[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE EFFECTS OF MIDDLE EAST EVENTS ON U.S.
ENERGY MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 10, 2011
__________
Serial No. 112-4
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
MARY BONO MACK, California BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon ANNA G. ESHOO, California
LEE TERRY, Nebraska ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan GENE GREEN, Texas
SUE WILKINS MYRICK, North Carolina DIANA DeGETTE, Colorado
Vice Chair LOIS CAPPS, California
JOHN SULLIVAN, Oklahoma JANE HARMAN, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi JOHN BARROW, Georgia
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BILL CASSIDY, Louisiana
BRETT GUTHRIE, Kentucky
PETE OLSON, Texas
DAVID McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia
(ii)
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
JOHN SULLIVAN, Oklahoma BOBBY L. RUSH, Illinois
Vice Chair Ranking Member
JOHN SHIMKUS, Illinois
GREG WALDEN, Oregon JAY INSLEE, Washington
LEE TERRY, Nebraska JIM MATHESON, Utah
MICHAEL C. BURGESS, Texas JOHN D. DINGELL, Michigan
BRIAN P. BILBRAY, California EDWARD J. MARKEY, Massachusetts
STEVE SCALISE, Louisiana ELIOT L. ENGEL, New York
CATHY McMORRIS RODGERS, Washington GENE GREEN, Texas
PETE OLSON, Texas LOIS CAPPS, California
DAVID B. MCKINLEY, West Virginia MICHAEL F. DOYLE, Pennsylvania
CORY GARDNER, Colorado HENRY A. WAXMAN, California (ex
MIKE POMPEO, Kansas officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)
C O N T E N T S
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Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 1
Prepared statement........................................... 2
Hon. Bobby Rush, a Representative in Congress from the State of
Illinois, opening statement.................................... 3
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 5
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 110
Hon. John Sullivan, a Representative in Congress from the State
of Oklahoma, prepared statement................................ 111
Hon. Cory Gardner, a Representative in Congress from the State of
Colorado, prepared statement................................... 111
Witnesses
Richard G. Newell, Ph.D., Administrator, Energy Information
Administration................................................. 7
Prepared statement........................................... 10
Answers to submitted questions............................... 221
Gary Mar, Minister-Counselor, Province of Alberta................ 19
Prepared statement........................................... 21
Adam Sieminski, Chief Energy Economist, Deutsche Bank AG......... 32
Prepared statement........................................... 34
John Hofmeister, Founder and CEO, Citizens for Affordable Energy. 44
Prepared statement........................................... 46
Christopher Busch, Ph.D., Director of Policy and Program, Appollo
Alliance....................................................... 66
Prepared statement........................................... 68
Answers to submitted questions............................... 223
Chris John, President, Louisiana Mid-Continent Oil and Gas
Association.................................................... 72
Prepared statement........................................... 74
Submitted Material
Report entitled, ``The Future of Global Oil Supply: Understanding
the Building Blocks,'' 2009, by Cambridge Energy Research
Association, submitted by Mr. Shimkus.......................... 113
Article entitled, ``New drilling method opens vast oil fields in
U.S.,'' 2011, by Associated Press, submitted by Mr. Shimkus.... 129
Report entitled, ``Increased Safety Measures for Energy
Development on the Outer Continental Shelf,'' May 27, 2010, by
Department of the Interior, submitted by Mr. Scalise........... 132
Statement from Kenneth Arnold regarding moratorium on offshore
oil drilling, submitted by Mr. Scalise......................... 176
List of offshore oil rigs, submitted by Mr. Scalise.............. 182
Article entitled, ``The silence on drilling is troubling,'' dated
February 7, 2011, Houston Chronicle, submitted by Mr. Olson.... 183
Report entitled, ``Tar Sands Invasion: How Dirty and Expensive
Oil from Canada Threatens America's New Energy Economy,'' dated
May 2010, submitted by Mr. Rush................................ 185
THE EFFECTS OF MIDDLE EAST EVENTS ON U.S. ENERGY MARKETS
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THURSDAY, FEBRUARY 10, 2011
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:38 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman of the subcommittee) presiding.
Members present: Representatives Whitfield, Sullivan,
Shimkus, Walden, Terry, Burgess, Scalise, McMorris Rodgers,
Olson, McKinley, Gardner, Pompeo, Griffith, Barton, Upton (ex
officio), Rush, Inslee, Markey, Green, Capps, and Waxman (ex
officio).
Staff present: Garrett Golding, Professional Staff; Maryam
Brown, Chief Counsel, Energy and Power; Carly McWilliams,
Legislative Clerk; Elizabeth Lowell, Research Analyst; Cory
Hicks, Policy Coordinator, Energy and Power; Aaron Cutler,
Deputy Policy Director; Phil Barnett, Democratic Staff
Director; Greg Dotson, Democratic Chief Counsel, Subcommittee
on Energy and Power; Jeff Baran, Democratic Counsel; Alison
Cassady, Democratic Professional Staff Member; and Caitlin
Haberman, Democratic Policy Analyst.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Good morning and welcome, and I am very
sorry we are 8 minutes late but we do appreciate this panel
being with us this morning. We look forward to your testimony
as we have this hearing on the effects of Middle East events on
U.S. energy markets.
We convene today's hearing to have a discussion on recent
developments in the Middle East and North Africa and their
effect on world energy markets. Violent protests and political
uncertainty in Egypt 2 weeks ago caused a sudden spike in oil
prices that, over the past few days, has gradually subsided.
The price increase was driven by investor fears over the
possible shutdown of the Suez Canal and Su-Med Pipeline, which
transport up to 3 million barrels of oil per day.
These events provide a catalyst for deeper examination of
the economic and geopolitical factors that contribute to the
pricing of oil and its impact on the United States. Events in
the Middle East also demonstrate a number of facts. One, oil is
a globally traded commodity, the price of which is influenced
by basic laws of supply and demand; two, political events can
play a major role in influencing the price of oil; and three,
half the world's oil is produced in OPEC member states and
Russia. Some of these nations are politically and economically
unstable, and in a tightening market, unreliable sources of oil
will prove increasingly detrimental to price stability and
international security. It also certainly reinforces the issue
of the importance of Canada and our relationship with Canada as
it relates to energy.
With these facts in mind, we should turn our attention to
the current state of international energy markets. We have a
booming demand in China, which greatly outpaces that of the
OECD countries. We have seen in 2008 how OPEC spare capacity
can reach dangerously low levels during periods of high global
demand. We have new frontiers of oil production ranging from
the Arctic to enhanced recovery technologies here in the United
States. Additionally, we have restricted vast supplies here in
North America by government action, or, in many cases,
government inaction.
Now, how do all of these factors relate to domestic energy
policy? For starters, there are numerous steps we can take to
protect ourselves from price and supply shocks. The National
Petroleum Council estimates we have upwards of 40 billion
barrels of oil locked away in the eastern Gulf of Mexico,
Atlantic and Pacific Coasts, on- and offshore Alaska, that are
currently off-limits for production. These 40 billion barrels
are double the proven reserves in the United States today.
These resources could easily double our domestic production
capacity and replace our imports from the Middle East. This is
the quickest and most efficient way of reducing dependence on
foreign sources and ensuring environmental safety. Any barrel
we do not produce here in the United States or Canada will have
to be produced in a remarkably less safe, less regulated, and
more environmentally damaging manner in Nigeria, Venezuela,
Angola and other states where environmental quality is a
depressingly low priority. Essentially, failing to produce
domestic energy guarantees environmental harm elsewhere in the
world. Events in Tunisia, Egypt, Jordan, Algeria and Yemen show
how uncertain and dangerous this world is. Furthermore, these
developments show how the price of oil can bend to the will of
protesters thousands of miles away from our shores. How we
react and adapt to this inconvenient reality is a test of
political leadership that will play a major role in the
economic and national security of America, and that is why we
are so appreciative of all of you being here and we look
forward to your testimony.
[The prepared statement of Mr. Whitfield follows:]
Prepared Statement of Hon. Ed Whitfield
We convene today's hearing to have a discussion on
recent developments in the Middle East and North Africa and
their effect on world energy markets. Violent protests and
political uncertainty in Egypt two weeks ago caused a sudden
spike in oil prices that, over the past few days, has gradually
subsided. The price increase was driven by investor fears over
the possible shutdown of the Suez Canal and Su-Med Pipeline,
which transport up to 3 million barrels of oil per day.
These events provide a catalyst for deeper
examination of the economic and geopolitical factors that
contribute to the pricing of oil. Events in the Middle East
also demonstrate a number of facts:o One: Oil is a globally-
traded commodity, the price of which is influenced by basic
laws of supply and demand. o Two: Political events can play a
major role in influencing the price of oil. o Three: Half the
world's oil is produced in OPEC member states and Russia. Some
of these nations are politically and economically unstable. In
a tightening market, unreliable sources of oil will prove
increasingly detrimental to price stability and international
security.
With these facts in mind, we should turn our
attention to the current state of international energy markets.
o We have booming demand in China which greatly outpaces that
of OECD countries. o We have seen, in 2008, how OPEC spare
capacity can reach dangerously low levels during periods of
high global demand. We have new frontiers of oil production
ranging from the Arctic to enhanced recovery technologies here
in the U.S. Additionally, we have restricted vast supplies here
in North America by government action, or, in many cases,
government inaction.o Now how do all of these factors relate to
domestic energy policy? For starters, there are numerous steps
we can take to protect ourselves from price and supply shocks.o
The National Petroleum Council estimates we have upwards of 40
billion barrels of oil locked away in the Eastern Gulf of
Mexico, Atlantic and Pacific Coasts, on- and offshore Alaska,
that are currently off-limits for production. These 40 billion
barrels are double the proven reserves of the U.S. today. o
These resources could easily double our domestic production
capacity and replace our imports from the Middle East. This is
the quickest and most efficient way of reducing dependence on
foreign sources and ensuring environmental safety.o Any barrel
we do not produce here in the U.S. or Canada will have to be
produced in a remarkably less safe, less regulated, and more
environmentally damaging manner in Nigeria, Venezuela, Angola,
and other states where environmental quality is a depressingly
low priority. Essentially, failing to produce domestic energy
guarantees environmental harm elsewhere in the world.o Events
in Tunisia, Egypt, Jordan, Algeria, and Yemen show how
uncertain and dangerous this world is. Furthermore, these
developments show how the price of oil can bend to the will of
protesters thousands of miles away from our shores. How we
react and adapt to this inconvenient reality is a test of
political leadership that will play a major role in the
economic and national security of this nation.
Mr. Whitfield. With that I will recognize the gentleman
from Illinois for his opening statement.
OPENING STATEMENT OF HON. BOBBY RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. I want to thank you, Mr. Chairman, and I want to
thank all the witnesses for their presence here today, and I
want to thank you for holding today's hearing to highlight our
Nation's growing need to address our energy security and to
improve our energy independence.
Energy supply and demand are key components to the American
economy. They all affect all dimensions of our lives from
driving to work, feeding our families to heating and cooling
our homes. Notwithstanding energy's fundamental important, the
markets and exchanges on which are energy sources are traded
remains extremely volatile and unpredictable. I think I can
safely say that a consistent theme we will be hearing
throughout this morning is that it is in America's best
strategic and economic interests to become less and less
dependent on foreign oil, gas and other fossil fuels in as
short a time frame as possible.
The Obama Administration understands this perfectly well,
which is why it has set the ambitious goals of, one, putting 1
million electric automobiles on America's streets and highways
and into America's families' garages and parking lots by 2012;
two, unleashing a clean energy revolution to double the supply
of renewable energy by the end of 2012; three, doubling
America's exports by the end of 2015; and four, dramatically
decreasing American dependence on traditional fossil fuels so
that by 2035 approximately 80 percent of America's electricity
is sourced by renewables. That is also why the Obama
Administration is putting our country on a prudent course to
disrupt our existing paradigms and business models which yield
insufficient energy reliability and efficiency, disastrous
environmental consequences and lackluster competitiveness in
international trade. Rather, the new paradigm focuses on making
substantial public investments and designing incentives to
encourage major private investments as well as leveraging
speedier deployments of advanced electric and smart grid
technologies and networks.
In past sessions of Congress, we have set policies aimed at
achieving this. We have lowered dependency on volatile world
oil markets by reducing our appetite for oil and gas. Under
Congress's direction and the stewardship of the Department of
Energy and the Environmental Protection Agency, the EPA, we
have made sufficient and significant progress towards improving
our Nation's energy efficiency. But our dependency as
individuals, families and businesses on imported energy sources
is still far too great.
Allow me to commend you, Mr. Chairman, for calling this
timely hearing, especially as we are in the midst of winter
with record-breaking low temperatures and snowfalls in many
parts of the country, including my own city and State, while at
the same time our lagging economy imposes added pressures on
America's budgets, especially those of the unemployed and the
working poor.
I must say that regardless of the policy choices that have
been made by this Administration or this Congress, our low-
income families must always be offered and given needed
assistance to cook and heat their homes in winter. I have been
a staunch supporter and advocate for the crusade and led by the
effort in Congress to fully fund LIHEAP at $5.1 million in
fiscal year 2010 and to increase access and eligibility for
low-income families, the elderly and seniors all over the
country. However, I am very disappointed and disturbed that the
Administration in proposing its fiscal year 2012 budget plans
to reduce LIHEAP by roughly $3.1 million. This would amount to
a steep cut in funding from $5.1 million at which the program
had been funded for the past 2 years. That is just unacceptable
to me and to others.
Today's hearing should not be used, Mr. Chairman, to
criticize EPA's permitting process to build refineries or to
sanction more domestic drilling. In case you have forgotten,
let me remind you that EPA's mission, as it name indicates, is
to protect the American environment and the country that we
inherit.
Mr. Chairman, I want to thank you so much. My time is
concluded and I yield back whatever balance of time that I
have.
Mr. Whitfield. Thank you, Mr. Rush. And at this time I
recognize our chairman emeritus, Mr. Barton of Texas, for 5
minutes.
Mr. Barton. I am only going to use 1 minute, Mr. Chairman.
Yesterday we had a hearing on a domestic issue, the
Environmental Protection Agency and its effort to regulate the
U.S. economy through regulating greenhouse gases. It is a very
important issue domestically. Today we are focusing
internationally, the situation in the Middle East, specifically
in Egypt, its impact on energy markets. I think it is safe to
say that in a global economy, unrest in the Middle East with
the Suez Canal and the political situation not just in Egypt
but in a number of the Islamic countries, should give the
United States pause. I think it points out the fact quite
plainly that we need to develop our domestic energy resources.
I was heartened to hear President Obama in his State of the
Union talk about natural gas and clean energy. We don't have a
lack of energy resources in this country, Mr. Chairman. We do
have a lot of political consensus on how and infrastructure to
develop this. Hopefully, this hearing will build the case that
it is time to move forward domestically. I notice we have a
former member, Mr. John. I am sure he is going to talk about
the situation in the Gulf of Mexico and the de facto moratorium
on new exploration there.
So with that, I appreciate the hearing and I would like to
yield to the gentleman from Illinois, Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman.
Mr. Chairman, I am an Obama skeptic when it comes to energy
security. We have the resources available in North American
energy supplies to be energy independent when we talk about
North American.
It is great to see my friend Chris John here. He will talk
about the ``permatorium,'' and when the economy starts
recovering and gas prices reach $4, $4.50, $5 a gallon, we are
going to ask why does this Administration continue to delay,
obstruct oil and gas exploration in the Gulf. And then--and I
am very pleased to see Mr. Mar here on the Canadian oil stand.
This Administration pending with the State Department
permission to obviously bring the oil down to continental
United States. In his testimony in appendix A, it talks about
jobs. Yesterday was about jobs. There is no bigger job creator
in the State of Illinois right now than this pipeline and the
direction straight to the Wood River Refinery, which is right
outside my district, a $2 billion pipeline, $2 billion
expansion of refinery, the jobs. Of course, another great
Illinois company, Caterpillar, is being used extensively up
there. We are talking again the increase in jobs between 2009
to 2025 of 26,000 jobs.
Folks, that has been my message consistently over the past
5 years about high-paying, good jobs in the fossil fuel
industry that the past Congresses and this Administration
continue to want to destroy. And so as we look and have this
testimony, we are talking about the threat of constrained crude
oil based upon the geopolitical world. This would not be as
much of a dangerous situation if we accessed our resources in
the Gulf, if we accessed our resources with our Canadian
friends, allies, and if we don't do this pipeline, that
pipeline could go west and guess where? To China. Which is part
of our debate yesterday, whether we want to create jobs in
China or whether we want to create jobs in the United States.
I am very excited about this hearing. I appreciate all the
panelists in attendance and I yield back my time.
Mr. Whitfield. Thank you. At this time I recognize Mr.
Waxman of California, the ranking member.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you very much, Mr. Chairman.
The recent events in Egypt have once again exposed our
dependence on foreign oil. Although Egypt isn't a major
producer of oil, the Suez Canal and the Suez-Mediterranean
pipeline are crucial shipping links for global oil and gas
markets. Instability there has increased oil prices around the
world.
