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



  THE AMERICAN ENERGY INITIATIVE, PART 16: A FOCUS ON RISING GASOLINE 
                                 PRICES

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 7, 2012

                               __________

                           Serial No. 112-124





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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                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, 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             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana              Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 _____

                    Subcommittee on Energy and Power

                         ED WHITFIELD, Kentucky
                                 Chairman
JOHN SULLIVAN, Oklahoma              BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               JAY INSLEE, Washington
GREG WALDEN, Oregon                  KATHY CASTOR, Florida
LEE TERRY, Nebraska                  JOHN D. DINGELL, Michigan
MICHAEL C. BURGESS, Texas            EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California         ELIOT L. ENGEL, New York
STEVE SCALISE, Louisiana             GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   LOIS CAPPS, California
PETE OLSON, Texas                    MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia     CHARLES A. GONZALEZ, Texas
CORY GARDNER, Colorado               HENRY A. WAXMAN, California (ex 
MIKE POMPEO, Kansas                      officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)





















                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     1
    Prepared statement...........................................     3
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, opening statement.................................     5
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     6
    Prepared statement...........................................     8
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................    10
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................    10
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    10
Hon. John Sullivan, a Representative in Congress from the State 
  of Oklahoma, prepared statement................................   170

                               Witnesses

Robert McNally, President, The Rapidan Group.....................    13
    Prepared statement...........................................    15
Jack N. Gerard, President and Chief Executive Officer, American 
  Petroleum Institute............................................    36
    Prepared statement...........................................    38
Charles Drevna, President, American Fuel and Petrochemical 
  Manufacturers..................................................    41
    Prepared statement...........................................    43
Chris Milburn, Member, Owner-Operator Independent Drivers 
  Association....................................................    66
    Prepared statement...........................................    68
Daniel J. Weiss, Senior Fellow and Director of Climate Policy, 
  Center for American Progress...................................    78
    Prepared statement...........................................    80
Michael Breen, Vice President, Truman National Security Project..   108
    Prepared statement...........................................   110
John Eichberger, Vice President, Government Relations, National 
  Association of Convenience Stores..............................   114
    Prepared statement...........................................   116

                           Submitted Material

Report, undated, ``The Future of Natural Gas: An 
  Interdisciplinary MIT Study,'' submitted by Mr. Engel..........   154
Report, dated October 2011, ``Ensurig America's Freedom of 
  Movement: A National Security Imperative to Reduce U.S. Oil 
  Dependence,'' submitted by Mr. Engel...........................   154
Letter, dated March 1, 2012, from Mr. Rush to Gary Gensler, 
  Chairman, Commodity Futures Trading Commission, submitted by 
  Mr. Rush.......................................................   161
Letter, dated March 5, 2012, from Hon. Bernard Sanders, et al., 
  to Gary Gensler, Chairman, Commodity Futures Trading 
  Commission, et al., submitted by Mr. Rush......................   162

 
  THE AMERICAN ENERGY INITIATIVE, PART 16: A FOCUS ON RISING GASOLINE 
                                 PRICES

                              ----------                              


                        WEDNESDAY, MARCH 7, 2012

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:37 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Ed 
Whitfield (chairman of the subcommittee) presiding.
    Members present: Representatives Whitfield, Sullivan, 
Shimkus, Terry, Burgess, Bilbray, Scalise, McMorris Rodgers, 
Olson, McKinley, Gardner, Pompeo, Griffith, Barton, Upton (ex 
officio), Rush, Castor, Markey, Engel, Green, Capps, Doyle, 
Gonzalez, and Waxman (ex officio).
    Staff present: Anita Bradley, Senior Policy Advisor to 
Chairman Emeritus; Maryam Brown, Chief Counsel, Energy and 
Power; Allison Busbee, Legislative Clerk; Garrett Golding, 
Professional Staff Member, Energy and Power; Cory Hicks, Policy 
Coordinator, Energy and Power; Ben Lieberman, Counsel, Energy 
and Power; Phil Barnett, Democratic Staff Director; Alison 
Cassady, Democratic Senior Professional Staff Member; Greg 
Dotson, Democratic Energy and Environment Staff Director; 
Caitlin Haberman, Democratic Policy Analyst; and Alexandra 
Teitz, Democratic Senior Counsel, Environment and Energy.
    Mr. Whitfield. I want to thank you all, those of you who 
are testifying today, we appreciate you being here. We are 
going to wait just a few minutes for our Ranking Member, Mr. 
Rush, and then we will get started with this hearing.

  OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

    I am going to call this hearing to order, and once again I 
want to thank the witnesses for being here today. We look 
forward to your testimony. I am delighted that our referees are 
back with us today. They have attended a few of our hearings, 
and it is always good to have referees here to make sure that 
everyone presents a balanced view. And we welcome the rest of 
you as well.
    Today, we are going to focus on increasing gas prices, an 
issue that has an impact on the pocketbook of practically every 
American. When President Obama took office, the average 
gasoline price was around $1.85 a gallon, and today it is over 
$3.60 per gallon. Now, I do not intend today to place all of 
the blame on the President, but I am going to give him some 
blame. But I think the facts clearly show that if we continue 
to follow his policies, gas prices are not going to go down, 
they are going to go up.
    Now, the President's supporters like to say, and they are 
correct, that oil production is up in the U.S. since President 
Obama became the President, but it is important to recognize 
that the increase in production is due to production on private 
and State lands, the Bakken Field being a prominent example of 
that. In fact, oil production is down on Federal lands, and 
that is what the President has control of. In fact, one of the 
President's first initiatives in 2009 was to cancel oil leases 
on Federal lands and to delay the offshore leasing program, and 
he cancelled five offshore leases even before the Horizon--
Deepwater Horizon incident. I might also say that when he 
became president, offshore drilling was possible in the 
Atlantic and in the Pacific. Today it is not.
    In a speech at the University of Miami a few weeks ago, in 
the wake of criticism for denying the permit to build Keystone, 
the President said he has approved dozens of new pipelines. 
Well, presidential permits are applicable only on international 
pipelines, and since he has been President, only one has come 
before him for approval, and that has been Keystone and he 
denied that.
    The President and his administration have decided to 
address energy costs by spending billions of taxpayer dollars 
to develop electric cars. They have raised the CAFE standards, 
which is fine, and they are imposing more regulations instead 
of encouraging production of our domestic resources. They are 
putting regulations on refineries and they are encouraging--
discouraging production, as I said.
    For example, GM received millions of dollars and they 
curtailed the production of the Volt automobile because sales 
are lagging. Tesla and Fisker, both recipients of Federal 
taxpayer dollars, have curtailed production primarily because 
Americans cannot afford to buy an automobile that costs around 
$100,000.
    Now, we all recognize that it is important to improve the 
mileage of automobiles, and so CAFE standards are important, 
but it is also important to recognize that it does raise the 
cost of cars. EPA itself said that by the year 2016, cars are 
going to increase by $1,000 and by 2025, they are going to 
increase by $3,000. So rather than trying to reduce the cost of 
existing regulations by EPA, they are considering adding more 
regulations, such as new source performance standards targeting 
greenhouse gas emissions from refineries and new Tier 3 
regulations.
    So I think there is a clear contrast here. This 
administration is looking way, way, way into the future, which 
is important, but we need some immediate assistance and the 
best way to go on that avenue to address this need is to make 
production of our domestic resources more available to the 
American people.
    [The prepared statement of Mr. Whitfield follows:]


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    Mr. Whitfield. At this time, I would like to recognize the 
gentleman from Illinois, Mr. Rush, for 5-minute opening 
statement.

 OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Rush. I want to thank you, Mr. Chairman.
    Mr. Chairman, we all know that gas prices are set on the 
global market and there are a variety of real political factors 
that determine the price of fuel, many of which are beyond the 
control of the much-maligned President of which you speak, or 
this Congress, which in the last 2 years has been basically 
described as a ``do nothing'' Congress.
    But there are some factors that we do not have control 
over, including the role of speculators in setting fuel prices.
    Mr. Chairman, while we understand that speculation plays a 
significant role in setting gas prices, it is very difficult to 
get a clear answer on how big a role speculators actually play. 
That is why on March 1, I sent a letter to the Chairman 
Gensler, who is the Chairman of the Commodities and Futures 
Trading Commission, the CFTC, asking him to conduct an 
investigation into the practices of Wall Street traders, and 
also to examine how much of an impact these speculators 
actually have on increasing gas prices. Additionally, on Friday 
I entered my name to a bicameral letter to the CFTC, calling 
for strict position limits on all futures contracts in order to 
eliminate excessive speculation. In fact, Mr. Chairman, I 
believe it would benefit this subcommittee to hold a hearing 
strictly on this issue, in order to bring transparency to the 
American people so that we all can better understand the role 
that speculators play in raising fuel prices.
    In an ABC News article entitled ``How Wall Street is 
Raising the Price of Gas'' dated February 23, 2012, one CFT 
commissioner estimate that speculators do indeed contribute 
significantly to raising fuel prices. Commissioner Chilton 
estimated that Wall Street speculators raised the price an 
additional $7 to $14 every time a consumer fills up the tank, 
depending on the size of the car
    While industry groups dispute these figures, I think it 
would behoove us all to shed some light on this issue in order 
to bring transparency and help the American consumer better 
understand this relationship between the speculators and rising 
fuel prices and raising fuel prices also. And while some may 
argue that rising fuel prices are simply a matter of supply and 
demand, today's sharp increases are happening at a time when 
under President Obama we are producing more oil than at any 
time in our history. We are importing less oil than at any time 
in the past 13 years, and the American demand for oil is 
actually lower than it was a year ago.
    Now you take that and think on those facts. An article by 
``The Washington Post'' with Bloomberg Business entitled gas 
prices rise for the 27th straight day, oil recovers late to 
close above $107 a barrel, dated February 29, 2012, Washington 
Post and Bloomberg business both reported that Americans were 
paying an average of $3.73 cents a gallon for regular gasoline, 
which is 30 cents higher than it was just last month, and 36 
cents higher than it had been at this time last year. At the 
same time, the Department of Energy recently reported that 
average demand has actually dropped 6.7 percent as compared to 
nearly the same time last year.
    So Mr. Chairman, I am not blaming speculators for these 
sharp increases in gas prices, but I do believe it is worth 
examining this issue more closely to better understand the role 
that speculation played in impacting the price at the pump.
    Mr. Chairman, with that I yield back the remaining time 
that I might have.
    Mr. Whitfield. Thank you, Mr. Rush.
    At this time I would like to recognize the chairman of the 
full committee, Mr. Upton, from Michigan for a 5-minute opening 
statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman.
    Let us face it. There are many factors that contribute to 
the high price of gas. Some, like Middle East instability and 
rising global demand, are largely outside of the Federal 
Government's control. For that reason, it is absolutely 
critical to get right those things that we can control. None of 
America's pain at the pump should be self-inflicted, which is 
why we need to do more to increase domestic and North American 
oil supply, and to streamline the Federal regulatory burden on 
gas.
    At last weekend in my district, gas prices averaged 3.99 a 
gallon. Though the President has begun to say some of the right 
things about high gas prices, he continues to do all the wrong 
things as well. In fact, the President's approach has not 
changed since he took office in January of 2009. Gas was about 
$1.85 a gallon back then, and one of the President's first 
initiatives before Deepwater Horizon was to cancel many of the 
oil leases on Federal lands. And his 2012 to 2017 offshore 
leasing plan re-imposes the moratorium that Congress and the 
White House lifted back in 2008. But the administration's 
hostility towards domestic drilling has not changed, only the 
rhetoric has. The President now boasts that domestic drilling 
is up, but he neglects to mention that the increase is due to 
the production on private and State-owned lands where Federal 
regulators have little or no power to block drilling. 
Production actually declined on Federal lands from 2010 to 
2011, and the administration has offered up no policy changes 
that would reverse that disturbing trend.
    Some in D.C. claim that producing more domestic oil won't 
make any difference in prices, but the American people know 
better. American people also know that when it comes to 
Keystone XL pipeline expansion, they would allow more Canadian 
oil to reach the American market is a good thing. Compare the 
rejection of Keystone to something that the President did 
approve last June, tapping SPR for 30 million barrels. However, 
SPR is not a new supply of oil, it is a stockpile previously 
set aside for an emergency, and it can only be tapped for a 
short while and then would need to be replenished, which the 
President hasn't, by the way. In contrast, Keystone would 
represent a genuine addition to our Nation's oil supply, and 
one that would last for decades rather than months.
    Rarely has the contrast between a real solution and a 
gimmick been more clear than this pipeline and SPR.
    So some may scratch their heads and pretend that the 
closure of several East Coast refineries is some kind of 
mystery, but it is no mystery to me that existing and 
anticipated future regulatory costs are a key contributor. At 
the very least, we need to hold the line against additional 
regulations likely to raise the cost of producing gasoline.
    [The prepared statement of Mr. Upton follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Upton. I would yield the balance of my time to Mr. 
Barton.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Mr. Chairman, thank you for yielding. Let me 
simply say that Chairman Upton has just pointed out, gasoline 
prices are going up. He said it was 3.99 a gallon in Michigan, 
and in my hometown of Ennis, Texas, it was 3.58 a gallon, so 
come to Texas and you will save 40 cents.
    But that is still quite a bit more than it was when 
President Obama became President. It was $1.80 a gallon 3 years 
ago. For every penny a gallon, that is $1.4 million a day--
billion? Is it billion or million? Billion, OK. If the chairman 
says billion, I am going to go with billion. But I am talking 
on an annual basis, that is about $262 billion a year, and that 
is too much.
    So we look forward to hearing from our witnesses what we 
can do to get prices down. I think it is obvious that part of 
the solution is to drill more here in the United States. If you 
are going to drill more, you need regulatory relief. You need 
to use hydraulic fracturing for oil like we have been doing for 
natural gas, and I think we can do that.
    Mr. Barton. And with that, I will yield to----
    Mr. Shimkus. You would rather yield to him than me.
    Mr. Barton. I have to yield to seniority. Mr. Shimkus.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. I will try to go quick, thank you. Because I 
want to ask questions, I want to get a few points off. The 
renewable fuels standard which we passed, and really, it was 
supported by both sides of the aisle, has been very, very 
successful. Ten percent of our Nation's gasoline supply is now 
through renewable fuels. You know, just talking about the 
mixing of E-10 or E-15, that is lowering the rate, and we have 
to remember that the tax credit is gone. So for my colleagues 
who don't like this, we don't have a blenders tax credit 
anymore, and it is still competitive and it is a source of 
success. A gallon of ethanol is currently selling for nearly a 
dollar less per gallon than a gallon of gasoline. American oil 
demands have decreased, and national import dependence has 
fallen from 60 percent to 45 percent.
    And I will end and yield--I don't have much time, Doc, so 
ethanol provides gasoline refiners with a cost effective source 
of octane with an octane rating of 113. Research octane number.
    I apologize, Dr. Burgess. I yield back my time.
    Mr. Whitfield. Gentleman's time is expired.
    At this time I recognize the gentleman from California, Mr. 
Waxman, for a 5-minute opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Mr. Chairman, today this subcommittee examines 
the issue of rising gasoline prices.
    We have seen this movie over and over again for the last 30 
years. Gasoline prices go up, politicians make false promises 
about how they will bring prices down, and nothing gets 
accomplished.
    We have seen it with the push to open our coastlines to 
more drilling. There is no moratorium. In fact, 74 percent of 
the coastline is now being leased for drilling, primarily in 
the Gulf of Mexico, unlike the statements we have heard so far. 
We have seen it with the enactment of legislation to promote 
refineries in 2005. Still prices rise.
    Now the Republican mantra is that we need to ``drill, baby, 
drill.'' This slogan may sound good, but it is based on a 
complete fiction.
    We are drilling more, but prices are still going up. U.S. 
crude oil production is the highest it has been in 8 years, and 
the U.S. has more oil and gas drilling rigs operating right now 
than the rest of the world combined. Net oil imports as a share 
of our total consumption declined from 57 percent in 2008 to 45 
percent in 2011, the lowest level since 1995.
    We need to face reality, and the reality is that oil prices 
are determined on a global market. Now matter how much we 
drill, our gasoline prices are going to rise if there is a 
crisis in the Middle East, labor unrest in Nigeria, or any of a 
host of other factors we can do little about.
    There is only one way we can protect ourselves from the 
impacts of rising oil prices: We need to reduce our dependence 
on oil.
    There are no short-term solutions. There is no silver 
bullet. The effects of a short--of releasing oil from the SPR 
could be short-term, as it has in the past, if we are working 
with other countries to accomplish that goal. We need to invest 
in clean energy to diversify and reduce our energy use.
    The President has taken important steps. He has acted to 
cut the emissions of cars and trucks, doubling the fuel 
efficiency of our fleet. As a result, our dependence on oil has 
declined. But he needs our help. Oil companies are making 
record profits, yet they are still getting $4 billion in 
subsidies from taxpayers each year.
    We can't afford to take money from taxpayers struggling to 
pay their mortgages and fill up their tanks and hand it to oil 
companies making billions in profits. That is why we need to 
repeal the oil subsidies and use the money to develop sources 
of clean energy that reduce our dependence on oil.
    Today, we are going to hear a lot of the same old 
unsupported claims. The American Petroleum Institute will tell 
us that we can bring down global oil prices by drilling more in 
the United States. That is the line we are hearing from the 
Republicans.
    The refiners will tell us to help consumers, we need to 
send a ``message to the market'' by producing more oil in the 
United States.
    The National Association of Convenience Stores will say 
that making ``an announcement of a long-term commitment by the 
United States to increase its contributions to the 
international crude oil market could help calm some of the 
inflationary influences in the futures market.''
    These claims have no foundation in reality. My staff 
contacted some of the Nation's leading energy economists. They 
told us that the so-called solutions we will hear today from 
the oil industry will not reduce our gasoline prices.
    John Parsons, an economist at MIT, one of the Nation's 
leading experts on the oil markets, told us ``that the industry 
claims are not remotely plausible'' because drilling more will 
have ``at best a miniscule impact on gasoline prices.''
    Oil industry expert Phil Verleger told us that announcing 
more production would have ``no impact, zero, on the current 
price.'' He predicted that the people who buy or sell oil would 
simply ridicule these recommendations as a plan for reducing 
gasoline prices.
    The President said it best when he said, ``Anyone who tells 
you we can drill our way out of this problem doesn't know what 
he or she is talking about, or isn't telling you the truth.''
    This committee has a responsibility to set the Nation's 
energy policy. We should start by facing facts, listening to 
experts, and crafting policies that would reduce our dependence 
on oil.
    Yield back my time.
    Mr. Whitfield. Gentleman's time is expired. That concludes 
the opening statements, and so at this time I would like to 
introduce our witnesses this morning.
    First we have Mr. Robert McNally, President of the Rapidan 
Group. We appreciate your being here. We have Mr. Jack Gerard, 
President and CEO, American Petroleum Institute. We have Mr. 
Charles Drevna, President, American Fuel and Petrochemical 
Manufacturers. We have Mr. Chris Milburn, owner of CarbM 
Trucking. We have Mr. Daniel Weiss, Senior Fellow, Center for 
American Progress, and we have Mr. Michael Breen, Vice 
President, Truman National Security Project, and we have Mr. 
John Eichberger, Vice President of Government Relations, NACS. 
We appreciate all of your being here and we look forward to 
your testimony on this very important subject of increased 
gasoline prices.
    So I am going to be calling, beginning with Mr. McNally, on 
each one of you and you will be recognized for 5 minutes for 
your opening statement. There is a little instrument there on 
the table and when your time is up, it will say red. It will be 
red, so that means your time is up.
    So Mr. McNally, we look forward to your testimony and I 
recognize you for 5 minutes.

