
by:
          Constituting the major sources of energy fuels for 
        everything from heating to lighting;
          Enabling local to global transportation systems; and
          Providing molecular building blocks for an incredible 
        array of intermediate and finished products that we use in 
        everyday life and across all industrial and economic sectors.
    By definition, a commodity is a good for which the price cannot be 
controlled by either buyers or sellers although prices may be impacted 
by actions and events. Because hydrocarbons are commodities, price is 
uncertain. Price risk is faced by all producers, even including members 
of the Organization of Petroleum Exporting Countries (OPEC), and all 
customers. The strong pace of growth in demand for hydrocarbons, 
especially from emerging markets, and challenges in finding and 
delivering new sources of supply, largely the result of human 
interventions, periodically combine to increase uncertainty about 
forward prices. Geopolitical events, including major economic and 
business cycles, work to exacerbate uncertainty. Fear about how 
geopolitical events might unfold adds momentum to price movements. When 
geopolitical events occur within the ``Petroleum Heartland'', the 
breadbasket for hydrocarbons extraction that stretches across North 
Africa and the Middle East into Central Asia and Russia, uncertainty 
and fear can become accelerated.
    For this hearing, I offer my views on the topics intended to be 
covered--domestic resources, production and the economic impact of 
rising gasoline prices--along with some thoughts about what can be 
done.
What Can Be Done
  Ensure that the domestic industry and production remain 
        competitive.
    A good way to start is by gaining a better understanding of the 
industry business cycle and the inherent link between full finding and 
development costs and oil and gas prices. As prices fall, capital 
expenditures (CAPEX) and drilling also drop off. At some point, lower 
prices trigger demand growth. Rising demand relative to available 
supplies and deliverability signals new CAPEX. As prices rise, CAPEX is 
increasingly attracted to the higher marginal cost projects. During oil 
and gas business cycles, as price falls below marginal cost incremental 
sources of supply begin to drop out of the market and the next cycle is 
generated.
    Because of the inherent dynamics in these cycles, I view full 
breakeven finding and development (FD) costs as the essential driver 
for oil and gas prices. Full breakeven FD costs include both 
``drillbit'' exploration and production costs and the cash operating 
costs of oil and gas production. FD of incremental supplies sets the 
marginal cost curve for the industry and provides the best clue to 
customers about the direction of prices. We have been, and will remain, 
in a rising FD cost environment, the consequence of many factors. One 
is the worldwide shift toward unconventional oil and gas resources 
involving more complex reservoirs and advanced drilling and production 
technologies, with all of the attendant environment and safety 
considerations. Another is increasing remoteness of ``frontier'' 
resources, presenting additional logistics management constraints for 
both field operations and field-to-market linkages. A third, important, 
factor is ``government gatekeeping'' with respect to resource access. 
In the U.S. we have our own particular land management practices and 
costs for securing mineral rights, whether in the private or public 
domains. Many sovereign governments elsewhere are reticent to provide 
clear, transparent, competitive rules for licensing exploration rights. 
The end result is a ``cost push'' that comes both as a consequence of 
timing (when new supplies will come online) and an uncertainty about 
volumes. There are many more factors.
    A conclusion is that as long as we have a high and rising marginal 
cost curve relative to strong and rising demand worldwide, price risk 
and uncertainty will remain substantial. Uncertainty about the future, 
``forward expectations'', adds to variability.
    The figures below illustrate the strong linkage between full 
breakeven FD costs expressed in dollars per barrel of oil equivalent 
(BOE), including both ``drillbit'' cost and cash costs associated with 
oil and gas production. The first chart provides a longer term view, 
using three-year averages. The second provides a shorter term 
illustration using annual data. In either case, full FD cost accounts 
for prevailing crude oil prices. The relatively small and periodic 
deviations up or down between the price that might be implied from FD 
costs and actual prices determined in the market reflect uncertainty 
and shifting expectations, including the force of geopolitical events.






    When or if CAPEX injections yield drilling and production 
success--as in the case of the U.S. shale gas plays--increased 
production volumes can result in prices falling below marginal costs. 
Shale gas and liquefied natural gas (LNG) investments were made in 
response to extraordinarily strong natural gas price signals. Given the 
current premium of crude oil to natural gas prices (nearly 22 to 1 in 
raw data, $/barrel and $/MMBtu or million British thermal units; nearly 
4 to 1 in MMBtu equivalent terms) shale gas producers are in a flight 
to oil and liquids to sustain or restore profitability. In a 2007 paper 
for Oxford Institute for Energy Studies, I argued that U.S. natural gas 
prices could occupy a range of $3 to $5 per MMBtu through 2015. The 
preponderance of evidence always has been that the Lower 48 is a rich 
natural gas province. The question was always when and how would 
resources be converted to reserves and production, and with what cost 
and price conditions. Substantial LNG import terminal investments add 
to prodigious natural gas supply deliverability capacity for the U.S., 
a comparative advantage that requires careful thought and planning.




    Full FD costs are a reflection of the CAPEX surge into new 
projects, the more complex unconventional resource plays that are 
attracting interest, and the interactions between price-driven 
investment trends and component costs. Increased CAPEX places a 
``call'' on materials, like steel and other metals, and services used 
for oil and gas drilling. In turn, higher energy costs impact the cost 
structure of materials and service providers. Labor also is affected--
the cost of skilled workers becomes more expensive. Interactions are 
complex with leads and lags. Costs are ``sticky downward'' and can 
quickly build up again--as they are doing now. Higher costs can 
eventually be offset by higher production volumes, resulting in lower 
unit (per barrel and per cubic foot) costs and prices. Indeed, the 
impact of higher natural gas production volumes is already in evidence 
in the three-year and annual full breakeven FD cost charts above. The 
2009 $/BOE unit costs are substantially lower because of growth in oil 
and gas production volumes, but particularly the latter.
    Our abundant shale gas basins place the United States first among 
oil and gas producing countries (top chart below). For illustration 
purposes, I included the BOE equivalent of our shale gas resource 
estimates. Even without the shale gas plays, the U.S. would be a 
significant resource holder. We have a long history of successfully 
replenishing reserves to replace production_a key component of industry 
competitiveness that is absolutely essential for successful exploration 
and production businesses as well as for future generations of 
customers. The chart below also illustrates the impact of gatekeeping 
for resource access. What makes the U.S. different, what sets us apart 
from other natural resource rich nation states is our system of private 
property rights for minerals. The shale gas and many of the shale oil 
plays have been able to be launched largely because companies can 
negotiate directly with private land and mineral owners. In every other 
country, sovereign governments manage the subsoil as a patrimony for 
their citizens. It is important to recognize in these turbulent times 
that poor management of resource wealth is a consequence of faulty 
underlying systems and regimes rather than the other way around. 
Private property rights and ``rule of law'' are essential for economic 
growth and development. These linkages are well understood and 
documented in political economic literature. Protection of property 
rights in both the private and public domains is critical to sustaining 
domestic oil and gas industry and production competitiveness.





    Domestic oil and natural gas reserves and production have grown 
with new investments in key plays. Along with the shale gas basins, new 
prospective areas for oil resource plays are under development. The 
Bakken shale in the U.S. Midwest region is yielding substantial and 
growing volumes of oil from favorable reservoir layers within the 
shale. Oil and liquids are being targeted in formations like the Eagle 
Ford in Texas that had originally been magnets for shale gas CAPEX. 
Current thinking is that a number of locations around the Lower 48 
could be prospective for significant new--if challenging to develop--
oil finds. A key question for domestic industry and production 
competitiveness is forward strategy for the U.S. Gulf of Mexico (GOM). 
To retain the huge science and technology edge associated with our 
offshore industry, a workable and streamlined framework simply has to 
be achieved in a timely fashion. Already, CAPEX and research and 
development (R&D) spending is exiting the GOM for more attractive 
locations abroad. Safety and security cannot be compromised, but 
industry and government must move quickly to restore competitiveness.





    U.S. crude oil stocks have reached recent highs because of both 
production gains and slack demand. Domestic oil production gains in 
plays like the Bakken and shipments of oil to the U.S. from Canada have 
resulted in a price disparity not unlike the low price phenomenon for 
natural gas at Henry Hub. However, U.S. consumers are not able to 
benefit fully from lower U.S. crude oil prices. One of the main 
locations for oil aggregation, Cushing, Oklahoma, in Petroleum 
Administration Defense District (PADD) 2, is well above five-year norms 
in inventories (see chart below). Because the marker crude for this 
location, West Texas Intermediate (WTI, also the crude for the main 
traded futures contract) is landlocked with insufficient pipeline 
takeaway capacity, the ``spread'' between WTI and Brent (North Sea) has 
widened to historic differentials. Refiners that have access to WTI are 
benefitting from a lower cost domestic crude price than refiners that 
only have access to imports. Consumers served by refiners with WTI 
supplies are able to benefit. But the overall market is not impacted by 
cheaper U.S. crude oil. This disparity points to a distinct need: as 
new domestic and Canadian plays and projects yield increased production 
and growing reserves, new infrastructure is needed to ensure 
deliverability into the market. Already, major natural gas pipeline and 
storage investments are underway to support the emerging shale gas 
plays. The same need must be met for crude oil and petroleum product 
shipments. ``Debottlenecking'' the oil and gas transportation and 
storage system requires transparent, sensible, and timely certification 
of facilities_in short, ``access'' for right of way to build 
infrastructure is just as critical as access to oil and gas resources 
in order to sustain domestic industry and production competitiveness. 
Debottlenecking would have sustained and long term influence on the 
energy marketplace. Communication on debottlenecking and meaningful 
strategies for GOM production and other key issues would be much more 
impactful than using the Strategic Petroleum Reserve (SPR).





  Many socioeconomic benefits are derived from domestic 
        resource production and utilization.
    Sustaining these socioeconomic benefits will require a competitive 
tax and business environment. Total industry employment growth averaged 
six percent per year from early 2000s until recently with recession and 
soft natural gas prices. In many states with established oil and gas 
production businesses, economic conditions have been somewhat better 
than for the nation as a whole. Employment and other economic benefits 
are derived not just from direct oil and gas industry activity but many 
indirect and ancillary activities as well. After many years of slack 
spending, R&D investments by industry (which provides nearly all R&D 
investment in oil and gas) surged, a reflection of the deep technology 
and human resource needs in the shale oil and gas plays, deepwater GOM 
and other frontiers. R&D spending is a vital component of 
competitiveness and generates a wealth of connected economic benefits.





    Another major socioeconomic benefit derived from domestic 
industry activity is tax payments. As shown in the first chart below 
(for exploration and production only), the oil and gas industry incurs 
both income and non-income tax expenses including Federal, State and 
Local income tax payments; production taxes (severance taxes and 
other); sales and property taxes; and payroll taxes. In addition, 
beneficiaries of domestic industry payments for surface access and 
mineral rights (royalties and bonuses) incur their own and separate tax 
expenses. Companies that provide materials and services to the industry 
contribute separate income, payroll and other non-income tax streams. 
Finally, companies with foreign operations provide large and extensive 
tax streams. Tax payments fluctuate with commodity prices and 
profitability; tax payments for 2009 were lower than previous years. 
When producers face operating losses, as many do now in the face of low 
natural gas prices relative to full breakeven FD cost, tax payments are 
nil. Importantly, the oil and gas industry is typically the highest 
effective tax payer among U.S. corporate contributing roughly 33 
percent of total U.S. federal tax take (and ignoring all other tax 
expense streams).




    Currently, consumer pocketbooks are benefitting significantly 
from lower natural gas prices, which help to offset higher gasoline 
costs. We learned during the 2002-2008 rise in oil prices that the most 
heavily affected energy customers are those for whom energy costs are a 
larger share of their disposable incomes. Consumer and household debt 
are declining as Americans work to bolster their disposable incomes and 
build post-recession resiliency. Competitive energy supplies and prices 
help enormously in household budget management. Consequently, a 
distinct and important benefit of domestic industry and production 
activity is felt right at home and in the pocketbook of every energy 
consumer and customer. The same process needs to happen for the U.S. 
economy. Prevailing views are that U.S. sensitivity to higher oil and 
petroleum fuels prices is a consequence of our own fiscal house not 
being in order. To the extent that we continue to incur deficits in our 
current (international trade) accounts and deficits and debt in our 
national fiscal accounts, we are much more likely to suffer 
consequences. Strong connections exist between oil prices, the relative 
value of our dollar, inflation, interest rates and fiscal and monetary 
policies associated with these measures. Competitiveness of the 
domestic oil and gas industry is tied to overall health of the U.S. 
pocketbook and economy. Likewise, competitive domestic industry and 
production can make direct contributions toward improved economic and 
fiscal health by making our energy system more resilient, reliable and 
cost effective.
  Gasoline is the highest energy density system--with 
        substantial consequences for prices and forward strategies.
    Demand for crude oil is derived from our demand for the useful 
products we make from crude--gasoline and other fuels and materials. At 
a time when calls are increasing to mandate shifts away from gasoline 
and oil-based fuels, we should be cautious about expected benefits and 
unintended consequences. The chart below, provided by Toyota, offers a 
vivid illustration of the challenges in diversifying transportation 
fuels and systems as well as for meeting environment targets.




    Lower energy density fuels and systems pose great hurdles for 
commercialization. Not only do they yield less energy delivered for 
``work'', they also require comparatively larger resource inputs. 
Together, these constraints mean fewer environmental and economic 
benefits than are achieved when higher energy density transport fuels 
and systems are deployed. Lithium-ion battery designs and similar 
approaches not only rank lowest in energy density, but also bear many 
difficulties when it comes to securing the additional raw materials to 
manufacture and replace batteries and other components. Plug in hybrid 
and other electric vehicle concepts that would rely on renewable energy 
systems are further complicated by the low energy density 
characteristics of renewable energy technologies and resources. 
Emerging research using life-cycle measurements and other full cost 
analysis has introduced many questions into conventional thinking about 
alternative energy designs.
    A current argument is that abundant domestic natural gas supplies 
should be utilized for vehicle transport (CNG or compressed natural gas 
as shown in the Toyota chart above). The current steep discount for 
natural gas relative to petroleum products has spurred both thinking 
and action. Natural gas vehicles or NGVs face the low energy density 
challenge for commercialization. More success can be gained with truck 
fleets so long as engine performance is not compromised. An alternative 
question also could be raised: should natural gas be used to 
reinvigorate the U.S. industrial base? This debate is currently 
underway in the National Petroleum Council's study on use of domestic 
oil and gas resources to achieve low carbon objectives. A natural gas-
led industrial and manufacturing renaissance in the U.S. would create 
enormous socioeconomic benefits as well as helping to ``right the 
ship'' of the U.S. economy by increasing exports, boosting trade flows 
and contributing to fiscal recovery. As with domestic oil and gas 
industry competitiveness, a U.S. industrial renaissance would require 
favorable business and economic conditions and sensible policy and 
regulatory approaches for success.
  Many other options exist to seize control of the future and 
        manage oil price risk and uncertainty.
    The energy density challenge should send a strong message for R&D: 
it would be much wiser to consolidate spending and invest in basic 
materials science research rather than alternative technology 
giveaways. The Federal system of energy R&D could be overhauled with 
much more productive approaches. Pre-commercial and emerging 
technologies that have benefitted from Federal seed funds could be 
auctioned instead of supported with additional public financing. Market 
tests of new technologies could happen more quickly this way. And while 
the focus of this hearing and deliberations are on our domestic oil and 
gas industry and production, it is important that we protect free trade 
and encourage free trade in oil and gas and other critical raw material 
commodities. As I stated earlier, bad political systems lead to bad 
results from resource wealth. Resource rich nations need to produce and 
sell and invest their returns wisely, preferably through private 
capital, in economic development and diversification. Wealth from 
resource sales may feed information technologies and democratization.
                                 ______
                                 
    The Chairman. Thank you very much, Dr. Foss. Next, we will 
go to Mr. Guy Caruso, Senior Advisor, Energy and National 
Security Center for Strategic and International Studies. Mr. 
Caruso, you are recognized for five minutes.