For years, decades, really, the Energy Information
Administration projected that U.S. oil consumption would grow
year after year, and it did. By 2005, nearly 60 percent of U.S.
fuels were imported. Sixty percent is imported. And the future
looked bleak: higher oil consumption and more imports far into
the future.
The solution offered by the Bush Administration was to
drill out way out of the problem, and I know we are going to
hear this proposed solution again today. We will hear that
increased domestic production is the answer. But more U.S.
production is never going to be enough to appreciably reduce
global oil prices or U.S. imports of foreign oil. We use 25
percent of the world's oil but we only have 2 percent of the
world's oil reserves. So we can double it and we could even
triple it, and it is simply not going to affect global oil
prices much. The key to making progress is to focus on how much
oil we use. Reducing our share of global oil consumption from
25 percent can have a real impact both on global oil prices and
on imports.
The new motor vehicle standards promulgated by the Obama
Administration are exhibit A for benefits of greater
efficiency. In 2009, the Administration brokered an agreement
to provide the auto industry with coordinated fuel economy and
greenhouse gas emissions standards for model years 2012 through
2016. This effort was supported by the auto industry, the
States and environmental advocacy groups.
The carbon pollution tailpipe standards have had a
remarkable impact. This national program is projected to save
1.8 billion barrels of oil. The Administration estimates that
the standard yields net savings to consumers of roughly $130 to
$180 per year and $3,000 over the life of the vehicle.
Most remarkable is the impact of these standards on U.S.
oil imports and consumption. As this chart shows on the screen,
the Energy Information Administration now projects that we will
be importing less oil in the future than we did in 2007,
reversing decades of increasing reliance on foreign oil. And in
a fundamental and historic shift, overall U.S. consumption of
oil is predicted to stop growing.
As the second chart shows, by requiring improvements in how
efficiently we use oil, the Administration has reversed a
dangerous trend. The Administration wants to build on this
success with stronger standards after model year 2016. And it
is also working on standards for trucks and other commercial
vehicles. These standards could save even more money at the
pump while further reducing our dependence on foreign oil.
Incredibly, the new Republican majority in Congress is
opposed to these efforts. Chairman Upton and Senator Inhofe
have proposed legislation to block EPA from setting new motor
vehicle standards. This subcommittee held a hearing on this
bill yesterday. We need more energy independence, not less. We
need more savings for consumers at the pump, not fewer.
We need to use oil more efficiently so that we can import
less of it, but the Upton-Inhofe bill would take us in exactly
the wrong direction. It would block one policy that has proven
that it works. The Upton-Inhofe bill is great for oil companies
like Koch Industries, which spent millions of dollars electing
Republicans. But it is a public health, economic and national
security disaster for all the rest of us.
As we learn more today about the challenges of being
dependent on oil from the Middle East, I hope all members will
consider what is at stake. We are finally heading in the right
direction. It would be a costly mistake to halt our progress.
Yield back.
Mr. Whitfield. Thank you.
At this time we are going to ask our panel to give their
opening statements, and we have with us this morning Mr.
Richard Newell, who is Administrator of the Energy Information
Administration. We have Mr. Gary Mar, Minister-Counselor from
the province of Alberta. We have Mr. Adam Sieminski, Chief
Energy Economist, Deutsche Bank. We have Mr. Hofmeister, who is
President of Citizens for Affordable Energy. We have Mr. Chris
Busch, Director of Policy and Program, Apollo Alliance. And our
former colleague, Mr. Chris John, President of Louisiana Mid-
Continent Oil and Gas Association.
So Dr. Newell, I will call upon you to begin with the
opening statements. You are recognized for 5 minutes.
STATEMENTS OF RICHARD G. NEWELL, PH.D., ADMINISTRATOR, ENERGY
INFORMATION ADMINISTRATION; GARY MAR, MINISTER-COUNSELOR,
PROVINCE OF ALBERTA; ADAM SIEMINSKI, CHIEF ENERGY ECONOMIST,
DEUTSCHE BANK AG; JOHN HOFMEISTER, FOUNDER AND CEO, CITIZENS
FOR AFFORDABLE ENERGY; CHRISTOPHER BUSCH, PH.D., DIRECTOR OF
POLICY AND PROGRAM, APOLLO ALLIANCE; AND CHRIS JOHN, PRESIDENT,
LOUISIANA MID-CONTINENT OIL AND GAS ASSOCIATION
STATEMENT OF RICHARD NEWELL
Mr. Newell. Mr. Chairman, I appreciate the opportunity to
appear before you today.
The Energy Information Administration is the statistical
and analytical agency within the Department of Energy. EIA does
not promote or take positions on policy issues and has
independence with respect to the information and analysis we
provide. Therefore, our views should not be construed as
representing those of the Department of Energy or other federal
agencies.
Given Egypt's small role in the global supply-demand
balance for both oil and natural gas, the primary issue for
global energy markets is driven by two other concerns. First,
there is the concern that unrest could spread to countries with
a larger role in supplying world oil markets. There is no doubt
that the Middle East and North Africa are a major source of oil
supply and other petroleum liquids, supplying about 28 percent
of global liquids consumption. At the same time, there is about
5 percent spare crude oil production capacity and roughly 10
percent spare international oil shipping capacity available to
the market, and the amount of spare refining capacity is about
5 percent higher now than it was in 2007. There is therefore
more flexibility in the global oil system than a few years ago.
Second, EIA has looked at a concern more directly related
to Egypt involving the possibility of disruption of the Suez
Canal or Sumed pipeline, which together carry about 3 million
barrels a day of oil. The canal and pipeline continue to
operate normally, and for reasons outlined in my written
testimony, we would expect the direct effect of any closures to
be manageable, although there would be undoubtedly an
adjustment period.
Focusing next on the short-term outlook for oil, EIA
expects a continued tightening of world oil markets over the
next 2 years. World oil consumption grows by an annual average
of 1.5 million barrels per day in 2011 and again in 2012 in our
outlook while supply growth from non-OPEC countries averages
about .3 million barrels per day this year and remains flat in
2012. Consequently, we expect the market to rely on increased
OPEC members' production of crude oil and other liquids and
some drawdown in inventories to meet world oil demand growth.
With tighter world oil market, EIA expects the price of
West Texas intermediate crude oil, the key U.S. pricing
benchmark, to average about $93 per barrel in 2011 and $98 per
barrel in 2012. EIA expects the retail price of regular
gasoline will average $3.15 per gallon this year and $3.30 per
gallon in 2012. However, oil and in turn gasoline price
forecasts are subject to a great deal of uncertainty. For
example, the market value of futures and options contracts is
telling us that there is close to a one in three chance that
the price of oil could be above $110 per barrel at the end of
the year.
I will now turn to the longer-term projections for oil and
other liquids from EIA's annual energy outlook. The reference
case, which we released in December, represents an energy
future through 2035 that assumes continuance of current market
and technology trends, consumer behavior and current laws and
regulations. It does not include the effects of potential
future policies that have not yet become law but the reference
case represents a baseline that is a useful jumping-off point
for assessing alternatives.
Reference case crude oil prices continue to rise in our
long-term outlook as a growing global economy underpins oil
demand growth that is more rapid than supply growth from non-
OPEC producers. By 2035, the average real price of crude oil in
the reference case is $125 per barrel in 2009 dollars, although
we examine a wide range of oil price scenarios.
Total U.S. consumption of oil and other liquid fuels grows
from about 19 million barrels per day in 2009 to 22 million
barrels per day by 2025. This modest growth in the reference
case reflects increasing fuel prices and implementation of
finalized standards and statutory mandates that drive the fuel
economy of light-duty vehicles up to 35 miles per gallon by
2020. Virtually all of the increase in U.S. liquids consumption
is met by biofuels use driven by the federal renewable fuel
standard along with increases in natural gas liquids. We expect
domestic oil production increases to come from onshore enhanced
oil recovery projects and shale oil plays.
As a result of this increased domestic production and
modest consumption growth, we expect U.S. dependence on
imported liquid fuels to continue to decline. After reaching a
high of 60 percent in 2005, the imported petroleum share of
total liquid fuel use fell to 52 percent in 2009 and continues
to decline in our projections to 42 percent by 2035.
In addition to preparing the baseline projections I have
reviewed this morning, our full annual energy outlook to be
released this spring will include a large number of sensitivity
cases that examine the impact of different market technology
and policy assumptions.
Mr. Chairman and members of the committee, this concludes
my testimony. I look forward to any questions you may have.
[The prepared statement of Mr. Newell follows:]
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Mr. Whitfield. Thank you, Dr. Newell.
At this time I will call on Mr. Mar for his 5-minute
opening statement.
STATEMENT OF GARY MAR
Mr. Mar. Thank you, Mr. Chairman.
For the record, Mr. Chairman, my name is Gary Mar,
Minister-Counselor here in Washington, D.C., and I represent
the government of Alberta, a province of Canada. I thank you
very much for the opportunity to be here today. As a former
elected official in the province of Alberta, I have had
ministerial responsibilities in areas including health and
environment, and I, like you, have had the privilege of
debating difficult issues and making tough decisions on behalf
of the people who elected me over a period of 14 years.
The issue before you here today is that of energy and where
and how you will obtain that energy, particularly oil, and I
believe that my home province, Alberta, has and will continue
to have a very important role in providing the United States
with an alternative to foreign oil supplies, and I hope that
nobody here takes offense with Alberta not really considering
itself to be a foreign supplier.
Now, if I can leave you with three things to take away from
my presentation on Alberta oil, they are: number one, security
of supply; number two, economic benefits; and number three
responsible development. This is a combination of attributes
that is not readily associated with many of the other countries
in the world that the United States gets is oil from.
For the past 5 years, Canada has and continues to be the
largest supplier of imported oil to the United States. In 2009,
Canada supplied 23 percent of America's oil imports, more than
double the imports that come from Saudi Arabia and more than
four times the imported oil that comes from Iraq. The lion's
share of Canada's exports comes from Alberta's oil sands. If
you look at Alberta in isolation, we provide 17 percent of your
total crude oil imports, and that is in volume 1.5 million
barrels of oil per day that comes to you from Alberta in a
transportation system that doesn't move called a pipeline. This
number will grow, and the question perhaps for you is, how much
will it grow by.
The province of Alberta has the distinction of being the
largest OECD jurisdiction capable of substantially increasing
oil production to meet future demand. In fact, it is forecast
that by the year 2019 Alberta will be producing 3.3 million
barrels of oil per day compared to current production of 2
million barrels. That represents security of supply. Moreover,
our oil comes from a politically stable and democratic neighbor
and is sent to the United States via pipeline so it is not
affected by political unrest or other disruptions, a point that
was supported very recently by a released report of the United
States Department of Energy.
Alberta oil also far exceeds any other foreign source of
oil and economic return that it brings to the United States,
and Hon. Shimkus's example of Caterpillar is but one example. I
was at Caterpillar's offices in East Peoria yesterday. The
largest collection and concentration of Caterpillar trucks in
the world is around the area of Fort McMurray, is what I was
advised by the people from Caterpillar.
For every dollar that the United States spends on Canadian
products, you get 91 cents in return from the products that we
turn around and buy from you. The United States is our largest
trading partner by far. There are currently estimated, and this
is a very conservative estimate, at the very least more than
900 U.S.-based businesses that are suppliers for Canadian oil
sands and related pipeline projects. Mr. Chairman, your State
is home to three of those companies. The vice chairman's home
state is home to 36 of them. In addition, over the next 4 years
America will gain 343,000 new jobs as a result of oil sands
development.
Major U.S. companies like ConocoPhillips, Exxon, Devon and
Marathon have oil sands operations in the province of Alberta.
These companies all have firsthand understanding of the
stringent rules in place to ensure that energy is developed
responsibly in our province and with the highest degree of care
and concern for the environment. In 2007, the province of
Alberta was the first jurisdiction in North America to regulate
large industrial greenhouse gas emitters. Alberta has a price
on carbon. To date, we have collected $187 million as a result
of this carbon tax. This money is set apart from our general
operating fund as a government. It is wholly dedicated to
developing clean energy projects. Thus far, $71 million has
been invested into 16 different clean energy projects.
In addition to this, the government of Alberta has also
committed $2 billion to commercial-scale carbon capture and
storage projects to help reduce greenhouse gas emissions. This
is $2 billion from a province whose population is only 3\1/2\
million people. It is a significant contribution on a per
capita basis.
At the start of my remarks, I talked about being a former
elected official in Alberta, and now I have the pleasure of
working here in Washington and I spent much of my time talking
to our American friends about how Alberta can help meet your
energy demands. I want you to feel confident that when the
people who elect you go to a gas station to fill up on their
way to soccer practice or a baseball game that they are using a
product that came from a friend, a friend with similar goals,
with similar values. As the President said last week, our
countries are woven together perhaps like no other two
countries in the world. We match up more than probably any
country on earth, and I agree with that statement emphatically.
So Mr. Chairman, Alberta oil can provide America with
security of supply. It does help create jobs and grows our
economies, and most importantly, it does both of these
responsibly, ensuring that the environment is a top priority,
and I look forward to working with the United States to develop
sustainable solutions as we continue to advance our clean
energy technologies. I thank you for the invitation to be here.
[The prepared statement of Mr. Mar follows:]
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Mr. Whitfield. Thank you.
Mr. Sieminski, you are recognized for 5 minutes.
STATEMENT OF ADAM SIEMINSKI
Mr. Sieminski. Thank you, Mr. Chairman and other members of
the committee. I thought that what I might do to most valuably
use your time today is to just try to give you an overview of
what is going on in the global oil markets and how I see things
developing over the next few years. Let me just go through a
few major points here.
Oil prices started rising in early 2009. It has raised a
lot of concerns that we have moved from $40 to nearly $100 a
barrel. You just heard Dr. Newell talk about gasoline prices up
15 percent this year. We might hit $3.30 a gallon next year.
That certainly has issues for consumers. The OPEC Secretariat
interestingly makes an awful lot of statements about
fundamentals not being responsible for the increase in oil
prices, and I would like to talk about that a little bit.
In my view, oil demand is driven mainly by economic
activity. Last year most of the economic forecasters were
saying the global economy grew by 5 percent, probably up
another 4 percent again this year. Those are pretty big
numbers. The average over the last 30 years for global GDP
growth is about 3.3 percent, so 5 percent and 4 percent GDP
growth is pretty stunning.
Speaking of stunning, the International Energy Agency just
this morning said that oil demand grew 2.8 million barrels a
day last year. That is a fundamental. That 2.8 million barrels
a day far exceeds the million and a half barrels a day that the
EIA is forecasting for this year, and it is a huge factor, I
think, in the marketplace. A lot of this growth is coming in
the emerging market countries. It is not the United States and
Europe and Japan as it was traditionally. That is an important
issue.
Now, the good news for consumers around the world is that
non-OPEC supplies are growing pretty strongly. It is 600,000
barrels a day of growth this year. Last year, the number was
probably close to a million barrels a day. It is not just
places like Canada that you just heard about. China, Brazil,
the former Soviet Union and Colombia. Interestingly, the State
of North Dakota is seeing a huge increase in oil production
coming from the Bakken formation, and if we could do more of
that, more of the Gulf of Mexico that you talked about and so
on, I think that would really help.
The demand is growing faster than non-OPEC supplies, so
what that means is, OPEC's market share is rising and without
further investments in capacity in OPEC countries, OPEC's spare
capacity is going to decline. Now, we also know that
inventories have been coming down on a global basis. We can
measure them best in the OECD countries. They were as high as
63 days of forward demand cover. We are now down to about 59
days. My forecasts say that by the end of next year, we will
probably be down to 54 days, which is still in the middle of
the normal range, not low but the trend is down. Now, this is
really important. Most of the oil price forecasting models use
OPEC's spare capacity and inventories as the main drivers, so
now what I have just said is that OPEC's spare capacity is
likely to shrink and inventories are also coming down. That
implies strength in global oil prices and it is something that
I think we need to be cognizant of.
Over the last 4 years, financial factors have been very
important in driving oil prices. First it was the dollar
exchange range against the euro and other currencies that
seemed to be important. Since March of 2009 when oil prices
have gone up, there has been almost a lockstep move with the
S&P 500 equity index. So what is going on is, is that everybody
is so happy we are not having a depression that stock markets
are going up and lifting commodities in general including crude
oil. I think we are now moving into the area where it is going
to be fundamentals more than financial factors. Just like the
ad that by my calculations oil prices aren't too far in the
United States from what equilibrium levels would be if you
looked at it against things like incomes and share of income.
OK. Now, problems in the oil markets, low elasticity of
supply and demand. It is an economic phrase. Let me translate
that. It takes a long time to plan supply projects and
efficiency projects. Mr. Waxman's comments about auto fuel
efficiency--it takes a long time to turn the fleet over. It
takes a long time to do a development project in the Gulf of
Mexico or in the oil sands in Canada. That means that the
chances are good that you are going to have sharp movements in
oil prices if something else happens in the markets.
Let me just sum up this by saying that as you introduced
the hearing today, you said that what we are really trying to
get at was events in the Middle East and North Africa and what
it meant for the oil markets. The EIA has really good numbers
on that, and Dr. Newell talked about them. Clearly the Middle
East falls into this geo political category. One of the things
that I think you have to be very, very aware of that it is not
just things that are happening today that matter is setting oil
prices and influencing the oil markets, it is expectations
about the future, and if we expect that demand is going to
continue to grow strongly, if we expect that supply might be
constrained, if we expect that there are going to be tensions
in the Middle East, that is going to tend to push prices up.