  STATEMENTS OF ROBERT MCNALLY, PRESIDENT, THE RAPIDAN GROUP; 
JACK N. GERARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN 
 PETROLEUM INSTITUTE; CHARLES DREVNA, PRESIDENT, AMERICAN FUEL 
 AND PETROCHEMICAL MANUFACTURERS; CHRIS MILBURN, MEMBER, OWNER-
  OPERATOR INDEPENDENT DRIVERS ASSOCIATION; DANIEL J. WEISS, 
   SENIOR FELLOW AND DIRECTOR OF CLIMATE POLICY, CENTER FOR 
   AMERICAN PROGRESS; MICHAEL BREEN, VICE PRESIDENT, TRUMAN 
NATIONAL SECURITY PROJECT; AND JOHN EICHBERGER, VICE PRESIDENT, 
   GOVERNMENT RELATIONS, NATIONAL ASSOCIATION OF CONVENIENCE 
                             STORES

                  STATEMENT OF ROBERT MCNALLY

    Mr. McNally. Chairman Whitfield, Ranking Member Rush, 
members of the committee, thank you for the opportunity to 
testify to you today. I have spent the bulk of my career 
analyzing energy, oil markets, and economic policymaking, and 
served on the White House National Economic Council and 
National Security Council between 2001 and 2003. I am an 
independent analyst. I do not represent any entity, and the 
views I express here today are my own.
    The subject is rising gas prices, but let us step back and 
note, this is the sixth big run up in gasoline prices in 7 
years. For most Americans, from the 1970s until about 2005, 
following the price of gasoline was like riding the Disney 
World ride It's a Small World: shifting, but basically an 
unremarkable experience. Since 2005, it has felt more like 
Space Mountain: unpredictable, scary, gut-wrenchingly volatile. 
This ride is no fun for our families and for our businesses. 
They are confused and angry and deserve to know why prices have 
been rising and gyrating so much.
    Let me come right to the point. Gasoline prices are rising 
mainly because crude oil prices are rising. Crude oil accounts 
for over 2/3 of the cost of retail gasoline. So far this year, 
crude oil is up 14 percent, gasoline prices are up 16 percent. 
Crude oil prices are rising because the global market in which 
they are formed is tight. Official data reports show that 
global demand is at historic highs and still soaring, supply 
has been disappointingly small, commercial inventories outside 
the United States are low, supply interruptions have occurred, 
OPEC's spare capacity is much lower than officially estimated 
just months ago. On top of that, this year a rash of refinery 
closures in the Northeast, the U.S. Virgin Islands, and Europe, 
and tension surrounding Iran's nuclear program are contributing 
to high gasoline oil price strength, respectively.
    It is crucial to understand that oil prices naturally 
gyrate sharply when demand and supply are unbalanced. To 
suppress this national volatility, throughout history oil 
producers have held back production in spare, called spare 
capacity. Spare capacity is held back from fields that can be 
quickly tapped to act as a shock absorber when demand is strong 
or disruptions occur to avoid the need for wild price swings. 
Since the 1980s, OPEC has used spare capacity to stabilize 
prices, but over the last 7 years, OPEC's spare capacity has 
eroded and they can no longer do the job. The reason is a mix 
of veracious, relentless oil demand growth in fast-growing Asia 
and the Middle East on the one hand, and disappointingly small 
net oil production oil growth on the other. While experts 
differ, many see this strong demand, weak supply, tight spare 
production capacity lasting for the foreseeable future. If so, 
crude oil prices will continue gyrating wildly, and as go crude 
oil prices, so go gasoline prices.
    As many have said, there is no silver bullet or short-term 
solution for our predicament. Using the Strategic Petroleum 
Reserve to smooth gasoline prices, absent a severe supply 
disruption, would be deeply unwise and counterproductive. The 
SPR and the Department of Energy are not well-suited to 
stabilizing global oil prices. Reserves are too small relative 
to market flows, information is too poor, and SPR interventions 
would be politicized. If Washington sold SPR oil every time 
gasoline prices rise, we will end up with no SPR, more volatile 
prices, and less protection against supply interruptions.
    Now 7 years into the Space Mountain era of gasoline prices, 
it is time to get beyond the blame games and on with solutions. 
Yes, OPEC, oil companies, investors, EPA, consumers, 
geopolitical trends and events, central banks, poor data, 
subsidies, all these factors have and will play a role in the 
world's enormous and complicated oil market. But the real 
reason for gyrating oil prices is a tidal wave of new demand 
outside the United States that is colliding against an oil 
industry struggling to increase oil supply enough to meet it. 
These are iron laws of economics, and we will have to live with 
them. It is past time to enact easy, common-sense steps like 
improving data or bolder ones, such as vastly increasing 
domestic and international energy supply, moderating demand, 
strengthening our resilience to oil price gyrations. We should 
act quickly and resolutely as if our jobs, our standard of 
living, and national security depended on our success. Taking 
counsel from President Lincoln, who said in regard to a 
different crisis ``The dogmas of the quiet past are inadequate 
for the stormy present. The occasion is piled high with 
difficulty. We must rise to the occasion. As our case is new, 
so must we think anew and act anew.''
    Thank you.
    [The prepared statement of Mr. McNally follows:]


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    Mr. Whitfield. Thank you, Mr. McNally.
    Mr. Gerard, you are recognized for 5 minutes.

                  STATEMENT OF JACK N. GERARD

    Mr. Gerard. Thank you, Chairman Whitfield, Ranking Member 
Rush, and members of the subcommittee. Thank you for inviting 
me here today to speak to you about the rising cost of fuel.
    Americans are understandably frustrated by rising fuel 
costs, which is the direct result of weak energy policy. 
America is energy-rich, yet too many talk like we are powerless 
to do anything but watch global events drive energy costs 
higher and that there are no solutions.
    Members of the committee, that is just not so. With sound 
policy and bold leadership, we can put this country's vast 
resources to work to literally change the energy equation.
    Gasoline prices are climbing primarily because of the cost 
of crude oil, which accounts for 76 percent of the price at the 
pump. The market forces driving crude higher are challenging, 
but America doesn't have to be held captive to them. We have 
choices. By increasing access to North American energy, we will 
help put downward pressure on prices. Supply matters. That is 
not just API saying so, it is others who have called on the 
Saudis to produce more, others who have called on other 
sources, such as the Brazilians, and yet others who recognize 
supply matters by calling for release from the Strategic 
Petroleum Reserve. This is not a long-term energy strategy. 
Government estimates say we will still get more than 55 percent 
of our energy from oil and natural gas over the next 2 decades, 
57 percent of which currently comes from outside the United 
States. The question is whether we produce that energy here or 
rely on less stable sources in the future.
    With actions today, over the next 2 decades we could add 
the oil and natural gas equivalent of 10 million barrels a day. 
The markets would see that America plans to be an energy 
leader, not a follower, and American consumers would see that 
help is on the way.
    But current policies block this vision. The call for an 
``all of the above'' energy approach sounds good, but we are 
seeing actions that hinder oil and natural gas development. The 
administration says one thing, does another, and sends mixed 
signals to the marketplace. The administration says it is for 
more oil and gas, but rejects the Keystone XL pipeline, which 
would bring 800,000 barrels of oil per day. It says it is for 
boosting domestic production, but new leasing and the number of 
new wells on Federal lands are both down. Its latest offshore 
plan keeps 87 percent of these areas off limits, and the Gulf 
of Mexico production is forecast to be down nearly 21 percent 
in 2010. The administration says it is for natural gas, but 10 
Federal agencies are now considering new regulations that could 
needlessly restrict our ability to produce here on own shore. 
It calls for all of the above, but then threatens companies 
that could lead on energy with an $85 billion discriminatory 
tax increase.
    Mr. Chairman, this is sending the wrong message and must 
change. Soaring production on State and private lands should be 
our model. Shale plains in North Dakota, Pennsylvania, and 
Texas are game changers, creating jobs, helping consumers, and 
producing record levels of oil and natural gas. We need that 
model nationally. Bold action that says we are serious about 
energy, action that will actually increase supply.
    With the right policies and with strong resolute 
leadership, we can secure our energy future instead of 
surrendering to outside forces. The President has an 
opportunity right now to signal the markets and help put 
downward pressure on fuel prices by showing we are serious 
about developing our own vast resources. Our industry will help 
re-urge the President to act now.
    Thank you very much, and I look forward to answering your 
questions.
    [The prepared statement of Mr. Gerard follows:]


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    Mr. Whitfield. Thank you, Mr. Gerard.
    Mr. Drevna, you are recognized for 5 minutes for an opening 
statement.

                  STATEMENT OF CHARLES DREVNA

    Mr. Drevna. Chairman Whitfield, Ranking Member Rush, and 
Chairman Upton, Ranking Member Waxman, thank you for giving me 
the opportunity to testify at a very critical hearing here 
today. I am Charlie Drevna, and I serve as President of the 
AFPM, the American Fuel and Petrochemical Manufacturers.
    We are a trade association that was just recently known as 
NPRA, the National Petrochemical Refiners Association, until 
early this year, who represent the high tech American 
manufacturers who use oil and natural gas to make almost all 
the fuels, heating oil and petrochemicals used in our Nation 
today.
    As has been stated previously and is absolutely 100 percent 
accurate, current gasoline prices are primarily driven by high 
global crude oil prices. The cost of crude accounts for 76 
cents of each dollar that consumers pay for gasoline. That is 
followed by an average of taxes at 12 cents. Next comes 
distribution and marketing at 6 cents. That leaves refining 
just 6 cents on every dollar to pay wages, run the refinery in 
a safe and efficient manner, and produce the fuels that 
Americans need and deserve. So refiners don't set the price of 
oil any more than automakers set the price of steel or bakers 
set the price of wheat. Oil is an international commodity that 
trades in a free market.
    Now historically, the best mechanism to address high crude 
prices has been to increase global oil supply. When we have 
done this as a Nation, we have sent that message that the U.S. 
is serious about meeting our energy and national security 
needs. American companies could increase the supply of crude 
oil in two ways. First, the Federal Government would allow 
increased production of oil in the United States and off our 
shores. As Mr. Gerard so stated, we are not an energy-poor 
Nation. We are an energy-rich Nation who lack the political 
will to develop our own natural resources and to provide 
consumers with the products they need at a reasonable cost.
    Second, President Obama should approve the construction of 
the Keystone XL pipeline to bring Canadian oil refineries to 
the U.S. Gulf Coast.
    I recently saw a clip on TV, a member of Congress talking 
about the SPR, and that equated it to Kryptonite in that the 
SPR was like Kryptonite to the cost of oil. Well, I am not so 
sure about that, but I am sure that we do have a strategic 
reserve. Unfortunately, it is locked up. It is locked up off 
the shores of the Atlantic, it is locked up off the Eastern 
Gulf, up through the Pacific and all the way through Alaska. It 
is locked up on Federal lands. It has been locked up for over 
30 years, and the critics will say well, it is going to take a 
lot of time to develop. It is going to take 4 years, it is 
going to take 4 more years. Well, if we had that same 
mentality, we wouldn't have the Transcontinental Railroad, we 
wouldn't have the Hoover Dam, we wouldn't have the Golden Gate 
Bridge or any other structure that was so needed in this 
Nation.
    So developing our own resources as well as our own natural 
gas resources is going to produce jobs for American workers and 
revenues for the government at all levels.
    Today, our high crude prices and logistical constraints on 
a movement of oil and fuel around the country are creating 
challenges for both refiners and American consumers. In 
addition, fuel manufacturers are hit with a regulatory blizzard 
that threatens refinery operations in our Nation. These include 
Tier 3 regulations to reduce sulfur in gasoline, greenhouse gas 
regulations, lengthy permit regulations, and finally 
requirements under the Renewable Fuel Standards involving 
biofuels. Proposed new Federal regulations threaten to raise 
the energy costs further for every American consumer, with 
little or no environmental benefit. These regulations would 
also threaten American jobs and weaken--further weaken our 
economic and national security.
    One bright spot on the horizon is our export of refined 
petroleum products, primarily diesel fuel. Exports don't raise 
gasoline prices; rather, exports bring billions of dollars to 
America, preserve and create jobs, and strengthen our own 
economy and reduce our trade deficit. Producing more oil and 
natural gas right here in America, getting more from Canada and 
reducing harmful overregulation can't take place overnight, but 
they would give us our best shot at creating a secure and 
stable energy supply to serve the American people. Doing these 
things would also create a manufacturing renaissance, and more 
American jobs.
    Thank you again.
    [The prepared statement of Mr. Drevna follows:]


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    Mr. Whitfield. Thank you, Mr. Drevna, and Mr. Milburn, we 
look forward to your testimony. You are recognized for 5 
minutes.