STATEMENT OF GUY F. CARUSO, SENIOR ADVISOR, ENERGY AND NATIONAL 
    SECURITY, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

    Mr. Caruso. Thank you, Mr. Chairman, and good morning all 
Members of the Committee, and I thank you for this opportunity 
to give my views on the global oil market and the implications 
for United States energy policy.
    As Dr. Newell mentioned, 2010 was a very strong year in 
global oil markets. So we go into this period of now political 
unrest in North Africa with a fairly strong market.
    We saw prices break out of a range of $75 to $80 a barrel, 
which they were in most of last year, to over $90 even before 
the unrest began. We saw most forecasters expecting 2011 to be 
a year in which prices would challenge or would reach the $90 
to $100 range.
    So this is a strong market we are in, and I think we now 
have the situation in Libya, where about a million barrels a 
day has been disrupted. Last year, OPEC already began 
increasing its production to meet increased demand. Non-OPEC 
supplies were increasing, and that is going to continue.
    Most forecasters now believe that given the uncertainty 
about Libya, and whether it will spread, are now looking to 
maybe add $10 or $20 to that price. We have seen already 
between $5 and $15, depending on your views, of a fear premium 
that is in the oil market.
    So I think that despite these demonstrations the most 
important concern is will this spread to Algeria, to where 
demonstrations have existed, and even to places like Saudi 
Arabia, which so far has been spared any serious disruption.
    We have the spare capacity that is sufficient to meet this 
one million barrel a day or so decline in Libya. But if it 
spread, we would most likely require some further action, and 
as you know the President has said that his Administration is 
prepared to use the SPR should that become necessarily.
    And since the market is adequately supplied right now, I 
think that is the proper course, but continue monitoring, and 
continue working with our partners within the International 
Energy Agency (IEA) and others in the oil producing community 
is probably the right thing to be doing right now.
    However, the SPR is a powerful tool should this disruption 
increase, and it could be used to manage the expectations of 
further risk which is out there, and should the disruption 
expand, it may well be necessary in coordination with our 
partners in the International Energy Agency to use the SPR.
    OPEC countries have said that they are prepared to add 
barrels to the market, and Saudi Arabia has already done that. 
Over the longer term, of course, we have many of the issues 
that have already been mentioned by the opening statements here 
on both sides of the equation, reducing demand through 
efficiency, and increasing supply.
    And I think it is important that the United States energy 
policy recognize the long-term nature of the investments on 
both sides of the equation. Michelle outlined some of them on 
the supply side, and on the demand side, there are a number of 
things that I think we need to keep doing, especially improving 
efficiency in automobiles through policies like the CAFE 
standards and other incentives.
    Certainly using market mechanisms to incorporate the 
externalities of both security and environment into the price 
that we pay, facilitating development of natural resources, and 
that is an important work of this Committee.
    And I think that the infrastructure needed to develop 
things like Balkan that Brenda Pierce mentioned was such a 
potentially large resource for domestic oil, and even gas. It 
is important that those facilities be encouraged.
    Things like imports from Canada should also be encouraged, 
as well as continuing to improve on the amount of money spent 
for R&D to lead to the technology and innovation that both of 
your opening statements indicated would be required.
    There are many other specifics, but I would like to leave 
that for the Q&A, and once again, thank you for this 
opportunity to be here today.
    [The prepared statement of Mr. Caruso follows:]

    Statement of Guy F. Caruso, Senior Advisor, Energy and National 
                               Security, 
             Center for Strategic and International Studies

    Mr Chairman, members of the committee, thank you for the 
opportunity to present my views on the current global oil market 
situation and the implications for U.S. energy and economic policy.
    My current position is senior advisor to the Energy and National 
Security program at the Center for Strategic and International Studies 
(CSIS). CSIS is a bipartisan, nonprofit organization headquartered in 
Washington, DC. CSIS does not take specific policy positions: 
accordingly all views expressed in this testimony are my own.
The Global Oil Market Situation and Outlook
    The global oil market strengthened considerably in the latter part 
of 2010 as a result of the improving economic conditions in many 
developed countries such as the United States and among European Union 
members and strong economic growth in many emerging economies such as 
China and India.
    As a result world oil demand increased by 2.8 million barrels per 
day in 2010 (mmb/d) bringing world oil demand to about 88 mmb/d. This 
was the second largest year on year increase in the last 30 years. 
Although the increase was from a recession induced lower demand in 2009 
strong global demand placed upward pressure on crude oil and refined 
product prices. Crude oil prices (WTI and Brent) were mostly in the 
$75-85 per barrel range for much of 2010 until late 2010 and early 2011 
when prices moved into the $90-100 per barrel range on the strength of 
demand for gasoline and diesel oil. Gasoline prices in the U.S. 
averaged $2.78/gallon in 2010 and had risen to $3.10/gallon in January 
2011. The current average is more than $3.50/gallon.
    Oil supplies have responded to higher prices. The Organization of 
Petroleum Exporting Countries (OPEC) members led by increases in Saudi 
Arabia ended 2010 at its highest output in two years. Non-OPEC 
countries such as, the U.S., Canada, Russia, China and Brazil, also 
increased production in 2010. It is important to note that other 
liquids from oil sands, biofuels and natural gas made important 
contributions to these supply increases.
    Thus the political unrest in North Africa and the Middle East comes 
at a time when the global oil market is adequately supplied with the 
prospect of steady demand increases. Prior to the political turmoil in 
the region the consensus among organizations and institutions which 
project oil market supply, demand and price was for a moderate increase 
in price to the $90-100 per barrel range for 2011. Increased 
uncertainty has raised the consensus projection by about $10-20 per 
barrel. As the March EIA short-term energy outlook indicates, there is 
a moderate risk that prices will rise well above the consensus.
    With the notable exception of Libya, demonstrations and civil 
unrest have not significantly affected oil production or major transit 
routes such as the Suez Canal.
    Libyan oil exports are reported to have been substantially reduced 
from their pre-disruption rate of about1.3 mmb/d. This represents about 
2% of world oil production.
    Global spare crude oil production capacity (as well as refining 
capacity) and healthy worldwide inventories are more than adequate to 
offset the loss of 1.3mmb/d. Saudi Arabia's spare capacity alone is 
sufficient to offset the volumetric loss of Libyan oil. However Libya's 
crude is of very high quality and replacement with Saudi crude would 
come at increased refinery and logistical costs. Nevertheless the 
combination of alternative crude oil supplies, product inventories and 
excess refining capacity can make this replacement possible at some 
loss of refinery efficiency.
    The critical uncertainty for the global oil market is whether or 
not supply disruptions will spread. Demonstrations in moderately sized 
oil producing countries such as Algeria and Yemen seem to have 
subsided. Markets react to uncertainty by bidding up prices and that 
clearly has happened in the global oil market. The ``risk premium'' 
appears to be about $5-15 per barrel compared with pre-disruptions 
expectations.
    Oil is a truly fungible global commodity and electronic trading 
means instantaneous reaction to events effecting supply and demand. 
Therefore a disruption anywhere is a disruption everywhere transmitted 
through the price mechanism. The U.S. imports very little Libyan oil 
but the economic damage from higher prices is the same as in Italy 
which imports a substantial amount of oil from Libya.
    The most recent example of globalized energy markets are the tragic 
events unfolding in Japan as we meet today. The severe damage to 
Japan's nuclear capacity, oil refinery capacity and liquefied natural 
gas receiving capacity has boosted prices for refined oil products and 
natural gas. Market expectations are that Japan will require increased 
imports of fuel oil and LNG in the coming months. Preliminary estimates 
indicate potential increased demand of 100,000 to 200,000 b/d.
    In the very short-term, the challenge to U.S. policymakers is to 
mitigate the possible economic damage of higher energy prices and to be 
prepared for the uncertainty of a potentially worse supply disruption. 
In the medium to longer term, the challenges are broader and deeper as 
we face a global energy system in major transition. Energy demand is 
shifting away from the industrialized countries to emerging economies. 
Major new supplies of oil will require massive investments increasingly 
dominated by national oil companies which have different objectives and 
ways of operating. Emerging new players are flexing their political and 
economic muscle. In short, the above the ground risks to adequate, 
affordable and timely oil supplies are increasing.
Implications for U.S. Energy and Economic Policy
    In the short term, the main policy measure available to the U.S. 
government is use of the Strategic Petroleum Reserve (SPR). The SPR 
contains more than 720 million barrels of crude oil. Within two weeks 
of a Presidential decision oil could be available to the market at a 
maximum rate of more than 4 mmb/d.
    President Obama and his advisors have indicated that they are 
prepared to release oil from the SPR should that become necessary. The 
current assessment from the administration is that the market is 
adequately supplied and that they will be closely monitoring the 
situation along with our partners in the International Energy Agency 
and in key oil exporting countries.
    I believe that is the correct course of action at this time.
    The U.S. is a member of the International Energy Agency (IEA) along 
with 28 other oil consuming countries. The IEA has a Coordinated Early 
Response Mechanism (CERM) which could be activated quickly. IEA 
countries, including the U.S., hold 1.6 billion barrels of government 
controlled inventories with a drawdown capability of 8-10mmb/d. The IEA 
system was used successfully after the Iraqi invasion of Kuwait and in 
the aftermath of Hurricane Katrina.
    The IEA governing board met in late February to assess the 
developments in North Africa. The IEA Executive Director declared that 
the system is ready to be activated immediately should that be 
necessary.
    Oil producers recognize that high and rising oil prices could 
damage the fragile global economy and limit demand for their oil 
exports in the medium and long term. Saudi Arabia has indicated a 
willingness to increase production to insure that markets are 
adequately supplied. Saudi Arabia is estimated to have 3 to 4 mmb/d of 
spare capacity and to have already increased output to about 9 mmb/d. 
In 2010 Saudi production was estimated at 8.1mmb/d.
    In the medium and longer term, U.S. energy policy would benefit 
from a comprehensive approach in order to cushion our economy from 
disruptions and the longer term geopolitical risks in this precarious 
energy landscape. The comprehensive approach requires a policy that 
recognizes the long term nature of the transition from fossil fuels to 
alternatives. A transformation is already underway, however, due to 
financial and technology limitations, a large existing capital stock 
that runs on fossil fuels and the lack of infrastructure to support a 
new system, that transition will take at least several decades. In sum 
there is no scalable alternative available today to replace our current 
system.
    In the meantime, our policies should be directed at promoting 
efficiency (reducing demand) and increasing supply of current fuel 
choices with effective environmental safeguards. Concurrently we need 
to promote technological development and innovation through research 
and development.
    The following are some specific examples to facilitate reduced 
demand and increased supply in the medium and long term:
    Demand side examples:
          Improved vehicle efficiency standards;
          Incentives for highly efficient vehicles such as 
        hybrids (including plug-ins);
          Incentives for natural gas fleet vehicles;
          Market mechanisms which include externalities in the 
        cost of energy such as a carbon tax.
    Supply side examples:
          Facilitate development of domestic resources such as 
        shale gas and tight oil (Bakken) through infrastructure 
        expansion;
          Accelerate approval of drilling permits in the Gulf 
        of Mexico with effective oversight;
          Facilitate secure sources of energy imports from 
        Canada;
    These are just a few of the many examples which can promote a more 
energy efficiency economy, enhance secure energy supplies and increase 
environmental sustainability for the long term.
    Mr Chairman, members of the committee, this concludes my testimony. 
Thank you.
                                 ______
                                 
    The Chairman. Thank you very much, Mr. Caruso, and last, we 
will go to Mr. Rusco, Director of Natural Resources and 
Environment, for the Government Accountability Office. Mr. 
Rusco, you are recognized for five minutes.

 STATEMENT OF MR. FRANK RUSCO, DIRECTOR, NATURAL RESOURCES AND 
         ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Rusco. Thank you, Mr. Chairman, and Members of the 
Committee. I am pleased to speak with you today about the 
Department of the Interior's management of oil and gas produced 
on Federal lands and waters, in the context of the economic 
impact of these domestic resources.
    The Department of the Interior manages the leasing of 
Federal lands and waters for oil and gas exploration, 
development, and production. These activities provide an 
important domestic source of energy for the United States, 
create jobs in the oil and gas industry, and raise revenues 
that are shared between Federal, State, and tribal governments.
    In general, oil and gas exploration and development 
activity has been highly correlated with oil and gas prices. 
Over the past decade leasing and drilling activity on Federal 
lands and waters, and other lands, has generally increased.
    However, during this same period, Interior has found it 
difficult to strike the right balance between encouraging 
domestic oil and gas production on one hand, and on the other 
maintaining operational and environmental safety, and providing 
reasonable assurance that the public's financial and other 
interests are being protected.
    I will focus my remaining remarks on how Interior can 
improve its management practices, and implementation of laws 
and regulations to provide reasonable assurance that the public 
interest and the environment are protected, and that 
development of Federal lands for oil and gas can continue in a 
timely and efficient manner to contribute to the Nation's 
economic growth and stability.
    Interior has struggled to hire, train, and retain enough 
people with the right skills to keep up with its regulatory 
responsibilities. For example, in 2005, we reported that BLM 
staff could not keep up with increased applications to drill.
    The agency ended up pulling staff that were hired to do 
National Environmental Protection Act reviews to instead 
process applications to drill. In 2010, we found that BLM staff 
were unable to keep up with an increased workload associated 
with public protests of proposed leases, and that as a result 
these lease approvals were late, which created uncertainty and 
additional costs for oil and gas companies.
    Improving Interior's human capital practices and workforce 
planning could lead to better protection of the environment, as 
well as more efficient and timely issuance of leases.
    Interior does not have a centralized and coordinated 
process for approving use of new technologies on Federal oil 
and gas leases. At best this slows down the process for 
approving new technologies that could improve oil and gas 
production, and at worst could prevent good technologies from 
being deployed, or allow inappropriate technologies to be used.
    Further, Interior has not been consistent across field 
offices in completing production verification inspections and 
oversight, leading to uncertainty about whether the public is 
getting its share of oil and gas revenue.
    Creating more consistent practices and interpretations of 
laws and regulations could benefit both the public and oil and 
gas companies.
    Revenue collection is a broader concern. In 2008, we 
reported that Interior had not comprehensively evaluated its 
revenue collection scheme in over 25 years, despite significant 
changes in the industry.
    The current revenue collection scheme is complex, including 
payments from companies such as bonuses paid for the right to 
develop a lease, royalties for any oil and gas found, corporate 
profit and other taxes, and land rents, as well as subsidies 
from the government to oil and gas companies, including royalty 
relief, tax credits, and favorable depreciation schedules.
    Interior is currently undertaking a comprehensive study of 
this system, and we hope that there will be ways to simplify 
and improve this complex scheme so that the public can have 
confidence that it is receiving an appropriate share of 
revenue, and that oil and gas companies continue to view the 
United States as a desirable place to do business.
    In conclusion, regulation and management of Federal oil and 
gas exploration, development, and production, should have two 
important goals. One is to protect the financial and other 
interests of the public, and provide confidence that oil and 
gas development is safe, and environmentally sound; and two, to 
reduce uncertainty in any unnecessary regulatory burden on the 
oil and gas industry.
    Striking the appropriate balance between these two goals is 
important so that the country can continue to enjoy the 
economic and strategic benefits of domestic oil and gas 
production. Thank you. I will be glad to answer any questions 
that you may have.
    [The prepared statement of Mr. Rusco follows:]

Statement of Frank Rusco, Director, Natural Resources and Environment, 
             United States Government Accountability Office