That is a fundamental. It is not a speculative kind of
activity.
And with that I will close. Thank you very much.
[The prepared statement of Mr. Sieminski follows:]
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Mr. Whitfield. Thank you, Mr. Sieminski.
Mr. Hofmeister, you are recognized for 5 minutes.
STATEMENT OF JOHN HOFMEISTER
Mr. Hofmeister. Thank you, Mr. Chairman, Ranking Member
Rush. I am John Hofmeister, the founder and CEO of Citizens for
Affordable Energy. When I retired as the president of Shell Oil
Company in 2008, I started a foundation to focus on grassroots
energy education. In addition, I am privileged to serve as the
chairman of the National Urban League, where we have 104
affiliates across U.S. cities where the affordability of energy
is a major issue to the people who live in vulnerable
circumstances where unemployment in major urban areas exceeds
national averages. So I speak with a view that affordability of
energy is a critical issue for the United States of America.
Affordability goes directly to the price of crude oil, no
question about it. Every consumer in this country uses crude
oil in one way or another, and we do face the political
uncertainties as evidenced most recently by Egypt and the
threat to the Suez Canal and the Sumed pipeline. I am reminded
that while this Administration has strangled oil production in
the Gulf of Mexico for an unpredictable period, China,
according to Professor Wenren Jang at the University of
Alberta, is going in exactly the opposite direction. China is
planning to build 1.5 million kilometers of highways over the
coming decade, and in order to assure a steady crude oil supply
to China has loaned the following countries the following
amounts of money: Brazil, $10 billion; Kazakhstan, $10 billion;
Venezuela, $20 billion; Ghana, $16 billion; the Democratic
Republican of Congo, $7 billion; Nigeria, $23 billion; and
Russia, $25 billion. China expects crude oil demand of 18
million barrels a day by the end of the decade. They are
currently at about nine. Meanwhile, in the United States,
today, tomorrow, Saturday, Sunday, Monday, we will consume
about 20 million barrels a day, producing only seven
domestically.
As long as the United States produces so limited amount of
its own supply, we are vulnerable to whatever happens anywhere
in the world. The United States forfeited its energy security
over a sustained period of decades by prohibiting drilling on
85 percent of the Outer Continental Shelf, by prohibiting
drilling on 97 percent of federal land, by standing the way of
many infrastructure developments that would otherwise enable
enhanced oil production in many parts of old oil fields. It is
my view that while people focus on transportation and the use
of oil, we should not forget that within that 20-million-
barrel-per-day demand, there is an entire petrochemical
industry that needs crude oil as feedstock. That petrochemical
industry produces the fiber which we use for clothing and other
industrial purposes. It produces the pharmaceuticals, the
lubricants, the food that we use to eat in this country. We
have many more needs for oil than simply transportation
purposes. While it is great to have a million new vehicles
hybrids and battery cars on the roads by 2015, the 250 million
automobiles and tens of millions of trucks, tractors, planes,
boats, buses and other transportation vehicles depend upon a
daily supply of crude oil.
I would like to use my remaining time to speak about what I
think are the concrete actions that could be taken with a plan
from this Congress or the Administration or preferably both
which would take this country forward to create jobs in an
unprecedented number. Example: we know we have the natural
resources in the ground to produce far more oil than we do
today. I am suggesting that with the billions and billions of
barrels that is enough to sustain an increase in domestic
production for all of the generations currently alive in this
country. We could move daily production from 7 barrels a day to
10 million barrels a day using not a dime of public money,
using private investment. The 10-million-barrel-per-day
production would create 3 million new jobs, 3 million new jobs
over the course of the next decade, which would be a tide to
raise all ships because it is not just the drilling workers
that would be benefiting from this but it would be the
steelmakers, the automakers, the valve makers, the pipe makers,
the people who build the homes, the people who set up the
retail networks in order to supply these 3 million people with
good-paying jobs with good benefits. We currently employ 9.2
million in America in the gas and oil business to produce 7
million barrels a day. Three more million barrels a day and 3
million more jobs is an unprecedented number that no one has
talked about since the beginning of the recession in this
country, and if we are looking for ideas to improve the
economy, I can't think of a better one that is right here at
home, jobs which will not be exported.
In addition, we have failed to deal with the need for
electricity going forward in material ways, and it is my belief
that we could build new power plants, coal as well as nuclear,
clean coal, which will in fact create additional jobs on top of
that.
Mr. Chairman, I will stop. Thank you.
[The prepared statement of Mr. Hofmeister follows:]
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Mr. Whitfield. Thank you very much.
Dr. Busch, you are recognized for 5 minutes.
STATEMENT OF CHRISTOPHER BUSCH
Mr. Busch. Thank you, Chairman and Ranking Member Rush.
Thank you for the invitation to testify today. My name is Chris
Busch and I am the Policy and Program Director for the Apollo
Alliance. We are a national alliance of labor, business,
environmental, and community groups working towards clean
energy solutions that also grow the economy and improve
American competitiveness.
Every president since Nixon has sought to lessen our
dependency on imported oil. Though we have started to turn the
corner thanks to policies like the 2010 clean car standards,
America still faces this challenge. Nearly 60 percent of U.S.
demand is now met by imported oil. The United States accounts
for 22 percent of the world's oil consumption but we only
possess 1.4 percent of the world's proven reserves. Those
numbers are slightly different than Mr. Waxman's but those are
according to the EIA's 2009 data. These numbers tell a simple
truth. No matter how deep we will, domestic oil supplies cannot
solve this problem. We must put in place policies to address
the demand side of the problem, and fortunately for America,
there are promising transportation policy options that work
hand in glove with market incentives to encourage energy
savings and innovation. These policies can help consumers save
money. They also position American industry to succeed in a
fast-growing global market for clean technologies.
Consider the example of the new federal car and light truck
fuel economy standards finalized last year. The EPA estimates
that the standards will reduce oil demand by 1.8 billion
barrels for vehicles sold through 2016, and as Mr. Waxman
mentioned, when the standard is fully phased in, the average
consumer will save about $3,000 over the life of their vehicle.
That is about $150 per vehicle each year.
I would like to talk about some research I did in
California with James Fine of the Environmental Defense Fund
and Remy Garderet of Energy Independence Now. We calculated the
benefits of reduced oil dependency due to AB 32, California's
capstone clean energy law. AB 32 reduces California's
dependency on imported oil through clean car and clean fuel
standards and by providing alternatives to driving. We found
that in the year 2020, California will avoid demand equal to 75
million barrels of oil, about an 18 percent decrease, due to AB
32 policies. At the 2009 Department of Energy's midrange price
forecast, which was $114.50 per barrel, those were the numbers
we were working with when we were doing this research, that
reduces California's imported oil bill by about $11 billion.
While shaving $11 billion off the State's import bill is a
significant avoided cost, we also estimated the benefits
following an oil price shock. We have experienced six
significant price shocks in the past 40 years. We all remember
oil nearing $150 per barrel in 2008. Oil price shocks have been
a reality of world oil markets, and surging demand from China
and other countries suggests they will become more common, not
less. Our analysis looked at two oil price shocks that cause
the price of gasoline and diesel to jump by roughly a dollar or
two above a starting point of $3.42 per gallon in the case of
gasoline. The diesel jump is more like $2.50, and these were
linked to the oil shocks we were looking at. The result of
these oil shocks is that AB 32 saves consumers an additional $3
to $7 billion, or about $200 to $500 per household when the
savings are distributed over the households projected to exist
in 2020 in California.
One of our objectives was to help policymakers understand
what is and is not included in the economic analyses they
receive and depend upon. Though oil price shocks are a reality,
economic studies are not capturing these painful economic
effects. Typically energy policy analyses assume smooth prices.
National security implications as well as pollution reductions
and related public health benefits are also almost never
integrated in economic analyses of energy policy. Attacking the
demand side of our imported oil dependency is where real
progress will be made.
The Apollo Alliance has recently advanced a Clean
Transportation Manufacturing Action Plan that I would like to
ask be entered into the record. I have it here. The plan calls
for increased investment in public transit and railway as well
as stronger Buy America provisions and loan assistance to help
grow domestic manufacturing jobs. The plan is projected to
create 3.7 million jobs over 6 years. These are new jobs in
every region of the country and include more than 600,000
manufacturing jobs.
This is part of the Sputnik challenge described by the
President. We have the technologies needed to get started, and
while the world needs American leadership in advancing the
innovation frontier further, the big winner will be the
American worker.
Thank you for considering my testimony.
[The prepared statement of Mr. Busch follows:]
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Mr. Whitfield. Thank you.
Mr. John, you are recognized for 5 minutes.
STATEMENT OF CHRIS JOHN
Mr. John. Mr. Chairman, Chairman Whitfield, Ranking Member
Rush, thank you very much for inviting me to come and testify
in front of this very distinguished body that I was privileged
to serve in for 4 years. It seems like an eternity ago. But it
is a very important subject matter. I was asked to specifically
talk about world and international events and how it affects
what goes on domestically in our oil production all over
America.
As Chairman of Louisiana Mid-Continent Oil and Gas
Association, I represent all of the companies that explore,
produce, market, transfer from the ground to the tank is what I
like to say, and the fact of the matter is, when we look at
energy policy in this country, it cannot be an either/or. The
fact of the matter is, we need all drops and all kinds of
energy to make America more energy secure. But I think the real
factor, the factor that we must keep in focus like a rifle shot
as we debate some of these is the energy reality that we have
in this country. I think it is very important not to deviate
from it because we can talk about assumptions and we can talk
about politics and we can look at it from a geographical
standpoint. The fact of the matter is that you must be grounded
in our conversations about the energy reality in this country,
and that is what I would like to spend a little bit of my time
on.
The fact of the matter is that 78 percent--the energy
reality today, not tomorrow, not yesterday, but today is that
78 percent of our fuel needs, our energy needs is going to come
from fossil fuels, 78 percent from fossil fuels. You will have
12 percent from nuclear, you will have 3 percent from hybrid, 1
percent from wind, a half a percent from solar and then it goes
down from there. I think that is an important point as we
discuss the future of energy policy in this country because
even DOE says that 60 percent of our energy needs over the next
25 years is going to come from fossil fuels. There have been
experts that obviously have said higher than that, and I
believe it is closer to 80 percent for the next 50 years that
fossil fuels are going to play a very important part in
providing energy security for America.
And why should we care what goes on in different parts of
the country? Obviously the incidents in Egypt whether perceived
or reality has had an impact on the domestic oil production and
the price, and getting a little less attention is what has
happened off the coast of Oman where Somali pirates have
commandeered a Greek vessel with almost 2 million barrels of
crude that is destined to the Gulf of Mexico for refinery and
use in our markets today. So it really is important to
understand the energy reality and where it comes from, and that
is my next point.
Mr. Hofmeister talked about the 20 million barrels. I have
used this several times, Mr. Hofmeister, where I said, we used
20 million yesterday, we are using it today, we need it
tomorrow, and that is just a fact. That is another energy
reality check fact that needs to be looked at. But when you
break down the 20 million barrels that we need, 7 million are
produced right here domestically and we import 13 billion. Let
me peel back the banana just a little bit more. Where does that
7 million come from? Well, the 7 million comes from basically
53 percent of our oil that we use domestically or that is
produced domestically in the United States, 30 percent comes
from the Gulf of Mexico, 20 percent comes from Texas and 4
percent comes from Louisiana onshore. So you are looking at 54
percent of our domestic production coming from the Gulf region,
the Gulf of Mexico and the region.
But I think more important is to look at where we get the
13 million barrels that we use every day. It comes from
countries that obviously do not share a lot of our values. We
spend billions of dollars in buying crude oil that could be
used right here in America to create jobs. When you look at 23
percent, thank you very much, comes from Canada, our neighbor
to the north, 12 percent from Mexico, which are our two largest
importers, but then you have 26 percent from OPEC countries, 15
percent from the Persian Gulf area of which 10 percent comes
from Saudi Arabia. So I think that is very important to not
only understand how much we use domestically but where it comes
from domestically and also how much we use and how much we have
to import and where that comes from. That in itself provides
the answer to the question that this committee is looking for,
why should we care about international events. When we are
vulnerable to 13 million barrels a day coming from regions all
over the world, then you are going to be very vulnerable to
price fluctuations like we have seen here of late.
And obviously the future of the Gulf of Mexico was very
bright. I could spend another 5 or 50 minutes talking about the
Gulf of Mexico and the moratorium and the pursuing
``permatorium'' that we are dealing with today but the jobs
that are created in this industry, I think Mr. Hofmeister is
absolutely correct. Only in Louisiana--I can speak parochial a
second here because I love Louisiana and I certainly live and
work there today--320,000 jobs in Louisiana alone are created
by oil and gas, 9.2 million in America, $70 billion in economic
driver in the State of Louisiana. This moratorium obviously has
been an issue that we have worked on and we are going to
continue to work through that. I have gotten a written
statement that I submitted that goes on to talk a little bit
more about different things but I believe there is more to a
barrel of oil than the BTUs, and you have got to look at the
economic impact that the oil and gas industry has both on jobs
in America and providing our energy security that we must have.
With that, thank you very much.
[The prepared statement of Mr. John follows:]
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Mr. Whitfield. Thank you, Mr. John, and thank all of you
for your testimony.
Mr. Hofmeister, in your opening statement you talked about
the possibility of increasing demand from 7 to 10 million
barrels a day, and I think you indicated without any public
funds. Would you elaborate on that a little bit about what
regions of the country do you think that is possible to do?
Where would that happen and tell us a little bit about that.
Mr. Hofmeister. If you break down where the oil sits, and
while I agree that the narrow definition of reserves as
required by the Securities and Exchange Commission suggests the
United States has only 2, maybe 3 percent of proven reserves,
there are probable reserves and there are resources in ground
not counted in that number. So we are looking at more than a
trillion barrels of oil in the United States available that
could be addressed from an exploration and production. But
specifically, East Coast offshore, eastern Gulf of Mexico,
western Gulf of Mexico, especially deep water. Off the West
Coast there are billions of barrels. Off of the Alaska coast,
Bristol Bay, Chukchi Sea, Beaufort Sea, the Bakken formation,
enhanced oil recovery from former or existing oil fields and,
and most importantly, oil shale in the Piceance Basin of
Colorado, which includes Wyoming and Utah. The combination of
all of those over the period of a decade or more could take us
way beyond 10 million barrels but I realize some people are
concerned about the sensitivities so I have only suggested a
target of 10 million at this stage. When we get to 10, we could
consider more.
Mr. Whitfield. But if the proper government policies were
in place, do you think that 10 million could be reached
relatively quickly?
Mr. Hofmeister. If you could consider the capital
investment plans of not just the major oil companies but also
the major independents and the small oil companies, we are in
the hundreds of billions of dollars per year, much of that
targeted for outside the United States because that is where
they are welcomed. That is where they are wanted. That is where
they are creating jobs.
Mr. Whitfield. Right.
Mr. Hofmeister. Redirecting those billions to the United
States because we would in turn welcome them to create American
jobs in America would be a reversal of where we have been over
a number of decades.
Mr. Whitfield. Right. Well, as you well know, this
Administration has been totally focused on green energy
projects, which are fine and I know billions of dollars or
millions of dollar sin the stimulus fund went to green energy
projects, but I think most of us agree that this is a long,
long, long, long-term solution to our problem.
Mr. John, I know that the moratorium was put in place
sometime last spring and then court ruled it was illegal and
then a new moratorium was put into place, lawsuits were filed
and then Mr. Salazar I think removed that moratorium, but in
effect there is a moratorium because no permits have been
issued in the Gulf, have they, or has there?
Mr. John. No, that is correct. To my knowledge, as of
yesterday, there were no new drilling permits issued in the
Gulf of Mexico. The moratorium was set in place May 27th, and
then of course there was a subsequent court battle, which
obviously throughout the moratorium and then I think just
several, a week or 2 weeks later, the Administration came up
with another moratorium, and that in itself, I think, Mr.
Chairman, is very troubling. I like to believe, now, maybe this
is a little subject, that the process at which this came down
has been more harmful than the actual moratorium.
Mr. Whitfield. Let me ask you, hasn't the federal judge
that is holding that case, hasn't he actually held the Obama
Administration in contempt of court?
Mr. John. I am not sure.
Mr. Whitfield. I read that yesterday or a couple days ago
in the paper that the judge is now holding this Administration
in contempt for violating his orders.
Mr. John. Well, it has certainly been in and out of the
courts and decisions and all of this time we have 30,000 people
at the minimum waiting to go back to work in the Gulf of
Mexico.
Mr. Whitfield. Well, Mr. Hofmeister's suggestion, which I
certainly agree with, he said would create about 3 million more
jobs, certainly help make us dependent, create all these jobs
as you said.
Now, Dr. Busch, you talked about your Apollo Alliance, and
you mention in here public transit rail projects. Are you
talking about private expenditures there or are you talking
about government expenditures?
Mr. Busch. Well, government expenditures but I think there
is a role for public-private partnerships and loan guarantees
can help leverage.