                   STATEMENT OF CHRIS MILBURN

    Mr. Milburn. Thank you. Good morning. My name is Chris 
Milburn. I am from Hilliard, Ohio, and have been a professional 
truck driver for close to a decade. I own my own truck and haul 
retail merchandise while leased to a motor carrier. I am here 
on behalf of the Owner-Operators Independent Drivers 
Association, commonly known as OOIDA. OOIDA's approximately 
150,000 members are small business truckers from all 50 States. 
The majority of trucking in this country is small business, as 
93 percent of our Nation's motor carriers own 20 or fewer 
trucks. My testimony will focus on the impact that high energy 
prices have on small business truckers like me.
    I can assure that these impacts are not only very real, but 
even more significant when you consider them in context with 
the snowballing cost of regulations coming out of agencies like 
the Department of Transportation and the Environmental 
Protection Agency. Just last Monday, the average highway diesel 
fuel was over $4 per gallon, an increase of 33 cents over 2011. 
To give you some perspective, the average OOIDA member runs 
their truck over 100,000 miles each year. At $4 per gallon, 
annual fuel costs can be well over $80,000. When the price of a 
gallon of diesel increases by a nickel, a trucker's annual 
costs increase by $1,000. This results in an extra burden on 
the small business trucker whose average annual income is 
approximately 40,000.
    Trucking is a hyper-competitive business, and each of us 
operates on extremely thin margins, so any cost increase, 
especially those related to fuel or regulatory mandates, has an 
impact. For me, the impact of fuel costs is best shown through 
the hundreds of dollars I pay to drive miles that I am not 
directly compensated for. When price spikes occur, it becomes 
much more difficult to manage our businesses. However, when 
prices are not spiking, truckers can take steps to manage these 
realities. Extra dollars spent on fuel means fewer dollars 
available to put back into my business. Countless truckers over 
the years have felt the pain of high fuel prices on their 
businesses and have had to put off buying new equipment, or 
worse. For many truckers, business income and family income are 
basically one in the same. Money isn't available to put towards 
what is important to their family, including basic household 
expenses like mortgage payments.
    OOIDA has long supported energy policies focused on 
addressing the impact of energy costs on small business 
truckers. OOIDA supports a comprehensive approach that combines 
increasing domestic energy production with other efforts, 
including greater market transparency, increasing the focus on 
natural gas as a future energy source, and passing a new 
surface transportation bill.
    Let me talk a little about the role of domestic energy 
production from the perspective of a small business trucker. In 
the past, U.S. production has effectively served as a relief 
valve by helping to mitigate price spikes. However, the 
strength of that relief has decreased as regulatory roadblocks 
have reduced domestic production on Federal lands and waters. 
Impeding domestic production is something truckers find very 
difficult to understand, particularly during these high energy 
prices. Like most truckers, the cost of fuel is far and away my 
largest annual operating expense. Trust me when I tell you that 
no government agency is more motivated than I am to make 
certain that I am running my vehicle as efficiently as 
possible. I do not need government regulations telling me how 
to operate efficiently or forcing me to buy a truck that meets 
some prescribed government efficiency standard, but misses that 
standard, the operating and efficiency standards I need for my 
business.
    Unfortunately, that is just what happened when EPA 
completed the first ever fuel efficiency rule for heavy duty 
trucks. This regulation ignores the collective knowledge of 
millions of truckers, instead imposing technologies that work 
for certain types of trucking operations on every one of our 
Nation's trucking companies. EPA claims this regulation will 
save each trucker tens of thousands of dollars; however, such a 
claim is bordering on little more than junk science. There are 
over 500,000 motor carriers, each running on varied terrain and 
hauling varied cargo. For many, there is no way this 
regulations mandates will result in any true fuel savings; yet 
the only new trucks available after 2014 will be those that 
comply. Those trucks will cost an additional $6,200 because of 
these regulations. The truck I have today gets fewer miles to 
the gallon and is $30,000 more expensive because of EPA 
mandated emissions reduction equipment and today's diesel fuel 
costs because of these mandates. We can no longer regulate 
without recognizing the impact of regulations, and we cannot 
view regulations as the end all, be all solutions to high fuel 
prices.
    Mr. Chairman, thank you for this opportunity to testify, 
and I look forward to any questions.
    [The prepared statement of Mr. Milburn follows:]


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    Mr. Whitfield. Thank you, Mr. Milburn.
    Mr. Weiss, you are recognized for 5 minutes for an opening 
statement.

                  STATEMENT OF DANIEL J. WEISS

    Mr. Weiss. Thank you, Mr. Chairman, Ranking Member Rush, 
and members of the subcommittee. Thank you very much for the 
opportunity----
    Mr. Whitfield. I am sorry, I am not sure your microphone is 
on, Mr. Weiss.
    Mr. Weiss. Sorry. OK. Do I get the seconds back on the 
clock? Just kidding. It is like the referee putting the time 
back on a football game.
    My name is Daniel J. Weiss. I am a senior fellow at the 
Center for American Progress, which is a progressive think 
tank.
    The question is why are there high oil and gasoline prices 
in 2012? There has been no major supply disruption at home or 
abroad. Wall Street speculators are preying on commercial end 
users' fears of such an interruption to drive up prices and 
make a profit. An analysis by McClatchy Newspapers found that 
these speculators are making nearly 2/3 of the trades compared 
to 1/3 of the trades by end users of oil. The Washington Post 
just yesterday found that ``Many analysts agree that trading 
activity is pushing up oil prices over and above what supply 
and demand would normally dictate.'' Last year, the CEO of 
ExxonMobil told the Senate that the oil price was $30 to $40 
higher than supply and demand would indicate.
    Now this oil and gasoline price spike that we are 
experiencing now is not a first time event. Fortunately, we can 
better withstand its impact because of President Obama's 
leadership. We are using the least amount of oil in 11 years 
due to the vehicle fuel economy standards adopted in 2009. We 
are also producing the most oil in at least 8 years, 13 percent 
more since President Obama took office. If we could go to the 
slide, that would be great.
    [Slide.]
    The U.S. has more oil and gas rigs than the rest of the 
world combined. As you can see, the blue line at the bottom is 
the increase in number of rigs, the red line at the top shows 
that gasoline prices. And as you can see, even as the number of 
rigs we have in operation has climbed dramatically, the price 
of gasoline has also climbed. The--in addition, the Interior 
Department reports that 3/5 of the leases for oil held on 
public lands are undeveloped and there are also thousands of 
leases in the western Gulf of Mexico that are held but 
undeveloped. Fortunately, for the first time in 15 years, the 
U.S. produces a majority of its oil, but because oil is prices 
on the global market led by the OPEC cartel, more production 
here does not lower prices and growing worldwide demand can 
offset our lower consumption.
    There are no quick fixes to reduce high oil or gasoline 
prices. In 2008, President George W. Bush said ``If there was a 
magic want to wave, I would be waving it to lower prices.'' 
President Obama agreed. ``There are no silver bullets short-
term when it comes to gas prices, and anybody who says 
otherwise isn't telling the truth.'' He noted that the United 
States uses 20 percent of the world's oil, but only has 2 
percent of the reserves. Instead, an ``all of the above'' 
strategy is necessary and should feature investments in modern 
fuel economy standards, alternative fuels, and public 
transportation. Ultimately, we have to lower our dependence on 
oil.
    Reducing oil use saves families money. The next improvement 
of fuel economy standards will reduce oil use by more than two 
million barrels a day. Modern 2025 cars will go twice as far on 
a gallon of gas, and will save their owners $8,000 and lower 
gas purchases compared to 2010 cars. Additionally, Congress 
should pass bipartisan bills to invest in electric passenger 
vehicles and natural gas powered trucks, the bill sponsored by 
Mr. Sullivan.
    But instead of investing in such innovative technologies, 
we fund $40 billion per decade in tax breaks for big oil 
companies. Recipients include BP, Chevron, ConocoPhillips, 
ExxonMobil and Shell, which made a combined profit of $137 
billion in 2011 while they produced 4 percent less oil. In 
2005, President Bush supported ending oil tax incentives. ``I 
will tell you, with $55 oil, we don't need incentives for the 
oil and gas companies to explore. There are plenty of 
incentives.''
    As Mr. Whitfield said earlier--Chairman Whitfield said 
earlier, we need to provide immediate assistance to help 
consumers. One way to do that for the short-term is to sell a 
small amount of oil from the nearly full Strategic Petroleum 
Reserve in coordination with sales from international reserves. 
Past sales have lowered oil and gasoline prices every time, 
even when the Congress under Speaker Gingrich in 1996 sold 
reserve oil to reduce the deficit. Such a sale would burst the 
bubble caused by Wall Street speculators driving up prices for 
a quick profit. Additionally, the Dodd-Frank law includes 
potent weapons to limit these speculators'' ability to dominate 
the market, and it should be fully implemented and enforced. 
One more thing about the Keystone pipeline. The State 
Department found that building the pipeline would not have an 
impact on crude oil supplies or prices.
    Today's hearing on high gasoline prices is like the rerun 
of a bad movie. It is up to you to change the ending. The 
American people would give you a standing ovation.
    Thank you.
    [The prepared statement of Mr. Weiss follows:]


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    Mr. Whitfield. Thank you. Mr. Breen, you are recognized for 
5 minutes.

                   STATEMENT OF MICHAEL BREEN

    Mr. Breen. Thank you, Chairman Whitfield, Ranking Member 
Rush, members of the committee. Ladies and gentlemen, I am 
honored to appear before you today to discuss this issue.
    I come before you first and foremost as fellow citizen, one 
deeply concerned about the future prosperity and security of 
this great Nation. I serve as the Vice President of the Truman 
National Security Project, a leadership institute dedicated to 
forging strong, smart, and principled national security policy 
for America. As a former Army Captain and an Iraq and 
Afghanistan combat veteran, I am also proud to be one of the 
leaders of Operation Free, a non-partisan nationwide community 
of veterans dedicated to the common belief that our national 
addiction to oil poses a clear national security threat to the 
United States.
    The veterans of Operation Free have seen the consequences 
of our dependence on oil first-hand on the battlefield. As a 
young lieutenant on my first combat tour, I served on an 
isolated fighting camp in an area south of Baghdad known as the 
``Triangle of Death.'' My unit was entirely dependent on daily 
fuel convoys to power our generators and fuel our vehicles. 
Recognizing this, Iraqi insurgents consistently ambushed the 
convoys while my infantry company fought to protect them, 
leading to almost-daily firefights we jokingly called 
``fighting for our supper.'' The insurgents had recognized a 
crucial weakness, one that our Nation shares, one that Osama 
bin Laden once referred to as America's ``Achilles heel'': our 
dependence on oil as a single source of fuel.
    America sends over $1 billion per day overseas for oil. It 
should not be a surprise, then, that oil is the single largest 
contributor to our foreign debt, outpacing even our trade 
imbalance with China. Worse, far too many of those dollars wind 
up in the hands of regimes that wish us harm.
    For every $5 rise in the price of a barrel of crude oil, 
Putin's Russia receives more than $18 billion annually, 
Chavez's Venezuela an additional $4.9 billion annually, and 
Iran an additional $7.9 billion annually.
    Today, our Nation remains locked in a high-stakes 
confrontation with a volatile Iran. Iran's pursuit of a nuclear 
weapons capability and support for terrorism are among our 
gravest national security challenges. As we grapple with those 
challenges, we must not forget that neither nuclear weapons nor 
support for terrorism comes free. According to the CIA, over 50 
percent, over half of Iran's entire national budget comes from 
the oil sector. That is enough to pay for their nuclear 
program, support for terrorism, and aid to despots and 
dictators like Syria's Assad.
    But Iran is not America's only oil-funded security threat. 
Even Afghanistan's Taliban benefits from ever-increasing oil 
prices. According to former Special Envoy Richard Holbrooke, 
the Taliban's major source of funding is private donations from 
individuals in oil-rich Iran, Saudi Arabia and other Persian 
Gulf states. Opium is number two.
    Congress must act to meet this danger in the only way that 
makes sense, by developing a broad set of alternatives to oil. 
As has been said frequently, there is no single solution, no 
silver bullet, that can break oil's grip on our national 
fortunes, but fortunately, Congress has silver buckshot in its 
arsenal. We can and must aggressively pursue policies that open 
a broad range of alternatives to oil.
    This morning in North Carolina, President Obama is 
announcing a ``Race to the Top'' challenge to encourage 
communities across America to adopt advanced vehicles, building 
infrastructure, removing regulatory barriers, and creating 
local incentives. What is most exciting about this proposal is 
that it embraces choice. Communities themselves are free to 
decide if electric vehicles, natural gas, or alternative fuels 
are the best for them. The administration has also proposed 
improvements to the current tax credit for electric vehicles, 
tax incentives for alternative fuel commercial trucks, and a 
research and development grand challenge designed to bring down 
the cost of electric vehicles. These proposals may not be 
perfect, but they are certainly steps in the right direction, 
and I hope that this Congress will work with the administration 
to improve and expand upon them.
    My earliest military training taught me to anticipate 
threats and take action to defeat them. Our military leaders 
understand this when it comes to the cost of oil, and our sole 
dependence on this single source of fuel. This is a cost that 
extends beyond the gas pump. It extends onto the battlefield.
    So I respectfully conclude with a simple request: lead us. 
Lead us in building an alternative energy economy that can 
break our dependence on oil, and finally put Americans in 
control of our own energy future.
    Thank you.
    [The prepared statement of Mr. Breen follows:]


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    Mr. Whitfield. Thank you. Mr. Eichberger, you are 
recognized for a 5-minute opening statement.