    Chairman Hastings, Ranking Member Markey, and Members of the 
Committee:
    We appreciate the opportunity to participate in this hearing to 
discuss domestic oil and gas production in light of rising gas prices 
and the country's continued employment challenges. American families, 
communities, and businesses all depend on reliable and affordable 
energy for their health, safety, and livelihoods. Energy--including oil 
and gas--is crucial to many aspects of peoples' daily lives, including 
transportation, communication, food production, medical services, and 
heating and air-conditioning. Since December 2010, oil prices have been 
increasing, topping $100 per barrel in recent weeks. The most recent 
spike in oil prices has been attributed to political unrest in the 
Middle East--a major exporter of oil. In part because the United States 
currently imports approximately 51 percent of its oil each year for 
domestic consumption, many have called for increasing domestic 
production of oil and gas, including from resources located on leased 
federal lands and waters. Currently, oil produced from federal offshore 
leases accounts for approximately 30 percent of all domestic 
production, while oil produced from federal onshore leases accounts for 
approximately 6 percent. Oil and gas produced from federal leases is 
also an important source of revenue for the federal government. In 
fiscal year 2009, the federal government collected more than $9 billion 
in revenues from oil and gas produced from federal lands and waters, 
purchase bids for new oil and gas leases, and annual rents on existing 
leases. This makes revenues from federal oil and gas one of the largest 
nontax sources of federal government funds.
    The U.S. Department of the Interior plays an important role in 
managing and providing oversight of federal oil and gas resources. The 
explosion onboard the Deepwater Horizon drilling rig and subsequent 
fire and catastrophic oil spill in the Gulf of Mexico in April 2010 
further emphasized the importance of Interior's management of 
permitting and inspection processes to ensure operational and 
environmental safety. Under its current organizational structure, 
Interior's bureaus are responsible for regulating the processes that 
oil and gas companies must follow when leasing, drilling, and producing 
oil and gas from federal leases. The bureaus are also responsible for 
ensuring that companies comply with all applicable requirements. 
Specifically, Interior's Bureau of Land Management (BLM) oversees 
onshore federal oil and gas activities; the Bureau of Ocean Energy 
Management, Regulation, and Enforcement (BOEMRE)--created in May 2010--
oversees offshore oil and gas activities; and the newly established 
Office of Natural Resources Revenue (ONRR) is responsible for 
collecting royalties on oil and gas produced from both onshore and 
offshore federal leases. Prior to the creation of BOEMRE, the now-
abolished Minerals Management Service's (MMS) was charged with 
administering offshore federal leases and managing the collection of 
royalties for onshore and offshore leases; MMS's Offshore Energy and 
Minerals Management (OEMM) oversaw offshore oil and gas activities, 
while its Minerals Revenue Management (MRM) was responsible for royalty 
collections from both onshore and offshore federal leases.
    Interior's management of federal oil and gas activities is 
critically important and has been a focus of a large body of our work 
that has found numerous weaknesses and challenges that need to be 
addressed. In response to our recommendations, Interior has taken steps 
to address material weaknesses and modify its practices for managing 
oil and gas resources, but as of December 2010, many recommendations 
remained unimplemented. Accordingly, we designated Interior's 
management of federal oil and gas resources as a high risk issue in 
February 2011.\1\
---------------------------------------------------------------------------
    \1\ GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: 
February 2011).
---------------------------------------------------------------------------
    In this context, my testimony today discusses findings from our 
past work on five broad areas: (1) the ongoing reorganization of 
Interior's bureaus dealing with oil and gas functions, (2) the 
challenges Interior faces balancing timely and efficient oil and gas 
development with environmental stewardship responsibilities, (3) 
Interior's management of human capital, (4) Interior's collection of 
oil and gas revenues, and (5) Interior's role in the development of 
existing leases. This statement is based on our extensive body of work 
on Interior's oil and gas leasing and royalty collection programs 
issued from September 2008 through February 2011. We conducted the 
performance audit work that supports this statement in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to produce a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our statement today. 
Additional information on our scope and methodology is available in 
each issued product.
Potential Challenges with Reorganization of Oil and Gas Functions
    Interior's ongoing reorganization of bureaus with oil and gas 
functions will require time and resources, and undertaking such an 
endeavor while continuing to meet ongoing responsibilities may pose new 
challenges. Historically, BLM managed onshore federal oil and gas 
activities, while MMS managed offshore activities and collected 
royalties for all leases. In May 2010, the Secretary of the Interior 
announced plans to reorganize MMS into three separate bureaus. The 
Secretary stated that dividing MMS's responsibilities among separate 
bureaus would help ensure that each of the three newly established 
bureaus have a distinct and independent mission. Interior recently 
began implementing this restructuring effort, transferring offshore 
oversight responsibilities to the newly created BOEMRE and revenue 
collection to ONRR. Interior plans to continue restructuring BOEMRE to 
establish two additional separate bureaus--the Bureau of Ocean and 
Energy Management, which will focus on leasing and environmental 
reviews, and the Bureau of Safety and Environmental Enforcement, which 
will focus on permitting and inspection functions.
    While this reorganization may eventually lead to more effective 
operations, we have reported that organizational transformations are 
not simple endeavors and require the concentrated efforts of both 
leaders and employees to realize intended synergies and accomplish new 
organizational goals.\2\ In that report, we stated that for effective 
organizational transformation, top leaders must balance continued 
delivery of services with transformational activities. Given that, as 
of December 2010, Interior had not implemented many recommendations we 
made to address numerous weaknesses and challenges, we are concerned 
about Interior's ability to undertake this reorganization while (1) 
providing reasonable assurance that billions of dollars of revenues 
owed to the public are being properly assessed and collected and (2) 
maintaining focus on its oil and gas oversight responsibilities.
---------------------------------------------------------------------------
    \2\ GAO, Results-Oriented Cultures: Implementation Steps to Assist 
Mergers and Organizational Transformations, GAO-03-669 (Washington, 
D.C.: July 2, 2003).
---------------------------------------------------------------------------
Challenges of Balancing Oil and Gas Development with Environmental 
        Stewardship
    We have reported that Interior has experienced several challenges 
in meeting its obligations to make federal oil and gas resources 
available for leasing and development while simultaneously meeting its 
responsibilities for managing public lands for other uses, including 
wildlife habitat, recreation, and wilderness. In January 2010, we 
reported that while BLM requires oil and gas operators to reclaim the 
land they disturb and post a bond to help ensure they do so, not all 
operators perform such reclamation.\3\ In general, the goal is to plug 
the well and reclaim the site so that it matches the surrounding 
natural environment to the extent possible, allowing the land to be 
used for purposes other than oil and gas production, such as wildlife 
habitat. If the bond is not sufficient to cover well plugging and 
surface reclamation, and there are no responsible or liable parties, 
the well is considered ``orphaned,'' and BLM uses federal dollars to 
fund reclamation. For fiscal years 1988 through 2009, BLM spent about 
$3.8 million to reclaim 295 orphaned wells, and BLM has identified 
another 144 wells yet to be reclaimed.
---------------------------------------------------------------------------
    \3\ GAO, Oil and Gas Bonds: Bonding Requirements and BLM 
Expenditures to Reclaim Orphaned Wells, GAO-10-245 (Washington, D.C.: 
Jan. 27, 2010).
---------------------------------------------------------------------------
    In addition, in a July 2010 report on federal oil and gas lease 
sale decisions in the Mountain West, we found that the extent to which 
BLM tracked and made available to the public information related to 
protests filed during the leasing process varied by state and was 
generally limited in scope.\4\ We also found that stakeholders--
including environmental and hunting interests, and state and local 
governments protesting BLM lease offerings--wanted additional time to 
participate in the leasing process and more information from BLM about 
its leasing decisions. Moreover, we found that BLM had been unable to 
manage an increased workload associated with public protests and had 
missed deadlines for issuing leases. In May 2010, the Secretary of the 
Interior announced several departmentwide leasing reforms that are to 
take place at BLM that may address these concerns, such as providing 
additional public review and comment opportunity during the leasing 
process.
---------------------------------------------------------------------------
    \4\ GAO, Onshore Oil and Gas: BLM's Management of Public Protests 
to Its Lease Sales Needs Improvement, GAO-10-670 (Washington, D.C.: 
July 30, 2010).
---------------------------------------------------------------------------
    Further, in March 2010, we found that Interior faced challenges in 
ensuring consistent implementation of environmental requirements, both 
within and across MMS's regional offices, leaving it vulnerable with 
regard to litigation and allegations of scientific misconduct.\5\ We 
recommended that Interior develop comprehensive environmental guidance 
materials for MMS staff. Interior concurred with this recommendation 
and is currently developing such guidance.
---------------------------------------------------------------------------
    \5\ GAO, Offshore Oil and Gas Development: Additional Guidance 
Would Help Strengthen the Minerals Management Service's Assessment of 
Environmental Impacts in the North Aleutian Basin, GAO-10-276 
(Washington, D.C.: Mar. 8, 2010).
---------------------------------------------------------------------------
    Finally, in September 2009, we reported that BLM's use of 
categorical exclusions under Section 390 of the Energy Policy Act of 
2005--which authorized BLM, for certain oil and gas activities, to 
approve projects without preparing new environmental analyses that 
would normally be required in accordance with the National 
Environmental Policy Act--was frequently out of compliance with the law 
and BLM's internal guidance.\6\ As a result, we recommended that BLM 
take steps to improve the implementation of Section 390 categorical 
exclusions through clarification of its guidance, standardizing 
decision documents, and increasing oversight.
---------------------------------------------------------------------------
    \6\ GAO, Energy Policy Act of 2005: Greater Clarity Needed to 
Address Concerns with Categorical Exclusions for Oil and Gas 
Development under Section 390 of the Act, GAO-09-872 (Washington, D.C.: 
Sept.16, 2009).
---------------------------------------------------------------------------
Human Capital Challenges
    We have reported that BLM and MMS have encountered persistent 
problems in hiring, training, and retaining sufficient staff to meet 
Interior's oversight and management responsibilities for oil and gas 
operations on federal lands and waters. For example, in March 2010, we 
reported that BLM and MMS experienced high turnover rates in key oil 
and gas inspection and engineering positions responsible for production 
verification activities.\7\ As a result, Interior faces challenges 
meeting its responsibilities to oversee oil and gas development on 
federal leases, potentially placing both the environment and royalties 
at risk. We made a number of recommendations to address these issues. 
While Interior's reorganization of MMS includes plans to hire 
additional staff with expertise in oil and gas inspections and 
engineering, these plans have not been fully implemented, and it 
remains unclear whether Interior will be fully successful in hiring, 
training, and retaining these additional staff. Moreover, the human 
capital issues we identified with BLM's management of onshore oil and 
gas continue, and these issues have not yet been addressed in 
Interior's reorganization plans.
---------------------------------------------------------------------------
    \7\ GAO, Oil and Gas Management: Interior's Oil and Gas Production 
Verification Efforts Do Not Provide Reasonable Assurance of Accurate 
Measurement of Production Volumes, GAO-10-313 (Washington, D.C.: Mar. 
15, 2010).
---------------------------------------------------------------------------
Concerns over Revenue Collection
    Federal oil and gas resources generate billions of dollars annually 
in revenues that are shared among federal, state, and tribal 
governments; however, we found Interior may not be properly assessing 
and collecting these revenues. In September 2008, we reported that 
Interior collected lower levels of revenues for oil and gas production 
in the deep water of the U.S. Gulf of Mexico than all but 11 of 104 oil 
and gas resource owners whose revenue collection systems were evaluated 
in a comprehensive industry study--these resource owners included other 
countries as well as some states.\8\ However, despite significant 
changes in the oil and gas industry over the past several decades, we 
found that Interior had not systematically re-examined how the U.S. 
government is compensated for extraction of oil and gas for over 25 
years. GAO recommended Interior conduct a comprehensive review of the 
federal oil and gas system using an independent panel. After Interior 
initially disagreed with our recommendations, we recommended that 
Congress consider directing the Secretary of the Interior to convene an 
independent panel to perform a comprehensive review of the federal 
system for collecting oil and gas revenue. More recently, in response 
to our report, Interior has commissioned a study that will include such 
a reassessment, which, according to officials, the department expects 
will be complete in 2011. The results of the study may reveal the 
potential for greater revenues to the federal government.
---------------------------------------------------------------------------
    \8\ GAO, Oil and Gas Royalties: The Federal System for Collecting 
Oil and Gas Revenues Needs Comprehensive Reassessment, GAO-08-691 
(Washington, D.C.: Sept. 3, 2008).
---------------------------------------------------------------------------
    We also reported in March 2010 that Interior was not taking the 
steps needed to ensure that oil and gas produced from federal lands was 
accurately measured.\9\ For example, we found that neither BLM nor MMS 
had consistently met their agency goals for oil and gas production 
verification inspections. Without such verification, Interior cannot 
provide reasonable assurance that the public is collecting its share of 
revenue from oil and gas development on federal lands and waters. As a 
result of this work, we identified 19 recommendations for specific 
improvements to oversight of production verification activities. 
Interior generally agreed with our recommendations and has begun 
implementing some of them.
---------------------------------------------------------------------------
    \9\ GAO, Oil and Gas Management: Interior's Oil and Gas Production 
Verification Efforts Do Not Provide Reasonable Assurance of Accurate 
Measurement of Production Volumes, GAO-10-313 (Washington, D.C.: Mar. 
15, 2010).
---------------------------------------------------------------------------
    Additionally, we reported in October 2010 that Interior's data 
likely underestimated the amount of natural gas produced on federal 
leases, because some unquantified amount of gas is released directly to 
the atmosphere (vented) or is burned (flared).\10\ This vented and 
flared gas contributes to greenhouse gases and represents lost 
royalties. We recommended that Interior improve its data and address 
limitations in its regulations and guidance to reduce this lost gas. 
Interior generally agreed with our recommendations and is taking 
initial steps to implement these recommendations.
---------------------------------------------------------------------------
    \10\ GAO, Federal Oil and Gas Leases: Opportunities Exist to 
Capture Vented and Flared Natural Gas, Which Would Increase Royalty 
Payments and Reduce Greenhouse Gases, GAO-11-34 (Washington, D.C.: Oct. 
29, 2010).
---------------------------------------------------------------------------
    Furthermore, we reported in July 2009 on numerous problems with 
Interior's efforts to collect data on oil and gas produced on federal 
lands, including missing data, errors in company-reported data on oil 
and gas production, and sales data that did not reflect prevailing 
market prices for oil and gas.\11\ As a result of Interior's lack of 
consistent and reliable data on the production and sale of oil and gas 
from federal lands, Interior could not provide reasonable assurance 
that it was assessing and collecting the appropriate amount of 
royalties on this production. We made a number of recommendations to 
Interior to improve controls on the accuracy and reliability of royalty 
data. Interior generally agreed with our recommendations and is working 
to implement many of them, but these efforts are not complete, and it 
is uncertain at this time if the efforts will fully address our 
concerns.
---------------------------------------------------------------------------
    \11\ GAO, Mineral Revenues: MMS Could Do More to Improve the 
Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties, 
GAO-09-549 (Washington, D.C.: July 15, 2009).
---------------------------------------------------------------------------
Development of Existing Leases
    In October 2008, we reported that Interior could do more do 
encourage the development of existing oil and gas leases.\12\ Our 
review of Interior oil and gas leasing data from 1987 through 2006 
found that the number of leases issued had generally increased toward 
the end of this period, but that offshore and onshore leasing had 
followed different historical patterns. Offshore leases issued peaked 
in 1988 and in 1997, and generally rose from 1999 through 2006. Onshore 
leases issued peaked in 1988, then rapidly declined until about 1992, 
and remained at a consistently low level until about 2003, when they 
began to increase moderately. We also analyzed 55,000 offshore and 
onshore leases issued from 1987 through 1996 to determine how 
development occurred on leases that had expired or been extended beyond 
their primary terms. Our analysis identified three key findings. First, 
a majority of leases expired without being drilled or reaching 
production. Second, shorter leases were generally developed more 
quickly than longer leases but not necessarily at comparable rates. 
Third, a substantial percentage of leases were drilled after the 
initial primary term following a lease extension or suspension.
---------------------------------------------------------------------------
    \12\ GAO, Oil and Gas Leasing: Interior Could Do More to Encourage 
Diligent Development, GAO-09-74 (Washington, D.C.: Oct. 3, 2008).
---------------------------------------------------------------------------
    We also compared Interior's efforts to encourage development of 
federal oil and gas leases to states' and private landowners' efforts. 
We found that Interior does less to encourage development of federal 
leases than some states and private landowners. Federal leases contain 
one provision--increasing rental rates over time for offshore 5-year 
leases and onshore leases--to encourage development. In addition to 
using increasing rental rates, some states undertake additional efforts 
to encourage lessees to develop oil and gas leases more quickly, 
including shorter lease terms and graduated royalty rates--royalty 
rates that rise over the life of the lease. In addition, compared to 
limited federal efforts, some states do more to structure leases to 
reflect the likelihood of oil and gas production, which may also 
encourage faster development. Based on the limited information 
available on private leases, private landowners also use tools similar 
to states to encourage development.
    In conclusion, as concerns rise over the recent increase in oil 
prices and as demands are made for additional drilling on federal lands 
and waters, it is important that Interior meet its current oversight 
responsibilities. Interior is now in the midst of a major 
reorganization, which makes balancing delivery of services with 
transformational activities challenging for an organization. Managing 
this change in a fiscally constrained environment only exacerbates the 
challenge. If steps are not taken to improve Interior's oversight of 
oil and gas leasing, we are concerned about the department's ability to 
manage the nation's oil and gas resources, ensure the safe operation of 
onshore and offshore leases, provide adequate environmental protection, 
and provide reasonable assurance that the U.S. government is collecting 
the revenue to which it is entitled.
    Chairman Hastings, Ranking Member Markey, and Members of the 
Committee, this concludes our prepared statement. We would be pleased 
to answer any questions that you or other Members of the Committee may 
have at this time.
Contact and Staff Acknowledgements
    For further information on this statement, please contact Frank 
Rusco at (202) 512-3841 or [email protected]. Contact points for our 
Congressional Relations and Public Affairs offices may be found on the 
last page of this statement. Other staff that made key contributions to 
this testimony include, Jeffrey Barron, Glenn C. Fischer, Jon 
Ludwigson, Alison O'Neil, Kiki Theodoropoulos, and Barbara Timmerman.
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if you wish to reproduce this material separately.
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                                 ______
                                 

           Highlights of GAO-11-487T, a testimony before the 
        Committee on Natural Resources, House of Representatives

                             March 17, 2011

                          OIL AND GAS LEASING

   Past Work Identifies Numerous Challenges with Interior's Oversight

Why GAO Did This Study
    The Department of the Interior oversees oil and gas activities on 
leased federal lands and waters. Revenue generated from federal oil and 
gas production is one of the largest nontax sources of federal 
government funds, accounting for about $9 billion in fiscal year 2009. 
For onshore leases, Interior's Bureau of Land Management (BLM) has 
oversight responsibilities. For offshore leases, the newly created 
Bureau of Ocean Energy Management, Regulation, and Enforcement 
(BOEMRE), has oversight responsibilities. Prior to BOEMRE, the Minerals 
Management Service's (MMS) Offshore Energy and Minerals Management 
Office oversaw offshore oil and gas activities, while MMS's Minerals 
Revenue Management Office collected revenues from all oil and gas 
produced on federal leases.
    Over the past several years, GAO has issued numerous 
recommendations to the Secretary of the Interior to improve the 
agency's management of oil and gas resources. In 2011, GAO identified 
Interior's management of oil and gas resources as a high risk issue. 
GAO's work in this area identified challenges in five areas: (1) 
reorganization, (2) balancing responsibilities, (3) human capital, (4) 
revenue collection, and (5) development of existing leases.
What GAO Found
    Reorganization: Interior's reorganization of activities previously 
overseen by MMS will require time and resources and may pose new 
challenges. Interior began a reorganization in May 2010 that will 
divide MMS into three separate bureaus--one focusing on revenue 
collection, another on leasing and environmental reviews, and yet 
another on permitting and inspections. While this reorganization may 
eventually lead to more effective operations, GAO has reported that 
organizational transformations are not simple endeavors. GAO is 
concerned with Interior's ability to undertake this reorganization 
while meeting its revenue collection and oil and gas oversight 
responsibilities.
    Balancing Responsibilities: GAO has reported that Interior has 
experienced several challenges with meeting its responsibilities for 
providing for the development of oil and gas resources while managing 
public lands for other uses, including wildlife habitat. In January 
2010, GAO reported that, while BLM requires oil and gas operators to 
reclaim the land they disturb and post a bond to help ensure they do 
so, not all operators perform reclamation. For fiscal years 1988 
through 2009, BLM spent about $3.8 million to reclaim 295 so-called 
``orphaned'' wells--because reclamation had not been done, and other 
resources, including the bond, were insufficient to pay for it.
    Human Capital: GAO has reported that BLM and MMS have encountered 
persistent problems in hiring, training, and retaining sufficient staff 
to meet their oversight and management responsibilities for oil and gas 
operations. For example, in March 2010, GAO reported that BLM and MMS 
experienced high turnover rates in key oil and gas inspection and 
engineering positions responsible for production verification 
activities. As a result, Interior faces challenges meeting its 
responsibilities to oversee oil and gas development on federal leases, 
potentially placing both the environment and royalties at risk.
    Revenue Collection: While federal oil and gas resources generate 
billions of dollars in annual revenues, past GAO work has found that 
Interior may not be properly assessing and collecting these revenues. 
In September 2008, GAO reported that Interior collected lower levels of 
revenues for oil and gas production in the deep water of the U.S. Gulf 
of Mexico than all but 11 of 104 oil and gas resource owners whose 
revenue collection systems were evaluated in a comprehensive industry 
study. Nonetheless, Interior has not completed a comprehensive 
assessment of its revenue collection policies and processes in over 25 
years. Additionally, in March 2010, GAO reported that Interior was not 
consistently completing inspections to verify volumes of oil and gas 
produced from federal leases.
    Development of Existing Leases: In October 2008, GAO reported that 
Interior could do more to encourage the development of existing oil and 
gas leases. Federal leases contain one provision--increasing rental 
rates over time for offshore 5-year leases and onshore leases--to 
encourage development. In addition to escalating rental rates, states 
undertake additional efforts to encourage lessees to develop oil and 
gas leases more quickly, including shorter lease terms and graduated 
royalty rates.
                                 ______
                                 