Mr. Whitfield. Well, I think the problem that we have today
about any more government expenditures is just the fact of the
financial situation we are in, and the great thing about what
Mr. Hofmeister is talking about is that we are talking about
private dollars here, and that in my view the way we need to go
right now. But my time has expired so I will recognize Mr. Rush
for 5 minutes.
Mr. Rush. I certainly want to thank you, Mr. Chairman.
Mr. Hofmeister, I agree with you that the level of
investment that China is doing overseas, especially in emerging
markets, is alarming. The United States is not doing well in
these markets and it seems to me that it is almost akin to us
killing our mothers and our fathers and then we complain about
being an orphan. And I am a strong believer that the U.S.
should invest in emerging markets and not leave all the
strategic resources to our competitors' control. And that leads
me, I looked at the world transit choke points through which
almost half the world's oil productions are moving through. I
looked at the map where each of these seven choke points are
located, compared it to U.S. imports for major players,
especially in the Middle East and from offshore and west
African coast, That west African is where China is aggressively
investing already, and I realize that none of these imports are
going through these choke points. You were with Shell Oil with
global operations. Can you tell me which other maritime routes
would be used to supply the North American market and how you
would characterize those routes? That is the first question.
The second question is, in regards to overseas supply,
putting aside our NAFTA partners, Mexico and Canada, how would
you characterize the cost efficiencies of those two imports
taking into account the quality of the crude transportation
costs, the current and projected volume and security of supply?
And my last question, if you answer all these, which of the
major overseas exporting countries have favorable and positive
policies and attitudes towards the United States, and I just
want to make sure, I think the chairman in his opening remarks
made note of the fact that he thought that there was some
countries, Angola and Nigeria, I think he mentioned
specifically, they have a hostile relationship with the United
States and I just wanted to correct that. I think they have a
very friendly relationship with the United States. So would you
speak of choke points and those issues?
Mr. Hofmeister. Thank you, Ranking Member. I think with
respect to the choke points, the three most serious are the
Suez Canal, the Hormuz Straits, which is separating Iran from
Yemen--I am sorry--Oman and Iran, and the Straits of Malacca,
which is between Malaysia and Indonesia. These choke points
carry enormous amounts of crude oil. In fact, a former
colleague, Matt Simmons, who passed away this past summer, used
to speak of the Straits of Hormuz as, we live one day away from
an oil Pearl Harbor. In other words, those Straits of Hormuz
transport between 20 and 25 percent of daily consumption of
global oil, and were they to be shut in, the world would be in
a panic overnight if it were not possible to pass oil.
With respect to your second question, I think the countries
such as Venezuela, Nigeria, Angola, in the future, Brazil, also
Russia, these are countries which are looking at the U.S.
markets quite favorably. They want to be a supplier, but there
are issues in each of those countries. The socialistic regime
in Venezuela makes a very unpredictable supplier not only to
the United States but elsewhere. While Nigeria has an
officially favorable outlook on the United States market, as we
know, Nigeria is infected by criminal gangs that not only deal
with onshore but also now offshore oil. Russia has proven to
Europe that it is an unpredictable supplier and we could find
ourselves in the same boat.
Mr. Whitfield. I recognize the gentleman from Michigan, the
chairman of the committee, for 5 minutes, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman.
Mr. Mar, not long ago, as I recall, Canada was producing
about a million per day from the tar sands, oil sands. Your
testimony talks about getting that production up to maybe as
much as from 1 million to 3.3 million barrels by 2019. What
type of incentives, I mean, how are you getting from 1 to 3.3?
What have been the inducements to get there? Quickly.
Mr. Mar. Thank you, sir. First of all, I should talk about
the overall size of the resource of the oil that is in place in
Alberta in the oil sands. It is roughly 1.7 trillion barrels of
oil of which with current technology and prices about 10
percent of it is accessible, so roughly 170 billion barrels. So
there is certainly ample room to move up our production to the
3.3 million barrels a day. It is a very realistic target.
In terms of the policies of Alberta, there are policies in
place to recognize that the upfront costs of developing oil
sands are very, very high. There are no exploratory costs to
speak of really because we know exactly where it is, but there
are enormous costs upfront in terms of capital investment that
is required by private sector investment to do that. The
government policy permits those who will invest to pay
royalties only after payout from their original investment and
so that is really the only incentive that is the strongest
incentive that the government puts in place to ensure that
there is purchases of land leases to develop oil sands.
Mr. Upton. What is likely to happen if the United States
doesn't permit the Keystone Pipeline to be built?
Mr. Mar. Well, we continue to using existing pipelines----
Mr. Upton. But what will happen to the bulk of that new
production?
Mr. Mar. Well, there has been investment by many companies
from around the world, not just American companies who are
invested in the oil sands. State-owned enterprises from China
have invested themselves in the oil sands. StatoilHydro of
Norway has----
Mr. Upton. So is China proposing to build a pipeline to the
west?
Mr. Mar. Well, there currently is a pipeline that goes from
Alberta to the West Coast. Small amounts of that oil on the
spot market end up going to China on tankers but there is a
proposal currently by a private sector company, Endbridge
Pipelines, to build a project called the Gateway Pipeline to--
--
Mr. Upton. And just quickly, double, triple the capacity?
How much capacity ultimately to the west, particularly if
Keystone is not built?
Mr. Mar. I actually don't know.
Mr. Upton. If you could get that for record?
Mr. Mar. I would be happy to.
Mr. Upton. Mr. Hofmeister, some very troubling numbers in
recent months really. As we look at our domestic production
from the Gulf, which is basically about a third of our domestic
production comes from the Gulf, we have gone from in 2009 1.56
million barrels per day to 2010 1.64, so a little bit of an
increase. In this year, we are expecting that to decline to
about 1.39 and in 2012 further decline to 1.14 million barrels
per day, in essence 420,000 barrels fewer than we got over 2-
year span. As I understand it from some discussions in recent
weeks, we are actually this year they are predicting that the
1.39 is 250,000 barrels less than they projected even a year
ago. Alaska is the same. We have seen these numbers tail off as
well, in essence going from .65 million barrels in 2009 to what
will be .52 in 2012. Very troubling is this Wall Street Journal
piece from last Friday, Shell postpones plan for offshore
Alaska drilling. I want to say they had received 34 permits,
and the last one, the Environmental Appeals Board pulled the
air quality permit.
From your days at Shell before, Shell I think has spent
about $3.5 billion on this particular site where they think
there is as much as 25 billion barrels down below, tell us a
little bit about what would happen if we follow through on what
the President indicated in his State of the Union address that
we are going to take away some of the incentives from domestic
drilling, particular as you try to get from 7 to 10 million
barrels a day.
Mr. Hofmeister. Chairman Upton, I have been on the record
in many public forums suggesting that by the end of 2012, this
country will face $5 gasoline, precisely because of the path
that we are on which you describe, and I believe your numbers
cited are optimistic. I believe that the decline----
Mr. Upton. I am a Cubs fan. That is probably why.
Mr. Hofmeister. The decline in the Gulf of Mexico I believe
will be sharper and deeper than what anyone is currently
projecting because the decline rate from existing wells,
particularly deep water, fall off naturally very quickly, and
the reason we had 34 rigs drilling in the Gulf of Mexico was
not so much to increase the rate of production but to sustain
the rate of production in the Gulf of Mexico. While there may
have been some increase, absent drilling--I mean, we have made
a horrible error as a country. The rest of the world did not
discontinue offshore drilling.
With respect to the Alaska project you mentioned, I no
longer speak officially for my former company, but beginning in
2005 that company began the process of obtaining the permits
through 2006, 2007, 2008, 2009. I retired in 2008. The company
continues and it has now moved, according to the newspaper
report, potentially 2012. Seven years to simply drill two
exploratory wells but to see what is there. That is the degree
of frustration that American companies experience, and if you
notice, no other companies are mentioned in the Alaska, while
they have leases, they are not going to spend money when the
regulatory regime is so difficult to achieve a single permit
which was granted at one time and then rescinded on appeal, so
in terms of losing that particular air quality permit. So we
have a real strangulation by regulation taking place for
domestic production at the current time in this country.
Mr. Upton. Thank you.
Mr. Whitfield. Mr. Inslee, you are recognized for 5
minutes.
Mr. Inslee. Thank you. I wanted to explore with Dr. Newell
whether or not substantially increased opening of federal lands
would have an impact on the price of fuel at the pump, and I
want to read your agency's evaluation of this issue. It is a
study called Impact of Limitations on Access to Oil and Natural
Gas Resources in the Federal Outer Continental Shelf. It is a
study in 2009. Now, a lot of folks would think if we just open
up the spigot off the Outer Continental Shelf and other places,
problem solved on prices. I want to read what your agency
concluded after looking at it. You concluded: ``The average
price of imported low-sulfur crude oil in 2030 in 2007 dollars
is $1.34 per barrel higher and the average U.S. price of motor
gasoline price is 3 cents per gallon higher than in the
reference case.'' Now, as I understand what you are saying,
when you looked at this issue and really looked at the
economics of this issue, your agency concluded that if we
essentially removed all federal restrictions on Outer
Continental Shelf drilling. In 2030, after everything had been
exploited to the extent the human mind can consider, the price
would be 3 cents different in 2030.
Now, that is pretty stunning because a lot of people,
particularly on the other side of the aisle, figure we will
just solve this cost problem by just opening up the spigot
everywhere in the United States including Yellowstone National
Park and the Mall. But your conclusion seems to suggest that
there is a negligible, almost infinitesimal difference of we do
that in price. Now, my understanding would be the reason for
your conclusion is essentially it is a world market for oil,
and since we have such a small amount of the world market at 3
percent top of the world market, we are not to affect the cost
very much no matter where we drill in the United States, Outer
Continental Shelf, Arctic, you name it.
Secondly, there is a phenomenon that every time we increase
our drilling OPEC can decrease theirs to maintain the price
that they desire because that is where the oil is in the world.
Now, are those the primary reasons that you concluded there
would be a negligible, if almost infinitesimal, difference of
price or are there others that I have not alluded to?
Mr. Newell. I think you have captured some of the main
factors that would come into play in analyzing that kind of
question. In terms of the effect of increased access and
production of domestic oil on global oil prices, in addition to
the access issue, there is a question about whether or not
those fields would be produced, which would depend on the cost
of producing, it would depend upon the price of oil that would
get in the marketplace. And so access is one piece of it. It
would depend on the magnitude of areas that are open to access
and the amount of production that would come from that, and
then you would have to take that amount of production in the
global context in terms of the overall oil supply and demand.
In the previous analyses that EIA has done, the magnitude of
increased production that tends to be associated with some of
these actions is measured in the hundreds of thousands of
barrels per day, which is a significant magnitude, but in the
global scheme of things, it tends to be significantly less than
1 percent of global oil supply and so therefore in terms of
global impacts on price, it tends to be small.
Mr. Inslee. Quite negligible.
Second question, we look for bipartisanship. We haven't
been able to find it on climate change. My Republican
colleagues still insist on ignoring the clear scientific
consensus about this. But there is a bipartisan consensus about
concern for oil supplies, price that our people pay at the pump
and national security issues, and I think there is room for
bipartisanship by adopting a scenario where we try to maintain
a climate that doesn't increase more than 2 degrees, and your
colleagues at the International Energy Agency have concluded
that if we embrace an effort to limit the amount of carbon
dioxide in the atmosphere that would result in a 2-degree
increase in world temperature, so if we try to limit it to that
increase, we would have a significant reduction in decreasing
the cost of oil. They have concluded that if we took action to
limit it to 2 degrees, we would essentially drop U.S. imports
by 45 percent from 10.4 million barrels in 2009 to 5.7 million
barrels in 2035, last seen in the 1980s. They found under the
2-degree scenario, we have a significantly weaker demand with
that demand falling briskly thereafter. Oil prices were much
lower as a result. If we really do something about climate
change by reducing CO2 emissions and reduced demand
for oil, can that help us restrain the price increases of oil?
Mr. Newell. We have not specifically evaluated a global
scenario like the International Energy Agency has. I mean, we
have on different occasions evaluated U.S. energy and climate
policies. If there was a significant reduction in global oil
demand as a result of some set of policies, that would tend to
bring price down, other things equal in the world oil price.
There might be a difference, though, between the world oil
price and the retail price paid that one would need to take
into account, though.
Mr. Inslee. Just for the record, though----
Mr. Whitfield. Mr. Inslee, I let you go over.
One comment I would just make, we have been advocating
additional exploration. Certainly one part of that figure is
the price but just as important is having the supply to meet
the demands of our economy.
I recognize the gentleman from Texas, Mr. Barton, for 5
minutes.
Mr. Barton. Thank you. I would be happy to yield to my
friend from Washington for that question if it is a short one,
and if the answer could be relatively short. I don't want to
cut him off in mid-sentence.
Mr. Inslee. Mr. Barton, I appreciate your continued
courtesy. I just want to point out, the study that I referred
to suggested that the world oil price would be $90 per barrel
in 2035 if we adopted measures to restrain demand consistent
with reducing climate change to limit it to 2 degrees. And
thank you for your courtesy, Mr. Barton.
Mr. Barton. Thank you. Of course, I think everyone knows
that Mr. Inslee and I don't share the exact same view on
climate change, but we do share that we need to discuss views
in this committee. That is what it is all about.
Mr. Newell, I know the Energy Information Administration is
more of a data collection and reporting agency within the
Department of Energy. Do you in your position have any
authority to speak on behalf of the Obama Administration or
Secretary Chu on policy issues?
Mr. Newell. No.
Mr. Barton. So you are more of a reporting and data
collection. And that is fine. That is not pejorative. I was
going to ask some policy questions of you, but if you are not
authorized to answer, I won't do that.
I will ask you this, though. Do you have any projections
within your agency that show a significant reduction in oil
demand worldwide?
Mr. Newell. The scenario that I discussed earlier, our
reference case scenario for domestic liquids consumption, we
expect an increase, a modest increase in domestic liquids
production. Petroleum consumption in the United States we
expect to be----
Mr. Barton. No, I am talking about worldwide, not just the
United States.
Mr. Newell. Worldwide, we are projecting under current laws
and policies internationally a significant increase in global
liquids consumption.
Mr. Barton. Significant increase?
Mr. Newell. Yes.
Mr. Barton. Is there anybody on the panel that has an
alternative view that we can somehow bend the demand curve and
send it significantly lower?
Mr. Sieminski. Mr. Barton?
Mr. Barton. Yes, sir.
Mr. Sieminski. Let me just jump in here. In my forecasts,
about the year 2020 overall global demand begins to level off,
and I think that that is mainly going to be a function of a
better consumption per unit of economic output numbers in the
emerging market countries. So we are already seeing the OECD
countries' overall demand numbers flattening, probably coming
down, and in another 10 years we should begin to see that
happening in the emerging market countries.
Mr. Barton. Well, I would postulate that based on the
economy worldwide, if we are able to restart the U.S. economy
and the European and the Asian economies and the Chinese
economy grow that there is going to be a substantial increase
in demand for oil, even with the best efforts on energy
conservation and things like that. So that would tell me that
for U.S. energy security, we should try to increase U.S. energy
production of all sorts--natural gas, oil, clean coal, wind,
solar. We should support research into clean coal,
CO2 sequestration if we can see a light at the end
of the tunnel on the technology. But we definitely need to, in
my opinion, increase our domestic energy resources.
Mr. John, do you have any information if we could really
restart exploration in the Gulf, what kind of an increase we
could get in production from that, say in the next 2 to 3
years?
Mr. John. Well, in my statement that I submitted, it talks
about kind of the production curve of what is in the Gulf and
what can be produced in the Gulf, and it shows really somewhat
of a decline. However, it is important to understand that you
just don't turn the switch on and off. In a deep water project
where you have a billion-dollar piece of equipment in a
floating drill ship from start to finish, by the time you
actually lease the property until you explore, then produce,
pipeline and it gets into the market is somewhere in the 2- to
5-year range just depending on a lot of elements. In fact, the
deep water Macondo well, the lease sale of that piece of
property was in 2008, so that was a 2-year span and they
weren't in production. So the lag time is what is very critical
because there is going to be a bubble any time you take 30
percent of our domestic production offline, and it has been
offline since the 27th of May, there is a bubble. It won't
happen tomorrow or the next day but it is coming and it is
going to have some sort of impact, a negative impact on the
supply.
Mr. Barton. My time is expired, Mr. Chairman. Thank you
very much.
Mr. Whitfield. Yes, sir. Mr. Green was next, but I see he
is not here. Mr. Markey, you are recognized for 5 minutes.
Mr. Markey. I thank the chairman very much.
Yesterday, this subcommittee held a hearing on Republican
legislation that will bar EPA from doing anything further to
reduce oil use from cars, trucks, planes, boats or any other
source. The legislation might even nullify the progress that
has already been made at the EPA in reducing demand for oil
from cars and trucks and through the development of homegrown
renewable fuels. The Republican bill could result in an
increase in our oil dependence of more than 5 million barrels a
day by the year 2030, more than we currently import from OPEC.