                  STATEMENT OF JOHN EICHBERGER

    Mr. Eichberger. Thank you, Mr. Chairman. My name is John 
Eichberger. I am with the National Association of Convenience 
Stores.
    Convenience stores sell about 89 percent of the gasoline at 
retail in the country through 121,000 stores. Of those 121,000 
stores that sell fuel, 58 percent are single store companies, 
true mom and pops. What I want to talk about a little bit is 
how retailers set prices, and basically I describe it as it is 
truly a street fight. Retailers look at competition, they look 
at their cost. We post our prices on 20-foot signs. Customers 
can shop for the best value driving 45 miles an hour without 
even stopping. We did a survey earlier this year that 40 
percent of consumers will drive 5 minutes out of their way to 
save as little as 3 cents a gallon. That means that retailers 
have to figure out the best price from a competitive standpoint 
to sell fuel.
    In our industry, 2/3 of our overall sales are fuel related. 
Three-quarters of our profit, however, comes inside the store, 
so we need to set prices that attract customers to our 
facilities, and then figure out ways to get them inside the 
store to sell them items where we make more money, such as 
coffee and sandwiches.
    We also have to pay close attention to cost, however. In 
2011, we calculated the average cost to sell a gallon of 
gasoline is about 17 cents. That means we need to mark up our 
fuel about 17 cents just to break even. Unfortunately in 2011, 
the average margin was actually 18.2. The average retailer is 
making 1.2 cents per gallon in 2011. But even that is difficult 
sometimes because the cost of wholesale fuel changes rapidly, 
several times in one day. Because each retailer incurs 
different costs, if a retailer gets a 10-cent increase today, 
they might not be able to pass that along to their customers 
immediately because the competition won't allow them to, so 
they eat some of that increase and they lose margin going up, 
and they try to recover when the prices come back down, but the 
pricing decisions are constant among all retailers at the same 
time. They are fighting for that customer every single day.
    Our wholesale prices are heavily dependent on crude oil. 
Both products are traded on the open market, and as has been 
mentioned many times today, speculative investment into these 
commodities markets has an inflationary influence on the price 
that we pay. Any type of indication of what future supply and 
demand may have can change the way traders bid the price up or 
down, and that affects the price consumers pay at the pump. 
Right now we know oil is making about 75 to 80 percent of the 
retail price of gasoline, and that needs to be addressed.
    So a couple things that I think we can do to help address 
the issue, unfortunately, retailers don't have a whole lot of 
flexibility. Our margin right now this year so far is averaging 
3.6 percent. There is not a whole lot of room to maneuver to 
give customers a better deal at the pump. They are trying, 
though. A lot of customers--a lot of retailers are offering 
discounts to customers to entice them to come to their stores. 
Our goal is to give them the best value at the pump so they 
will buy more products inside the store.
    But there are some things I think Congress can do, and Mr. 
Waxman mentioned in my written statement, I do believe that if 
we increase international supplies of oil, domestically and 
internationally, that will have an effect on traders and 
hopefully will bring prices down on the market to benefit 
consumers. I also think we need to take a careful look at our 
regulatory structure. Whether a regulation being proposed and 
considered is beneficial to the environment, to consumers or 
not, it is going to have a cost and we need to recognize those 
costs will be passed on to customers. So as we are thinking 
about regulatory structures, let us think about how we can 
accomplish our objectives in the least costly manner possible 
at the benefit of our customers.
    And finally, I think we need to really think about 
harmonizing our fuel regulations. We have great objectives. Let 
us reduce our dependence on oil, improve efficiency, become 
more energy secure, benefit our customers with lower prices. 
Unfortunately, we don't always take our regulatory proposals 
and balance them and coordinate them. For example, the current 
proposal to increase CAFE standards takes about 54.5 miles per 
gallon. A great objective, however, I took a look at EIA's 
projections on a more modest CAFE proposal. If you compare that 
to the Renewable Fuel Standard, in 2022, we are supposed to 
bring 36 billion gallons of renewable fuels to the market. If 
we have a more modest CAFE proposal, to make that happen we 
have to include 37 percent of every gallon of gasoline is going 
to have to be renewable. Unfortunately, my stores are not 
capable of selling that type of product. If we have to replace 
all of our tanks and dispensers, the cost is going to be about 
$22 billion. Not to mention EIA projects that the only vehicles 
right now that can run on that fuel are flex fuel. In 2022, 
they are only going to be 15 percent of the market. We have two 
policies that from a logical perspective may make sense, but 
together they can't work together. We need to really think 
about a comprehensive coordinated fuels policy. How do we 
obtain our objectives in a way that makes sense? Let us get 
these projects to market, let us reduce our dependence, improve 
our efficiency, help the customer at the pump, and let us do it 
in a smart way. That is going to take a fresh approach to 
regulatory standards and objectives.
    I thank you very much for your time.
    [The prepared statement of Mr. Eichberger follows:]