    The Chairman. Thank you, Mr. Rusco, and I again--and I said 
this earlier, I really do thank the panel for their adherence 
to the time. That is very, very helpful, and as I mentioned, 
your full statement will appear in the record.
    We will begin questioning, and I will start, and Ms. 
Pierce, if I could start with you. There is always a lot of 
discussion about reserves that we have. I remember discussions 
going way back, and it seems like when the exploration happens, 
or however it is, the reserves get larger.
    I am saying that very broadly, but where on Federal lands 
or waters from your research that currently are not open for 
development are the largest reserves, and if you could point 
out or identify two or three of those?
    Ms. Pierce. So, you probably well know that there is a 
difference between resources and reserves. Reserves are the 
economic portion of the resource endowment, and reserves, which 
is what USGS does, is technically recoverable.
    Some of the largest producers are open and are producing 
offshore in the Gulf of Mexico, but there are clearly areas 
offshore. And I don't want to avoid your question, but I want 
to do it justice.
    And so I would actually prefer to defer it, do the 
research, and look at our resource numbers, and look at what is 
off-limits, and provide that answer to you in writing.
    The Chairman. That would be fine. We want to get the 
accurate information, and so that is good.
    Ms. Pierce. Thank you.
    The Chairman. Well, I was going to ask Dr. Whitney, but you 
pointed out, Ms. Pierce, the difference between resources and 
reserves, and I noticed in Dr. Whitney's report that they 
talked about that.
    Could you go more in-depth as to the explanation between 
reserves and resources?
    Dr. Whitney. Sure. Reserves are amounts of oil or gas that 
have been proven to exist through drilling. Companies use 
reserves as sort of an inventory that they will produce at some 
point in the future.
    As those reserves are produced, they add new reserves, 
either through reserve growth in an existing field, or through 
development of new fields. For that reason reserve values, 
reserve numbers, tend not to vary wildly.
    They may creep up and down, but over time they don't change 
very much because these are amounts of oil that companies keep 
in reserve for production. The undiscovered resources are 
geological estimates in areas that either have not been 
drilled, or include some fields, but extend beyond those 
fields.
    Those geological estimates are based on several geologic 
factors within a base or within a region, such as the existence 
of a source rock that is rich in carbon. The base must have 
experienced thermal history sufficient to generate oil or gas, 
and there must be the existence or potential existence of 
reservoirs and traps.
    So there is a comparison made between undiscovered 
resources in basins, and the resources that have been produced 
in other basins. So, there is an estimate that is derived from 
a statistical treatment of the parameters in the basin, 
compared to known production in other basins.
    So the undiscovered technically recoverable resources are a 
geologic estimate, and by the way that because they are 
technically recoverable, that number also changes as technology 
evolves.
    The Chairman. Is it fair to say with that comparison then 
that just in general the resources, if one could quantify that 
as much larger than the reserves, because you know pretty much 
what the reserves are?
    Dr. Whitney. That is right, and the reserves typically are 
composed of volumes of oil that are moved from the undiscovered 
category to reserves, and then to production.
    The Chairman. I guess that is why in hearings in the past 
when people are talking about--I mean, I am going back 30 or 40 
years--known reserves, and I think that was the term used, it 
always seemed to exceed because the resources were tapped. 
Therefore, the resources kept coming on line as you 
characterized it as inventory.
    Dr. Whitney. Yes.
    The Chairman. So that is interesting. I appreciate that. My 
time is going to expire before I can get another question in, 
and so I yield to the Ranking Member, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. My Republican 
colleagues like to say that we are not doing enough drilling 
here in the United States, and a lot of the numbers that have 
been tossed around by our witnesses today can confuse a very 
fundamental point that I believe that our country must 
comprehend.
    We have two percent of the world's proven oil reserves. We 
produce 11 percent of the world's oil on a yearly basis, and we 
consume 25 percent of the world's oil on a yearly basis. Two 
percent of the reserves, and 11 percent of the world's oil, we 
produce, and 25 percent of the world's oil, we consume.
    Now, I put together a graphic to help us, and to tie these 
numbers together and to help us to understand what they mean. 
So, this is an illustration of our burn rate, or the rate at 
which our country is producing its reserves, and it compares 
our burn rate to that of the other top 15 oil producing 
countries in the world.
    And what do we learn? Well, no other nation on earth is 
matching the burn rate of the United States, in terms of 
consuming their own reserves. We consume more than any other 
nation.
    We are burning through our savings in other words, our 
reserves, faster than any other country on the planet. And as 
you can see down here in Iraq, and Kuwait, and Venezuela, and 
United Arab Emirates, Iran, they have very low burn rates.
    So in the long run this is a chart which obviously is going 
to cause our country great problems. I guess the first question 
that I would ask to you, Mr. Caruso, is this burn rate for our 
country of our reserves sustainable over the long term; yes, or 
no?
    Mr. Caruso. Ultimately, we will reach the peaking point, 
and we did reach that in 1972, in terms of domestic reserves. 
How long can it go? It can be a very long tail, but clearly we 
will be based on anybody's forecasts, it means that we will be 
importing a significant amount of oil for as long out as we can 
see.
    Mr. Markey. Mr. Rusco, do you agree? Is this sustainable 
over the long term, Mr. Rusco?
    Mr. Caruso. No. I mean, unless we discover some new 
reserves or develop more reserves, it can be sustained, but at 
a declining--most likely at a declining rate.
    Mr. Markey. And do you agree, Mr. Rusco?
    Mr. Rusco. Yes, essentially inevitably at any rate of 
production, we will eventually reach a peak that will be 
followed by a decline. We have, as Guy said, reached a peak, 
but there may be a very long tail. There are a lot of 
hydrocarbons out there, and we don't know how fast we will be 
able to produce them.
    Mr. Markey. And in which countries on this chart that are 
the oil producing countries and the United States in the world, 
which of these countries benefits in the long run most from the 
fast burn rate of the United States, in terms of its oil 
reserves? Mr. Caruso.
    Mr. Caruso. Well, the OPEC member countries are the ones 
that have been most determined to manage the price. They aren't 
always successful, but clearly I would say in general OPEC 
countries are benefiting.
    Mr. Markey. And do you agree with that, Mr. Rusco?
    Mr. Rusco. I guess I would say that oil being a global 
commodity, in some sense, it really does not matter where the 
oil is produced. The price is determined by supply and demand 
globally, and the benefits and costs of that accrue globally.
    Mr. Markey. But in this context the faster we burn down our 
reserves is the more power in the marketplace, those that have 
massive reserves for the balance of the century will have in 
terms of influencing the price in the market, since they work 
as a cartel. Would you not agree with that, Mr. Rusco?
    Mr. Rusco. I do agree that at times OPEC has been very 
successful in managing the price, and it appears that is a 
long-term strategy.
    Mr. Markey. Thank you, Mr. Chairman.
    The Chairman. The time for the gentleman has expired. The 
Chair recognizes the gentleman from Louisiana, Mr. Fleming.
    Mr. Fleming. Thank you, Mr. Chairman. Let me say first of 
all that I want to compliment this panel, because this is some 
of the most cogent informative stuff that we have had in a long 
time here.
    You know, we are approaching, in some cases, more than $4 a 
gallon for gasoline, and just as the law of gravity, as 
everything must come down, the same applies to pricing for 
commodities. It is all about supply and demand.
    Now, we do see some spikes at times when there are 
disruptions, or even economic issues that may come up, but in 
the long term, we know that the real price, and the underlying 
pricing trends are all about supply and demand.
    And what is interesting is, and back to this two horse 
analogy, where you have alternative energy racing with fossil 
fuels, or hydrocarbons, what we really have seen, particularly 
in the last five years, is an explosion of discoveries of 
supplies that we didn't know that we had.
    And then also new technologies that we can exploit to get 
to those that we haven't been able to before. A great example 
is the Haynesville shale in my own district that we didn't even 
know existed five years ago.
    And now with hydrofracking technology and horizontal 
drilling, we have such an abundance that we have trouble 
getting it out of the ground because it is so cheap. We heard 
testimony yesterday that the per gallon equivalent of natural 
gas is like a buck eighty.
    So it is clear that right now that in that two horse race 
the hydrocarbon, with the exploitation of new technologies and 
new findings, is winning this race. But let me turn to this.
    Federal Reserve Chairman Ben Bernanke testified on March 1 
before the Senate Committee on Banking, Housing, and Urban 
Affairs, noting that sustained prices, sustained rises in the 
price of oil or other commodities would represent a threat both 
to economic growth and to overall price stability.
    Now we hear the Obama Administration would rather release 
oil from the strategic petroleum reserve, when in fact we have 
as I understand it now 1.3 trillion barrels of oil equivalent 
in the ground just here in the United States, which is the 
largest in the world.
    So despite some of the things that you are hearing here 
today, information that is coming from your agency is telling 
us that we have a lot of stuff that we can use for many years.
    And that is the whole problem with alternative sources of 
energy, is that it is still not competitive in the marketplace. 
Why? Because overall we still have a very abundant supply of 
energy ahead of us.
    But what is interesting is that in 2008, Energy Secretary 
Chu told the Wall Street Journal that energy prices were the 
linchpin to an energy overhaul. Somehow we have to figure out 
how to boost the price of gasoline to the levels of Europe.
    So we actually have people in Washington here who are 
working to get that price up, when the rest of America is going 
to the pump and seeing a $50 fill-up in their car jump to $75, 
and that is crunching the family budget.
    So I would just like to have some responses from some of 
the other panel members today just real quickly how you may 
respond, and we will start maybe to the far left over there, to 
my left, and your response to some of these comments and 
statements that we have heard today.
    Mr. Newell. In terms of what? What specific aspect would 
you like me to respond to?
    Mr. Fleming. Well, I think you are hearing different 
versions of what is our ability to be energy independent in 
this country using hydrocarbons, realizing that we have gone 
from 30 percent dependency overseas to now 60 percent, and we 
are shutting off ANWR, and we are shutting off offshore 
drilling.
    We have hydrofracking under attack, which would severely 
constrict our flow of natural gas. What in your opinion is the 
future of hydrocarbons if we are allowed to exploit those, and 
how would it affect prices?
    Mr. Newell. Well, currently coal, natural gas, and 
petroleum, provide the vast majority of United States energy 
supply, over 80 percent. Our projections over the next 25 
years, which would assume the continuance of current laws and 
regulations, would see a modest decline in the fossil fuel 
share as other sources of energy, renewable energy in 
particular, increase.
    But at least an outlook for there to be a significant 
change from the current share of fossil fuels and the energy 
system, and something would need to change in terms of current 
policy, or technological breakthroughs, or other market trends 
that we are not currently foreseeing.
    The Chairman. The time for the gentleman has expired. The 
gentleman from New Jersey, Mr. Holt, is recognized.
    Mr. Holt. Thank you, and I thank the witnesses. Members of 
Congress always like to think that we can turn short-term news 
stories into immediate political benefit, and this is no less 
true with short-term news about gasoline prices.
    And I guess I would try to draw our attention to other 
longer term implications of the news today, which is that 
uprisings in the Middle East show how perilous our dependence 
on petroleum is, and the nuclear melting in Japan shows how 
perilous our dependence on nuclear power is.
    And they really underscore, I think, our failure to have a 
broad based energy portfolio, and our failure to have a 
rational look at our energy usage. Mr. Rusco, I think you said 
that prices are determined by supply and demand globally, and 
in fact several of you have said that sort of thing.
    Let me ask, I guess, first, Mr. Newell, what is the scale--
and let us put it in perspective here--of possible short-term 
energy production? I mean, suppose there were a lot more leases 
for offshore drilling released in the last couple of years.
    Suppose there were much more drilling on public lands, or 
even large increases in the drilling on private lands. What is 
the scale of the increase in production that we might achieve, 
compared to what OPEC can do by turning the valves up and down 
in the short term?
    Mr. Newell. Well, there is a considerable lag between 
increased access to resources, and then exploration and 
development, and then ultimate production of those resources.
    So there is an important issue with return to time scale, 
which I think you mentioned. In the short run, to respond to 
immediate impacts in crude oil supply, one really needs to look 
at the availability of spare production capacity in OPEC, which 
is where that currently lies.
    In terms of non-OPEC countries, they tend to produce 
available capacity at actual production. So certainly in the 
short term that is where the available spare capacity is. In 
the longer term the areas----
    Mr. Holt. I am sorry, but I am actually talking about short 
term.
    Mr. Newell. You are talking about short term?
    Mr. Holt. In other words, just to make sure that we are 
clear on this, OPEC can affect the price of a barrel of oil 
rather quickly, compared to anything that we could do by 
production in the United States. Am I stating that correctly?
    Mr. Newell. I would say that is correct. All of the spare 
production capacity that is available is in OPEC countries. The 
vast majority of that is in Saudi Arabia.
    Mr. Holt. OK. Well, there are actually so many things to 
cover, but let me just pursue this point a little bit longer. 
Mr. Markey pointed out that over the longer term this will be 
more and more true will it not, because if the United States is 
burning its oil reserves faster than any other nation, and it 
is largely OPEC countries that are burning through their 
reserves at a much, much slower rate than we are, that means 
that they will have more and more leverage than we will in 
future years if we have two percent of the reserves, and 11 
percent of the production now, and 25 percent of the 
consumption. Am I describing that accurately, Mr. Newell?
    Mr. Newell. OPEC countries currently provide about 40 
percent of global oil liquid supply, and non-OPEC countries 
about 60 percent. We, and I think most other analysts that I 
have seen, expect that the OPEC share will tend to increase 
over time because the vast majority of reserves of oil are 
located in OPEC countries.
    Mr. Holt. And because we are burning our reserves 
considerably faster than they are, and so we will have a 
smaller and smaller share, even if some of these larger, 
possibly economically recoverable by some stretch of the 
imagination, are out there; is that correct?
    The Chairman. The time for the gentleman has expired, and 
if you would respond back in writing, I am sure that Mr. Holt 
would be appreciative of that. The gentleman from Florida, Mr. 
Southerland, is recognized.
    Mr. Southerland. Thank you, Mr. Chairman. I wanted to ask, 
and I know that all of you have probably read the report that 
was delivered by the commission that the President put together 
regarding the disaster in the Gulf.
    And I am just curious, because you seem to be very astute 
in understanding this issue as good as any panel that we have 
seen come before us. I am just curious. I have asked members of 
the Administration this question, and I am just curious as to 
your answer.
    In light of the President's statement that he believes high 
oil prices are acceptable, and he made that statement on August 
20th of 2008, that it is a necessary occurrence to push us in a 
direction to make us explore other energy sources.
    And it seems that with the Department of the Interior's 
issuing of 720 violations to BP, and which was bothersome to 
me, in not rescinding the Jones Act in light of that disaster 
to help contain the oil that was spilled into the Gulf.
    I am just curious, and this is a simple yes or no, and I am 
going to run down the line here. Mr. Rusco, does the government 
bear any responsibility, any, for the oil disaster in the Gulf?
    Mr. Rusco. The commission said----
    Mr. Southerland. I am not really interested in the 
commission. They have already been here. I am really interested 
in what you think.
    Mr. Rusco. Yes, they----
    Mr. Southerland. Is that a yes?
    Mr. Rusco. Yes.
    Mr. Caruso. Yes.
    Dr. Foss. Yes.
    Dr. Whitney. Yes.
    Mr. Southerland. OK.
    Ms. Pierce. Probably.
    Mr. Southerland. No, you are on the panel. It is just you 
and me right here talking. Forget all these other people. It is 
just you and me. Give me your opinion, Ms. Pierce.
    Ms. Pierce. It is difficult.
    Mr. Southerland. Well, I understand it is difficult, and 
that is why I asked it, but it really is not that difficult. 
720 violations cited, and refusal to----
    Ms. Pierce. I think----
    Mr. Southerland. And it is my time, that is right, and so I 
am asking the question; yes or no?
    Ms. Pierce. I don't know.
    Mr. Southerland. You don't know? So the 720 violations, the 
refusal to contain the accident and rescind the Jones Act, in 
light of what we have seen, and the underwriting of oil 
exploration in countries like Brazil by this Administration, 
and you are telling me that the government bore no 
responsibility?
    And Mr. Salazar is an amazing man. He had 70,000 employees 
at his disposal, with a $12 billion budget, and he can focus 
like a laser beam as he stated last week in testimony here. Do 
they bear any responsibility? I mean, one percent, five 
percent?
    Ms. Pierce. Well, clearly the Department of the Interior--
--
    Mr. Southerland. OK. And that is where that well was?
    Ms. Pierce. Yes.
    Mr. Southerland. Thank you. Mr. Newell.
    Mr. Newell. Congressman, respectfully, I have not evaluated 
the issue, and so I am going to decline to answer.
    Mr. Southerland. Really? You have read the report?
    The Chairman. Will the gentleman yield?
    Mr. Southerland. Yes, I would.
    The Chairman. It is very difficult sometimes when you call 
up members of the Administration, albeit different agencies, to 
respond on those questions in deference to my friend, and I 
know very well how focused he has been on that answer. But I 
just wanted to make that observation.
    Mr. Southerland. Let me ask with my remaining time a 
question to Mr. Newell. Do you believe that with the decline of 
over 250,000 barrels per day, do you believe that this will 
cause job producing oil companies to remove their rigs from the 
Gulf, and move those to other countries around the world?
    Mr. Newell. So I think you are referring to in our short-
term energy outlook, we are forecasting a decline of about 
250,000 barrels per day relative to last year in offshore Gulf 
of Mexico, oil production, which is maybe roughly half of that 
that one could attribute to the well blowout moratorium and 
subsequent regulatory situation.
    The other half is due to--approximately half, is due to 
natural decline because we had been on an upswing in offshore 
production. In terms of job losses, there are certainly job 
losses associated with the decline in production there.
    And in terms of rigs and their specific location, early on 
there actually had not been much movement of rigs. To be 
honest, I have not recently tracked exactly where those rigs 
are, and so I could not comment specifically on that.
    Mr. Southerland. But the ones that are missing are not in 
the Gulf, and so they are somewhere. They are somewhere. We 
know they are somewhere. They are not where we would really 
need them to be though. We know that, correct? I mean, there 
are rigs that are moving.
    Mr. Newell. It is true that at some point in time rigs will 
move on early on. The last time that I looked closely at it, 
they had not because they were waiting in anticipation that 
drilling would resume.
    And so at the point in time that I last looked at it, there 
had not been significant movement, but that was a while ago, 
and so I just can't comment on exactly what the situation is 
today.
    Mr. Southerland. Thank you, Mr. Chair.
    The Chairman. The gentleman's time has expired. The 
gentlelady from Hawaii, Ms. Hanabusa.
    Ms. Hanabusa. Thank you. Than you, Mr. Chairman. Let us 
begin with Mr. Newell. Mr. Newell, in your statement, on page 
two, you said that what you are about to discuss in your report 
did not take not take into effect what happened in Japan.
    Japan would definitely have an impact on what you were 
looking at as a short-term energy outlook. Can you tell me if 
you were to calculate that into your statement here how it 
would have an impact?
    Mr. Newell. Sure. The short-term production, and 
particularly price outlook that is reflected in the testimony 
is from our short-term energy outlook, which came out a couple 
of weeks ago.
    And since then we have seen significant fluctuations in oil 
and gasoline prices. In terms of specifically Japan, and in 
terms of an immediate response, we had actually seen a decline 
in oil prices, which I think most of us would have associated 
to a concern that there would actually be a decline in the 
economic activity, and an immediate decline in the requirements 
for fuel.
    But also just a broader sense that there was a hit to 
Japan's economy, and which has global implications. As of 
yesterday the price of oil was down significantly. Today, it is 
back up again.
    So in terms of how this all shakes out, there are really a 
number of competing things that are going on right now in 
global oil markets. A principal one is the unrest in the Middle 
East and North Africa.
    Japan was weighing on that yesterday, but today it seems 
like the resurgence is probably more associated with again 
turning to unrest in the Middle East and North Africa. So the 
sense in which we will have to reflect the effect of Japan, I 
think that will we will see over the next several weeks how 
that unfolds.
    Ms. Hanabusa. Thank you, and my next question is for Mr. 
Caruso. Mr. Caruso, in some reports that you have been quoted 
in, you are speaking about the release of the oil from the 
Strategic Petroleum Reserve.
    And for all of us the main question is how does that then 
translate to the consumer? What does the consumer, or can the 
consumer expect some kind of relief if we were to go to the 
releasing of oil from the SPR? Could you comment on that?
    Mr. Caruso. I think it obviously depends on the amount and 
the duration of the release, but we saw both during the Iraq 
invasion of Kuwait, and the post-Katrina releases that were 
Presidential draw downs of the SPR. That did have an impact on 
lowering the price of oil from where it was before the release 
and after.
    So it really depends on specific circumstances, and a 
significant release for a long, or relatively long duration, 