We have heard disturbing rumors that this legislation could be
marked or even added to the Continuing Resolution on the House
Floor next week, but today, here we are holding a hearing on
the effect of Middle East unrest on the oil market as though
the Republican legislation that will dramatically increase our
dependence on Middle Eastern oil didn't even exist. It reminds
me a lot of when Monsignor O'Malley used to go up into the
pulpit on Sunday and lecture to the congregation that on
Wednesday in the church hall, Father Ganney will lecture on the
evils of gambling; on Thursday night in the church hall, bingo.
Well, yesterday we are lectured on the evils of the EPA. Today,
bingo, Egypt, bingo, Iraq, Iran, Tunisia, bingo, bingo, bingo,
bingo.
So let me ask each of you. Let us go down the list and I
would like a yes or no on whether or not you feel it is
important for us to stop $162 billion a year going to OPEC,
going to Middle Eastern countries that are paid for by American
consumers at $90 a barrel so that we are not subsidizing
religious fanaticism in Saudi Arabia, we are not subsidizing
rockets being constructed in Iran that are then used by
Hezbollah and Hamas against Israel and against our country. So
let me just ask each of you if you believe, number one, that
reducing our dependence upon imported oil from the Middle East
is important. Dr. Newell, yes or no?
Mr. Newell. That would tend to involve a policy position
which I am not in a position to answer.
Mr. Markey. OK. Mr. Mar, is that important?
Mr. Mar. Sir, as a representative of another government, I
am not----
Mr. Markey. Mr. Sieminski, is that important? We are
talking about Egypt here. It is a hearing on Egypt and its
impact on oil prices, and we are talking about the Middle East
here, not Canada. We are not talking about Norway. Mr.
Sieminski?
Mr. Sieminski. Mr. Markey, I am going to try to answer your
question actually but I can't do it in one word. I will try to
be brief.
Mr. Markey. No, thank you.
Mr. Hofmeister, yes or no, is it important for us to reduce
our oil dependence on the Middle East?
Mr. Sieminski. Mr. Markey, my answer to that would be no
then if I can only say one word.
Mr. Markey. It is not important. OK. Thank you.
Mr. Hofmeister?
Mr. Hofmeister. Absolutely critical to reduce dependence on
the Middle East.
Mr. Markey. Thank you.
Dr. Busch?
Mr. Busch. Yes.
Mr. Markey. Yes?
Mr. John. I think it is important to increase our domestic
production, and if that means reduced from the Middle East,
then my answer is yes.
Mr. Markey. But should our goal be to reduce dependence
upon Middle Eastern oil?
Mr. John. Yes.
Mr. Markey. OK. Thank you.
Now, so given that, should we be unilaterally disarming
ourselves of any of the weapons, any of the weapons that we
have in our arsenal to reduce demand for Middle Eastern oil?
Mr. John?
Mr. John. Mr. Markey, you are still on the top of your
game.
Mr. Markey. And under the 5-minute rule.
Mr. John. Yes. So four corners doesn't work here then.
Obviously you bring a very good point. The point is that
America and the world consumption of oil is going to increase.
Mr. John. Bottom line--can I say this? I am going to run
out of time. Bottom line here is, we can't afford to not
improve the fuel economy standards of the vehicles which we
drive. That is our number one weapon against the Middle East.
That is where we are teaching them a lesson. That is President
Kennedy telling Khrushchev we are putting a man on the moon in
10 years and bringing him back, you are not controlling outer
space, we are using our technology to dominate you. That is our
message to the Middle East. They have 70 percent of the oil
reserves in the world, the Middle East. We cannot beat them at
that game with only 3 percent of the oil reserves. It is
irresponsible to talk about basically tying the hands of the
EPA to improve our ability to make ourselves efficient to back
out this oil from the Middle East, and next week's vote if we
have it will be a historical one.
Mr. Whitfield. Mr. Sullivan, you are recognized for 5
minutes.
Mr. Sullivan. Thank you, Mr. Chairman, and thank you for
having me follow Mr. Markey. It is not something I enjoy very
much, and he is very good, by the way, at what he does.
I just want to touch on this again for a little bit.
According to the National Petroleum Council, technically
recoverable resources in North America currently restricted by
law or regulation amount to over 40 billion barrels of oil. The
answer to our energy security question is staring us right in
the face, but the simple fact is that the Obama Administration
is hostile to developing oil and gas, and they have taken a
decisive regulatory position against increased domestic oil
production, and let us just take a look at this again. On
December 1, 2010, the Obama Administration announced a new
offshore drilling ban that will keep the eastern Gulf of Mexico
and the Atlantic and Pacific coasts off limits to new offshore
exploration until 2017, and the Administration just announced
that new drilling permits in the Gulf may not happen until June
2011. These actions send terrible signals to the world oil
markets and it makes our Nation more vulnerable to oil price
swings due to rising demand and political upheaval.
I guess my question would be to Congressman John and Mr.
Hofmeister. Congressman John, you referenced that 38,000 jobs
are at risk because of the moratorium or ``permatorium'' in the
deep water Gulf. That doesn't mean every job has been lost.
Companies are doing what they can to keep workers on the
payroll while drilling projects remain in a standstill, and
that means companies in many cases are spending millions of
dollars a day to keep mass layoffs from occurring, and I have a
company in my district that in the Gulf right now, and I met
with them not long ago, and they are sitting idle paying like a
million dollars a day to service companies and the rig
operators, and they asked me when am I going to get a permit.
They said, believe it or not, that the regulators and the
bureaucrats don't even return their phone calls. Are you
hearing that? And how much longer do you think these companies
can last without opening for new drilling, and do you have any
indication how much money has been lost by exploration
companies since the initial drilling moratorium, and if you
could help me, what should I say to these companies? When will
they get their permit?
Mr. John. Well, Congressman Sullivan, that is a question
that I get every day because I live amongst the people that
actually make a living day to day, and it is not just in a pipe
company or a wild line company. It is the caterer in the poor
boy shop, the caterers and the ice companies and the hardware
stores, so I get that question every day. The math is very easy
to do. There were 33 drill ships. There are 240 people per
drill ship that work, full-time equivalent. If you multiply
that out, that is about 38,000 people whose job is at risk
today.
Now, let us back that back. Six drilling ships are gone,
and those drill ships, as I mentioned earlier, a billion-dollar
piece of equipment, you don't just move them one day in an area
of the world and move them back 6 months later. They are gone
for 3 years to 5 years because that is the contractual
obligations that they are insisting on having. Those drill
ships are $400,000 a day, a day rate. That is how much they
were getting. Some of the companies now negotiated a day rate
below 100. How long can they stay? I think we are getting
towards the end of that. I think that you see that we have got
27 drill ships that are idled right now kind of waiting to see,
but at some point in time, two of which are already in the
middle of negotiations, that are going to leave, and when they
leave, it is 5 years, and it is about 2,000 jobs per drill ship
when you multiply the factor of 4.1 to each job that is
created.
Mr. Sullivan. Mr. Hofmeister?
Mr. Hofmeister. I would suggest that the effects of the
shutdown in the Gulf of Mexico will be felt for the next 3 to 5
years from where we are today, even if we started permits in
the next 6 months. If you followed the fourth-quarter reports
of most of the major oil companies from Chevron and others,
they are reporting hundreds of millions of dollars of expenses
in maintaining capability for the Gulf of Mexico for which
there is no return, so these are absolute out-of-pocket costs.
How long they can continue is unknown.
Fortunately, most of the companies have alternative
projects where they can reassign people, avoiding layoffs, but
the overall reduction in domestic production in the United
States will be felt for years into the future.
Mr. Sullivan. Thank you, and I yield back the balance of my
time. Thank you, Mr. Chairman.
Mr. Whitfield. Thank you, Mr. Sullivan.
I recognize the gentleman from Texas, Mr. Green, for 5
minutes.
Mr. Green. Thank you, Mr. Chairman, and I thank all of the
panel. I want to talk about our susceptibility to any little
minor thing that happens because of our dependence on oil. And
coming from Texas, I can see it, in fact, all the testimony we
have, whether it be from our former colleague or John
Hofmeister or anyone else on the panel, we are susceptible
simply because we import so much. And when we have what
happened in the Gulf of Mexico for almost the last 10 months,
there are very few permits. We fought over shallow water
permits as compared to deep water permits, and it is really
frustrating with some of our companies actually saying OK, we
applied for it, we will try and work it through, and we are
hitting the same stone wall that most folks are having. Maybe
our energy subcommittee, maybe the oversight committee should
invite someone from the Department of Interior. We have some
jurisdiction over that, and I know we did last year and we
might do that again.
The frustrating thing is, I have a district in Texas and I
have five refineries. We need the crude oil even if we don't
get it from the Gulf. Even with all the fracking we can do, we
get very little oil from the fracking although there is some
great things going on in south Texas in the Ford shale but
still not enough, so that is why the Canadian pipeline is
important because we need that crude oil. I would rather have
it from domestic sources but the next place is Canada because
we know Venezuela and Mexico's production is decreasing. We can
buy everything from Mexico if we want but obviously President
Chavez is not our best friend. So that is the issue that I am
concerned about, and particularly to my constituents in East
Harris County and North Harris County.
Mr. Hofmeister, I have to say, we have known each other for
a long time obviously as CEO of Shell and one of my refineries
is a Shell facility. We also have a chemical plant. But in your
testimony, you said we live in a both-and world and not an
either-or. I have supported alternative research for everything
on alternatives but it still won't get us where we need to get.
We still need oil to fuel our economy.
My questions are really for Administrator Newell, and I
think the concern I have, how can--we determine the production
from 2010 to 2011. We saw an increase in production actually
from 2009 projected but now we are seeing a decrease in
production, particularly because of what is happening in the
Gulf of Mexico. How would our annual energy outlook differ if
the offshore moratorium had not been put in place and if we
were not now facing endless permitting delays? Have you been
able to quantify that at the EIA?
Mr. Newell. We have not specifically looked at what if the
moratorium had never happened. There have been implications of
that in our short-term and long-term outlook, though. We are
forecasting that for this year, 2011, about 250,000 barrels per
day lower production offshore and another decline of similar
magnitude in 2012, which is in part due to the moratorium, in
part due to natural decline at existing fields, so there is an
impact there. It is very difficult to isolate one particular
factor but that would be a significant piece of that.
Mr. Green. Well, it is interesting, because some of the
deep water projects actually have the potential for 250,000
barrels a day. Now, we don't see that in shallow water, so that
might even be a very conservative estimate on the loss. And
remember, every barrel that we don't bring out of the Gulf of
Mexico we either bring it in through the Suez Canal or
somewhere else and so that is why this hearing is important.
If you haven't quantified about the moratorium and
permitting, can you do that or do you need the direction from
the Department of Energy or can you do it on your own request?
Mr. Newell. No, I mean, we can do that in part. Again, it
is difficult to ask the ``what if'' question because one is
looking back and you need to look at particular drilling, and
it is something about what would have occurred and what did
occur and provide a comparison. As I mentioned, we do in our
short-term outlook have about a 250,000-barrel-per-day decline
in 2011 and another one in 2012, and a significant part of that
would be due to the moratorium but then also the delay in
permitting after that. To get it more fine-tuned than that
would be a challenge.
Mr. Green. Well, I know we have about a 10-month experience
now, and again, like the testimony showed, we are not just
talking about oil tomorrow or next month, we are talking about
2 to 3 to 5 years from now if those permits continue.
Mr. Chairman, I appreciate your patience. Obviously I have
a lot of other questions and I would just like to submit them
if we are not going to have a second round.
Mr. Whitfield. Thank you.
The gentleman from Illinois, 5 minutes.
Mr. Shimkus. Yes. Thank you, Mr. Chairman. Great hearing. I
appreciate you all showing.
A couple things, and first directed to Mr. Hofmeister and
Mr. Newell, and I don't know, Mr. Newell, if you have been
asked, many of us believe we could be energy independent. We
all know that we are independent on electricity generation in
this country. I talk about energy and the different types of
issues, electricity versus transportation fuel issues. Can we--
based upon North American energy supplies, North American
energy supplies, if we adequately access those, could we be
energy independent? Mr. Hofmeister?
Mr. Hofmeister. I think it would be very, very difficult to
achieve full independence on the path that we are on. We would
need to address the transportation industry somehow to----
Mr. Shimkus. Well, and that makes a good point, and Mr.
Markey left the room, but he keeps saying that in the hearing
yesterday that we are going to turn back the clock on fuel
economy standards where the legislation drafted yesterday
particularly protects those standards. It still allows NHTSA to
perform the role in the 2012-2016 car rule. So we also believe
that efficiency standards is part of all-of-the-above energy
strategy, and if we did that, continued to move on energy
security, could we be?
Mr. Hofmeister. Well, I think if you look over a 20- to 25-
year road map and you substituted the internal combustion
engine with other technology----
Mr. Shimkus. Well, in the all-of-the-above energy strategy,
we also talk about expanding the nuclear portfolio, so then you
can have electricity--so I believe they have--Dr. Newell, have
you all done an analysis on North America energy and energy
independence by accessing available resources?
Mr. Newell. We do track North American energy both
statistically in terms of what is currently going on in our
projections. We have not specifically addressed the question
about what actions could one undertake in order to achieve
energy independence. We have not looked at that.
Mr. Shimkus. Great. Thank you.
Let me follow up. I want to again highlight that in the
legislation yesterday, and my colleague is coming back, I want
to make sure he understands up, the big political banner from
last year was, read the bill, and I will ask my colleague from
Massachusetts, make sure he read the bill because we do not
affect the 2012-2016 car rule and truck. We don't do it.
So I need to move to a couple other issues. Mr. Chairman, I
would like to ask for unanimous consent that the Cambridge
Energy Research Associates article in growth in the Canadian
oil sands be placed into the record.
Mr. Whitfield. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Shimkus. And also I have an article from AP Energy on
North Dakota, and I am going to use these in my comments.
Mr. Whitfield. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Shimkus. Mr. Busch, with all due respect, I will invite
you to come to my congressional district. Organized labor,
where it thrives, thrives in the fossil fuel industry. We are
expanding a big refinery. We have several thousand members of
organized labor, laborers, iron workers, operating engineers,
carpenters, painters, been on site during this economy working
in the fossil fuel industry. I would then point to Prairie
State generating facility, which is a 1,600-megawatt plant
where we have also had thousands, several thousand members of
organized labor, the same construction workers expanding and
building this new state-of-the-art power plant. I mentioned
that in my opening statement with the oil sands and what is in
the testimony, I think 23,000 jobs that would then come--23,000
would come on this one project alone for the State of Illinois.
Energy security and jobs, we are focusing on jobs for
people to move to destroy and attack the fossil fuel industry
when it is a major job creating, low-cost energy. That is what
fires up a lot of us.
I want to end with this story which also talks about energy
security, and really what we haven't addressed is the vast
resources of natural gas in this country. That is a paradigm
shift. And look what it has done to North Dakota and jobs. I
know Speaker Pelosi once said natural gas is not a fossil fuel
but it is, OK? Unemployment in North Dakota has fallen to the
lowest level in the Nation at 3.8 percent, less than half of
the national rate of 9 percent. The influx of mostly male
workers to the region has left local men lamenting the lack of
women. Convenience stores are struggling to keep shelves
stocked with food. Why? They are accessing this new great
resource, natural gas oil shales. I yield back my time.
Mr. Whitfield. Thank you.
Ms. Capps, you are recognized for 5 minutes.
Mrs. Capps. I am glad that my colleague is still here so
that I can say that California, where do have a strong labor
movement, rejected the Koch Brothers' attempt to remove all the
clean air regulations that we have in California by voting down
Proposition 23 in the last election.
And I just want to address a few questions to you, Dr.
Busch, because we also really support the Apollo Alliance as a
jobs alliance in California, and I believe that we can look at
renewable energy without being disparaging on any other form of
energy and say this is a job opportunity for the future. We
hear from the majority today that the way to reduce our
dependence on foreign oil is to drill our way out of the
problem. We know in California but I think we know in our
country that that is not true by a long shot. We use so much
oil in this country. I think it is actually too precious to
waste on energy because of the other products that oil can
offer us, lifesaving products. There is no way we could either
produce enough to meet our needs domestically. If we had
adopted what many of us on this side on the dais and some on
the other side as well had called for in the 1990s like
efficiency standards for our vehicles, homes and appliances, we
may not have found ourselves in the situation we are in today.
Dr. Busch, the Republican Majority also claims that taking
action to reduce carbon pollution would be too expensive, but
that is not what you found when you looked at the demand side,
and that is what I want to ask you about today. You and your
colleagues examined the effects of California's clean energy
law, which will lead to the adoption of more-efficient vehicles
and lower carbon fuels. California's standards will reduce the
amount of oil used by cars.
Dr. Busch, what impact on oil demand in imports did
California's measures have?
Mr. Busch. Well, we actually built on the analysis of the
California Air Resources Board, and so using their numbers, we
found that AB 32 policies would lead to a reduction of 75
million barrels per year. About an 18 percent reduction is the
forecasted reduction.
Mrs. Capps. And that is going to save California a little
money? About how much?
Mr. Busch. At $114.50 per barrel, that is about $11 billion
reduction in the import bill.
Mrs. Capps. I hope that is being listened to by everyone
here today. I think that is not pocket change.