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    Mr. Whitfield. Thank you, Mr. Eichberger.
    At this time I recognize myself for 5 minutes of questions. 
We do appreciate the testimony of all of you.
    Whenever we talk about gasoline prices, we get into this 
inevitable discussion of moving to new technology versus the 
internal combustion engine, and the basic question comes out to 
be, in my view, how much can the Nation afford? You cannot just 
snap your finger and move to new technology very quickly. And I 
know, Mr. Weiss, the topic of today's hearing is about gasoline 
prices and what do we do to get these prices down. And we are 
not talking about, you know, 25 years from now or 30 years from 
now, although that is important in the long run. But I was 
reading, for example, that your organization called for a tax 
at $9.50 per barrel on imported oil. Now obviously that would 
raise gasoline prices, so why would your organization be 
advocating that?
    Mr. Weiss. Well first, Mr. Chairman, the proposal is 
designed to provide money to rehabilitate our crumbling 
infrastructure here, particularly highways and public transit 
systems. Doing both of those things will actually reduce oil 
use here.
    Second, we could phase in a proposed oil import fee over a 
few years so the impact on gasoline prices would be relatively 
minimal, compared to these swings that we are seeing today, and 
we take those funds and invest in infrastructure, then we will 
actually be saving consumers money in the long run.k
    Mr. Whitfield. But you think you could put this tax on and 
have a very small increase in actual gasoline prices, is that 
your----
    Mr. Weiss. The rule of thumb is every $10 increase in the 
price of oil is a quarter or 25 cent increase in the price of 
gasoline. So if you phased it in over, say, 3 years, you are 
talking about adding 8 cents to the cost of a gallon of gas at 
a time where you will be helping consumers save more by 
increasing their fuel economy by having roads that aren't 
crumbling, avoiding detours for bridges that are out, helping 
transit systems which are----
    Mr. Whitfield. Let me ask you another question. I know you 
are advocating removal of any tax breaks for oil companies. Now 
are you also in favor of removing any tax breaks for wind 
power, solar power, electric cars?
    Mr. Weiss. Well as you know, Mr. Chairman, in this country 
we have a long history of providing assistance for emerging 
industries, starting--going back--as far back as the railroads, 
the internet, radios, television. What we are proposing--may I 
finish, sir? We are proposing that we help these emerging 
industries like wind and solar. Some of these tax breaks for 
the oil industries are nearly 100 years old.
    Mr. Whitfield. Do you realize we have spent millions of 
dollars and many of these companies have already gone bankrupt, 
and I don't think that that is protecting the taxpayer dollars.
    Mr. Gerard, one question I would like to ask you, when Al 
Gore was in the U.S. Senate he used to talk frequently that the 
U.S. possesses only 2 percent of the world's proven oil 
reserves, and as far as I know, Al Gore was the first person 
ever to use that figure. There is a difference in proven and 
unproven reserves. Now when we talk about the U.S. only 
possesses 2 percent of the world's proven oil reserves, what is 
the difference in that and unproven?
    Mr. Gerard. I can only assume he uses that particular 
number to suggest or imply that we have little oil in this 
country.
    Mr. Whitfield. Right.
    Mr. Gerard. Let me say, first and foremost, we have vast 
resources here in the United States. In fact, for the past 30-
plus years, we have had 85 percent of it off limits so we can't 
even go out and define, look for it, and identify it. Look at 
the situation in North Dakota today. Five years ago we thought 
we had 100, 200 million barrels of oil there. Today it is 
estimated to be somewhere between 14 and 20 billion barrels of 
oil under the State of North Dakota. So there are vast 
resources here in this country.
    The term that is being used is a very technical term 
showing only those that have been proven by drilling, so it 
shows 2 percent. Even the EIA, the Department of Energy 
recently said our reserve--our estimated reserve is at least 10 
times that, but when you go beyond that, our experience in the 
Gulf of Mexico, for example, we have developed and produced 
eight times what was estimated to be there early on. Give us 
the opportunity. We will invest our risk--we will risk our 
capital. We can produce a lot of energy in this country by 
Americans for Americans. We have vast resources.
    Mr. Whitfield. Thank you. My time is basically expired, so 
Mr. Rush, I recognize you for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Weiss, a growing number of people are concerned that 
Wall Street speculation is also playing a role in driving up 
oil and gasoline prices. What is your thoughts on this and how 
concerned should we be about speculation driving up the price 
of oil?
    Mr. Weiss. Thank you, Mr. Rush. I think we should be very 
concerned. The evidence is fairly strong that Wall Street 
speculators and not commercial end users, like Mr. Milburn, for 
example, are the ones that are driving up prices. The 
Washington Post reported yesterday that there was an analysis 
by the Federal Reserve Bank in St. Louis that determined 
``Financial speculative demand shocks were responsible for at 
least 15 percent of the huge run up in oil prices between 2004 
and 2008.'' And there is a whole host of other studies that all 
point in that direction. The Dodd-Frank law does provide tools 
to the Commodities Future Trading Commission to help reign in 
Wall Street speculators, but those tools have yet to be 
implemented and we should urge the agency to do so.
    Mr. Rush. Are there any other actions that we can take to 
reduce the impact of speculators?
    Mr. Weiss. I think the most important one is to have CFTC 
set position limits for Wall Street speculators, which really 
limits them to a certain amount of oil they can hold. They 
worked on their part of this rule, but they have to work out 
some definitions with the Securities and Exchange Commission, 
which to my knowledge hasn't happened yet. They are planning on 
implementing the rule sometime next year. I believe that we 
ought to urge that they speed up the implementation of that 
rule.
    Mr. Rush. Twenty percent of the world's oil is consumed by 
this Nation, and we only have 2 percent of the oil reserves in 
the world. We are not going to be able to drill our way out of 
this problem, as the President has said many, many times. We 
are producing more oil now than we have in years, but gasoline 
prices are continuing to go up. Is there any reason to believe 
that drilling more would result in lowering gasoline prices?
    Mr. Weiss. Well first, I believe that responsible drilling 
is a very important component of our energy policy, because the 
more we produce here, the less we have to import, the more it 
helps our balance of payments and you can recycle those dollars 
in the U.S. instead of sending them overseas. It is unfortunate 
that in the Department of Interior, for example, just found 
that 3/5 of the leases for onshore oil production that are held 
by oil companies are not being developed. There are thousands 
of leases in the western Gulf of Mexico that oil companies hold 
that are not being developed. In fact, the Energy Information 
Administration found that 75 percent of the offshore oil and 
gas in the lower 48 States is already open for development, so 
we have got the oil resources there. Let us develop them in a 
responsible way. By the end of this year, we are going to have 
more rigs in the Gulf of Mexico than we had before the BP oil 
disaster occurred in 2010.
    So we are making progress in that regard. Let us use our 
existing leases that oil companies hold but they haven't 
developed yet.
    Mr. Rush. Well let us get moved to what I will consider 
some real--some of our realities. You said that the fear of 
disruptions of oil production in the Middle East creates the 
price of oil, just the fear of it. Can you explain the--that 
relationship? How does fear increase the price of oil and cause 
potential disruption?
    Mr. Weiss. Sure. Well commercial end users like, for 
example, Mr. Milburn and people who are truckers, need to have 
oil to power their vehicles and we need it to power our 
economy. If people believe there is going to be a supply 
disruption, then they will bid on contracts to lock in a 
certain price now. Once that happens, then other people say 
wow, the price is going up, I better lock in my contract now 
before the price goes up any further. And then somebody else 
says well, you know, Mr. Milburn just locked in his price, I 
better lock in my price too. And that process leads to sort of 
an inflationary psychology. And what--it is being driven not by 
commercial end users, it is being driven by Wall Street 
speculators who are making 2/3 of the trades right now. 
Normally commercial end users make about 2/3 of the trade and 
Wall Street speculators make about 1/3. Now it is the opposite.
    Mr. Whitfield. Gentleman's time is expired. At this time I 
recognize the gentleman from Illinois, Mr. Shimkus, for 5 
minutes.
    Mr. Shimkus. I love this committee. I love this 
subcommittee. I have so much anxious questions. I will try to 
be calm, but if fear drives up speculation--you know how you 
drive the stake in the heart of a speculator? You flood the 
market with commodity product. I mean, everyone talks about the 
risk taker when they make profit because they bet right. No one 
talks about the risk taker when he bets wrong and loses 
everything. You know how you flood the market with oil? You do 
Keystone XL pipeline. You send an immediate signal to the 
country--thank you, my fans--you send immediate signal to the 
country that we are going to open up the third largest oil 
reserve on earth to the U.S. market. You think that doesn't 
affect the speculators? It will scare the bejeebers out of 
them, and those who take in big positions now will lose their 
shirt. And that is how you do it.
    Then we can talk about the OCS. Another point, just because 
you have a lease doesn't mean there is oil underneath there. 
You have to look for it. It takes capital expense. And one more 
thing, because I am from southern Illinois and we drill for oil 
in southern Illinois, little marginal wells, great prices. We 
are doing it right now. I am tired--I am really tired of this 
attack on drilling, because my little mom and pop drillers, all 
they want to do is if they don't hit the well, they want to 
record that as an expense. That is all this tax break for big 
oil is. If they don't hit, they don't count it as an expense. 
You can write it off as a business expense if you drill and you 
don't hit the oil. That is all it is. Now multiply that to a 
multi-national corporation, it is the same thing. If they go 
deepwater drilling and they don't hit, should they not write 
that off as a business expense? Sure they should. Just like my 
mom and pop should do it locally. All right, I got that off my 
chest. Thank you.
    Secretary Chu said we want European gas prices. You know 
what they are right now? March in London, 8.17 a gallon. That 
is going to take us off--this hearing is about gas prices, and 
this administration from day 1 says we want high gas prices. 
Guess what? They are going to get it. The President was asked 
yesterday. Oh, I don't want high gas prices now because I am up 
for reelection. You know, what was the unsaid part of that 
statement? But I don't mind if they go up after the election. 
That is the untold part of his response because as we know, the 
secretary--which we will get a chance to talk to him next 
week--wants European gas prices for a lot of reasons that we 
have addressed before.
    Let me talk to Mr. Breen a while, because really, the thing 
that brings us together is really the debate. We are all about 
energy security, we are all about decreasing our reliance on 
imported crude oil. Twenty percent still comes from the Middle 
East. We have got Iran, we have got the Strait of Harmuz, we 
know we deployed there. Mr. Engel and I have a bill called the 
Open Fuel Strategy which makes the basic premise, let us break 
the monopoly of crude oil and a liquid transportation fuel, and 
let us allow the individual consumer to make a choice on their 
liquid transportation at the pump. What do you think about 
that? Have you looked at that bill?
    Mr. Breen. I can't say I have, sir, but in principle, that 
sounds great to me.
    Mr. Shimkus. Yes, and I would encourage you to look at it. 
We have got a lot of great national security guys looking at 
it. It would be--it would bring all comers--all we got to do is 
get the liquid blend. My friend from the convenience stores, 
obviously we have some issues, but once we get the blend, then 
free the consumer. The monopoly is crude oil. Bring all comers 
to the liquid transportation market and then compete, and let 
the consumer--let them fight for the lower price. I have done 
that before. I drive a flex fuel vehicle. I--when I get a 
chance, I pump E-85 into that baby. But there was a time I 
drove up and the E-85 was actually more than conventional 
unleaded. Being the conservative fiscal Republican that I am, 
guess what I did? I filled up on the unleaded regular. I wasn't 
going to subsidize it. Get the competition. What is the problem 
with this, John?
    Mr. Eichberger. The only issue we have with alternative 
fuels is one, do the customers want to buy them, and two, can 
we lawfully sell them?
    Mr. Shimkus. Yes, talk about lawfully sell them.
    Mr. Eichberger. Lawfully sell them, we talk about E-15, for 
example. We have to have equipment that is certified as 
compatible with that equipment--with that fuel or we can't sell 
it. We are grossly negligent, we are violating a bunch of 
Federal laws. If we sell it to a customer and they put it in a 
car that is not permitted to use that fuel, we can be held 
responsible with a Clean Air Act violation, $37,500 fine, and 
we could be responsible for voiding a warranty or damaging an 
engine. Those are things that need to be resolved if we want to 
bring these new fuels to market.
    Mr. Shimkus. Thank you, Mr. Chairman. I am going to 
encourage my colleagues to talk to me about a way to fix that 
problem.
    Mr. Whitfield. At this time I would like to recognize the 
gentleman from California, Mr. Waxman, for 5 minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    This recent spike in oil--gasoline prices is just too 
familiar. We have been there before. If you want to fix a 
problem, I think we have to figure out the diagnosis correctly. 
You can't cure pneumonia by treating a broken leg. The 
fundamental problem isn't that we are not drilling enough or 
even that we are too inefficient. In my view, the fundamental 
problem is the United States is heavily dependent on a single 
commodity, oil, and we don't control the vast majority of the 
oil supply on most of the oil demand. Oil prices are set in the 
world market, which means that we--even if we produce as much 
as we consume, we would still have to pay the world market 
prices for crude. Does anyone on the panel disagree that as 
long as the U.S. is heavily dependent on oil, we will be 
vulnerable to price volatility in the global oil market?
    Well, I want to ask Mr. Weiss, it has become a Republican 
mantra that the solution to high gas prices is more domestic 
production. Do you agree with that notion, and if not, why not?
    Mr. Weiss. Thank you. No, I don't agree with it. I think 
more drilling is an important piece for our national security 
as we talked about, but it is not going to solve high gasoline 
prices in the way that you--for the reason you just described. 
I think what we need to do is begin to invest in alternatives 
like electric vehicles. Mrs. Biggert of Illinois has a bill 
that would help create infrastructure for recharging. I believe 
that is what the President will be talking about today.
    Mr. Waxman. Well the question that I really wanted you to 
answer is if we had more domestic production, would we have 
lower gasoline prices?
    Mr. Weiss. No, we would not.
    Mr. Waxman. And the reason we would not?
    Mr. Weiss. Because as you noted, oil prices are set on the 
world market. The price of oil is about 78 percent of the price 
of gasoline right now, and it is too easy for any of the OPEC 
countries to change their production in order to keep the price 
at a certain level. In fact, the Saudi oil minister in January 
said that they thought an ideal price for oil was $100 a 
barrel. Presumably, they will take actions to try and keep that 
the case.
    Mr. Waxman. So if we produce more oil in the United States, 
it won't make a difference to the world price if the OPEC 
cartel decides to reduce the supply?
    Mr. Weiss. That is correct.
    Mr. Waxman. Some countries, like Canada, produce more oil 
than they can use. We are talking about if we can get self-
sufficiency on oil, but they have more than self-sufficiency. 
They produce more oil than they use, and they are still subject 
to the world market and they suffered from gas price spikes 
just as we do.
    Under President Obama, U.S. oil production is the highest 
it has been since 2003. You wouldn't know it from some of the 
comments that were made, but gas prices are still spiking. The 
idea that our problem is insufficient oil production is a 
fantasy, and I believe it is a very dangerous fantasy.
    Mr. Breen, you are an expert on national security. Do you 
think that just focusing on production is a dangerous approach?
    Mr. Breen. Yes, sir, I do.
    Mr. Waxman. And why?
    Mr. Breen. Because as you said, it doesn't change the 
overall dynamic, and more importantly, it doesn't change our 
single source dependence. As long as we need this fuel for 95 
percent of our transportation sector and virtually all of our 
military operations, we are stuck with whatever the market 
does.
    Mr. Waxman. Mr. Weiss, what progress have we seen from 
President Obama in reducing our oil dependence?
    Mr. Weiss. We have made great progress in reducing our oil 
dependence. We are using less oil than at any time since 
February of 2001, and that is even as our economy is 
recovering. It is due to the oil--I am sorry, the fuel economy 
standards put into place by this administration that was signed 
into law by President Bush. The fuel economy standards that the 
President put in place in 2009 were originally signed into law 
by President Bush in 2007. They are starting to have impact on 
reducing oil consumption and that effect will only grow. By the 
time the final standards are implemented in 2025, cars will go 
twice as far on a gallon of gas and we will save over two 
million barrels of oil a day.
    Mr. Waxman. Mr. Breen, the President has called for 
eliminating the $4 billion in tax breaks for oil companies, and 
instead investing it in alternative energy. Would this improve 
our economy and national security?
    Mr. Breen. Sir, I believe it would improve our national 
security in that it would incentivize alternatives. Again, the 
fact that we are stuck with this single source of energy for 
all of our needs with military and civilian is a huge national 
security weakness that Iran and others exploit daily.
    Mr. Waxman. The top five oil companies earned $137 billion 
in profits last year and gas prices are rising. We have an 
economic and national security imperative to reduce our 
dependence on oil, and we are in a tight fiscal situation. I 
think the President is right. The last thing we should do right 
now is give the oil companies $4 billion a year in tax breaks.
    Mr. Whitfield. The gentleman's time is expired. At this 
time I recognize the gentleman from Texas, Mr. Barton, for 5 
minutes.
    Mr. Barton. Thank you, Chairman Whitfield. I would like to 
ask Mr. Gerard if he knows what the peak production per day of 
U.S. oil production has ever been?
    Mr. Gerard. I don't have that with me, Congressman. I would 
be happy to get it for you.
    Mr. Barton. Is there anybody in the panel that knows?
    Mr. Weiss. I think, Mr. Chairman--again, this is--I am glad 
we are not sworn in. I don't want to be held to this.
    Mr. Barton. This is not a trick question.
    Mr. Weiss. I believe it is somewhere around 10 or 11 
million barrels per day.
    Mr. Barton. Yes, and we are--the latest number I have is 
that we are producing about 5-1/2 million barrels of oil 
production per day right now. That is as of 2010, and that is 
obviously 2 years old, so it may be a little bit higher than 
that.
    Mr. Weiss. It is about--excuse me, sir. It is about--almost 
six million barrels a day now. It is about 5.9, I believe.
    Mr. Barton. So we are at six today, which the trend is up. 
We have been as high as 10 or 11. We are consuming--my number 
that I have in my mind is about 20 million barrels a day, it is 
probably less than that. What is it now?
    Mr. Drevna. Closer to 18.
    Mr. Barton. Eighteen. So we have got imports going down, 
which is a good thing. We have got domestic production going 
up, which is a good thing, but we are still importing quite a 
bit. And most of us on the Republican side do believe that a 
robust domestic drilling program would significantly improve 
production, especially if we do not over-regulate hydraulic 
fracturing, which is now being used for oil production as well 
as for natural gas production. I am told that all, all of the 
oil wells that are being drilled up in North Dakota are 
hydraulic refractured. Is that correct?
    Mr. Gerard. Clearly the majority of them are.
    Mr. Barton. They are, so what is a reasonable estimate of--
if we changed our policy to actually lease in a timely fashion 
and drill in a normally regulated fashion on Federal lands as 
we have been doing on private lands, how much additional oil 
production per day could we reasonably expect in the United 
States, including Alaska and OSC, say in the next 4 or 5 years?
    Mr. Gerard. Well, a lot of it would depend, Congressman, 
based on the permit process. Back to the earlier comments about 
the leases not being used, today in the typical leasing process 
from the point of acquiring a lease to getting to the point of 
drilling is somewhere between 3 and 7 years. So you are going 
to have to look at the permitting process. Earlier it was 
commented that we have idle leases today. Let me tell you about 
one so-called idle lease. It is a lease in Alaska today that 
has been in place for 5 years. The company has spent $4 billion 