which in my view would be 30 days or more, could have an impact 
on the price, depending on whether or not OPEC countries might 
respond by reducing their production.
    So it is a lot more contingent on the global, and what 
happens elsewhere, but the specific answer is that it could 
have an important effect, depending on the volume and duration.
    Ms. Hanabusa. Is there anything else that could have an 
impact like that in the short term? Is that our best tool to 
reduce the price for the consumer right now that you can think 
of?
    Mr. Caruso. I think that particularly if it is done in 
cooperation and coordination with our International Energy 
Agency partners is the most important short-term crisis 
management tool that we have in our arsenal.
    Ms. Hanabusa. Thank you. My next question is for Director 
Rusco. It seems to me that you are talking about two different 
things in your report. One is the revenue, or the Interior's 
failure, I guess, for lack of a better description, for really 
monitoring the revenue source, and the second is the permits, 
and what is going on.
    Can you tell me if in fact the permitting system, or the 
leasing system, by Interior has really resulted with the loss 
of the revenue?
    Mr. Rusco. Well, that is very complicated, but we do think 
that the efficiency of the management of permitting leaves a 
lot to be desired, and could be done in a more efficient way if 
Interior could do better workforce planning, and better 
management of its human capital assets so that it had the right 
number of people to respond to changes in either applications 
to drill, or nominations for lands to be leased.
    But also to respond to public protests of those leases, and 
it has not responded to those kinds of changes very effectively 
in the past. So there have been delays. The delays on leases 
associated with the protests have been matters of months 
though, and not years or anything like that.
    The Chairman. The time for the gentlelady has expired. The 
gentleman from Colorado, Mr. Tipton.
    Mr. Tipton. Thank you, Mr. Chairman. I appreciate the panel 
taking the time to be able to be here today, and I would like 
to start with Mr. Newell first. I came out of the District of 
Colorado to where we have a tremendous amount of energy 
reserves that are accessible really for our Nation.
    Do you know how many oil and gas leases are currently 
backlogged in the State of Colorado?
    Mr. Newell. I do not. That would be in the Department of 
the Interior, I believe.
    Mr. Tipton. OK. It would fall under that? In terms of some 
of the backlogs, Mr. Rusco, when you are talking about being 
able to create some efficiencies in the permitting process, do 
you have some good ideas that we can pass on to the Secretary 
of the Interior?
    Mr. Rusco. Well, we have recommended that Interior look at 
trying to rationalize the implementation of laws and regs 
across its many field offices in the Bureau of Land Management.
    So what we see is an inconsistency in the application of 
laws and regulations, and we feel that coordinating and 
providing better guidance across all the field offices would 
make it easier and more efficient, both from the perspective of 
companies applying, but also in terms of protecting the 
environment, and protecting safety, and also collecting the 
right amount of revenues.
    Mr. Tipton. Ms. Pierce, could you give us an idea when we 
are looking at oil shale, how many potential barrels of oil are 
captured in oil shale?
    Ms. Pierce. Oh, there is a tremendous amount of potential 
barrels.
    Mr. Tipton. Could you give us an idea? How many barrels?
    Ms. Pierce. Well, we just recently did a reevaluation of 
that, and I don't have the numbers at my fingertips, but there 
are billions of in-place resources. We did not do a technically 
recoverable resource estimate, because there is not one 
technology yet that is proven, but there is a lot of potential 
oil.
    Mr. Tipton. So with an investment in technologies to be 
able to liberate this energy, America can have a bright future 
in terms of energy development in this country?
    Ms. Pierce. Possibly.
    Mr. Tipton. Is that possibly the case?
    Ms. Pierce. There is a lot to be done, but possibly.
    Mr. Tipton. Great. Mr. Caruso, you had made the comment 
that we had reached our peak, I believe it was, in 1972, around 
1972, concerning domestic reserves, and I just happened to read 
some body language, and I saw Dr. Foss shake her head. Would 
you care to comment on that, Dr. Foss?
    Dr. Foss. I have no idea what the peak might be, and I do 
not think that anyone does, and I really think that people 
cannot claim to know that. The earth is a huge place 
geologically. We have abundant resources that we have not even 
begun to really explore, or learn how to utilize.
    So I think that what we are faced with are periodic 
constraints and timing. How do you mobilize investment and 
direct that into new plays, and new prospective areas, new 
technologies, and every time that we do that, we replenish our 
production.
    And I wanted to put that word on the table from the 
previous discussion, replenishment. That is what we do in this 
country. So it is unfair to look at burn rates and things like 
that without understanding that what we are very, very, very, 
very good at is moving from that resource category to reserve 
category, to production, in a very efficient way.
    And it is a powerful process that has to be better 
understood, and shepherded the right way, and managed the right 
way by industry and government. Now, I don't see any reason to 
think about peaks or other constraints.
    I think the constraints have more to do with how we feel 
about our resources that are available, and the various options 
that we have for developing them.
    Mr. Tipton. Good. Ms. Pierce, we have had a lot of comment, 
and you cannot ever take the politics out of anything, but in 
regards to United States energy production under the Obama 
Administration, but can you give me an idea in regards to our 
onshore leases that began producing after 2008, how many of 
these were due to leases that were approved by the previous 
Administration?
    Ms. Pierce. I really cannot answer that, because that is 
not USGS, but we would have been happy to work with the Bureau 
of Land Management to get you that answer.
    Mr. Tipton. Great. Just by way of comment, we hear that we 
have two percent of the world's oil reserves in this country, 
and that we consume--we have that burn rate of around 25 
percent.
    There was some who believe, and I happen to be one, that we 
benefit the world. We happen to be one of the highest 
productive people in the world that reach out, and when we are 
talking about Japan, the United States naval ships, and the 
resources that we are able to bring to bear to be able to help 
people when they are need, and the technology, which 
unfortunately never comes in our intellectual capital into our 
trade calculations, in terms of our exports as well.
    There is a lot of opportunity for this country to be able 
to develop our resources right here at home, and to switch in 
terms of how we are using some of those resources. The T. Boone 
Pickens Plan, when it comes to being able to drive our vehicles 
as well, that those opportunities are certainly going to be 
there, and thank you, Mr. Chairman, for your time.
    The Chairman. The time of the gentleman has expired. The 
Chair recognizes the gentleman from Michigan, Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman. First, just one point 
in response to a statement made by my friend, Mr. Southerland. 
A point of clarification there. There are actually more rigs in 
the Gulf of Mexico now than there were before the BP spill.
    There are now 125 rigs in the Gulf, compared to 122 one 
year ago. I just wanted to put that on the record. But I have a 
question of Mr. Newell. Speculation is often pointed to as a 
cause of rising or unstable oil prices.
    To help prevent harmful speculation in last year's Wall 
Street reform legislation, included provisions to regulate 
these kinds of trades through the Commodity Futures Trading 
Commission, the CFTC.
    However, spending bill H.R. 1 would cut the funding for 
CFTC by $56.8 million, almost a third of the agency's entire 
budget. This is despite the chairman of CFTC recently 
testifying before the Senate Agricultural Committee that the 
CFTC already does not have enough funding to properly enforce 
these provisions under the Wall Street Reform Bill.
    Can you speak to the role of speculation in the price of 
oil, and the difficulties of addressing this problem when H.R. 
1 would reduce the budget of the agency in charge of cracking 
down on speculation by almost a third?
    What I am really asking you is your position on the role of 
speculation and whether we should be cutting the money used to 
scrutinize and enforce that speculation?
    Mr. Newell. Well, to the first part of your question. 
Speculation clearly has a role in oil and other commodity 
markets, and because commodities, and in particular oil, but 
others as well, are storable, there is always going to be an 
anticipation or expectations about what the price of that might 
be in the future.
    And therefore there will be actors in the market making or 
basically voicing their opinions through the marketplace about 
how they think those prices will change over time. In terms of 
the role of different regulatory agencies, the agency that I 
head is not a regulatory agency, but the role of regulatory 
agencies like the Commodity Futures Trading Commission, is to 
oversee transparent and efficient markets.
    The proposals that they are developing relate to position 
limits in energy commodity markets. I mean, the intent of those 
is to prevent excess concentration of any particular actor in 
those markets, and therefore, from a market efficiency point of 
view, the role of that is to prevent any undue influence on 
market prices.
    But I would defer in terms of expressing a further opinion 
on the role of that regulation.
    Mr. Kildee. Well, Congress last year felt that speculation 
did play a role, and therefore passed legislation, which is a 
law of this Nation, to try to scrutinize and regulate that 
speculation.
    And I guess we want to know whether we should be--if that 
legislation made sense in the first place, we would be cutting 
the budget of the agency that is to look at that speculation. 
It is not a huge budget in itself, 56.8 million, but yet they 
want to cut that by one-third. Do you think that is a prudent 
thing to do?
    Mr. Newell. I think I will decline. The budgetary 
decisions, I think, are pretty loaded with policy implication, 
and so I am going to decline to express a policy opinion on 
that.
    Mr. Kildee. Well, I would invite anyone else. Does anyone 
want to comment on that? I don't see anyone jumping in. All 
right. I will try to find the answer from someone else. Thank 
you very much.
    The Chairman. Does the gentleman yield back?
    Mr. Kildee. I yield back.
    The Chairman. The gentleman yields back his time. The Chair 
recognizes the gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman. Thanks for calling 
this hearing. It is very timely with gas hitting $3, an average 
of $3.54 a gallon today. I come from a district that we have 
been--I guess we started this whole situation with the drilling 
of oil at a Drake oil well, and within walking distance of my 
district office in Titusville.
    And I take exception with one of the comments made by one 
of my colleagues earlier about big oil. I have to tell you that 
there are families of independent drillers, small businesses, 
they have been drilling oil for generations, for 151 years.
    So this is not a big oil, and it is not an issue with me. 
This is about small businesses, and jobs, and energy security. 
Just one quick note. I thought that it was interesting that the 
chart that was shown in terms of burning through the reserves, 
that the country with the next, or the closest burn rate to 
what was portrayed as the United States was Norway.
    The United States, with over 303 million Americans in 
population, and Norway, 4 million. So, size probably does have 
a bearing on how much we use. One quick question that should be 
very easy, and I will just open this to the panel, is there any 
renewable fuel which will take the place of oil in the next 
decade, we will say?
    We can go yes or no based on your professional experience. 
Let us just go right down the row if we could.
    Mr. Newell. So, in terms of--the main fuel that would 
replace oil over our projections, which go out to 2035, is 
biofuels, principally in the form so far of corn based ethanol.
    Mr. Thompson. So, 2035. I will take that as a no since I 
said a decade. I have a number of questions, and if we could 
just get a response.
    Mr. Newell. No, we don't see petroleum being placed in the 
next decade.
    Mr. Thompson. Thank you.
    Ms. Pierce. No.
    Dr. Whitney. No.
    Dr. Foss. No.
    Mr. Caruso. Not in this century.
    Mr. Thompson. Not in this century. There you go. Raise the 
stakes.
    Mr. Rusco. I defer to the EIA on that.
    Mr. Thompson. OK. All right. Very good. I appreciate it. 
One or two more questions. Now, Mr. Rusco, this is a real basic 
question, but I think it is important for our people to 
understand.
    Can you tell us who owns the oil and natural gas on and 
offshore, which are on Federal lands?
    Mr. Rusco. Who owns the gas on Federal lands?
    Mr. Thompson. On and off Federal lands.
    Mr. Rusco. The public.
    Mr. Thompson. The public. Absolutely. The United States 
taxpayers. Mr. Newell, you state on page six that our 
recoverable crude oil resources are estimated to be 219 billion 
barrels.
    Certainly based on that, and I am sure that you would 
agree, that is owned by the American taxpayers. I guess not all 
of it is on Federal lands. How much would you estimate to be 
owned by the American taxpayers?
    Mr. Newell. I don't have with me an exact figure for that. 
The 219 billion of technically recoverable resources refers to 
all of it, and so some of that would be under private lands.
    Offshore, in the Federal offshore lower 48, is about 64 
billion barrels, which is Federally owned in effect by the 
public. But there is more than that.
    Mr. Thompson. And based on previous testimony that I heard 
earlier, I actually have confidence for the oil, the resources 
that are privately owned, and it is the issue that we have run 
up against is the ones that the taxpayers own that we have not 
done a good job of production.
    Of that 219--well, let me move on. Some of the math, I 
tried to do some basic math, and not a real strong suit of 
mine, but I calculated approximately 814,000 square miles of 
the lower 48 offshore miles have been placed off-limits by the 
President. There are no lease bids offered.
    We are not talking about the Gulf of Mexico, OK, where the 
most two recent leases were leased. It was the remaining part. 
So, 814,000 square miles off-lease, that is nearly 521 million 
acres, or five times the size of California.
    Mr. Newell or Ms. Pierce, can you tell us how much oil and 
natural gas are contained in those 521 million acres? And as 
part of your answer would you tell us when the last modern 
seismograph inventory was taken of our offshore oil and gas?
    Mr. Newell. I will defer to Brenda on the second part. In 
terms of the major part, in terms of areas that are currently 
under Congressional moratorium actually would be the central 
and eastern Gulf of Mexico, which I believe is six-point-
something billion barrels.
    That is the most promising area in terms of in terms of the 
Gulf of Mexico, and also in terms of what is available on both 
the Pacific and Atlantic coasts really is in the Gulf of 
Mexico, where the vast majority of that production is already 
occurring.
    So it would be the central part, and then the eastern part, 
which is under Congressional moratorium to 2022.
    Ms. Pierce. In terms of the seismic, I would have to look 
up some of the numbers. Some is quite recent, and some is quite 
dated, several decades old. It depends on where you are in the 
Outer Continental Shelf.
    Mr. Thompson. Thank you, Mr. Chairman.
    The Chairman. The time for the gentleman has expired. The 
gentleman from Oregon, Mr. DeFazio.
    Mr. DeFazio. Thank you, Mr. Chairman. Mr. Newell, on page 
seven, in the middle of your testimony, you say that given the 
increasing importance of OPEC supply in the global oil supply 
demand balance, another key issue is how OPEC production would 
respond to any increase in non-OPEC supply, i.e., our 
production, potentially offsetting any direct price effect.
    I mean, we hear this all the time. It is a world market. 
And for years, starting with the Bush Administration, not with 
the Clinton Administration, but the Bush Administration, and 
not the Obama Administration, I have asked that we file a 
complaint against OPEC for illegal commodity manipulation under 
the WTO.
    I am told, well, it is not covered. Well, the only 
exemption is for conservation purposes, and OPEC never pretends 
to be conserving their oil. They are setting the market by 
ramping their production up and down.
    They have ramped up because of Libya, and they will ramp 
down. They have a price target. So if we produce some 
additional oil is that likely to change, unless we sue OPEC, 
and go through a WTO process, and break the cartel?
    I mean, they could easily offset additional production here 
by dropping their production there.
    Mr. Newell. I think that is correct.
    Mr. DeFazio. OK. Thank you. Then, second, and I would 
engage anybody on the panel who wants to join me in pushing 
this issue. I had legislation on it that I have written, and 
like they say, bipartisan problem.
    The Bush Administration, the Clinton Administration, and 
now the Obama Administration, the Special Trade Representative 
will not take on OPEC. I guess we are scared of them for some 
reason.
    Second, Mr. Newell, the Enron loophole or commodity 
speculation. I mean, you spoke as though we had set a very 
stringent new limits on the markets for players in the market.
    As I understand the Financial Services Reform, it exempted 
people who were not end-users from this, particularly hedge 
funds and others, and even the other regulations for pension 
funds and folks like that, have not been promulgated yet.
    So we don't have very significant restrictions yet on 
people accumulating large numbers of contracts do we?
    Mr. Newell. I do not have an opinion on the relative 
stringency of the CFTC regulations, whether it is too much or 
too little. I just don't have an opinion.
    Mr. DeFazio. Right. OK. But the point is that you are 
saying that there is little or no effect by speculators. There 
are other experts out saying that there is a dramatic effect by 
speculators on the market, because right now there is not an 
oil shortage, but we have seen prices run up very dramatically.
    So if there is not a shortage, and we are just talking 
about supply and demand among end-users, why would the price 
run up so much if there is a balance between supply and demand?
    I think there is only one other. It has got to be problems 
with speculators, right?
    Mr. Newell. I think there has been a number of factors over 
the last several months that have driven oil prices higher. 
There has been a rebound in the global economy. I know that it 
is sometimes hard to appreciate it here, because the United 
States still has a high unemployment rate.
    But there has been significant rebound on global economic 
growth. This has led to a significant resurgence in global oil 
demand. So this had brought prices back up into the $75 to $85 
per barrel range.
    Then in the last quarter of last year, there was an 
unusually high demand for winter heating fuel, which led to a 
further increase in prices, and then on top of that, we have 
had the recent unrest in the Middle East and North Africa, 
which as unsettled the market, and has taken at least a million 
barrels per day off the market.
    And it has unsettled the market due to the centrality of 
the----
    Mr. DeFazio. But I thought the Saudis had agreed to 
increase production to offset that?
    Mr. Newell. And they have.
    Mr. DeFazio. So I guess the question is where is all that 
money going? I know where some of it is going. Exxon's profits 
last quarter of last year was the largest quarterly profit for 
any earthly entity in the history of the world, $9.25 billion, 
up 53 percent in one year.
    Is that supply and demand, 53 percent, for someone who has 
a substantial stranglehold on the market? I mean, they made a 
53 percent in one year increase in a quarterly profit?
    I mean, that is just supply and demand; no speculation 
involved, no manipulation involved, nothing. United States 
consumers should just say, oh, that is the way it is. Is there 
not anything that we can do about this?
    I mean, we can sit here and pretend that if we let out some 
more leases that somehow this is going to help. We have already 
discussed that, because OPEC will just drop the price. You 
know, they want to keep a price target, and they can keep it.
    We will not take them on at the WTO. All right. So that is 
a problem. We have ExxonMobil with operating with such market 
clout that they can drive the market, too, and gouge our 
consumers, and increase their profits 53 percent in one year? 
That is extraordinary.
    I mean, do you have any suggestions on how we can deal with 
some of this? I mean, we have long-term issues about supply, 
but we have short-term issues about people being screwed at the 
pump right now by big oil and OPEC, and we are not doing 
anything about it.
    Mr. Bishop [presiding]. Your time has expired. The 
gentleman from Georgia, Dr. Broun is recognized.
    Mr. Broun. Thank you, Mr. Chairman. I believe very firmly 
that if a nation cannot feed itself, cannot clothe itself, and 
is not energy independent, it is not a secure nation.
    And we are not a secure nation, because we are not energy 
independent. The Department of Energy was founded during the 
Carter Administration as we all know to make us energy 
independent. It has been a dismal failure in that charge.
    According to the AAA the average price nationwide for 
regular gasoline is about $3.55 a gallon. This is the highest 
price ever in the month of March, and is over 40 cents higher 
than just a month ago.
    These skyrocketing gas prices, and a risky dependence on 
fuel supplied by volatile foreign nations such as Libya, 
highlight our need for an American energy policy that 
emphasizes production and decreases our reliance upon foreign 
oil.
    The United States is the only nation on earth that forbids 
development of its own god given natural resources. We have 
been blessed by our creator with abundant natural resources, 
and we should not be hesitant to tap into them, especially at a 
time when energy costs are so high.
    However, since taking office, the Obama Administration has 
done everything in its power to lock up our energy resources 
even more with de facto moratoriums. Production in the Gulf of 
Mexico along has declined by 300,000 barrels of oil per day 
just due to the Obama Administration's actions.
    Energy is the live blood of the American economy. Our 
Nation's economic prosperity is closely tied to the 
availability of reliable and affordable sources of energy 
unfortunately.
    United States energy production has grown by only about 13 
percent, while energy consumption has grown by 30 percent since 
1973. At a time when nine percent of our citizens are 
unemployed, and in my district, we have some counties that have 
17 percent unemployment, and food prices are going higher, with 
a still struggling economy, we must do everything in our power 
to allow for a responsible use of our known American supplies 
of energy.
    Now, Dr. Foss, it has been proposed by the Obama 
Administration of the possibility of tapping into our Strategic 
Petroleum Reserves. Does this make sense at all, or should we 
develop the known resources that we have here in the United 
States?
    Dr. Foss. I think the psychology in the marketplace would 
be much more significantly impacted by decisions that affect us 
longer term rather than now. I don't think that--and this is my 
own opinion. I don't think that an SPR release right now would 
matter much because I don't think we have an inventory problem. 
We have a fear problem.
    We have a concern about the future. We have expectations 
about the future. Uncertainty about how events will unfold in a 
critical producing region, and uncertainty about policies here, 
and investment actions here.