In your study, you examined an additional benefit of the
clean cars standards, the protection they offer from oil price
shocks. Please tell us about that benefit.
Mr. Busch. Right. Well, we didn't actually separate the car
standards but the overall sort of protection under the price
shock scenarios, and these were increases in gas or diesel of
about 25 percent in the lower scenario and 50 percent in the
higher scenario, so about a dollar or a little more than $2
increase in the price of gasoline saves consumers about $3
billion to $7 billion more or roughly $200 to $500 if you would
spread that over across households.
Mrs. Capps. And that is not a partisan estimate, that is a
study that is across the board, right?
Mr. Busch. Yes.
Mrs. Capps. Now, you weren't here yesterday but we had a
hearing in our same subcommittee, received, I think, quite
compelling testimony from the EPA Administrator and from the
American Public Health Association witness that greenhouse gas
emissions do threaten the public's health. Are there additional
benefits to the public's health from oil reduction policy? And
by that, I want to extrapolate that it is important to save
people's health not only for their well-being because healthy
people make better working people and can actually help us to
grow our economy. Can you please tell us some of the policies
that will get us the most bang for the buck in terms of public
health being an economic driver?
Mr. Busch. Well, I guess broadly speaking in terms of
economic drivers, I would point out in California clean jobs
have been going about three times faster than jobs overall. In
2008 while overall jobs were shrinking, green jobs grew in
California by 5 percent. In 2009, they grew 3 percent while
overall jobs grew 1 percent, so again about three times faster.
And green manufacturing grew at a 10 percent rate in 2009. And
24 percent of green jobs are manufacturing jobs in California
versus 11 percent of the overall employment.
But on the health cost issue, I would say, the broader
macroeconomic analyses haven't factored in the benefits to
public health in addition to the price spikes in insurance and
the national security implications. So, in California the
number I have seen, a Cal State Fullerton study, was $28
billion per year in health costs from the burning of fossil
fuels in California. We don't burn much coal so most of that
would be on the transport side, so the big winners would be
cleaning up transportation.
Mrs. Capps. Thank you very much.
Mr. Whitfield. Yes, ma'am.
Dr. Burgess, you are recognized for 5 minutes.
Dr. Burgess. And I thank the chairman.
Mr. Hofmeister, I appreciated your thoughtful and well-
prepared statement that you provided for us. You mention in
there very briefly--and in this committee we had a lengthy
hearing in the summer of 2008 when gasoline prices were so
high. We had a lengthy hearing on the effects of speculation on
driving the cost, and you mentioned that tangentially in your
remarks, and while I realize that is not the principal source
or the reason for this hearing today, can you expound upon that
a little further and do you have any information that you would
like for this committee to consider going forward? Because it
was an issue in the summer of 2008, I felt, though we never
really came to a conclusion as an investigative body in the
Oversight Subcommittee on Energy and Commerce, and yet clearly
before the worldwide economic downturn occurred, we were on a
trajectory where the average person was going to be priced out
of the retail gasoline market.
Mr. Hofmeister. In my own investigation of the role of
speculation, I conclude that it is a minor impact on overall
crude oil price for the 2007-2008 period. The real issue that
took place--and I testified to this in June of 2008 in my
previous role--was the demand for middle distillates, that is,
diesel, aviation fuel, heating oil, where there was not enough
crude oil barrels in the market to satisfy the demand for those
middle distillates drove the price to $147. In any commodity
training, there will always be some degree of speculation from
orange juice to pork bellies to coffee beans, true also in oil,
but based on my own analysis, to get more than, say, 5 percent
as speculated price to me is a real stretch and it just is the
reality of supply-demand. The supply-demand equation works
extremely well across the world and also in this country, and
the real issue is the availability of crude oil or the
insecurity about obtaining future contracts of crude oil, and
that shortage of crude oil is what really drives price.
Dr. Burgess. And of course, as you correctly point out, the
time horizon for new development bears a 7- to 10-year lag
between starting a project and actually having a deliverable in
the marketplace. So I don't think there is any question, even
though supply and demand during that hearing was discounted as
a source of the problem. If there is a problem coming 7 years
down the road and we don't deal with it today, if the problem
today is speculation but there still is going to be a supply-
demand inequity in 7 years, it is obviously the producers who
need to be making the preparation and doing the investments
necessary.
And yet still it was hard to separate out--I know that the
head of Southwest Airlines makes money on the fact that he is
able to hedge the fuel prices and did that more effectively
than any other airline in the country, and in 2008 profited
handsomely from that, yet there were other people who were
buying large quantities who never intended to take delivery of
that product, in fact, had no ability to take delivery, and it
did seem that that affected the overall price for the end user.
Is there still work to be done on that? I know we are at a time
now where I think even it was mentioned by the gentleman next
to you that the price of crude does seem to track the stock
market. It is a safe place for money to go right now while
other things seem not so safe. So is there still a role to
play? Does Congress need to pay attention to this as a
regulatory body?
Mr. Hofmeister. Well, I think in the interest of consumers
overall, the answer to your question is yes, I think there is
an oversight role that needs to be played because there can be
manipulation. I didn't find it in the 2007-2008 period, and
many of those who hedged in the summer of 2008 were burned
badly later in the year when the price collapsed.
Dr. Burgess. Yes, we bailed them out, if you will recall.
Mr. Hofmeister. But I think from an oversight----
Dr. Burgess. I voted against that, just for the record, so
everyone understands.
Mr. Hofmeister. From an oversight standpoint there is
always a role in any market for the potential abuse that could
exist, and those who don't own the product I think are the most
likely to need to be watched over.
Dr. Burgess. Let me just ask you quickly, because you also
referenced some of the shale formation productions going on,
and you are the only person on the panel who actually has any
experience with production. I agree with you about that. In my
area of north Texas in the Barnett shale, it is a big deal, but
there is also concern and the general public in the area is not
convinced that they are being protected from air quality
issues, water quality issues. There is a big fight going on
between federal regulators and state regulators back where I
live. It seems like there is a lot of responsibility that has
to fall on the producers, and I would think that the producers
would be more proactive about ensuring that things are done
properly so that they don't lose this very precious resource
because of pushback by the general public.
Mr. Hofmeister. There is a very serious effort underway by
a number of producers to try to arrive at appropriate standards
because you are absolutely right. When people operate below
standard or do not operate the best practice, best in class,
then abuses can take place and people do suffer. So between a
number of associations and a number of major companies, there
is an effort to agree on what should those standards be and
then find a way to get people to comply with such standards.
Mr. Whitfield. Mr. Scalise, you are recognized for 5
minutes.
Mr. Scalise. Thank you, Mr. Chairman. I appreciate you
hosting this hearing dealing with the Middle Eastern crisis and
especially how it relates to U.S. energy markets.
I want to walk back a little bit and first go through some
of the things that got us to the situation we are in in the
Gulf of Mexico, which Congressman John did a really good job of
outlining. Right after the explosion of the Deepwater Horizon,
the President commissioned a team of scientists and
commissioned them to go out and come back with a safety report,
a report on not only what went wrong as much as how we can
improve safety in the Gulf operations, and there was a 30-day
safety report that was put together that the Department of
Interior issued that was peer reviewed by scientists, and there
were some good recommendations on how to improve safety, many
things that most of the companies, unlike BP, were already
doing. The problem that came out of this was, this was the
document that was referenced to create the moratorium, and I
want to submit this for the record. I ask unanimous consent
that we can submit this report.
Mr. Whitfield. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Scalise. We later found out that this document was
fraudulently doctored by the Obama Administration to suggest
that the scientists themselves recommended the moratorium, and
I think it is really important for everybody to understand that
the moratorium that came out that two courts now have said the
Administration doesn't even have the legal authority to
administer, that moratorium was based on fraudulent doctoring
of this document, and in fact the scientists, a majority of
those scientists that were peer reviewing the document that the
President himself appointed, that were appointed by the White
House, a majority of those scientists said they not only
disagreed with the moratorium but they point out how the
moratorium reduces safety of drilling operations in the Gulf of
Mexico, and they have some very sound reasons why that
moratorium reduces safety in the Gulf and why they disagreed
with it, even though their name was attached to it. Of course,
the Obama Administration later had to apologize to these
scientists for that fraudulent doctoring, and that has never
really been covered thoroughly enough and I think it is
something we do need to pursue, but I want to ask unanimous
consent to also include this in the record because I think it
is important----
Mr. Whitfield. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Scalise [continuing]. To establish that the moratorium
itself came from fraudulent activities by the Obama
Administration, which now has brought us to the point of the
``permatorium'' as was described where they are not issuing
permits in the Gulf today for any drilling activities in the
deep water, which dramatically is reducing America's energy
security and I think is one of the contributing factors to why
we are over 90 approaching $100 a barrel on the price of oil on
the spot market.
So I want to ask Congressman John, because you work
directly with these companies and you talked a little bit about
it in your opening statement, the things that you are seeing on
the ground--I know I hear from people every day not just the
people who are exploring for energy but all of the service
industry people, all of the ancillary. We have gotten reports
from the White House alone that 12,000 jobs have already been
lost in south Louisiana, not even getting into the rest of the
country. In south Louisiana, we lost 12,000 jobs because of the
moratorium, now the ``permatorium'' that is going on, so if you
can tell me if you have got any more numbers on how much wider
that is approaching because there are so many companies that
are just literally holding on by a vine, companies that are
small businesses, local American businesses that are about to
go under, about to go bankrupt because of the Administration's
fraudulent activity.
Mr. John. As far as the direct jobs, and again, there are a
lot of number out there, Congressman Scalise, and we try to put
our arms around the realistic of what is happening out there,
and the math is pretty easy to do. When you look at the jobs
that are lost today, there are these six drill ships that are
gone. They are gone. And if you multiply those number out, it
is right in the 5,000 to 6,000 direct jobs, and then you have
to multiply that times four because according to a study that
was commissioned by Louisiana Mid-Continent Oil and Gas by Dr.
Lawrence Scott, it is a multiplier of four. So, yes, is there
some debatableness about the numbers.
Mr. Scalise. But it is well in the thousands, maybe
approaching the tens of thousand?
Mr. John. It is well over 10,000 jobs that have been lost
as of today, and G&O Inc. predicted that Woods McKinsey study
said that a permanent moratorium or a moratorium that lasts for
longer than a year or so and with a total shutdown of the Gulf,
it is 175,000 jobs that are----
Mr. Scalise. I appreciate that. I know we have got a list
here of the rigs, as you talked about the 33, and these are
very valuable assets, a billion-dollar asset each in many
cases, that have already left. I will tell you some of the
countries that some of these assets have gone to: Libya,
Nigeria, Congo. Two of them have actually gone to Egypt, and it
is a sad state of affairs in this country when a major employer
thinks that it is better to do business in Egypt than it is in
the United States because of the Obama Administration's
policies that are leading us to a higher dependence on Middle
Eastern oil. Egypt, two of these assets have gone to, and I
would like to ask unanimous consent to submit this into the
record as well, and I thank you for being here and for what all
of you are doing, and I yield back the balance of my time.
Mr. Whitfield. Without objection.
[The information was unavailable at the time of printing.]
Mr. Whitfield. I might also say that toward the end of the
year, we sent a letter to Michael Bromwich asking for some
response to questions regarding the moratorium. We never heard
anything from him. We are getting ready to recontact him a
little more forcefully this time and hopefully we can get some
additional answers.
The gentleman from Texas, Mr. Olson, is recognized for 5
minutes.
Mr. Olson. Thank you, Mr. Chairman. Thank you to the
witnesses for coming today to give us your expertise on this
critically important matter.
I would like to ask my first question to Mr. Hofmeister.
First of all, thank you, sir for your service to the town of
Houston, greatly, greatly, greatly appreciate that, and I want
to talk about national security and the Middle East. I think
you believe as I do that we have to develop all the oil and gas
resources that God has given our country. That means the East
Coast, the Gulf Coast, the West Coast, Alaska, the public
lands, wherever it is, we need to develop that oil. We are very
vulnerable geographically particularly, I mean, with these
Straits of Hormuz and with the Suez Canal where most of the oil
that our country depends upon flows through, and I was in the
Navy for 10 years, flew P-3s and did many, many patrols through
the Straits of Hormuz, and it is a very, very, very narrow
choke point, about 10, 15 miles wide at its widest, and when we
flew through there, we had devices on our aircraft that we were
being tracked by fire control radar from the Iranians, and I
can guarantee you that they are doing that with the tankers
that are coming through. I mean, if they want to cause big, big
trouble for the world, take out a tanker right there in the
middle of the straits and cut off the whole Persian Gulf to
traffic.
And so, my point here, we are depending right now--we have
got two very unstable nations, Egypt with what is going on
there internally and Iran with a leadership who doesn't live on
this planet, and I know you predicted $5-a-gallon gasoline by
the end of this year. If some of these things happen in the
Middle East that I am concerned about, if Iran does something
to the Straits of Hormuz or Egypt shuts down the Suez Canal,
how would that impact your prediction of $5 per gallon of
gasoline?
Mr. Hofmeister. The Straits of Hormuz watch about 20 to 25
percent of the world's daily crude oil production move through
it, and if the world were to lose that amount of oil because of
a shutdown in the Straits, I think that the immediate impact on
crude oil prices would be to not just double but even triple
the current crude oil price of the panic that would set in in
terms of future contracting. There might be a slight delay to
see how long it make take to clean up the mess that might be
created there but it is such a critical pinch point and there
is so much of that oil that goes both east and west that it is
not only energy security for the United States, it is energy
security for the world's second largest economy, China. And so
the consequence would be dramatic. Five dollars would look
cheap in terms of a gasoline price in the event of the Straits
of Hormuz being shut in.
Mr. Olson. Thank you for that rather sobering answer.
One question for you, Congressman John. Thank you also for
your service. And as you know, we have been talking about it,
we have a moratorium, now a ``permatorium'' in the deep water
in the Gulf since April of last year, and I have known of at
least five rigs that have gone overseas that my colleague, Mr.
Scalise, had mentioned. Amazingly, most of the rigs that I have
talked to are taking it on the chin at about $500,000 a day
just sitting idle but most of them are still staying here in
our country in these waters because they believe we have the
best sort of regulatory system, judicial system, and they
believe it is less risk to them long term than some of them
going overseas. I think the President missed an opportunity
during his State of the Union when he could have at least
mentioned the oil spill and what he has done to lift the
moratorium and make a commitment to get the rigs, the
permitting going and get those rigs back out there working, and
unfortunately 2 days after the President's speech, we had one
more rig announce that they are going to go overseas, and it
was one of the Noble Corp's rigs, the Clyde Boudreaux, and they
announced that they are going to take their rig--I hope I
pronounced that right. I am not from Louisiana. But they were
going to take their rig to Brazil, and this is a quote that
just sticks out with me about the impact of this moratorium,
this ``permatorium'' on our oil supply. One of the Noble
employees was quoted as saying ``There is life after the Gulf
of Mexico, and that would be Brazil.''
Is there a tipping point, Congressman, where somewhere we
are going to be hearing not just that there is life after the
Gulf of Mexico, life is in Brazil, life is in Sudan, life is in
Nigeria, life is in Norway, wherever, life is somewhere else,
not American waters, and we are going to lose those American
jobs permanently and more depend upon foreign oil?
Mr. John. Well, I guess I can only answer your question as,
picture yourself in a boardroom where you may have 4 or 5 or 6
billion dollars in your cap budget for the next 3 or 4 or 5
years, where would you as a board member want to decide to put
those kinds of dollars. Is it in the Gulf where today there is
an enormous amount of uncertainty today, or is it somewhere
else? And that is only way really I can answer that question. I
think the fact that seven rigs, six have gone and a brand-new
one is leaving, I think is the initial signal of what to come
because there is a tipping point, and I think we are very, very
close to that point because of the fact that industry and the
Bureau of Energy Management have worked together to come up
with safety regulations, task force that the industries have
put together. The Marine Well Containment Company, a billion-
dollar commitment by four companies and more adding today to
put a billion dollars into a company for containment. So we
have done, I think the industry has done an enormous amount, a
good job of all the regulations in doing what is required of
them to get back and the goalpost keeps moving, and I think
that that is very troubling in a lot of ways, and you only have
to look at the amount of money that is being invested out there
to give you an idea of where else could it go, and there are a
lot of other places that it could go.
Mr. Olson. Thank you, Congressman.
Mr. Chairman, I ask unanimous consent that the article from
the Houston Chronicle about the ship going over to Brazil be
placed in the record.
Mr. Whitfield. Without objection.
Mr. Olson. Thank you.
[The information appears at the conclusion of the hearing.]
Mr. Whitfield. Mr. McKinley, you are recognized for 5
minutes.
Mr. McKinley. Thank you, Mr. Chairman. I left the private
sector, an architectural practice to get back into the
political arena, because I had a fundamental belief that our
national security and the welfare of our country has been at
risk with us not having an energy policy and being independent
from foreign oil. I think it is something we have talked about,
what this hearing was supposed to be about is the concept of
what is happening over in the Middle East. I don't think it is
going to end with Egypt. It is going to continue. And I am
here, have come to Congress because I want to deal with energy
independence. But yet I have come here, now I have come to the
realization when I look across the aisle and I hear their
remarks and some of the people and the policy.