on the lease. They haven't drilled one hole yet.
    Mr. Barton. I think that is the Shell----
    Mr. Gerard. It is the Shell.
    Mr. Barton [continuing]. And I think we are finally going 
to get to drill some this summer. I am told that.
    Mr. Gerard. Well let me correct that, if I can. Not to take 
your time, but what has happened recently is because they have 
a 475-page oil spill response plan that has been filed, they 
only have a 3-month window to drill. They are fearful somebody 
is going to litigate that question and take them through the 3 
months window, thus putting them into the sixth year of this 
lease, which by this administration is defined as an idle 
lease. So a week ago they essentially sued themselves to try to 
get a judge to declare the oil spill response plan was 
sufficient so they could have certainty that this summer during 
the drilling window they could drill. That is the problem.
    Mr. Barton. On Federal lands, the number that you just gave 
is 3 to 7 years.
    Mr. Gerard. Correct.
    Mr. Barton. Does anybody refute that? I mean, that is a 
pretty wide range, but even at that, 3 years, compare that with 
what it would take to get a lease on private lands approved in 
Texas. How long would that take?
    Mr. Gerard. I will defer to other Texans here who say a 
week, but----
    Mr. Barton. Well I am told 2 days.
    Mr. Gerard. Typically it would be considerably less, and it 
is focused on moving the process so we can produce the 
activity.
    Mr. Barton. Which is best for domestic oil production, a 
permitting process that takes weeks or a permitting process 
that takes years?
    Mr. Gerard. Clearly one that takes weeks.
    Mr. Barton. OK, I yield back, Mr. Chairman.
    Mr. Whitfield. Thank you. At this time I recognize the 
gentlelady from California, Ms. Capps, for 5 minutes.
    Mrs. Capps. Thank you, Mr. Chairman, and thank you to each 
of our panelists for your testimony today.
    Mr. Breen, I will start with you, and thank you as well for 
your military service to our country.
    Mr. Breen. Thank you, ma'am.
    Mrs. Capps. Operational energy accounted for 75 percent of 
the military's total energy costs in 2010. Despite the increase 
in power saving technologies, the Pentagon remains tethered to 
oil, as you said, and continues to pay the price for our 
dependence in dollars and, of greatest concern, in lives. The 
Pentagon knows this is a serious problem. Last year it released 
an operational energy strategy to transform the military's use 
of energy, and the President's fiscal year 2013 budget request 
includes new support for alternatives. As a member of the 
bipartisan Defense Energy Security Caucus, I strongly support 
the goals of the administration in this area.
    So I want to ask you about the need for the Pentagon to use 
less energy and develop new clean energy technologies, 
especially as we try to reign in the budgets and become a more 
effective fighting force. My first question is what can the 
Pentagon do for clean energy?
    Mr. Breen. Thank you, Congressman Capps, and thank you for 
raising this issue because I think it is critical to these 
hearings.
    The Pentagon can do a lot. Every time there is a $10 
increase in the price of a barrel of oil, it costs the 
Department of Defense about $1.3 billion. That is about the 
weapons budget for the Marine Corps. That is a huge amount of 
money. It also costs, as you mentioned, lives. About 50 percent 
of the convoys that traversed Iraq and now traverse 
Afghanistan, those dangerous roads, carry fuel. One in 24 of 
those convoys ends in an American casualty. This is a very 
costly business, moving this fuel around the battlefield.
    As the largest consumer of energy in the Federal 
Government, the Department of Defense can and is doing quite a 
bit. The U.S. Navy, for example, is committed to reducing 
petroleum use by 50 percent by 2015, with a goal of 40 percent 
of total energy consumption from alternative sources by 2020. 
We talk about alternative fuel mixes in cars. The Navy is 
flying the Green Hornet. It is an F-18 high performance strike 
fighter. These things go twice the speed of sound. They are 
flying it very successfully on a 50 percent blend that is 50 
percent jet fuel and 50 percent of it biofuel derived from the 
Camalina plant. So if you can do that with a supersonic strike 
fighter, I am sure you can do it with a car.
    Mrs. Capps. So conversely, you just--do you want to give 
another example of what clean energy can do for the Pentagon?
    Mr. Breen. Absolutely, and this, again, extends to fuel and 
it extends to other things. There is a sort of famous story of 
one of the Marine Corps senior leaders travelling through 
Marja, a very contested area in Afghanistan, and taking a 
photograph on his cell phone of an Afghan man who had a tiny 
little solar panel outside of his hut, and he sent that back to 
the Pentagon. He said why is this guy kicking our butts? He is 
self-sufficient on energy and we are relying on fuel convoys. 
It is a major issue for operational forces out there in the 
field.
    Mrs. Capps. Thank you for answering the question so 
thoroughly. This relationship is a win-win. Clean energy 
solutions make our military more effective. They save war 
fighter lives, and the DoD procurement drives the American 
clean energy economy. So I appreciate your being on the panel 
today.
    Mr. Weiss, thank you also for your testimony. As Mr. Breen 
told us, our national and economic security will be 
strengthened by the military's increased use of clean energy 
technology. Can you please tell us how increased use of clean 
energy technologies are going to benefit American families and 
businesses, and help us prevent these fluctuating oil prices?
    Mr. Weiss. Thank you for your question, Representative 
Capps. I think that these investments, first of all, in these 
new technologies create jobs. American--the American economy 
and the American manufacturing economy has always benefited 
from innovation. We need to continue to innovate n the 
transportation field by technologies like the Chevrolet Volt, 
which is the first plug-in hybrid electric vehicle that is 
commercially available, and it is important to remember there 
has been a lot of talk about the Volt, but in fact, the Volt 
combined with the Nissan Leaf in 2011 sold twice as many cars 
as the Prius did in its first year. It takes time for every 
technology to be developed and commercialized and then see the 
price come down. So I think those are the kinds of benefits 
that we will see.
    I also believe, as Mr. Breen was talking about, the 
development of non-oil based fuels for the military will 
eventually have commercial application, whether it is for 
commercial aviation or as a fuel for transportation. I think 
that is very important as well.
    One difficulty we have right now is that with--we have flex 
fuel vehicles that use the fuel E-85 that is only available in 
about 2,000 service stations out of about 160,000 nationwide.
    Mrs. Capps. Thank you very much. I yield back the balance 
of my time.
    Mr. Whitfield. Mr. Breen, you know, you mentioned the Green 
Hornet, which is absolutely true and it is good that they are 
doing that, but that fuel is costing over $70 a gallon right 
now that they are using in the Green Hornet.
    At this time I recognize the gentleman from Texas, Dr. 
Burgess, for 5 minutes.
    Mr. Burgess. I thank the chairman for the recognition, and 
let me just say, because the President came out yesterday and 
said he wants to improve efficiency energy use in this country 
by the use of efficiency, and I agree with that. I was an early 
adopter of the hybrid technology early in the last decade. I 
didn't buy it so much because gas was expensive, because back 
then it wasn't. I really bought it for that sense of moral 
superiority I had when driving on the road, and it continues to 
this day.
    Just like Mr. Shimkus, I got to get some stuff off my 
chest. Look, we had a hearing in this committee June or July of 
2008. It lasted all day. We had all kinds of people here. In 
fact, we had Walter Luken, who at that time was the acting head 
of the Commodity Futures Trading Commission, and I kind of wish 
we had Mr. Gensler here today to ask him some of these 
questions about the great things he is doing with the Dodd-
Frank regulations, because I haven't seen them. However, one of 
the things we heard that day over and over again was that part 
of the problem with speculation was that the perception was the 
market was very tight. And although there might be some 
additional supply here and there, there was growing concern 
because of the worldwide demand and that tightness led to the 
proper environment for speculation to make a difference. And we 
were also told, just as we have heard I think here today, it 
was 4 to 7 years to go from drilling to production of product 
that could be sold, so my question today would be if we had 
made some decisions about production 4 years ago, we might be 
reaping the benefits today. And if President Clinton had not 
vetoed drilling in Anwar in 1996 or 1997, we would have the 
benefit of that product today, and in fact, we would be selling 
it at a higher price than was available in '96 or '97, and that 
would help our balance of trades. So I think I would be all for 
that scenario.
    Let me just also say as a consequence of that hearing on 
speculation, I have done a lot of looking into this in the time 
since then, and I do believe that it is possible to manipulate 
markets. After all, I grew up in a time when the Arab oil 
embargo was in effect. I remember the cold showers of '73 and 
'74, but that was an attempt by a sovereign nation to influence 
political decisions in our country by manipulating the price of 
oil. I don't know if it is widely reported, but I think it was 
the collapse of natural gas prices that led to the collapse of 
the Soviet Union in the late 1980s. So clearly, worldwide 
events can be dictated by the cost of energy. As we heard 
earlier today, without energy, life is cold, brutal, and short, 
and expensive. So we don't want to go back to those times. We 
want to have the energy available.
    But I do want to ask our witness, Mr. McNally, I mean, your 
brow was furrowed during some of the discussion that Mr. Weiss 
was having, so I just wanted to give you a chance to expound on 
that a little bit.
    Mr. McNally. Thank you. I have to work on my body language.
    I want to comment on the point that there haven't been 
interruptions and the market is smooth and normal, and for some 
odd reason gasoline prices have just suddenly leapt to all-time 
highs. As President Obama said in his news conference 
yesterday, there have been severe supply--some supply 
interruptions. One he mentioned was Sudan. Recently the 
Congress instructed the Energy Information Agency as part of 
the sanctions bill in Iran to report on the supply inadequacy 
of--the supply adequacy and the price of oil outside of Iran. 
That report came from EIA last Wednesday, and let me just quote 
one sentence or two. ``With respect to supply, the world has 
experienced a number of supply interruptions in the last 2 
months, including production drops in south Sudan, Syria, 
Yemen, and the North Sea.'' Also they talked about demand, and 
they said--about the market they said ``EIA estimates the world 
oil market has become increasingly tight over the first 2 
months of the year. Global liquids fuel consumption is at 
historically high levels.'' So I guess I want to just correct 
some facts there.
    Mr. Burgess. And I am just pointing out in that 
environment, the people who do deal with speculation--there are 
people who do--that makes their environment much more favorable 
to make money off of the buying of futures contracts when they 
never intend to take delivery of the product. And I do wish 
there were a way to make people eat their own dog food if they 
make bad decisions. I would like to see the enforcement of 
those contracts rather than allowing them to roll them over and 
move that money down the road. I think there are some things 
that I think Mr. Gensler could do, and for the life of me I 
don't understand why he hasn't done them.
    I have to ask one quick question. I think, Mr. Milburn, the 
natural gas vehicles--I have got a Peterbilt plant in my 
district. They make an off the line natural gas vehicle. I 
noticed this morning that GE and Chesapeake are talking about 
building some of the infrastructure that would allow more of 
these vehicles to be used, not waiting on the Federal 
Government to fund that project. Were you aware of that?
    Mr. Milburn. In the trucking industry, compressed natural 
gas is not a viable alternative at this time.
    Mr. Burgess. But locally for like our bus market in Ft. 
Worth, Texas, they run on compressed natural gas. I think the 
Metro buses outside here----
    Mr. Milburn. Yes, sir, that----
    Mr. Burgess. So you can in certain applications?
    Mr. Milburn. In certain--yes, sir, in certain applications 
yes, it can be a viable alternative. For municipalities, for 
smaller areas, but the range of compressed natural gas vehicles 
in the class 8 markets today are not sufficient for us in our 
operations.
    Mr. Burgess. But now you have two private companies making 
the investment to the infrastructure, and I would say that is a 
good thing. Waiting on the Federal Government, we are broke. We 
are probably not going to be able to help you.
    Mr. Whitfield. Gentleman's time----
    Mr. Burgess. But I would look to the private sector to do 
this.
    Mr. Whitfield. Gentleman's time is expired. At this time I 
recognize Mr. Gonzalez of Texas for 5 minutes.
    Mr. Gonzalez. Thank you, Mr. Chairman.
    I know we led off with opening statements and everyone in 
this room heard about the gas fight during the Obama years of 
his presidency. But I guess I need to ask, who was President on 
December the 17th, 2001? It was George W. Bush. The price of 
gasoline for that week was $1.04. Who was President on July 7, 
2008? George W. Bush. Average weekly price of a gallon of gas, 
$4.05. Neither President Bush nor President Obama can really 
control the price at the pump, and I wish we would just 
acknowledge that. The issue is not that we have not found 
greater resources and because of technology we can draw more 
product out of the ground. That really shouldn't be the issue. 
The issue should be is how do we free ourselves from market 
manipulation that is going to continue, world markets, emerging 
countries that are going to be our biggest competitors.
    Mr. McNally, you must admit that if you own the oil, you 
have the contract, and you are out there in the marketplace to 
sell it, it is going to go to the highest bidder. It is that 
simple. If you have a customer in the United States that is 
paying only a dollar for something but you can sell it to 
someone outside our boundaries for $2, you are going to sell it 
for $2. Those are market principles. Those are free market 
forces working, and we all agree with that. It is going to 
continue as long as we continue to say just produce more 
product, continue dependency on it. This is not about 
dependency on fossil fuel that we are importing; this is about 
dependency on fossil fuel, period. When we started this debate, 
we always had it in the context that fossil fuel-based 
transportation fuel was transitory in nature, that we were 
transitioning to something else. We have stopped, for all 
intent and purposes, and the problem with what we are 
discussing today, it gives a false sense of security that if we 
continue this, just because there is more supply, that 
everything is going to be all right. I don't believe that. It 
is a transition fuel, but I believe that it is going to be a 
number of years that we are going to be still dependent on 
fossil fuel for many, many reasons.
    Now, we can't control this. Not the United States, not our 
domestic producers, not our Canadian friends, not our Mexican 
friends, all in North America. The Saudis couldn't do it in 
2008. Mr. McNally, you know what I am talking about, because 
President Bush asked, increase production and the Saudis said 
we will do it, and they did. But then they said hey--in all 
those cables that came out later, what did they say? Hey, it is 
not about supply, it is about speculation. And we better do 
something about how this is being controlled and who owns it, 
and how they are determining the price. We are not going to 
stop that. I don't see that it is going to stop, and I know 
that Dodd-Frank and the commodities futures and such--I don't 
think we are going to stop it, because market forces are market 
forces. Fiduciary duties to investors will always remain the 
same. You will sell it to the highest bidder.
    Mr. Drevna, if you are going to tell me that because it is 
based in the United States that somehow--and it should be 
cheaper because transportation and other costs, and if you have 
a competing bid that is higher, that you are not violating your 
duty to your investor or to your shareholder, we have got 
problems. So I have got 1 minute, just yes or no, and I am 
going to ask this to the entire panel. Do you believe that this 
country should continue to rely on fossil fuel-based 
transportation fuels, that is, for the next 25 years before we 
make any real progress? Yes or no.
    Mr. McNally. I believe we will, not that we should, but we 
will.
    Mr. Gerard. Sixty-two percent of our energy today is oil 
and gas. The administration will tell you 57 percent of our 
energy in 2035 will still be oil and natural gas.
    Mr. Drevna. Mr. Gonzalez, 60 percent--57 to 60 percent of 
the crude oil that we use in this country is imported. We do 
not export crude oil. We get crude oil from a number of 
sources. Let us get it from our own country. Let us keep the 
American refineries working with American jobs, exporting and 
supplying our own costs consumers.
    Mr. Gonzalez. I think we exported a tremendous amount of 
refined products last year.
    Mr. Drevna. Well, refined products, sir, refined product, 
not crude oil.
    Mr. Gonzalez. Well, you know, to the customer, it is called 
gasoline and that is a refined product.
    Mr. Drevna. But we don't----
    Mr. Gonzalez. And I am really wondering how I explain to my 
constituent that we are exporting a tremendous amount of it, 
and yet, we are still charging them $4 a gallon for the refined 
product.
    Mr. Milburn. May I answer that, Mr. Gonzalez?
    Mr. Gonzalez. We will discuss this a little later, Mr. 
Milburn.
    Mr. Milburn. Thank you.
    Mr. Gonzalez. I just want to know if you guys see the next 
25, 30 years going down the road that we are going down now.
    Mr. Milburn. I do, sir, and until such time as technology 
can provide me with an alternative-based fuel that is not going 
to drive up the cost of my truck and my operations, I am still 
going to have to rely on diesel.
    Mr. Weiss. With the kinds of investments that are suggested 
by Representative Biggert's bill and Representative Sullivan's 
bill for electric gas and natural gas trucks, I believe that 
no, we will not be entirely reliant on oil for our 
transportation system.
    Mr. Breen. Sir, I think it would be a tragic national 
mistake if we were still reliant. Our military leaders are 
doing everything they can to get us off of this stuff, and the 
rest of us should follow suit.
    Mr. Eichberger. Diversification will happen, but it is 
going to take a very long time. In the interim, petroleum is 
going to be the source of transportation.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Mr. Whitfield. At this time I recognize the gentleman from 
Texas, Mr. Olson, for 5 minutes.
    Mr. Olson. I thank the chairman and welcome to the 
witnesses. Thank you all for coming and giving us your time and 
expertise.
    Being a former naval aviator, it is a pleasure to see 
someone else who has worn the uniform of our country. And Mr. 
Breen--do I call you Mr. Breen, Captain Breen, Major Breen?
    Mr. Breen. Just mister these days, sir.
    Mr. Olson. Mister these days, OK, sir. My first question is 
going to be for you, Mr. Breen. Throughout your written 
testimony, you frequently use the term ``dependence upon a 
single source of energy, oil,'' and you mentioned countries 
that don't like us to benefit from our dependence on foreign 
oil. You specifically mentioned Russia, Venezuela, Iran--
although I know you know that we don't get any oil directly 
from Iran--but you didn't mention Saudi Arabia, even though 
one-half of our foreign imports come from Saudi Arabia. My 
question for you is what about Canadian oil?
    Mr. Breen. That is an interesting question. Sir, as you 
say, it is----
    Mr. Olson. I got a little bit more, here we go.
    Mr. Breen. OK.
    Mr. Olson. Little--we are pilots, you know, we----
    Mr. Breen. I should have brought my glasses to the hearing.
    Mr. Olson. This is the Keystone XL pipeline, and as you 
know, the Keystone XL pipeline will create 20,000 jobs, bring 
800,000 barrels of oil to the United States, the Gulf Coast 
area where I represent. Canada has been one of our greatest 
allies. You were there. You know that they lost almost 400 of 
their soldiers fighting beside us against the war in Iraq and 
Afghanistan, fighting the war against terror. In recognizing 
these facts, last week the administration announced that they 
were not going to oppose the construction of the first portion 
of this pipeline from the farms here in southeast Texas, my 
home, Port Arthur/Houston, up to Cushing, Oklahoma, this part 
there. And Jay Carney had a great quote when they announced 
what they were doing. He said ``Moving oil from the Midwest to 
the world-class, state-of-the-art refineries on the Gulf Coast 
will modernize our infrastructure, create jobs, and encourage 
American energy production.'' And so my question for you is, Do 
you support the administration's decision to go forward with 
this part of the pipeline? Yes or no answer, please, sir.
    Mr. Breen. Sir, I don't have an opinion on it because it is 
not going to change the global price of oil, and that is my 
biggest concern. Based on the information I have seen, the 
dynamic is fairly ironclad. U.S. demand is fairly static, U.S. 
production is up, but global demand driven by China and India, 
which are never going to need less oil than they do now and are 
ever going to need more, that demand is continuing to go up and 
as long as it does, the global price goes up. As you said, it 
doesn't matter----
    Mr. Olson. I have to cut you off. I only have a little time 
here, but one thing that concerns me most about your written 