    And I think that symbolic steps, meaningful steps, that 
indicate that we are willing to make sure that we have a robust 
industry here, would have a lot more, or much more impact on 
traders, and trader psychology, and market psychology, than 
using the SPR.
    Mr. Broun. Thank you, Dr. Foss. I think that tapping into 
the Strategic Petroleum Reserves is not sound policy, and I 
think it is wrong to even consider doing so. There are other 
things that we can do.
    I think the first time a drill hits the ground and starts 
drilling in ANWR, you will see oil prices come down worldwide. 
But what can we do, Dr. Foss, here in the United States to 
lower gasoline prices?
    Dr. Foss. Well, I think that some good points came up in 
the panel today, both on the supply side, ensuring that the 
moving portfolio of resource to reserve production conversion 
is able to function the right way.
    So that means looking at how the industry operates, and 
ensuring that appropriate regulatory and policy oversight is 
there, but that it is done the right way. It is streamlined, 
and it is transparent. Everybody can understand it; the public, 
industry, and the government agencies that are involved.
    The industry has to be able to maintain portfolios of 
drillable prospects, and I think that people have to understand 
what that entails in terms of both public and private mineral 
leasing, access to resources, and then the investment cycles 
that are needed.
    And then on the demand side, I think that some key points 
were made. Considering how valuable hydrocarbons are because of 
their energy content, we should use them wisely, and I think by 
now that we have reams of research that show how much we can 
gain by effecting things like combustion engine performance, 
and vehicle technology that allow us to get basically more bang 
for the buck for every gallon of gasoline that we use, and I 
think that is what we ought to focus on.
    Mr. Broun. Thank you. Dr. Foss, my time has expired.
    Mr. Bishop. Thank you very much. I now recognize the 
gentleman from Louisiana. You do not have a witness here that 
speaks the same language like you did yesterday, but you are 
still recognized for five minutes.
    Mr. Landry. That is right. I am going to try real hard. I 
have a lot to ask, and I don't know if I will get it all in. I 
never have enough time over here. I want to just make one quick 
comment, that I am certainty glad that mankind did not 
calculate the perils, or the perilous circumstances of sea 
voyage about 400 years ago so that they could find this great 
country.
    I guess that is why my colleagues on the other side of the 
aisle are so mad. They did not do their calculations, and I 
guess if they would have, they would not have come over here, 
and then they could have been born in Europe.
    But it is just common sense over here. I wanted to ask, and 
I do not know if they asked you this, Mr. Newell. I had to step 
out a couple of different times. But last week the President 
had a press conference.
    He made some statements, and did the White House call you 
and ask you to give them any statistics on that?
    Mr. Newell. I am sorry, but what specific statistics are 
you referring to?
    Mr. Landry. Well, he had a press conference where he talked 
about production increases, and how he was doing such a 
fabulous job of increasing oil production in this country. I 
was just wondering were you in that meeting? Did they brief 
you, and call you, and ask you to send them some statistics?
    Mr. Newell. So, if----
    Mr. Landry. That is a yes or a no. I mean, did they call 
you last week to ask you to send them some data?
    Mr. Newell. There is data in that fact sheet that comes 
from EIA, yes.
    Mr. Landry. That was sent specifically to the White House 
on a request last week?
    Mr. Newell. I was not involved in providing them data. It 
is very routine for EIA to be provided data.
    Mr. Landry. Well, do you know if you sent them this data 
that says that in the first quarter of 2011 that your agency 
said that production per day in the Gulf would decrease from 
1.59 million barrels to 1.4 million barrels a day?
    Mr. Newell. Are you asking me if the numbers are in our 
short-term energy outlook?
    Mr. Landry. No, no, no, no. I know that is your numbers. 
Did you send that to the President? Did you send that to the 
Administration, because he never mentioned that in his press 
conference. He just said that production was the highest. He is 
a fellow who gave us our law.
    Did you send that to the White House? I am trying to figure 
out if he got these statistics. Did you or did you not send 
these statistics to the White House, and if they asked you last 
week for some statistics, and was this statistic in there?
    Mr. Newell. My recollection of what is in the fact sheet 
was kind of history, historical, as opposed to our forecast.
    Mr. Landry. Well, do you not think that--well, you do not 
just send him facts, but you evidently tried to influence 
policy by doing forecasts, or you would not have run these 
numbers.
    I mean, do you not think that it was your responsibility to 
send it to the President, and say, boss, I think you are fixing 
to make a big misstatement?
    Mr. Newell. We certainly do not do our forecasts to 
influence policy. Quite to the contrary, we do our forecasts in 
order to inform people about the current state of affairs, and 
the likely state of affairs in the future, given what we see in 
the market, and regulatory outlook.
    Mr. Landry. OK. That did not answer the question, but do 
you or do you not agree that under the current policy that 
production in the Gulf of Mexico will continue to decline?
    Mr. Newell. There is----
    Mr. Landry. No, no, just yes or no. I mean, it is pretty 
simple. I don't need an explanation. Is the number going down 
or is it going up?
    Mr. Newell. Over the next two years, which is where our 
short-term outlook goes, there is a decline in the Gulf of 
Mexico, in terms of offshore oil production.
    Mr. Landry. OK. So the Gulf of Mexico production factors 
into the entire domestic production, correct?
    Mr. Newell. That is correct.
    Mr. Landry. So that means that if that goes down, then 
domestic production goes down; is that correct?
    Mr. Newell. Other things being equal, that will tend to 
lower the rate of change of domestic production, yes.
    Mr. Landry. All other things being equal, like what?
    Mr. Newell. Well, there could be offsetting effects, 
because there is----
    Mr. Landry. Such as?
    Mr. Newell. Well, there has been increased production of 
liquids rich, natural gas shale plays. There has been increased 
production on the Balkan in the lower----
    Mr. Landry. Really? Well, I am glad that you brought that 
point up, because you see, he is taking credit for increased 
production, but yet there is one project in the Gulf, one deep 
water project, which started at least under Reagan.
    And another lease block was under Bush, or Clinton, and 
then I think they started drilling in Bush II in 1999, and the 
platform was set in 2005, 250,000 barrels a day. 250,000 
barrels a day. Do you think that there is anything onshore with 
one well that can produce that much oil onshore?
    Mr. Newell. I did----
    Mr. Landry. No, no, that is a yes or no. I mean, it is 
pretty easy. I mean, you know the facts. You know where all the 
oil is in the country. Do you think that there is a project 
onshore where we can get 250,000 barrels a day out of a well?
    Mr. Newell. No.
    Mr. Landry. Thank you. I yield.
    The Chairman [presiding]. Mr. Johnson of Ohio is 
recognized.
    Mr. Johnson. Thank you, Mr. Chairman, and I thank the panel 
for being here with us today. Not too long ago, we had an 
opportunity to question Secretary Salazar in a hearing here.
    And it became very clear through several of the questions, 
and the Secretary made a comment that oil prices are determined 
on an international market, and therefore, America has no 
influence, little to no influence on the price of oil.
    Thereby, little control over the price of gas at the pumps. 
Do you agree with Secretary Salazar, Dr. Foss, when he said 
that the United States cannot impact the price of oil, and 
therefore, the price of gas at the pumps?
    Dr. Foss. I disagree.
    Mr. Johnson. And would you explain why you disagree?
    Dr. Foss. We are both a large producer, the largest 
producer, and a large consumer, and I still think we are the 
largest consumer. We have not been passed up yet. That gives 
us, I think, market clout that we don't use fully to our 
advantage.
    And I think that there are a lot of ways of exercising that 
that came up this morning, I think, through international 
relationships, through our own actions, and our own country, 
and through our industry's activities, and how we signal to the 
world our intentions going forward. All of those things.
    How we manage our energy consumption, and things that we do 
to put in place to use our energy resources wisely. I think 
that all of that has impact.
    Mr. Johnson. Well, it encourages me that you think so, 
because I certainly think so as well, and as I commented to 
Secretary Salazar, it greatly concerns me that our leaders in 
the Administration, and in the cabinet, seem to feel that their 
hands are tied behind their back.
    And that is just further indication to me as I mentioned 
then that we have a failed energy policy here in America, and 
that should be alarming to the American taxpayers. It is 
certainly alarming to me.
    Another question. He brought forth a budget, and one of his 
justifications for his increase in the budget was so that they 
could put in a robust permitting approval process in place.
    Now, I don't have these numbers exactly right, but you will 
get the intent of my meaning. Three years ago, or two years 
ago, 300 and some permits approved. A year ago, a hundred-and-
some permits approved. This year, 30 something permits 
approved, and we are on a steady downhill curve.
    Why do you think it is that the Department of the Interior 
needs more money in 2012 to go back to producing and 
authorizing permits at a level for which they were doing it for 
less money three years ago? Does my question make sense?
    We were authorizing 300 plus permits just a couple of years 
ago. We are down to the thirties. In the deep water area, we 
are down to almost none, one or two. but yet, they want more 
money to put a robust permitting process in place.
    They were doing it for a lot less three years ago. Why do 
you think they need the additional money, and an increase in 
budget, Dr. Foss, to put a permitting process in place? Help me 
out.
    Dr. Foss. Sure. Thanks for clarifying that you were 
directing the question to me.
    Mr. Johnson. I am sorry.
    Dr. Foss. That is all right. I think that there is a 
certain amount of public funding that probably needs to be 
used--I am not a budget expert. There are other people who are 
Federal budget experts, and I am not--to ensure that the 
permitting process happens the way that it should.
    But around the commission report, and around other 
discussions, there are also additional avenues of making sure 
that Federal areas are managed and administered in a way that 
does not put as much pressure on the Federal budget, as perhaps 
some might think.
    And that includes a range of things, such as how the 
agencies function themselves, and getting industry to 
participate the right way. There are lots of options.
    Mr. Johnson. OK. I just want to wrap up with one final 
question, a sort of yes or no one, as well. Do you agree that 
we have a flawed permitting process?
    Dr. Foss. I think we have implementation problems, and so 
if that would----
    Mr. Johnson. Are we producing the number of permits that we 
should be producing to tap into America's resources?
    Dr. Foss. I think we need to think about how to implement a 
permitting process, and----
    Mr. Johnson. That is a yes or no question.
    Dr. Foss. Yes.
    Mr. Johnson. OK. Thank you. I yield back, Mr. Chairman.
    The Chairman. Thank you, sir. I recognize the gentleman 
from California, Mr. Denham.
    Mr. Denham. Thank you, Mr. Chairman. I actually had a 
number of questions on permitting today, which I will submit 
and look for an answer in writing, because I think that the 
most pressing issue right now actually has to do with burn 
rates.
    I am surprised to see Mr. Markey's graph there, and I would 
agree that the burn rate, that we do not want to put ourselves 
where we are in jeopardy because we are burning through all of 
our natural resources.
    But I think his chart suggests that Norway, if you believe 
that Norway and Mexico are larger than the United States, that 
would actually be a factor, or if we only had two percent of 
the world's oil reserves.
    So that is actually what I wanted to ask a number of 
questions on, and first of all, Dr. Whitney, specifically, let 
me start with the President's statement last week, which was 
that even if we tapped every single resource available to us, 
we can't escape the fact, according to the President, we only 
control two percent of the world's oil, but we consume over a 
quarter of the world's oil.
    Now, some people are talking about control, versus actually 
what are actual reserves. So I wanted to just clarify. The CRS 
did come out with a report, and the two percent figure is 19 
billion barrels of oil, correct?
    Dr. Whitney. I believe 21 or 22 billion barrels.
    Mr. Denham. And the number I show here from the CRS report 
is actually 145.5 billion barrels?
    Dr. Whitney. Again, that number has been updated. I don't 
know what the latest number is, but it is near that, yes.
    Mr. Denham. OK. Well, that is a big difference. We are 
saying two percent is less than 20 billion, but we actually 
believe that there are over 145 billion, that obviously would 
affect our burn rate.
    Dr. Whitney. This is the difference in terminology between 
reserves and undiscovered resources. The President was 
referring to reserves only, which would be 21 billion barrels 
of United States reserves, compared to total world reserves, 
and I don't have that number in front of me.
    Mr. Denham. OK. And how about total recoverable energy 
reserves? The CRS report combining, that is obviously oil, 
natural gas, coal, 1.3 trillion?
    Dr. Whitney. Yes, and the overwhelming majority of that 
number is coal if you will notice, which if the discussion 
today is about gasoline prices, that volume of coal has very 
little to do with this discussion.
    Mr. Denham. Very little, but if you understand all of our 
energy reserves, we can obviously balance those different 
reserves, and make sure that we are self-sufficient.
    I mean, that is the biggest issue if you are talking about 
burn rate. We want to be self sufficient and not in danger of 
world markets.
    Dr. Whitney. Right, and there are other issues that we can 
address. For example, the consumption of oil is tied to our 
transportation system. So if the transportation system in the 
future is converted to an electric system, or more reliance on 
electricity, then natural gas, coal, and nuclear, are fuels for 
generating electricity, and that could help move us away from 
consumption of oil.
    Mr. Denham. Thank you. And Mr. Markey's chart showed how we 
compare to the rest of the world. 1.3 trillion. How does that 
compare us to the rest of the world?
    Dr. Whitney. Well, it is the largest number in the world, 
but I want to caveat that very carefully, because as I put in 
the report, there are some caveats and disclaimers. Within the 
United States, we have very good numbers for approved reserves 
and for technically recoverable resources thanks to USGS and 
EIA.
    Once you get outside the United States that data is much, 
much harder to gather.
    Mr. Denham. How do we define recoverable?
    Dr. Whitney. Recoverable is defined by what current 
technology is.
    Mr. Denham. Well, is Tranquillon Ridge considered 
recoverable?
    Dr. Whitney. Pardon me?
    Mr. Denham. Tranquillon Ridge in California, is that 
considered recoverable?
    Dr. Whitney. I am not familiar with that field.
    Mr. Denham. Mr. Newell, Tranquillon Ridge, I am sure that 
you are aware of that. I mean, it is the biggest project in 
California, one of our largest States.
    Mr. Newell. Yes, assuming that existing technology can get 
that resource at some price, then yes, that would be 
technically recoverable.
    Mr. Denham. Are we assuming that we don't have the 
technology? I mean, that is a different debate. I would hope, 
and I would assume that we have the technology, since most 
other countries have the technology.
    Mr. Newell. I was agreeing. That is a technically 
recoverable resource as long as you have the technology would 
be in that, and so, yes, that would be included.
    Mr. Denham. So that would be included in the 19.1 billion 
barrels, the two percent that the President is referring to?
    Mr. Newell. I am not sure, because that is proven reserves, 
and so I don't know specifically whether those have been proven 
reserves booked by a company, which has an additional set of 
requirements for it to be considered proven reserves. I just 
don't know.
    Mr. Denham. What I am trying to get down to, and again I 
have a number of permitting questions, but what I am trying to 
understand is when you say that Mr. Markey shows us a chart 
that says two percent, and throws off these burn rate numbers, 
and the President talks about two percent, are we talking about 
oil that we know of, oil that is permitted and we are pulling 
out of the ground, or somewhere there in between?
    Mr. Newell. The reserve number, or the two percent number 
is specifically referring to a reserve number, which is proven 
reserves. Technically recoverable resources is a much bigger 
number.
    The Chairman. The time for the gentleman has expired.
    Mr. Denham. Thank you, Mr. Chairman.
    The Chairman. The gentleman from South Carolina, Mr. 
Duncan.
    Mr. Duncan of South Carolina. Thank you, Mr. Chairman, and 
American energy independence, that is what we are talking 
about. In 2007 and 2008, I served under the previous 
Administration, Department of the Interior, MMS, five-year 
planning, OCS, five-year planning subcommittee, which dealt 
with oil and natural gas leases on the Outer Continental Shelf, 
and talked about the next five-year plan, and where those 
leases would be.
    And I was amazed during that process how convoluted it 
really was, because we are very limited on what we could talk 
about. We were limited to a certain grid section in the western 
GOM, and one small spot off the coast of Alaska, and they were 
both in ultra-deep water.
    In 2005, I went out, and probably in 2006, I went out to 
Louisiana, and it was post-Katrina, and we flew out to a deep 
water production platform and a deep water drilling platform.
    The platform that I went to was the Devils Tower. It was a 
spar platform floating in 5,600 feet of water. We also went to 
a drilling platform, which was a pontoon drilling platform for 
natural gas about four miles away, and so I have seen it for 
myself.
    And Congressman Landry has been very clear about the impact 
of the de facto moratorium on the Gulf Coast states. The fact 
that it is not just the energy companies, or the petroleum 
companies that are drilling. It has a trickle down effect all 
the way to the smallest welder.
    It is a trickle down effect to the states that are hit by 
this recession that are losing the royalty revenues. That is a 
dummy whammy to an already impacted economy that was impacted 
not only by the spill, which was unfortunate.
    But my understanding from talking with folks is that the 
companies that do exploration and drilling have met every 
requirement of this Administration that was put out there in 
order to get back to work, and in order for the permits to be 
issued.
    But yet to this day, we only see that two permits have been 
issued. The American people want to see us deal with American 
energy independence. They understand that it is a national 
security issue.
    Let me be clear. I am for all resources that we have in 
this country to meet our energy needs. I am very pro nuclear 
energy. I am pro on drilling, OCS, and here on the mainline.
    We have had, thanks to the direction of our Chairman, we 
have had the head of BLM in the Committee, and we have talked 
about the Wildlands Act, and the fact that Secretary Salazar 
signed a Secretarial order in December to basically accelerate 
the designation of wilderness areas.
    Basically, usurping the power of this Congress, which has 
the only statutory authority to designate wilderness areas, and 
usurping that authority. So, now we are seeing that Federal 
lands are being taken off the table for energy exploration and 
energy production, to meet our energy needs in this country. I 
think that is abysmal.
    This Administration spoke just recently about--and I 
applaud them for this--on the necessity of increasing domestic 
production, but actions speak louder than words. So I ask this 
Administration to accelerate the permitting process, and let us 
get the people back in the Gulf of Mexico that have leases.
    Let us extend the current leases that are expiring, because 
those folks stepped up to the plate, and they bought the rights 
to explore for energy sources, and produce energy sources on 
those leases.
    Having been on that five-year planning subcommittee, I know 
the process that it takes to recommend to the OCS Committee the 
next five-year plan of where those leases should be. It is a 
long process.
    And if we started today--and we are five, six, seven years 
out for the next lease sale. So we have had leases expiring, 
and we don't have another lease sale. In fact, I don't know 
when that is going to happen.
    ANWR should be back on the table, Mr. Chairman. It is the 
size of the great state that I come from, and that is South 
Carolina, but if we talk about the impacted area in ANWR, we 
are talking about a size about the size of the Columbia Airport 
in Columbia, South Carolina, or maybe the size of the City of 
Charleston.
    If I stuck a postage stamp on that wall, that is what we 
are talking about. Folks, it is time for us to be serious about 
energy production, and meeting the needs of this country with 
American resources for American energy production.
    That is deep water, that is onshore, that is offshore, 
fracking, hydraulic fracturing. James Lankford from Oklahoma 
mentioned yesterday that they have been fracking in Oklahoma 
for 50 years with not an incident.
    He said come drink our water. Come drink our water. We are 
proud of it. We have the ability to do that, Mr. Chairman. Let 
us not remove this Federal land from access, for exploration. 
See what is out there, and then we can produce it.
    In Georgetown, I saw a sign for $4.69 a gallon. I think 
that is probably the highest in the Nation, but still it is 
alarming, $4.69. $3.85 is alarming. I know what $4.85 a gallon, 
diesel fuel, meant to my small business in 2008, and I know 
what the rising costs of fuel means to large and small business 
in this country, and it is time for us to be serious for that. 
Thank you, Mr. Chairman.
    The Chairman. The time of the gentleman has expired. The 
gentleman from Florida, Mr. Rivera.
    Mr. Rivera. Thank you very much, Mr. Chairman. I want to 
give you an indication of perhaps what is going on with some of 
the residents in my State, in the State of Florida, where on 
average the price of a gallon of gasoline in Florida is 
currently about $3.56, which is higher than the national 
average.
    Just a month ago, just one month ago, the average in 
Florida was $3.13, and at this time, just one year ago in my 
State, the average was $2.82. So this is a 74 cent, or 26 
percent increase over the past year in my State's fuel costs.
    Initially, I thought to ask the panel whether they were 
aware if in certain States like Florida what the average 
household income was, and whether that household income in 
States like Florida was keeping pace with the rise in fuel 
prices.
    And that, of course was going to be a rhetorical question. 
I presume that while you may not know the exact amount, you 
would probably all know the answer is absolutely not, that 
household incomes have not kept pace.
    So the fact of the matter is that according to the latest 
American Community Survey put out by the United States Census 
Bureau, the average median income in my state in Florida has 
been declining.
    People's incomes are going down. So Florida families and 
across the Nation, they are having a harder and harder time 
paying their bills, and having a harder and harder time 
providing for their families.