One thing that we are short of here is naivete. It is
rampant in this community, and I am very concerned about where
we are going. This idea of alternate travel, driving--look,
West Virginia is a very rural mountainous area. The largest
community I have in my district has 35,000 people on it. The
idea of high-speed rail and other isn't going to work. What I
am looking for here is to find way that we can become energy
independent, and that is to mine coal and drill into the
Marcellus shale and the oil and gas that we have had in West
Virginia. But all I have heard for the last several years has
been to stop this dagger in the heart of West Virginia, the cap
and trade, fly ash challenges, water discharge, greenhouse gas
emissions, the revocation of mine permits. It is as though
Congress really doesn't want to have us independent. We know
how to do it. I am sure there are panels like this elsewhere
that are saying we can do that, we can be energy independent
but we are just not.
I want to hear--the discussion we had yesterday, Mr.
Hofmeister, you stressed jobs in your opening remarks. I am so
frustrated. We have 15 million people out of work in America,
union, non-union Americans out of work. I want to try to do
something, and mining coal and making us energy independent
will get us that direction. My question to you, do you think
denying EPA's authority to regulate greenhouse gases is a
responsible means to reduce our dependence on foreign oil?
Mr. Hofmeister. In my judgment, Congressman, I believe that
the Environmental Protection Agency is going way too far, too
fast without the means, the mechanisms or the technology
available to change the game the way they are trying to change
the game.
I visited Pike County, Kentucky, before Christmas just to
see what is going on in the coal region of eastern Kentucky,
and what I learned from operators in eastern Kentucky is, they
haven't had a new mine permit in years because they can't get
past EPA regulations on water quality, and the water quality
that they are expected to reach has to have Evian bottled water
consistency coming down a stream in a natural forest. It
doesn't exist in nature, Congressman, and I think there is a
reach going on that is job destructive and that doesn't take
into account the fact that over the coming decades I believe
the ingenuity and the innovation that is possible in the
hydrocarbon world can dramatically clean up the use of
hydrocarbons so that we can continue to use natural resources
found in this country.
Mr. McKinley. Dr. Newell, can we be energy independent if
we mine coal and let us drill? And if so, why aren't we doing
it so we can be energy independent?
Mr. Newell. Currently, coal goes primarily, almost
exclusively, 90 something percent, for electricity generation,
the vast, vast majority of which is already domestically
produced, so the main issue with regard to fuel imports relates
to petroleum. We have currently got about 50 percent of our
liquids consumption comes from imported petroleum so there are
certainly actions that would tend to affect that. Lower
consumption and higher domestic production tend to squeeze out
imports but we currently have about 9 million barrels per day.
We are projecting that----
Mr. McKinley. My question is, can we be independent if we
mine our coal and drill for our gas in America?
Mr. Newell. It would be a matter of primarily domestic
liquids production that would change the oil import picture,
and it would be a significant change from where we currently
are.
Mr. McKinley. So the answer is yes?
Mr. Whitfield. Do you want to respond to that, Mr. Newell?
Mr. Newell. The answer would depend upon the actions that
were taken. On current market trends, that is not where things
are currently headed.
Mr. Whitfield. Mr. Gardner, you are recognized for 5
minutes.
Mr. Gardner. Thank you, Mr. Chairman. Thank you as well for
this timely hearing. I certainly appreciate your efforts to do
this today. And thank you to the members of the panel for
taking time away from work to be here. I appreciate your time.
Dr. Newell, I will start with you to talk a little bit
about some of the testimony. In your testimony, you talked
about some of the cost impacts on a per-barrel basis of energy
disruption out of the Middle East and some other issues that we
face should something continue to disrupt energy supplies in
the Middle East. What would the overall, in terms of economic
impact, the overall economic impact be should an incident close
the Suez Canal to transport, should an incident close some of
the choke points that we are talking about here, whether it the
Gulf of Aiden, the Red Sea off of Yemen, whether it is the Suez
Canal, if those were to close, what would--in real dollars,
what would that impact be to our economy?
Mr. Newell. The impact would depend upon any price effect
of some type of an international disruption. What would tend to
happen in terms of oil price increases tends to decrease the
amount of household disposable income that can go to other
things. It tends to act like an additional cost on production,
and if you cost more to have one major input into our national
production, it would tend to lead to a decline in GDP. A rough
rule of thumb is that every $10-per-barrel increase of the
price of oil might shave roughly 0.2 percent off of GDP over
the next year. It depends upon the nature of any kind of a
price shock that would occur. If it is a supply-side price
shock, it would tend to have the kind of effects that I said.
It would also depend whether it is temporary or permanent. A
permanent increase is obviously more damaging. If it is an
increase that is caused from demand increases like faster
global economic growth, it is a less negative impact because
along with global economic growth goes increased demand for
U.S. products and so that tends to offset any effect. So it
depends.
Mr. Gardner. So is there any way to get a number in terms
of if this were to happen, if these two cases were to happen,
if there was a disruption, total disruption as a result in the
Suez Canal what it would cost? I mean, what would that number
be? A billion, 2 billion? I know you said 0.2 shaving off the
GDP but what would that number be?
Mr. Newell. It really would depend on the specific
scenario. So closing different transit points doesn't
necessarily take production off of the market, and so if you
can reroute that production through other transit points, there
may be a short-term impact, but once things adjust, it would
tend to bring it back down. It would depend on the magnitude of
any kind of a production shortfall. It would depend upon the
response of remaining supply sources. So, for example, if one
country had a decline in production, there significant spare
crude oil production capacity in other countries that could
offset it. There is also Strategic Petroleum Reserves that
could offset certain impacts. So I am not trying to evade the
question but it really depends on a very specific scenario and
the responses that one imagines to that scenario.
Mr. Gardner. Well, thank you.
Mr. Sieminski, just a broader question. Based on our energy
policy in the United States today, are we becoming more or less
globally competitive in the United States?
Mr. Sieminski. Well, Mr. Gardner, and I think everybody in
the room, since I was only one that said no to Congressman
Markey's question, I now get a chance to explain. I wish he
were here. In fact, when I testified before Mr. Markey a couple
years ago, and what I said was, the most troubling thing I find
about hearings like this is what seems to an outsider to be an
unappreciation for the fact that these solutions are not
mutually exclusive, that getting more oil in the Gulf of Mexico
or not having a moratorium is not mutually exclusive to fuel
efficiency standards for automobiles. I serve on the National
Petroleum Council. Several years ago we did a study that was
widely well received that basically said there is no single
solution to our energy policy problem, that we need to do all
those things that make economic sense on the supply side and
the demand side in order to move forward, and so let us come
back to the Middle East thing.
I keep hearing virtually everybody in this room saying
well, we have got to reduce our dependence on Middle Eastern
oil. That makes sense if it is good economics and good foreign
policy. I am not so sure that it is unless we can produce the
oil here less expensively. It would reduce jobs here in this
country to say well, we are just not going to import from the
Middle East.
Mr. Gardner. So in 10 seconds, are we more or less
competitive as a result of current U.S. energy policy?
Mr. Sieminski. I would say that current U.S. energy policy
is probably not doing a whole lot either way----
Mr. Gardner. So the answer----
Mr. Sieminski [continuing]. To our dependence on the Middle
East.
Mr. Gardner. We are less competitive?
Mr. Sieminski. Are we less competitive? We would be more
competitive if we did not exclusive development of domestic
resources for what seems to me to be poor policy reasons.
Mr. Hofmeister. In my view, we are far less competitive as
a Nation by virtue of not producing domestic resources, which I
believe are eminently affordable to produce.
Mr. Whitfield. Mr. Pompeo, you are recognized for 5
minutes.
Mr. Pompeo. Great. Thank you, Mr. Chairman. Thank you all
for being here this morning.
Mr. Hofmeister, you mentioned Matt Simmons early on, and it
reminded me, Dr. Newell, in your analysis, there is his theory
of peak oil theory. What is the assumption that you all have
made? I don't want to get into the complexities but what is the
assumption you have made with respect to total capacity and the
ability to get at that?
Mr. Newell. We are projecting an increase in both U.S.
domestic production of crude oil in the next 25 years as well
as a significant increase internationally in crude oil, so we
at this point in time, for the next 25 years, which is how far
our projection goes out, we don't see a peaking of world oil
production capacity.
Mr. Pompeo. I appreciate that. And did you also assume--you
gave some pricing for the next several decades which you were
forecasting for pricing. Did you continue to assume that oil
would be priced in dollars, that that commodity would largely
be continued to be trading in the U.S. dollar?
Mr. Newell. It is not something we explicitly assume. I
mean, that is certainly the way that we track it through our
model. If that were to change, I don't think that would
significantly change the outlook if you priced it some other
way.
Mr. Pompeo. I think some of Mr. Sieminski's folks would be
very concerned if we decided to price oil in a different way. I
know that I certainly would too, so would the folks in Kansas
who are producing here. I sit here today. Forty days ago, I was
running a company that was a member of KIOGA, the Kansas
Independent Oil and Gas Association, and so there are national
security implications and cost implications for consumers too
in terms of how we price oil in the marketplace.
I don't think anybody has talked this morning either about
refining capacity in America, and I think that is important. We
focused on getting the crude here. Mr. Hofmeister or Mr. John,
could you speak to me too about, we have a huge problem getting
refineries built in the United States. We can talk about how
long it has been since there has been one. I see that as a huge
component when it comes to gasoline prices in addition to the
crude oil inputs.
Mr. John. Yes, I would be glad to comment. Actually, in my
written testimony, I have a whole paragraph where I did talk
about refining capacity, because you really can't talk about
crude oil and oil production and how it all fits into the
puzzle of energy policy without talking about refinery because
a barrel of oil without a refinery is just a barrel of oil. You
must be able to boil that oil to get the value added out of it.
And I guess the most alarming part of our refining capacity is,
is we haven't built a grassroots from the grass up in almost 30
years. In fact, the opening and the expansion of the Garyville
refinery, Marathon Garyville refinery down in Louisiana, was as
close as it is going to get to a new refinery in this country.
It just hasn't happened for a myriad of reasons. But I think
the fact of the location of all the refining capacity in this
country should be of some concern. Not only are we vulnerable
from the importation of oil from countries that don't share our
values but it doesn't take long to look at in 2008 when
Hurricane Gustav and Hurricane Ike came through the Gulf of
Mexico and the refining capacity from Corpus Christi, Texas, to
Pascagoula, Mississippi, is 50 percent of this Nation, and
every one of those refineries at some point in time during
those 2\1/2\ weeks of those two hurricanes were either shut
down, cold or warm, and what the implications of that were that
the lines up in the Northeast, because all of the refined
products, the gasoline that is used in Chattanooga and Atlanta
and in Alabama and Mississippi come from the Gulf Coast, and if
you remember correctly, there were lines waiting on where is
our gasoline. It was because of that. And that just shows the
vulnerability that we have had. We need some more refining
capacity. However, I think it is important that we must get the
crude oil into the pipelines to be able to actually refine and
value-add that.
Mr. Pompeo. Mr. Hofmeister, do you care to comment?
Mr. Hofmeister. I think that has been well said. There have
been a few additions to existing refineries but only in recent
years.
Mr. Pompeo. One last question. Mr. Busch, you said, and I
think I got this right, you said there were green jobs created
while the overall jobs decreased. Do you think those could be
related? And here is my point. When you create rules and
regulations that cause folks to go try and create these jobs
where government regulation would not have permitted them to be
before, when federal policy encourages these green jobs, that
you do in fact destroy the economy so you see green jobs
growing while overall jobs are growing? Do you think those are
disconnected thoughts?
Mr. Busch. I don't believe they are related, no. I mean,
the trend has been continuing for a long period so I don't.
Mr. Pompeo. Thank you. I yield back the balance of my time,
Mr. Chairman.
Mr. Whitfield. Mr. Griffith, you are recognized for 5
minutes.
Mr. Griffith. Thank you, Mr. Chairman.
Dr. Newell, if you would, I noticed answering one of the
earlier questions you were able to project or had at least some
idea of what oil production was going to do in the United
States. Can you tell me what coal production is going to do in
the United States between now and 2025?
Mr. Newell. We do have the projections for that. I don't
have the specific number in front of me right now. Most of--
this depends largely on the outlook coal-based electricity
generation. It also depends somewhat on what your starting
point is. We have seen during the economic downturn over the
last several years and also a significant decline in natural
gas prices over the last several years and there has been a
significant decline in the demand for coal for electric power
generation. We do----
Mr. Griffith. If I could stop you there and ask you, do you
believe that the reason for the significant downturn in demand
for coal for electric generation is due to federal regulations
on coal and the use of it in the electric generation?
Mr. Newell. Not at this point, I actually don't think so.
The main factors that have led to a decline in coal over the
last several years are the economic downturn, which has an
effect on overall electricity generation, and a very
significant decline in natural gas prices as well, and so I
think that would be the main factor.
Looking forward, obviously regulations would tend to have
an impact if they would focus on coal.
Mr. Griffith. How many electric generation facilities have
switched from coal to natural gas?
Mr. Newell. There has been a--I have an answer to your
question here. In 2009, coal production was 1,075 million
metric tons, and it goes up to 1,315 million metric tons by the
end of our projections, so it increases. Now, largely this is
in existing electric power plants, which we project most of
those would continue to stay online that are existing laws and
regulations. I don't know if I answered the other part of your
question, though.
Mr. Griffith. Go ahead.
Mr. Newell. I am----
Mr. Griffith. Oh, you want me to rephrase?
Mr. Newell. Sorry.
Mr. Griffith. I am going to switch gears on you anyway.
Mr. Newell. OK.
Mr. Griffith. I note with some interest that in getting
prepared for today, since we are supposed to be focused on
Egypt but I don't have much oil in my district, I got a lot of
coal and got a lot of natural gas. But I did notice with some
interest that apparently we imported 442 short tons, not a lot
of coal, from Egypt during the last year, and I am wondering if
you can tell me what was special about that coal? It must have
been somebody needed something particular. Do you have any
clue?
Mr. Newell. I really don't but it is something we can find
out for you.
Mr. Griffith. If you can get me an answer later? I did not
expect you to have that on the tip of your tongue.
If I could shift now to Dr. Busch, you got into a
discussion earlier about health, and we have concerns in my
area. Electric rates have gone up significantly, and I would
have to say since the previous questioner asked you questions
about public policy and health concerns, I don't think there is
any question that if we regulate the way that the EPA wants to
on greenhouse gases it is going to cause even more spikes in
electricity or fuel for the people in my district, who already
are facing difficulties with median income for the household of
about $35,000. Would you not agree that if we have significant
increase in the cost of the ability to heat your home with
electricity powered by coal or from home heating fuel that we
are going to be affecting adversely, particularly during the
winter months, the health of the people who are having a hard
time affording it right now, affording the energy sources to
provide heat in their homes currently?
Mr. Busch. Thank you, Mr. Griffith. I would certainly agree
that affordable energy to keep a home warm in the winter and
cool in the summer, for places that have high heat spikes, that
is important to health. I wouldn't have an opinion on whether
increases in energy costs would be more detrimental than
reductions in pollutants that might be released from
electricity generation. I don't know which would be more----
Mr. Griffith. You don't know?
Mr. Busch. I don't know.
Mr. Griffith. But it is something that should be considered
by agencies of the United States government as they go forward
in determining our policies on greenhouse gases, would you not
agree?
Mr. Busch. I agree it is important to consider all the
tradeoffs amongst the options, yes.
Mr. Griffith. I appreciate it.
Thank you, Mr. Chairman. Yield back my 10 seconds.
Mr. Whitfield. Thank you very much.
Do any of you have one additional question you would like
to ask? Do you have one?
Mr. Rush. Yes, Mr. Chairman. Thank you for being so kind.
I want to go back to Mr. Hofmeister. Mr. Hofmeister, I am
really kind of intrigued by your opening statement, and I am in
a district where my constituents probably suffer from
environmental ill effects, asthma, all those kinds of illnesses
and diseases that might occur. We don't have a lot of oil in my
district but we have got high unemployment. That is one of the
characteristics of my district. And you mentioned in your
opening statement about job creation. Can you elaborate a
little bit more on that in terms of what you really mean by job
creation? Because that intrigues me.
Mr. Hofmeister. Thank you, Ranking Member Rush. If we look
at a significant commitment by this country to increasing its
domestic oil production, could include gas, could include power
plant construction, the number of jobs that would be created
through the capital investment made necessary to produce this
additional oil would in effect, I believe, raise jobs all over
the country, not just in the oil patch. The reason is, the
distributed manufacturing system that supplies oil companies
includes companies that make equipment in places like
Wisconsin, Illinois, Michigan. Many north Great Lakes States
are producing the kind of skilled metalworking crafts that are
necessary. The steel industry makes pipe. The automotive
industry makes the trucks and many other components that go
into oil rigs and offshore platforms, and so the equipment
manufacturing is a big part of it. In addition, there is a
whole services industry that comes with it and there is an
education industry that comes with it because somebody's skills
would need to be trained in community college systems and in 4-
year schools and it would encourage high school students to
stay in school to go to community college to et the skills. The
average wage we are talking about in the oil and gas industry
for semi-skilled workers is in the $60,000 to $80,000 a year
range, which is almost double the median wage in the country.