testimony is you never mention the purely domestic abundant 
source of energy we have, natural gas used for transportation. 
I mean, I want to--here you concluded your written statement 
with this comment. ``I respectfully conclude with a simple 
request: lead us in building an alternative energy economy that 
can break our dependence on oil, ensure our future prosperity 
and security, and finally put Americans in control of our own 
energy future.'' Natural gas is the answer to your request. And 
all these enhanced recovery techniques, directional drilling, 
have changed the paradigm of U.S. energy.
    I toured a UPS plant--facility in my home district in 
Stafford, Texas. They got about 200 trucks there. About 40 of 
them are being converted to pressed natural gas now. They 
actually built a facility there to refuel them. The Clear Creek 
School District, they are converting about 60 of their buses to 
natural gas, again, built a 60-pump, for lack of a better term, 
facility right there off of the Gulf Freeway to get the school 
buses powered by natural gas. It is here. It is real. It is 
clean. It is cheap. It is American. It gets us off foreign oil. 
I am just concerned, was the omission of natural gas in your 
testimony, was that an oversight?
    Mr. Breen. No, sir, it wasn't. As you may recall, I 
mentioned it in my oral testimony. I think one of the things 
that is fantastic about the President's plan as he announced it 
today is that it embraces choice, and one of those choices for 
communities in this race to the top is exactly what you said, 
compressed natural gas. There is also something in the plan the 
President has put forward designed to create corridors for 
compressed natural gas trucking to get us closer to the point 
where Mr. Milburn and his colleagues are able to use that fuel 
for longer and longer distance trucking.
    So I mean, again, it is not a silver bullet solution, sir, 
it is a silver buckshot, and I am in favor of just about 
anything that is going to safely and cleanly give us choice.
    Mr. Olson. Again, I appreciate--I notice that you did 
include the comments about the President in your oral 
testimony. I appreciate that.
    I just want to ask one more question about some of the 
comments that have been coming out of the administration that 
some of my colleagues alluded to. When the President was 
running for office, he made the statement that under his 
policies, energy prices will necessarily skyrocket. Our current 
sector of energy, when he was--that same time period, the quote 
is that he said, ``Somehow we have to figure out how to boost 
the price of gasoline to levels in Europe,'' which is about $10 
a gallon. Recently Secretary of Interior Salazar said, ``I will 
object to OCS drilling even if the price at the pump goes to 
$10.'' Surely you don't support increasing the price of gas for 
the American people to $10 per gallon?
    Mr. Breen. No, sir, I think that would have a catastrophic 
impact on our economy and also on our military operations, but 
unfortunately--pardon me, Mr. Chairman, but unfortunately given 
the fact that 95 percent of our transportation sector is still 
reliant on that single source of fuel, if it goes that high we 
are going to have ot pay unless we come up with alternatives.
    Mr. Olson. Well, you are a man of intellect, I can see you 
have a closed mind. Come on down to Texas, I would love to take 
you around.
    Mr. Breen. I would love to go, sir. Thank you.
    Mr. Whitfield. The gentleman--at this time I recognize the 
gentleman from Massachusetts, Mr. Markey, for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman. We had been told by 
the American Petroleum Institute in their TV ad campaign that 
voters all over the country are voting for American energy, but 
is American energy really what the American Petroleum Institute 
is representing? The American Petroleum Institute tells us we 
need Canadian oil from the Keystone Export pipeline to 
strengthen our energy security needs. Maybe the institute 
should be called the Canadian Petroleum Institute. But wait. 
You don't even want to keep the Canadian oil here, since the 
API says that my amendment to keep Keystone oil and fuels in 
this country would make us just like North Korea. Does that 
make the API the South Korean Petroleum Institute? We are told 
by the API that the adoption of my proposal to keep Keystone 
fuels here would cost us tax revenue, even though the oil is 
headed straight to a foreign trade zone where it will be 
refined and re-exported tax free. So maybe it should be called 
the Cayman Islands Petroleum Institute. We are told by the API 
in their TV ad campaign that eliminating the $4 billion in tax 
subsidies big oil gets each year would send us back into a 
depression, even though the big five oil companies spent almost 
10 times that much buying back shares of their own companies in 
2011. I guess that would make you the Wall Street Petroleum 
Institute. We are told by the API in their TV ad campaign that 
we could create one million new oil and gas jobs in the United 
States, even though Exxon, BP, Shell, and Chevron made $546 
billion in profits between 2005 and 2010 and cut 11,200 jobs in 
the United States.
    So what is the real story about the American Petroleum 
Institute and its members? Big oil is cutting American jobs. 
Big oil is fighting efforts to end their free oil and tax 
holidays, and big oil wants to sell our oil and gas to the 
highest international bidders, even if it means Americans all 
over our country will pay more at the gas pump and more in 
electricity each month. It isn't the American Petroleum 
Institute. It is the World Petroleum Institute that you are 
representing here today, the huge multinational corporations 
who have no loyalties other than their shareholders, and I 
appreciate that. I appreciate the loyalty to shareholders, but 
it is not about American energy in the United States.
    So let me begin. Mr. Gerard, earlier you said that API 
supports energy produced by Americans for Americans. So let me 
ask you, does the American Petroleum Institute support my 
amendment to require that the oil from the Keystone pipeline be 
kept in the United States for Americans?
    Mr. Gerard. First, let me say, Congressman, I am thrilled 
that you are watching our advertising, but I clearly have to 
come up and spend a few more minutes with you to help you 
better understand what it really means----
    Mr. Markey. Do you want the oil from the Keystone 
pipeline--do you support keeping it here in the United States 
or allowing it to be exported? Yes or no?
    Mr. Gerard. We strongly oppose your amendment, like the 
majority of the committee did because it doesn't make economic 
sense for the oil and gas industry anymore than it makes sense 
for the farm community----
    Mr. Markey. That is fine.
    Mr. Gerard [continuing]. Or exporting Caterpillar or any of 
the other products we make in America by America.
    Mr. Markey. It is Keystone Export pipeline, just so we get 
it down. Does the API----
    Mr. Gerard. Well let us be clear that the experts will tell 
you the vast majority of that will be consumed, refined in the 
United States and will likely displace imports from Venezuela 
and Mexico.
    Mr. Markey. Does the American Petroleum Institute support 
my bill to call a time out on any further approvals of 
liquefied natural gas export terminals so we can keep all that 
new natural gas from Marcellus, Barnett, and Utica here in 
America for Americans and keep prices low here? Do you support 
not having it be exported around the world?
    Mr. Gerard. If we, just like in the case of gasoline today, 
produce more than the market demands, exports are a good thing. 
The President has called on us to double our exports in this 
country----
    Mr. Markey. It is going to raise----
    Mr. Gerard. They create jobs, they bring billions of 
dollars----
    Mr. Markey. The Energy Information Agency says that it is 
going to increase rates of natural gas----
    Mr. Gerard. The positive free market thing to do----
    Mr. Markey. How about the oil that we drill for off of--
under the Republican proposal that we voted on 2 weeks ago off 
of the beaches of Florida and California and New England? If we 
find the oil and gas there, my amendment said on the House 
Floor keep that oil and gas here. How about the American 
Petroleum Institute, keep it here or allow it to be shipped 
overseas?
    Mr. Gerard. The key is to add supply to the marketplace as 
we talked about today, because it is supply that will change 
the global economic dynamic and put downward pressure on the 
price of crude oil, because it is the crude oil----
    Mr. Markey. If you say drill here, drill now, there will be 
less.
    Mr. Whitfield. Gentleman's time is expired.
    Mr. Markey. Drill here, ship there, pay more for American 
consumers, and I just think everyone has to understand that the 
gas and oil industry is interested in shipping out----
    Mr. Whitfield. Gentleman's time is expired. At this time I 
recognize the gentleman----
    Mr. Gerard. Mr. Chairman, let me just say first, the 
Congressman is wrong and I would be happy to come by and visit 
with you about all that----
    Mr. Whitfield. At this time I recognize the gentleman----
    Mr. Gerard [continuing]. And educate you further. Thank 
you.
    Mr. Whitfield [continuing]. From Kansas, Mr. Pompeo, for 5 
minutes.
    Mr. Pompeo. Thank you, Mr. Chairman. You know, you can see 
on this side it is--there are a lot of folks who just don't get 
how the--we come to these hearing and hear folks try to repeal 
the law of supply and demand. We hear folks who normally talk 
about favoring exports trying to create enormous programs so 
that Americans can manufacture here at low cost, fight low cost 
energy sources for our manufacturing companies. And you see 
folks on this committee who are arguing about all these Chinese 
imports they don't like and we can't compete around the world 
and we can't export, arguing we shouldn't export. It is a 
stunning thing for those of us on this side to listen to.
    I want to talk a little bit about this notion of 
speculation, Mr. McNally. Every time--I will keep this simple. 
Any time somebody goes long in a particular commodity, who is 
on the other side? There is someone with an equal and opposite 
position.
    Mr. McNally. For every buyer, there is a seller.
    Mr. Pompeo. And for every trade that there is a winner, 
there must be a loser. And so we come and have these hearings 
and we hear about speculation when the price of commodities go 
up, but I have seldom witnesses--I am new, so I would not have 
been part of this before--but I have seldom seen these hearings 
when the price goes down. Would there be equal speculation 
about folks trying to drive prices lower as well? I am confused 
about why speculation is a one-way ratchet, according to at 
least some who have testified here today.
    Mr. McNally. I think the American public and members of 
Congress are more concerned about rising prices, so they are 
more concerned when prices are going up and people are buying 
and they are less concerned when it is selling, so market 
participants don't get the credit when contributing to downward 
price movement or helping prices peak when they are rising.
    But we don't have to take it from me. the IEA, the CFTC, 
the EIA, officials at unbiased regulatory agencies with the 
access to the information who have looked at this closely have 
concluded that financial market participants have not been 
distorting the price of oil.
    Mr. Pompeo. I appreciate that.
    Mr. Gerard, I want ot ask you, you are experienced in this 
as well. Natural gas 2.50 at MCF, was 14, driven by 
speculation?
    Mr. Gerard. Well, what has happened, Congressman, as you 
well know, in this country because on State and private lands 
we are producing trillions of cubic feet of natural gas. There 
have been recent announcements by a number of major 
manufacturers who are going to bring jobs right back here ot 
the United States because the market has driven the price of 
natural gas down to where it is affordable, it is reliable, and 
if we are allowed to produce it in this country it has multiple 
implications for us, job creation, revenue to governments, and 
energy security.
    Mr. Pompeo. So supply and demand.
    Mr. Gerard. Supply and demand.
    Mr. Pompeo. So 2.50, that is not some boogeyman on Wall 
Street or----
    Mr. Gerard. In fact, Congressman, if I can, I don't want to 
take your time, but there is an experience we had in July of 
2008 that was alluded to earlier that we ought to go back and 
look closely at. The price of crude oil drove to $145 a barrel. 
Then President Bush announced the opening of the Outer 
Continental Shelf and lifted the moratorium. The price of crude 
oil over 3 days dropped $15 a barrel and continued to move 
down. Markets are driven on a global basis by expectation. If 
the market heard the President of the United States say I am 
serious about producing my vast energy resources, you will see 
an impact in the market.
    Mr. Pompeo. Yes, I would agree with that. I would love to 
see that from our President.
    Let me talk for a second--Mr. McNally, you talked a little 
bit about the Strategic Petroleum Release. We had one during my 
time in Congress last year. To what effect?
    Mr. McNally. The release you are referring to is the sale 
of 30 million barrels announced on June 23 of 2001, and the 
price of oil dipped for 4 days and then made a new high.
    Mr. Pompeo. And the President continues to talk about an 
additional release from the Strategic Petroleum Reserve. What 
would your expectation be that would result from such a 
release?
    Mr. McNally. In my view, as long as the underlying supply 
demand fundamentals remain tight and as long as the prospect of 
a potential conflict remains with Iran, were we to release oil 
now and achieve a day or two dip in supply, we would be 
releasing cheap oil to traders who would buy it and expect a 
profit from it later this year.
    Mr. Pompeo. Great, not a very effective thing for folks who 
are driving their cars around or Mr. Milburn, who has got to 
drive his vehicle around and deliver product to consumers all 
across the country.
    I yield back the balance of my time. Thank you.
    Mr. Whitfield. At this time I recognize the gentleman from 
Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Eddie, I want you to sit here. You know, for one thing let 
me follow up my colleague from Massachusetts. Nobody is going 
to build a pipeline from Canada to Texas and Louisiana to 
export the oil. You know, we have the biggest refinery complex 
between literally from the Mississippi River down to Corpus 
Christi, Texas, and I know the pipeline is supposed to send in 
maybe a million barrels a day. I currently represent five 
refineries that need a little less than a million barrels a 
day, and that is just in the district I represent. So it is a 
huge amount and we want it, but we are not going to export that 
oil. We do export refined products. Just because we export 
steel--and I am sure my colleague from Pennsylvania loves that, 
and I liked that when I used to have steel plants. We want 
somebody else to buy our products that we make. So I don't want 
to export the oil, I want to export the refined products or the 
chemicals that we make from the natural gas. I would rather not 
export natural gas. But if we can have the downstream jobs in 
the chemical industry, then let us export those products. But 
we still need to export natural gas because we had people in 
'05 after we streamlined the Federal permitting for importing 
LNG, now because of success in hydrofracking, we have so much 
we need to export it. Because again, I have a lot of companies 
that would really like to see that export market, and again, if 
we can use it here, let us use it, but if we can't, let us help 
our balance of trade with it.
    Mr. Gerard, API claims that the oil and gas earnings are 
typically in line with the rest of the U.S. industry, averaging 
about 7 cents for each dollar of sales over the last 5 years. 
Is that true?
    Mr. Gerard. That is correct.
    Mr. Green. Where did you get the information?
    Mr. Gerard. We developed this information by the Bureau of 
Labor Statistics. These are governmental numbers.
    Mr. Green. Thank you. One of the concerns that I have is we 
reconcile to push to eliminate the Section 199 as the 
manufacturing deduction that allows all U.S. manufacturers to 
take a 9 percent deduction on their costs while limiting the 
natural gas industry to 6 percent. One of my arguments here is 
that energy production is manufacturing. It is domestic 
manufacturing. Why would we want to punish domestic energy 
production by a lower percentage?
    Mr. Gerard. I would hope we wouldn't, but that is what the 
current law is. We are limited to 6 percent, and the 
President's proposal suggests that that provision of the tax 
code which is allowed to many other industries be repealed for 
only the oil and gas industry. That is what he describes as a 
subsidy. We get no subsidies in the oil and gas business.
    Mr. Green. Again, natural gas is large companies that are--
energy companies are large companies that produce in the United 
States, they employ United States citizens, and they are going 
to--they are getting treated differently than other 
manufacturing companies, and that is just not fair because a 
few years ago we commissioned a poll on the Democratic side on 
domestic manufacturing. We showed that in the South, the 
support for domestic manufacturing was higher in the South than 
it was in Ohio, Pennsylvania and those States. And somebody 
said well, do we still have textiles in North Carolina? I am 
not so sure about that, from the Mississippi River to Corpus 
Christi, Texas, our manufacturing is refined products, 
chemicals, and things that come from the energy industry. And 
that is manufacturing. Those jobs pay just as good as anywhere 
else, and I don't think they ought to be punished.
    Mr. Drevna, you talked about anticipated Tier 3 regulations 
affecting the sulfur content in gasoline would increase the 
cost of refining, could result in smaller, less profitable 
refineries shutting down. Could you elaborate on this? And I am 
asking because I know my colleague from Pennsylvania is 
concerned about the two near Philadelphia shutting down. We 
have actually expanded ours in our district. Can you talk about 
that?
    Mr. Drevna. Yes, sir, Congressman Green. Thank you.
    Tier 3 gasoline would take the current sulfur level of 
gasoline from 30 down to less than 10, another 90 percent 
reduction. We have already spent $9 to $10 billion in taking 90 
percent out of the gasoline in Tier 1 and Tier 2 from over 300 
down to 30, and it cost, like I said, $9 billion to $10 
billion. The additional 90 percent would cost upwards of $20 
billion to get those last little bits of molecules that don't 
want to come out. The question is why? The question is what is 
the net environmental impact on taking it down, and our 
analysis says it is nil, because autos are already marketing--
20 different brands of autos are already marketing their 
product under Tier 2 gasoline as a Tier 3 vehicle because of 
how the engines are made. It goes back, Congressman Green, to 
the conflicting regulations that we see and how costly they are 
ultimately to the consumer. We are going to lower sulfur more 
at an unprecedented amount of dollars; therefore, we are going 
to make--raise CO2 emissions at the refinery because it is a 
heck of a lot of a more robust treatment that you need to get 
those little bit of sulfur molecules out, and then the EPA is 
going to turn around and say well we got to lower greenhouse 
gas emissions. Well we are in this----
    Mr. Green. Let me interrupt you so I can get one more 
statement in to Mr. McNally. The President took the 30-year 
moratorium off of the Executive Order in June of 2008. A 
Democratic Congress in September took the 30-year moratorium 
off the Department of Interior for exploration in Outer 
Continental Shelf. So we have a bipartisan support for more 
domestic exploration, and that is part of our problem. We need 
more supply. But if you drill an oil well in your backyard, 
believe me, you are going to want $100 a barrel because you are 
not going to sell it any cheaper, but we do need to get more 
supply to the market.
    Mr. Chairman, I know my time is up.
    Mr. Whitfield. At this time I recognize the gentleman from 
West Virginia, Mr. McKinley, for 5 minutes.
    Mr. McKinley. Thank you, Mr. Chairman. I have got a series 
of questions, maybe building back a little bit just quickly on 
the thing Mr. Barton was talking about. There is a chart that 
talks about how production is down but prices are up. Back in 
1985, we were drilling--producing about nine billion--nine 
million barrels a day and we were paying $1.34, now we are at 
5.3 million and the price is 3.79, so I think he is on to 
something there. But more importantly is I am trying to 
understand, all of you began your remarks, a lot of you talked 
about speculation. I am trying to understand the role of 
speculators. Is this a recent phenomenon, these speculators, or 
just in the last 3, 4 years? Mr. McNally, can you just touch on 
that briefly? Is this a recent phenomenon? Have speculators 
been able to buy into the oil market for longer than 3 years?
    Mr. McNally. Yes, sir, starting in the early 1980s we 
shifted from what we called a posted price for oil to pricing 
it in the futures markets in the New York Mercantile Exchange, 
and that futures market is composed of physical participants, 
producers of oil, users of oil like airlines, and----
    Mr. McKinley. Thank you, because am curious about this 
because I went back and looked at what crude--what happened to 
crude during the four events that I looked at, the Iran/Iraq 
wars, back in '81 and '87, and when you look at that and the 
net effect of that time from begin to the end, actually price 
of crude dropped up. During the seizure, when we had that 
crisis that was there and it was on the front page of every 
American paper about our 53 Americans seized in Tehran, crude 
didn't increase. During the Gulf War, it went about $10 a 
barrel. And during the Yom Kippur War, it went about $22, so 
going back to what was remarked was if you look at those 
numbers, you are only talking about 25 cents--I shouldn't say 
only, but that is an increase. How do we get from--where was 
it, $1.85 at the beginning of this administration to now at 
3.79 if crises of global magnitude are only having 25 cents?
    Mr. Milburn. Mr. McKinley, may I interject here?