    And this Administration's policies, or perhaps some would 
say the lack thereof in certain areas, are making it even more 
difficult to provide for their families, and the economic 
resources are diminishing rapidly.
    With political unrest in the Middle East and North Africa, 
the summer travel season picking up in the coming months, and 
the additional rise in fuel costs that accompany it, Americans, 
I believe, are anxiously awaiting for the Administration's 
plan, for the plan to increase our fuel supply, and try to 
suppress price spikes, or foreign supply disruptions.
    Whatever the cause is, the American people need to see the 
way out. What is the plan? So I would like to ask a question of 
Mr. Newell, if you would. According to your agency, production 
in the Gulf has declined by nearly 300,000 barrels a day since 
last April.
    There have been project declines of 250,000 barrels a day, 
or will be for the next two years, continuing declines. Have 
you calculated how much in revenue via royalties the Federal 
Government and the producing Gulf States have lost?
    Mr. Newell. We have not done that calculation. That would 
be the kind of calculation that the Department of the Interior 
would do. We have not done that.
    Mr. Rivera. Well, then let me ask perhaps Dr. Foss, if you 
would, this year, or the President's Fiscal Year 2012 budget, 
proposed budget, includes over $60 billion in new taxes and new 
fees for American energy production.
    If you couple that with the lag in getting permits approved 
in the Gulf, which we have been discussing during this hearing, 
can you tell us what you believe this will do to fuel prices, 
and whether these actions will encourage or discourage 
companies to invest in American energy production?
    Dr. Foss. Anything that affects the cost of doing business, 
that full, break even finding and development costs that I 
mentioned in my testimony, will make the resources that are 
recovered more expensive.
    And the only way to offset that is to streamline other 
things. For example, the cost of obtaining permits, or the cost 
of dealing with regulatory oversight, or other actions, and 
increased production volumes so that the costs can be spread 
over more barrels or more cubic feet of gas.
    Mr. Rivera. Would anyone else like to elaborate? Perhaps 
Mr. Caruso.
    Mr. Caruso. No, I think that in that budget what is likely 
to have a significant effect is the increased costs by reducing 
or eliminating the intangibles, and the ability to expense 
intangible drilling costs.
    I am told from the smaller independent oil and gas 
producers that that is going to have a significant negative 
effect on their ability to drill as much as their expectations 
were. So I think that will in the lower term reduce United 
States production.
    Mr. Rivera. Thank you, and thank you, Mr. Chairman.
    The Chairman. The time of the gentleman has expired. The 
gentleman from Utah, Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. I appreciate the panel 
staying this lone. I think that I have outlasted everybody else 
here. Ms. Pierce, I appreciate the conversation that you had 
with Mr. Tipton of Colorado about oil shale.
    And I appreciate you saying that there were hundreds or 
billions, or billions is what I think you said, billions of 
barrels. Actually, if the Energy Department, your department, 
believes that there are 800 billion barrels that could be 
recovered, that is much bigger than what Saudi Arabia has in 
proven reserves, and it would create 100,000 jobs, and about $2 
billion in royalties, which the State's share would do a great 
job in funding our State's education system.
    As we can tell when the Secretary of the Interior pulled, 
violating this process, 77 oil leases from there, it had a 
direct impact on the funding of education in my State as well. 
So, I appreciate that comment.
    I do want to ask Dr. Foss, if I could, with some questions, 
dealing with what we have talked about so far, because it is 
very clear that when gas prices go up, and heating prices go 
up, that becomes part of the collateral damage oftentimes of 
Administration decisions, especially lately.
    So I want to follow up on what Mr. Rivera was talking 
about. In your opinion which Americans are really the most 
impacted by rising gasoline prices?
    Dr. Foss. The Americans that spend the most money on 
gasoline relative to their disposal household incomes. So 
people who have a larger share of their household budget having 
to go for gasoline.
    Mr. Bishop. So that becomes the lower economic strata of 
our society then. I am assuming that is correct?
    Dr. Foss. Yes.
    Mr. Bishop. Yes. So it would be safe to say that these 
Americans would be the ones who stand to benefit the most from 
an increase in American made oil and natural gas production? 
These would be the ones that we would be helping the most, I am 
assuming?
    Dr. Foss. Yes, that is correct.
    Mr. Bishop. We currently lease, and let me just stick with 
you, Dr. Foss, if I may. We currently lease less than four 
percent of the 2.5 billion acres of the Federal mineral estate.
    If we were to allow access to more of that Federal mineral 
estate, is it not logical that we could increase our domestic 
reserve base?
    Dr. Foss. Yes, we would.
    Mr. Bishop. You have to talk longer than that. I am used to 
bigger answers. But thank you for the direction there. What 
advantages does the United States have compared to other 
countries, or maybe hindrances do we have to other countries, 
that we might in Congress address that would encourage more 
domestic development?
    Dr. Foss. Well, I think the one that we just talked about, 
which is budgets, and taxes, and there are two things to think 
about there. One is the direct effect on the producers 
themselves, the producing community itself.
    So the tax structures they face, and the cost structures 
they face. But then the other one is the health of the overall 
economy, because just like any other industry, any other 
business, companies will do better if the overall United States 
economy and budget are in better shape.
    Mr. Bishop. OK. I appreciate that. Let me ask just one last 
one of you then. We heard yesterday a great deal of comparisons 
between the United States and other countries that I think were 
somewhat skewed in the response of doing that.
    But how does the domestic oil and gas industry compare 
here, compare to the industry in other countries, in terms of 
science or technological development?
    Dr. Foss. It is enormously different. For one thing, we 
have thousands and thousands of producers of all sizes and 
shapes, and specialties, anywhere from 9,000 to 10,000, I 
think, is still the rough estimate of the total number of 
active producers in the United States, large and small.
    They are motivated to deploy and develop the best 
technologies that they can, and they try to do that, and they 
do that freely and in an open market, and through competitive 
industry activity.
    And they have access to private owned minerals and not just 
the public owned minerals. We are the only country that is 
organized that way.
    Mr. Bishop. I appreciate that very much. I also appreciate 
the fact that we have talked a lot about offshore development, 
but I come from an inland state that has a great deal of 
potential development if it were allowed to be there.
    And if somebody who is on a school teacher's retirement, 
the future of my retirement is based on the ability of the 
economy of my State to fund that, as well as my kids' education 
system.
    So I am very sensitive when we make arbitrary decisions by 
this Administration that takes that potential development off 
the table, when we could be benefiting from that table. Mr. 
Chairman, if I have a few minutes left, could I yield to the 
gentleman from Louisiana, or if I have a few seconds left?
    The Chairman. The gentleman has 19 seconds left.
    Mr. Fleming. I would like to just for the record talk about 
the rig count real quickly. The rigs that are out there that 
they are claiming are in the Gulf of Mexico, those rigs may not 
be drilling; is that correct? So it does not do us any good to 
count a rig that is not drilling.
    Mr. Newell. That is correct. Rigs could be there and not 
drilling. I guess it speaks to the longer term issue of how 
fast it could recover.
    The Chairman. The time of the gentleman has expired. If 
there is a desire for a second round, and so I will certainly 
recognize the gentleman. The gentleman from Utah's time has 
expired.
    There is a desire for a second round, and I just have one 
question, and I will go to Mr. Holt, and then finish up with 
Mr. Landry. Dr. Foss, there had been records that have been 
sent--and you alluded to this in your opening statement, 
between the price differential of the world crude and West 
Texas, and the suggestion is that it is because this has been 
the rise or the impact of North Dakota.
    And I understand that new production probably would have an 
impact on world prices, but isn't this difference in price an 
indication that more domestic production could provide a price 
break for American consumers in that regard, as well as the 
national security aspect that I have been talking about for 
some time, Dr. Foss?
    Dr. Foss. Yes.
    The Chairman. Boy, that is very definitive. Do you want to 
elaborate for just a moment? That is the only question I have, 
and so I am not going to ask another one. Explain briefly if 
you will.
    Dr. Foss. Well, if I understand what you are asking, which 
is the impact of our crude production in our own markets?
    The Chairman. Right, exactly.
    Dr. Foss. Of course it has a huge impact, and I mentioned 
an idea, a suggestion, which we need to think about, which is 
debottlenecking to make sure that we can benefit from it.
    And we have had this problem before, and we have it on the 
natural gas side periodically. We have new areas of production 
that grow and start flourishing. We have pipeline bottlenecks 
and storage bottlenecks, and we can't really get it out into 
the market.
    So we have an accumulation of inventory in one part of the 
country right now, and it is contributing to this disparity 
between our domestic price signal and the internationally 
traded crude.
    So to the extent that that provides an indication to 
investors that perhaps there is money to be made by building 
additional oil pipeline storage terminals and other capacity, 
they will get there as long as they can get it permitted, and 
enter the market in a way that they feel will work timing wise.
    The Chairman. And all of that would be based on the 
assumption that it would be less than the world market prices, 
and therefore, benefiting American consumers; is that correct?
    Dr. Foss. Well, they would take advantage of arbitrage to 
make the investment work.
    The Chairman. Right.
    Dr. Foss. So when a disparity in a price signal like this, 
a low price in a producing area, relative to higher prices in 
markets, that allows you to actually finance the 
infrastructure.
    The Chairman. Right.
    Dr. Foss. It is that basis differential as we call it that 
allows people to move forward with projects like new pipeline 
capacity, and other debottlenecking strategies which benefits 
consumers.
    The Chairman. And which goes back to your original answer, 
short answer, yes. Yes, it helps benefits the American 
consumer. I will yield back my time and recognize the gentleman 
from New Jersey, Mr. Holt.
    Mr. Holt. I thank the Chair, and I thank him for his 
courtesy in allowing further questioning. Several of our 
colleagues raised the point of the cost of gasoline at the pump 
today, $3.50 and more, compared to months ago, or a year ago.
    But I think it has come out quite clearly in the testimony 
today that oil prices are much more a function of what OPEC 
does than a function of the rate of issuing oil drilling 
permits.
    And gasoline prices are even less correlated with that. 
Gasoline price fluctuations are much more a function of 
speculation, and even what I would call gouging. Wishing, and 
hoping, and dreaming will not change reality.
    When we talk about reserves, I mean, that is reality. It is 
resources that can be estimated with reasonable certainty to 
exist and be recoverable under reasonable economic conditions.
    I think we have to face the fact that we must have a 
broader balance of an energy portfolio. Simplistic solutions 
will not do. ``Drill, Baby, Drill'' is simplistic. It does not 
capture what we have.
    We do not dominate the production of oil in the world. We 
never will again dominate the world oil production. The burn 
rate actually has some meaning. We can quibble about exactly 
where we are relative to Norway and others, but what it means 
is that our leverage in oil prices will be less, and less, and 
less, and it is already not great.
    So my question has to do with oil reserves, and not coal by 
the way. In talking about how many barrels equivalent we have 
of coal is not really relevant here today.
    In trying to explain that the burn rate does not mean 
anything, Dr. Foss says, well, but we are continuing to expand 
our knowledge of our reserves. My question is when was the last 
time that more oil was discovered than was actually produced?
    In other words, when did this view of reserves around the 
world stop keeping up with our use of oil? Do you know what 
year that was, Dr. Foss?
    Dr. Foss. We always have more reserves than we have 
production. We produce from reserves.
    Mr. Holt. Let me pretend that we are playing Jeopardy here. 
The last year that more oil was discovered than was actually 
produced, what is 1984, more than a quarter of a century ago?
    You know, we can hope, and dream, and wish, but we have to 
face facts. We cannot look for simplistic solutions. We have to 
have a broader energy portfolio, and of course oil is important 
to Louisiana. Of course oil is important to Texas. Of course 
oil is important to all of our country for all sorts of 
reasons.
    But we cannot change reality and we have to face facts. As 
Mr. Markey said earlier on, we have ridden this horse, and we 
have ridden this horse, and the legs are giving out. I yield 
back my time. Thank you.
    The Chairman. The gentleman yields back his time. I will 
recognize Mr. Landry to close. Mr. Landry.
    Mr. Landry. I think we have a few more horses than oil. We 
have natural gas, which I would think is a pretty solid horse, 
Dr. Foss? We should put her in the gate. Coal. We have a lot of 
coal, and we can put coal in the gate.
    And nuclear certainly does a good job here in this country 
if we could get back to building refineries. And I am confused. 
I know that it is hard to sit right there, and there is a lot 
of confusion on the other side of the aisle because they talk 
about OPEC having a stranglehold, and then another Member comes 
up and says that Exxon has a stranglehold.
    That is kind of confusing to me as to who exactly has the 
stranglehold. How long--anyone of you all, but how long do you 
think that the trade of speculation has been around in this 
world? Come on. You are all smarter than me. Somebody knows. 
Maybe you want to guess. A hundred years, two hundred years?
    Dr. Foss. Centuries.
    Mr. Landry. Centuries. So speculation of commodities has 
been around for centuries, and we have been able to grow this 
country. This country has been able to grow and prosper all the 
way through all of those evil speculators for centuries, and 
centuries ago.
    They did not hang them back then or anything. Do you know 
if they did or not? Was there any punishment for speculation?
    Dr. Foss. I don't believe so.
    Mr. Landry. All right. What bothers me is that we always 
want everybody else to increase their production capacity for 
our gain, and we don't want to take responsibility for what we 
could do ourselves.
    The interim safety rule issued by the Interior Department 
on October 14th of 2010 said that there is sufficient spare 
capacity in OPEC to offset the decreases in the Gulf of 
Mexico's deep water production.
    Do you all believe that is true? I mean, if that is the 
case, then prices should not be continuing to go up. Well, let 
me ask you this question. Are any of you at all familiar with 
water cut?
    Are any of you familiar with the Middle East reserves out 
there? Does anyone want to comment? Look, I am going to give 
you all the floor. I have some time here. Mr. Caruso.
    Mr. Caruso. I am not sure what the question is.
    Mr. Landry. Well, if you are familiar with the problems, 
because in the Middle East, we always want to turn to the 
Middle East. But isn't it true that the Middle East really has 
a problem with its spare capacity?
    Every time the United States asks the Middle East, or Saudi 
Arabia in particular, to increase its spare capacity, does that 
not put pressure on Saudi's reserves, such that it actually 
damages the reserves, rather than allowing for the longevity of 
those reserves?
    Mr. Caruso. My experience is that they manage their 
reserves pretty efficiently. I do not have any evidence that 
they are damaging their reserves.
    T1Mr. Landry. Dr. Foss.
    Dr. Foss. I think, and I think that many other people would 
agree, including all of our colleagues at EIA, one of the more 
difficult estimates to put together is that estimate of spare 
capacity among the OPEC producing countries.
    And I think that that is actually one of the things that 
contributes a great deal of uncertainty in the oil markets 
themselves.
    Mr. Landry. And what potential does the United States have 
to create spare capacity here at home domestically?
    Dr. Foss. We have a great deal of capacity to do that, 
because again, it is about portfolios. It is the portfolios of 
opportunities that are available to companies, on both public 
and private lands.
    And to the extent that those portfolios of opportunities 
are robust, that is our spare capacity.
    The Chairman. Will the gentleman yield?
    Mr. Landry. Yes.
    The Chairman. On the issue of speculation, I don't know if 
the gentleman does grocery shopping in his family or not, but I 
would guess that your wife from time to time will buy two at 
the price of one. Would you consider that speculating?
    Mr. Landry. No, that is more shopping.
    The Chairman. Right. But it makes the point. I would guess 
that your wife is making that purchase because she is 
speculating that the next time that she would buy that product 
that the price would go up. So she is speculating on keeping it 
down.
    I mean, when one talks about speculation, if you put it 
into terms like that, we do that every day in our lives. You 
buy a jumbo instead of the other. Why? Because you are 
speculating that that price is different, a differential. So 
apparently you do not doing the shopping?
    Mr. Landry. No, but she does. She does smart shopping.
    The Chairman. OK. That is good.
    Mr. Landry. She buys two for one.
    The Chairman. The time of the gentleman has expired. The 
gentleman from California is recognized, and I give the 
courtesy to him. We said that we were going to close with Mr. 
Landry, but certainly if the gentleman wants to have time, he 
is certainly recognized.
    Mr. Costa. Thank you very much, Mr. Chairman, and I do 
appreciate that. I know that it has been a long hearing, but it 
has been an important hearing, and I thank you for putting it 
together.
    I have been on this Committee for six years, and we have 
obviously had this discussion and debate throughout those six 
years. And I find it interesting that we all use the same 
facts, more or less, but obviously using those facts to come to 
different conclusions.
    And it is interesting that we come to different conclusions 
even though we want in essence the same goals, and the same 
goals that we want are a cleaner, more reliable, sources--and I 
say sources--of energy for our Nation that will be economically 
viable, and that will reduce over the years our dependency on 
foreign sources of energy. We want the same goals.
    And it seems what is lacking to me is how we can agree on a 
bipartisan fashion on how we obtain that goal, and it is not 
that we are lacking for plans. Since 1973, I remember clearly 
when President Nixon, and we have experienced the first energy 
gas lines, where people had even and odd days to get your gas, 
and announced a plan then that would--it was called energy 
independence.
    I am not so sure that we ever truly are going to be 
independent, but certainly everybody believes that we ought to 
reduce our dependency on foreign sources. At that time, we were 
importing 30 percent of our energy as foreign sources.
    And since that time every President, and numerous 
Congresses, have all had energy proposals, and plans in some 
fashion, have been implemented. And, of course, we have gone 
from 30 percent of our energy sources being imported to now 
almost 60 percent or more of our energy sources.
    So you have to sit back for a moment and say since we want 
the same goals, and we all have had a lot of plans out there, 
what has been lacking, and I will tell you what I think has 
been lacking is an ability for any Congress, or any 
Administration, to reach a consensus on a short-term, interim, 
and long-term energy policy, that in fact will fulfill those 
goals of dealing with the new technologies, reducing our 
dependency on foreign sources of energy, and sticking with the 
plan.
    We cannot stick with any plan. I mean, our plans, they are 
the plan du jour, the plan for the day. I mean, we have a plan 
for this year, two years, three years. We change it and energy 
prices go up, and we make certain that alternatives are more 
economically viable, and energy prices go down, and it makes 
less energy alternatives viable.
    And we have this kind of circular browbeating of one 
another that at the end of the day does not help the American 
public, nor a long-term energy plan.
    Mr. Caruso, what do you think in using all of the energy 
tools in our energy tool box, because I don't think there is a 
silver bullet out there. I think that we have to use all of 
them. I have always maintained that for the six years that I 
have been there.
    How do we do a transition and adopt a plan in the near term 
with more reliance clearly on our fossil fuels, and the interim 
as we transition to a longer term policy, and I define longer 
term 20 years and out, to reach the sort of near term and long-
term goals that are country needs to, I think, achieve, and we 
ought to be focusing on a bipartisan basis?
    I mean, when do we do an inventory of what our current 
energy needs are, and what they are going to be in the mid-
term, and the longer term, and how do we use the different 
energy tools in the energy tool box to transition?
    Mr. Caruso. I think you are absolutely right about the time 
frame. We need to be thinking decades long transition. Fossil 
fuels are going to be with us for a long time to come, and the 
alternatives for a variety of reasons--technology, economics, 
scalability--are going to take a long time to develop.
    But that does not mean that we should not start as you are 
alluding to, and on that side the focus should be on 
technological development and innovation through research and 
development. I mean, that is the long term.
    Mr. Costa. But on the short-term part of that, conversation 
is low hanging fruit. I mean, in California, on renewables, we 
are 20 percent, and trying to get to 30 percent by the year 
2020.
    Mr. Caruso. In the short term, as I mentioned in my opening 
statement, vehicle efficiency, improvements in efficiency in 
homes, and use of coal generated electric, there are a lot of 
things that could be done to reduce demand.
    So I think we need to do it all, and not think it is going 
to happen overnight. So I think that there has been unrealistic 
expectations created by all of us, including us energy experts.
    Mr. Costa. Thank you, Mr. Chairman, for the time, and 
allowing us to sum things up so to speak, and I look forward to 
working with you on these important issues.
    The Chairman. I thank the gentleman very much, and I want 
to thank this panel It has been over three hours since we 
convened this, and I especially appreciate the brevity, and in 
fact we have been kicking around some ideas here of what we are 
going to call it.
    It could be as time goes by award, and the once upon a time 
award, or the good time award. I mean, whatever it is, I will 
say that this panel here today on St. Patrick's day is the 
recipient of that award. So thank you very much, and the 
Committee will stand adjourned.
    [Whereupon, at 1:09 p.m., the Committee was adjourned.]