And so these high-wage jobs enable people to buy many more
things and that is why I say it is a tide that lifts all ships.
Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, on behalf
of the ranking member, Mr. Waxman, I would ask unanimous
consent to introduce into the record a report prepared by the
NRDC on concerns with tar sands.
Mr. Whitfield. Well, I reluctantly won't object to that.
Mr. Rush. Thank you.
[The information appears at the conclusion of the hearing.]
Mr. Whitfield. Thank you.
Mr. Scalise, do you have another question?
Mr. Scalise. Yes. Thank you, Mr. Chairman, for the
opportunity.
Just I guess I will ask the whole panel a yes or no
question. With this Administration's current policy of not
issuing permits in the Gulf of Mexico for now 10 months, not
allowing people to go back to work drilling safely in the Gulf
of Mexico, is that 10-month and potentially longer refusal to
issue any new permits on deep water drilling, is that going to
increase or decrease our country's dependence on foreign oil? I
will start with you, Mr. Newell.
Mr. Newell. I am going to have to decline to take a policy
position on this.
Mr. Scalise. Or just a judgment. I mean, there was a policy
decision made but its impact, how is that policy's impact going
to be on our Nation's dependence on foreign oil? Would it
increase or decrease? And if you don't want to answer, I
respect that.
Mr. Newell. OK.
Mr. Scalise. Mr. Mar?
Mr. Mar. Sir, as a representative of a foreign government,
I cannot advise on that matter.
Mr. Sieminski. I think it is a huge mistake to not develop
the resources in the Gulf of Mexico, and unnecessary delays in
permitting are a mistake. I don't think that carrying that to
the next step of your question is particularly important.
Whether that does anything to our use of Middle Eastern oil I
don't think is really critical.
Just very quickly 10 seconds on this, Saudi Arabia was
brought up in this hearing. If it weren't for the fact that
Saudi Arabia has 3 or 4 million barrels a day of spare capacity
that is available in the marketplace or if it weren't for the
fact that we have the Strategic Petroleum Reserve both here and
elsewhere around the world, we would be in a lot worse shape
with problems in the Suez Canal or anywhere else in the Middle
East.
Mr. Scalise. But there has been no suggestion to tap the
Strategic Petroleum Reserve that I have heard. I am not sure if
you have heard anything different.
Mr. Sieminski. Well, you would do it if there was a
problem.
Mr. Scalise. Right, but if our demand--maybe you think our
demand might be decreasing but if our demand is going to remain
the same or increase and yet our actual access to known sources
of reserves is shut off by policy, you don't think that would
cause an increase in----
Mr. Sieminski. I said that----
Mr. Scalise [continuing]. The need for it to come from
someplace else?
Mr. Sieminski. Well, we might just get more oil from
Canada, which----
Mr. Scalise. Well, that is why I said foreign oil, and I
would include Canada in that. I would sure like to completely
eliminate our country's dependence on Middle Eastern oil, and I
think if we invoked a real smart strategy, we absolutely could
eliminate our dependence on Middle Eastern oil. Canada is a
good friend and a trading partner but clearly we are still
getting, as he pointed out, our 20 percent of our oil from
Middle Eastern countries.
Mr. Sieminski. What we want to eliminate our dependence on
is uneconomic oil. Whether it comes from the Middle East or
somewhere else is not the question.
Mr. Scalise. Right. But would it increase our decrease
based on a shutting off of the supply that we currently know is
there?
Mr. Sieminski. Without that domestic oil we are going to
need more oil from somewhere, and it could be coming from the
Middle East.
Mr. Scalise. Thank you.
Mr. Hofmeister?
Mr. Hofmeister. It is a very serious problem in both the
short and the long term, and yes, it would require greater
dependence on foreign sources.
Mr. Scalise. Thank you.
Mr. Busch. I don't have a great amount of expertise in this
area but I am happy to offer my opinions if you would like.
Mr. Scalise. Sure.
Mr. Busch. It seems--from what I know, it takes a while to
get a new well online so I would imagine in the short run it
wouldn't make much of a difference but all else equal, it seems
obvious to me if we are providing more domestically and we are
not changing demand that there would be less dependence on
imported oil.
Mr. Scalise. Thank you. And Mr. John?
Mr. John. I think, Congressman Scalise, from a logical
economic standpoint, the answer to your question is absolutely
it would make us more dependent on foreign sources. However,
with the assumption of 1\1/2\ million barrels that come out of
the Gulf of Mexico, can we do without that. The question is,
can we reduce our demand by a million and a half right now,
then the answer to your question would be no. I think I know
the answer to that question.
Mr. Scalise. I haven't seen that demand reduce, and I
appreciate it, and I will just end on this final thought. I
know there are provisions in current leases that are ``use it
or lose it'' provisions, and as this ``permatorium'' is going
on, the clock is still ticking on those leases so there are
many employers out there in the Gulf of Mexico who have leases
who want to use it and are not even being allowed to use it by
the federal government in a safe way and yet the clock is still
ticking even though they are not being allowed to go and
extricate those resources, and when you look at what is
happening in Egypt and even in other parts, as you pointed out,
the supertanker that was hijacked by Somali pirates in the
Arabian Sea right off of Oman, there are major threats out
there to supply chains. Notwithstanding Canada, but there are
major supplies, especially in the Middle East, and increased
volatility and yet you have got a policy that shut off those
reserves in the Gulf of Mexico, and with the ``use it or lose
it'' provisions, this is a point that has never really been
explored. If that clock keeps ticking and those people aren't
allowed to go and explore those resources, if that lease runs
out, the government could take those leases back and not leave
them out on the open market so you are now even closing off
more known resources. There are few areas of the OCS that are
currently available to explore. You would actually be pulling
back as a policy. The country would be pulling back even more
of the very few reserves that are already out there available
for exploration, and I don't know if you want to finish on
that.
Mr. John. Just a quick comment there, Congressman Scalise.
Since 2008, $8 billion has been spent by oil and gas companies
leasing in the Gulf of Mexico. The highest and the second
highest lease sale in the history of the Gulf of Mexico
happened in 2009. So you have got an enormous amount of capital
in leasing this 3-by-3 square miles of water for a 5-year
period of time, so I think your point is well taken.
Mr. Scalise. Thank you, and I yield back, Mr. Chairman. I
appreciate the opportunity.
Mr. Whitfield. Dr. Newell, I just have one question for
you. In your levelized cost analysis of electricity, why does
the EIA add the equivalent of $15-per-ton carbon tax in the
determination of the cost of the new plants?
Mr. Newell. Yes. What we do is to reflect existing market
behavior of investors and how they are perceiving investment in
new coal generation capacity. What we do is, we have a roughly
3 percent additional capital to the capital cost in terms of
financing, and this is to reflect behavior that we see in the
marketplace in terms of interest on the part of investors in
new electricity generation capacity from coal, which has been
colored by any number of things including the possibility of
future regulations that would affect coal generation, so that
is what that is meant to do, to reflect market behavior with
regard to coal and coal-intensive technologies.
Mr. Whitfield. Thank you all so much. We really appreciate
it. Yes, Mr. Mar?
Mr. Mar. Mr. Chairman, may I supplement an answer in
response to Congressman Upton's earlier question about
pipelines going to the West Coast from Alberta?
Mr. Whitfield. Sure.
Mr. Mar. The proposed Gateway pipeline would have the
capacity to take 525,000 barrels a day from Alberta to the West
Coast. A proposal for oil by rail has the capacity to take an
additional 200,000 barrels a day, and the currently existing
Kinder Morgan transmountain pipeline has current capacity of
300,000 barrels per day, which would be a total of just over a
million barrels a day total. There is currently also a proposal
to expand the Kinder Morgan pipeline, so that gives you some
sense of the volumes that could be moved to the West Coast.
Mr. Whitfield. Well, thank you very much, and once again I
appreciate your testimony. We look forward to continuing
working with you.
Members will have 10 days to submit additional material,
and record will be open for 30 days.
With that, we will conclude this hearing. Thank you.
[Whereupon, at 12:25 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Fred Upton
Oil and turmoil coexist in several regions, most
significantly the Middle East. The unfolding events in Egypt,
coming on the heels of similar unrest in Tunisia and other
Middle Eastern and North African nations, is of great
importance to us for a number of reasons, but today's hearing
will focus on the implications for the global oil market.
Events in that part of the world can disrupt oil
production, or in the case of Egypt, jeopardize the transport
of that oil to end users. The stronger the global demand for
oil, and the smaller the cushion provided by spare capacity,
the more likely any actual or threatened disruption of supplies
will destabilize markets and elevate prices.
It's simply a reality that the Middle East will
remain volatile. Today it is Egypt, tomorrow it may be Iran or
Saudi Arabia. Every few months will bring incidents of minor
and sometimes major concern. How to deal with this instability
is an ongoing challenge.
Fortunately, not every oil-producing nation is an
unstable or unfriendly one. In fact, America's single greatest
source of oil imports is our great ally Canada. Of course, any
additional oil production helps keep prices down, but
production that comes from a reliable source like Canada also
serves as a calming influence on world markets.
The good news is that Canadian production, and in
particular the production from oil sands in Alberta, is on the
increase. But we need more pipelines to bring that oil into the
U.S. The Keystone Pipeline project would do just that. If
allowed, the new pipeline system would have the capacity to
carry more than a million barrels of oil per day to refineries
in the Midwest and Gulf Coast. It awaits approval by the State
Department.
According to a recent study conducted for the
Department of Energy, this project could "very substantially
reduce U.S. dependency on non-Canadian foreign oil, including
from the Middle East." And construction of the pipeline would
create jobs to boot. Unfortunately, a number of environmental
organizations are pressuring the administration to say no to a
project most of us consider a no-brainer.
And, as if we needed another reason to revisit our
own policy of locking up much of this nation's oil potential,
the events in Egypt provided it. Two billion federally-
controlled acres, both onshore and offshore, are not open to
energy leasing. From the Gulf of Mexico to Alaska, from the
Rockies to the Atlantic and Pacific, we are doing to ourselves
what OPEC tried to do to us in the 1970s - keep oil off line.
Not only would producing this energy lead to greater supplies
and lower prices, but it could create hundreds of thousands of
well paying oil and gas industry jobs, and generate billions in
federal and state revenues.
Some of these anti-energy policies have been in
place for decades, but they have been kicked into high gear
during the Obama administration. Within weeks of taking office,
his Interior Department cancelled energy leases in the West and
shelved a plan to expand offshore drilling and pursue Colorado
oil shale. And, in response to the Deepwater Horizon spill last
April, the administration has put a lid on issuing drilling
permits, preventing shovel-ready exploration from commencing.
The situation in Alaska is particularly
frustrating. It is the state with the greatest untapped
potential, both onshore and offshore, as well as strong support
amongst a clear majority of its citizens to produce more oil.
But at this time, all new exploration activities in the state
have been brought to a halt, thanks to the federal government.
This includes Shell's long delayed effort to commence
exploration in the Beaufort Sea. The company paid $2.2 billion
in 2005 for the rights to explore parts of the Beaufort and
Chuckchi Seas off Alaska's North slope, but red tape continues
to hold up that effort. The company secured 33 of the necessary
34 permits to move forward with exploratory wells, but the
Environmental Protection Agency has stalled on that last
permit. Because drilling is seasonal there, this means that
drilling will be delayed for yet another year.
Estimates of the amount of oil locked up are just
that, estimates. Experience shows that where drilling is
allowed, such as in Alaska's Prudhoe Bay, far more oil is
produced than initially predicted. The National Petroleum
Council's estimate of 40 billion barrels of recoverable oil
currently restricted by law is significant in itself, and this
figure may only hint at the potential for future domestic
production.
We live in a global economy with a global oil
market, and events like those unfolding in Egypt will always
have an impact. But with additional imports from Canada, and
increased domestic production, that impact would be reduced.
There is a role for renewable energy and
alternative vehicles, but we have to be realistic, and
especially realistic about the timeframes involved. Developing
technologically and economically viable alternatives capable of
taking significant market share away from petroleum derived
fuels and internal combustion powered vehicles is a long term
project. Put another way, the age of petroleum is going to be
with us for a while longer, so we need to take steps to ensure
that supplies are as plentiful, reliable, and affordable as
possible. How to achieve that is the focus of today's hearing.
----------
Prepared statement of Hon. John Sullivan
Chairman Whitfield:
Thank you for holding this hearing today examining the
impact riots and political upheaval in North Africa and the
Middle East are having on global oil markets and U.S. energy
security.
Like many Americans, I am concerned with the political
unrest in North Africa and the Middle East. From Friday January
28th to Monday January 31st the price of crude oil futures
suddenly jumped 6% on the security fears of the Suez Canal
which is considered a world oil chokepoint due to the volume of
oil traveling through such a narrow route and the Sumed
pipeline in Egypt.
These events prove once again that our nation's dependence
on OPEC oil is a national and economic security issue. We
import 5 million barrels of oil per day from OPEC but yet we
continue to restrict domestic oil resources in our country,
shooting ourselves in the foot while our nation still suffers
from a 9 percent unemployment rate. The U.S. oil and gas
industry employs 9.2 million American and that number would
surely grow if we committed ourselves to the responsible
development of oil and gas on our own shores.
According to the National Petroleum Council, technically
recoverable resources in North American currently restricted by
law or regulation amount to over 40 billion barrels of oil. The
answer to our energy security question is staring us in the
face but the simple fact is that the Obama Administration is
hostile to developing oil and gas and they have taken a
decisive regulatory position against increased domestic oil
production Just take a look at their actions.
On December 1, 2010, the Obama Administration announced a
new offshore drilling ban that will keep the eastern Gulf of
Mexico and Atlantic and Pacific coasts off-limits to new
offshore exploration until 2017-and the administration just
announced that new drilling permits in the gulf may not happen
until June 2011. These actions send terrible signals to the
world oil markets and it makes our nation more vulnerable to
oil price swings due to rising demand and political upheaval.
With many economists fearing that oil prices will hit 4
dollars a gallon this spring and summer, the time is now to
implement policies to produce more oil. I strongly believe that
drilling offshore for oil and gas is an essential part of the
all of the above comprehensive energy strategy that our nation
so badly needs. We must not allow last year's oil spill - as
terrible as it was - to derail our ability to continue with
production of American made energy by keeping our resources
under lock and key while spending hundreds of billions on
imported oil every year. We must continue to drill at home!
The simple fact is we live in a hydrocarbon economy and we
will be one for long into the future. We have the resources to
drill at home and the American people deserve an affordable
national energy policy that takes advantage of the fact that we
have more energy within our borders than our nation will ever
need or want.
I look forward to the testimony of our witnesses and I
yield back the balance of my time.
----------
Prepared statement of Hon. Cory Gardner
Mr. Chairman, thank you for holding this hearing today on
the effects of Middle East events on U.S. energy markets. I
appreciate the opportunity to address our dependence on foreign
oil and what steps our government is taking to decrease that
dependence.
Both President Obama and Secretary of Energy Steven Chu
have recently made statements regarding the need to protect
ourselves at home by decreasing our dependency on foreign oil.
I applaud this idea and always have. However, I am concerned
that the rhetoric simply does not match current policy. Many of
the traditional energy alternatives that I imagine each witness
will address seem to be off the table, and our future energy
dependence and national security are suffering because of it.
My concern today is that the U.S. does not have a backup
for our demand. We are at the mercy of unstable countries like
Yemen, and now, potentially Egypt. If their economies fail, or
worse, fail and fall into the hands of terrorists, our energy
supply fails as well. The US imports over half of what it
consumes, so if Egypt collapses and terrorist forces take hold,
they may very well decide to restrict access to the Suez Canal,
for example. We are then talking about a severe disruption in
the oil supply. Rising prices, which we are experiencing today
due to the crisis in Egypt, will be the least of our concerns
when the wrong people control the energy supply.
Demand for oil and gas is not going away. That being said,
I support clean energy and will continue to do so. Exploring
clean energy solutions is a necessity. Colorado, for example,
has vast amounts of wind and solar energy capabilities.
However, when developing and advancing these sources, we must
do it in the right way. We simply cannot take expansion of
traditional energy off the table, and we cannot limit our
options and exclude viable energy sources like nuclear power. I
look forward to working with the committee on finding ways to
develop an all-of-the-above energy approach.
There are options, Mr. Chairman. There are domestic
considerations that must be put back on the table. The National
Petroleum Council has stated that recoverable resources in
North America, which we are unable to access by law, would
create over 40 billion barrels of oil. This is twice the proven
reserves we have today, which equal 5 million barrels per day.
Opening production by using oil in North America would replace
OPEC imports to this country, thus taking a major step in the
direction of energy independence.
Further, we must make permitting for environmentally
responsible production easier. Developing new oil and gas
fields in the Beaufort and Chukchi Seas could result in
production of 10 billion barrels of oil and 15 trillion cubic
feet of natural gas for the next 50 years. Despite this, the
administration has taken away drilling permits that had already
been issued on many of these sites.
Mr. Chairman, these are just a few of the ways we can move
towards energy independence. There are many more and I look
forward to working with you and the committee on advancing
them. Thank you. I yield back my time.
----------
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