    [Additional material submitted for the record follows:]

    [The prepared statement of Mr. Markey follows:]

     Statement of The Honorable Edward J. Markey, Ranking Member, 
                     Committee on Natural Resources

    The reference in the title of this hearing to ``Harnessing American 
Resources'' is appropriate because we are in a horse race, Mr. 
Chairman. But rather than a blanket of roses at the finish line, the 
winner gets much more valuable prizes: lower unemployment and lower 
energy prices for American families.
    There are two horses in this race. The old horse, the one that has 
been running flat out for decades, is Drill-Baby-Drill. That horse is 
owned by a syndicate of the richest, international oil companies in the 
world and OPEC.
    The second horse, a much more recent entry in the race, is Clean 
Energy. That horse is owned by the American people, in partnership with 
researchers, investors, and companies developing new technologies to 
produce energy from wind, solar, geothermal, hydro-power, biomass and 
other renewable sources.
    Now, our Republican colleagues make plenty of claims about this 
race but their handicapping is highly suspect.
    First, they say they want a fair race and claim they would be happy 
to see both horses win. This is their ``All of the Above'' claim.
    But the truth is our Republican friends have taken a terrible risk; 
they have bet it all on just one horse.
    They have bet billions of dollars in subsidies and tax breaks--not 
to mention betting our economy and our future--all on Drill-Baby-Drill.
    In this committee alone, the scorecard on ``All of the Above'' 
stands at seven hearings featuring Drill-Baby-Drill and zero on clean 
energy.
    The Republican Majority also claims that the Obama Administration 
is pulling back the reins on Drill-Baby-Drill. The truth is, this 
Administration is riding that horse as hard and as fast as ever.
    Republicans want to debate permits or acres or ten-year projections 
but let's just cut to the chase: the amount of oil and natural gas 
produced from our public lands has gone up every year of the Obama 
Administration. Period.
    In fact, we have been riding this horse so long and so hard that we 
have left every other country far behind. Nobody has as much riding on 
Drill-Baby-Drill as we do.
    And lastly, our Republican colleagues claim that Drill-Baby-Drill 
can win this race. The truth is, Mr. Chairman, that despite the long 
head start, and despite the uneven field, and despite all the money we 
have riding on that horse, history has proven that Drill-Baby-Drill 
will never get us to the finish line.
    That horse has given us everything it has--more barrels of oil, 
more cubic feet of natural gas, more acres under lease more permits to 
drill--and no matter what we do--no matter how many subsidies or tax 
breaks we give--the price at the pump remains beyond our control.
    The harder we whip that horse, the farther away the finish line 
seems.
    At some point we have to face facts: the Republican energy policy 
amounts to nothing more than beating a dead horse.
    So what might happen if we got serious and let Clean Energy out of 
the gate?
    Well the first thing you need to know is that Clean Energy can 
catch up because it is incredibly fast. Just think about the speed of 
the arrival of the internet or the elapsed time between the rotary dial 
phone and the iPhone--when this country puts its mind to something, the 
speed of innovation will take your breath away.
    And unlike Drill-Baby-Drill, the longer we let Clean Energy run, 
the cheaper it gets. There is a Moore's Law for solar that says each 
time we double production, the cost of a solar panel drops 18%. The 
investment we make in this horse stands to be the best bet we have ever 
made.
    And most important, Clean Energy can win this race, Mr. Chairman. 
While Drill-Baby-Drill runs in place, clean energy is moving forward. 
This horse will create new jobs--American jobs developing American 
technology. And this horse can cut energy prices by reducing our oil 
imports.
    If we unleash Clean Energy--let her out of the starting gate--we 
will find ourselves in the Winner's Circle in no time.

                                 
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