    Mr. McKinley. If you could.
    Mr. Milburn. Regulation in the trucking industry by the EPA 
has driven up our costs on a gallon of diesel fuel. Eight years 
ago when I started driving a truck, we didn't have the ultra 
low sulfur diesel that we do today. You know, we are less than 
15 parts per million on the ultra low sulfur diesel versus the 
old regular diesel. Back then, diesel was 30 cents a gallon 
less than a gallon of gasoline. Today, on the street, diesel is 
over 30 cents a gallon higher than a gallon of gasoline.
    Mr. McKinley. If I could recover my--I concur with what you 
are saying. I am just saying I think that speculation has been 
used as an excuse perhaps. Are they a player? Of course they 
are, but are they that dramatic when you look at the sheer 
numbers of it? I am not so sure. I think the regulations and 
other--but let me pose a question that is more hypothetical.
    If we produce no oil in America and we refine nothing, what 
we will be paying in America for our oil and gas? Ten dollars, 
what they are paying in Europe?
    Mr. Drevna. That is--a hypothetical is difficult to answer. 
What--we would be producing nothing in America because mostly 
everything we produce begins with fuel, begins with energy, 
begins with petroleum products.
    Mr. McKinley. Why is this administration making it so 
difficult? If we understand that if we don't produce anything, 
if we didn't drill at all, we are probably going to pay 9 to 
$10, but if we drill, then we have problems. Look during the 
Keystone pipeline discussion. How many people--and you heard 
the amendment that was offered. We don't want any of it to go 
overseas, it is only to be consumed in America. Are we not in a 
global market or not?
    Mr. Drevna. That is the fallacy of the argument, 
Congressman McKinley, is that we are in a global market but 
there are certain folks who say well, we can do something 
different within our own market. Maybe one admits we are in a 
global market, but we are going to have some different kind of 
economic system in our market. It simply doesn't work that way. 
As Congressman Green pointed out, you know, exports for us are 
a major part of it, keeping American jobs and American workers 
here are a major part of it.
    Mr. McKinley. Well let us just close--I have 18 seconds--17 
seconds left on it. If we did--go back to that premise, that 
hypothetical. If we drilled none, and that is what I think this 
administration would like, to wean us off our fossil fuels--if 
we did not drill in America, what would be the cost of gasoline 
in America?
    Mr. Drevna. The cost I can't----
    Mr. McKinley. Project.
    Mr. Drevna. I could just project that China, India, Russia, 
Brazil would be ecstatic.
    Mr. McKinley. Would be what?
    Mr. Drevna. Ecstatic.
    Mr. McKinley. Pretty sure, because why? We would be paying 
$10 a gallon?
    Mr. Drevna. If not more.
    Mr. McKinley. OK, thank you.
    Mr. Whitfield. Thank you, Mr. McKinley. At this time I 
recognize the gentlelady from Florida, Ms. Castor, for 5 
minutes.
    Ms. Castor. Thank you, Mr. Chairman, thank you, gentlemen, 
for being here today. I represent the State of Florida and we 
are very sensitive to gas prices because we are a large State. 
We are a very dynamic State, and we are very spread out. But 
also because our economic is integrally tied to travel and 
tourism. It really ticks people off at home because it seems 
like every year at spring break or the summer driving season 
there is some racket because of gas prices go up, and people, 
our neighbors and businesses, they are very sophisticated. They 
understand there are things that are outside of their control 
or the government's control. For example, the explosion of 
demand across the globe, particularly from China, you know, 
they don't have much control over that, or term oil in the 
Middle East that complicates the market. But there are some 
things that are within our control that they expect us all to 
focus on and work together on. One is domestic production, and 
when you explain to folks now that the United States is a net 
exporter, they are very surprised because for decades and 
decades and decades we have relied on imports. So that is very 
positive there, you know. The number of oil rigs operating in 
the United States has quadrupled in just the past 3 years. 
There are more rigs operating in the United States than in the 
rest of the world combined, and we are sensitive to that in 
Florida because we--while we support domestic production, we 
want it to happen in the right places and with the appropriate 
safeguards.
    What else is in our control? Fuel economy. This--we didn't 
make much progress in the '80s and '90s, but boy, are we on the 
right track now to put some dollars back into the pockets of 
our hardworking families because what we have done and the 
Obama administration is built upon now is our direction to make 
sure that cars achieve 54 miles per gallon by 2025. That is 
very positive for families. In fact, a member of my family 
bought one of these vehicles. He gets 50 miles per gallon, and 
I know Mr. Eichberger, you don't appreciate, he is driving by 
your stores and enjoys doing that, no matter what price is 
posted. Fifty miles per gallon. And so we have got to continue 
to boost that and encourage that.
    What else is in our control? Speculators. They--people just 
know that they are being taken for a ride, that there is 
significant market manipulation, and Mr. Weiss, I am going to 
ask you to explain to us the difference between the folks that 
should be in that market because they control oil, but there 
are people outside of the oil markets who get in and take these 
prices up for a ride and it is costing all of us.
    The other thing that is in our control that we have got to 
take action on is the--is don't ask consumers to pay twice. 
Don't ask us to go to the gas pump and pay and then when we 
file our taxes, we have to pay $4 billion more every year to 
the oil and gas companies. That is not fair. That is not fair 
the five largest oil companies made over $137 billion in profit 
last year, and with our debt and deficit or the things we can 
do with $4 billion annually, we have got to turn this around.
    I would like, Mr. Weiss, also--secondarily, ask what--if we 
took that $4 billion, what is the best bang for the buck if we 
took a significant portion of that and plowed it into--you tell 
me, diversification, alternative fuels, doing more on fuel 
economy, unleashing the good old American know-how and 
technology to get us off this long-term oil addiction.
    Mr. Weiss. Well those are a lot of questions. I will do my 
best.
    When it comes to speculation, there is basically two kinds 
of people in the market. Commercial end users like in airlines 
or refinery or an oil company that take physical possession of 
the product when the contract is due, and then there are Wall 
Street speculators, money managers, pension funds, hedge funds 
that are there just trying to make a profit by guessing whether 
prices are going to go up or down. Traditionally, according to 
a study by McClatchy, traditionally the end users, commercial 
users are about 2/3 of the trades and the Wall Street 
speculators are about 1/3. We saw in last year it has been 
reversed. About 2/3 of the trades are now Wall Street 
speculators and 1/3 are end users. That is one of the signs 
that they are involved in the market. In addition, Mr. McNally 
talked about a report that the CFTC did in the summer of 2008 
that said there was no speculation involved in the record oil 
prices. Well that was a draft report. The final report which 
came out in 2009 said, in fact, there was, and there is a whole 
host of studies, at least a dozen, that I could send the 
committee for the record if you are interested, that list--that 
suggest that speculation did play a role, including one by the 
Federal Reserve Bank of St. Louis that the Post just reported 
about yesterday.
    Mr. Whitfield. Thank you. At this time I recognize the 
gentleman from Virginia, Mr. Griffith, for 5 minutes.
    Mr. Griffith. Thank you, Mr. Chairman. I just have to say 
coming from coal country that nobody has mentioned coal. There 
are ways that we can use coal to increase our fuel. I like to 
talk about the four D's: drill, which we have talked about a 
lot today; dig, which includes our coal resources. We are 
number one in the world. Let us not forget we have got it. 
Discover, which of course, includes, you know, finding new ways 
to use new technologies and use old fuels and new technologies 
as well, which our universities and think tanks should be 
working on, and last but not least, we have also heard today 
about deregulating, which means the EPA has got regulations 
coming out of our ears that affects every sector of our market 
and we are consistently seeing problems.
    And along those lines, Mr. McNally, could you tell me, is 
there one regulation in particular that is so onerous, so hard 
for business in your area or your field to deal with that is 
preventing or limiting production or increasing employment? Can 
you name me one?
    Mr. McNally. Well I am just in the research and analysis 
business, but I would think--and my friends in the industry can 
speak perhaps better, but I think the biggest concern or two 
really, one would be that the government is going to stand in 
the way of infrastructure projects that are needed to get 
investment in domestic oil and gas production, and the second 
would be uncertainty about regulation of hydraulic fracturing 
going forward. That is probably one of the biggest concerns I 
think industry has about investment.
    Mr. Griffith. All right. Mr. Gerard, did you have some 
thoughts on that?
    Mr. Gerard. Very quickly I would just add three things. The 
first one is access itself. That is a decision on the part of 
the administration. They can make it today. The second one is 
the lag time in permitting that Congressman Barton talked 
about. If you are given access and you can expedite that 
permitting process, it will happen quickly. The third one is, 
which goes back to the comment the Congresswoman made earlier, 
there is always talk about subsidies the oil and gas business 
for taxation. We get no subsidies from the tax code, but more 
important than that, today's hearing is on gasoline prices. 
Congressional Research Service has looked at the proposal, the 
President's proposal, to discriminate against our industry and 
repeal those standard business deductions that we receive and 
concluded that it would have the effect of decreasing 
exploration, development, and production while increasing 
consumer prices and possibly increasing the Nation's dependence 
on foreign oil.
    Mr. Griffith. So what you are saying is that third D, 
discovery, which would also include exploring, would go down 
and prices would still go up?
    Mr. Gerard. It is a net adverse hit to our ability to 
impact the price of gasoline the Congressional Research Service 
views.
    Mr. Griffith. All right. Let me ask you, Mr. Breen, if I 
might for a second. It has been said that 70 percent of 
American casualties in Iraq and Afghanistan have been sustained 
on logistical missions, i.e., convoys. If our troops had more 
energy efficient generators, batteries, and vehicles without 
any deduction in safety or functionality, we can lessen the 
amount of required supply missions and reduce our troops 
exposure to attack. Such advancements are obviously positive, 
but if we convert, as I think I heard you suggest, if we 
convert our military vehicles and aircraft to biofuel, such as 
the Green Hornet in your testimony highlights, what is the 
difference between a convoy that transports ethanol and one 
that transports diesel or GPA, except that the ethanol products 
are far more expensive for the American consumer, and in this 
case, for the Pentagon?
    Mr. Breen. Well, sir, you mentioned fuel convoys which is a 
facet of life in a counter insurgency environment where you 
have isolated forward operating bases. This is one of the ways 
the military posture is different from our civilian posture. On 
those forward operating bases, we require----
    Mr. Griffith. So you are saying it is safer to do ethanol 
than it would be to do gas?
    Mr. Breen. No, sir, I am saying that we require liquid 
fuel, be it ethanol or whatever else, to fuel generators to 
generate the power on those bases, as well as to fuel the 
vehicles, so there is a huge push in the ground forces to move 
to solar, wind, and other renewable technologies. You don't 
have to move any kind of solid fuel.
    Mr. Griffith. So then your testimony about the Green Hornet 
would be slightly off. You are talking about going to some 
individual solar items, because----
    Mr. Breen. In the ground force, sir, but the Navy, for 
example, highly interested in making sure that it can use a 
diverse set of--the Navy wants to be sure that if the supply of 
liquid crude oil is disrupted for whatever reason, the Iranians 
close the straits, that the Navy, which is a huge liquid fuel 
user, can----
    Mr. Griffith. In the futures market--let me ask Mr. 
McNally, if the futures market was occupied solely by physical 
consumers of oil, what would the result be?
    Mr. McNally. The market wouldn't function because physical 
consumers of oil need to transfer price risk to those willing 
to take it, by definition, people who are willing to speculate, 
and if they didn't have the speculators or financial market 
participants, the market wouldn't function. It would be much 
less efficient and prices would be more volatile.
    Mr. Griffith. And of course, a lot of us don't have natural 
gas that comes to our homes and we can't use it--I think Mr. 
Milburn, you testified that it wasn't good for trucking 
probably because there is not a supply network set up where you 
can stop and get more CNG. I know that in my neighborhood, even 
though I live in the largest city in the newly configured Ninth 
Congressional District of Virginia, I don't have natural gas 
coming to my house. Mr. Eichberger, who used to be a proud 
constituent of mine in the Ninth Congressional District of 
Virginia, used to live in the Reiner area, did you have natural 
gas in that county, which is the largest county in the Ninth 
District?
    Mr. Eichberger. We were 100 percent electric.
    Mr. Griffith. Yes, which is based on my favorite, coal, in 
that area. You can't have electricity without coal, and that 
raises prices up. It just looks like to me that this 
administration has an ``all of the above'' policy to raise the 
cost of energy on all of the above.
    Thank you, I yield back.
    Mr. Whitfield. Thank you. At this time I recognize the 
gentleman from Pennsylvania, Mr. Doyle, for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    I have been in Congress long enough that to see a hearing 
called ``Rising Gas Prices,'' this is, you know, deja vu all 
over again. We go through this from time to time, and sometimes 
listening to my friends talk about the Obama administration, I 
feel like I am living in an alternative universe, that somehow 
there is some magic wand that Newt Gingrich is going to wave 
and we are going to have $2.50 a gallon gasoline. I think it is 
time we just stop BS-ing the American people. In Pittsburgh, 
people I represent have highly refined BS meters, and they are 
going off loud and clear with all this talk about gasoline 
prices.
    Can we just agree on one thing? A barrel of oil that is 
made--that is produced in Venezuela costs the same amount of a 
barrel of oil that comes out of the ground in Texas. It is a 
world commodity. We don't control the price. We don't control 
the price. People seem to think in this country that if you get 
oil out of American soil, that somehow we get a discount on it. 
Well is it not American's oil. Once an oil company buys that 
lease, it is Exxon's oil. It is their oil and they are going to 
sell it for the best price they can get it. Now that is just a 
fact of life, and if most of the price of a gallon of gasoline 
is the cost of the crude, then it is what it is going to be. It 
is a world market. People talk about natural gas. Natural gas 
isn't priced on the world market, OK? It is $2.50 at MCF here. 
That is not what it is selling for in other parts of the 
country, which is why we would like to export some of the 
excess natural gas so that there can be better profit margins 
and we have the supply to do that. But let us quit BS-ing the 
American people that there is some magic wand or some policy 
that Congress or any President, Democrat or Republican, can do 
to affect the price of a world priced commodity.
    We were a net exporter of gasoline last year. The price of 
gasoline didn't go down. We can produce all the oil we want in 
this country and all the cartel over there has to do is turn 
the spigot down a little bit and they will keep the price 
wherever they want to keep the price. So let us just quit BS-
ing the American people that there is some way to control the 
price of a barrel of oil, and if we drill more in this country 
that somehow it gets cheaper. I mean, if you want to talk about 
let us not be dependent on buying it elsewhere and you want to 
increase the supply domestically, that is a valid statement. I 
mean, you can talk about that, but let us not talk about it in 
the context of prices of gasoline. We talk about the price of 
gasoline in Europe being $10 a gallon. They put taxes on top of 
their gasoline. The oil isn't more expensive over in Europe. 
They put tax on it so people will drive smaller cars. They use 
mass transit, they use trains. We built the interstate highway 
in America. We love our automobiles. OK, we are different than 
over in Europe. There is not going to be $10 a gallon gasoline 
in the United States of America. Just quit making the American 
people believe there is some fix to this.
    This young man has hit the nail on the head. What they want 
from us and from the President is some vision and some 
leadership about the future. The future of our country is to 
get us off of this addiction to oil, to start to transition to 
natural gas vehicles and eventually to battery technology where 
we don't use any fossil fuel to power a car. When we got a 
battery that will take a car 400 miles before you have to 
recharge it, that is going to change the whole world. That is 
going to change our policy in the Middle East, and that is 
going to allow us to quit sending young men and women like Mr. 
Breen overseas to fight for all this oil that is so precious to 
us. That is what the American people want from us, some 
visionary leadership from their President and their Congress, 
not this constant BS that there is somehow you can make 
gasoline $2.50 a gallon before the presidential election in 
November.
    So let us just quit this kind of talk and let us be real 
with the American people, and let us talk about how we invest 
in the future for our kids and our grandkids to make a 
difference. There is a Chinese proverb that says ``The best 
time to plant a tree is 20 years ago. The next best time to 
plant a tree is today.'' What this Congress ought to be talking 
about is what we can do today for generations 20, 30, 40, 50 
years from now so that our grandkids aren't sitting in a 
congressional hearing room having the same conversation that we 
had in 1970, that we had in 1980, that we had in 1990, when 
these prices start to fluctuate up and down. That is what the 
American people need from us.
    Well, I just took 5 minutes on my soapbox, Mr. Chairman, 
and I am sorry about that. I would like one question, if one 
witness can answer.
    I do have a concern about these refineries in Eastern 
Pennsylvania shutting down. Pittsburgh uses a special blend of 
gas in the summertime that is not made anywhere else that I am 
aware of, except at these three refineries near Philadelphia, 
and they are about to close. I would like to ask Mr. Drevna, 
the refinery person, is there any other refineries that make 
that kind of gas currently or is there a refinery that could 
ramp up to make that kind of gas to meet the needs of some of 
the communities in the Northeast, and specifically in Western 
Pennsylvania, that are going to be in a bad situation if these 
three refineries in Eastern PA absolutely do shut down?
    Mr. Drevna. The answer to your question is no, there are no 
other refineries in an immediate area that can make the 7.2 
pound gasoline. It is the summertime gasoline.
    Now I understand just as recently as yesterday, Congressman 
Doyle, that Pennsylvania legislature passed a bill that would 
lift that 7.2 and go to a 9.0 RBP. It wouldn't be summer 
gasoline. I understand the governor might--probably will sign 
that. Now problem being is EPA is going to have to bless it, 
and that--the reason why there is that gasoline there is that 
Pittsburgh, my hometown, by the way, would--did not need to go 
all the way to the more and more expensive RFG, reformulated 
gasoline. So over time, it was a better deal for the folks in 
Western Pennsylvania. You are right, with the unfortunate 
shutdown of those refineries and all the heartache that comes 
with it, but I--if we can start now, because we have got to get 
that stuff into the pipeline by, you know, probably May so if 
we could start now and get EPA to help the State of 
Pennsylvania, to help those refineries in Ohio and West 
Virginia to get that gasoline there, it will be fine.
    Mr. Whitfield. At this time I recognize the gentleman from 
Louisiana, Mr. Scalise, for 5 minutes.
    Mr. Scalise. Thank you, Mr. Chairman. I appreciate you 
having this hearing on the rising price of gasoline. I know it 
is a concern of many not only constituents of mine, but of my 
colleagues all across the country. It is a problem that is 
facing many families that are holding them back from being able 
to do the things that they do to enjoy the quality of life that 
they had. It is hurting our job creators in the abilities that 
they have to hire more people in this country, and yet, when we 
look at why we got here, there are some people that just want 
to act like policy has nothing to do with it, like supply and 
demand doesn't exist in a free market.
    And so, you know, what I first want to point out is those 
of us that have supported an ``all of the above'' energy 
strategy for a long time and this House has passed many bills--
in fact, Mr. Chairman, you brought a number of those bills 
through this subcommittee that we have passed through the House 
and are sitting in the Senate that would increase the supply, 
not just of oil, of natural gas, coal, nuclear power, and yes, 
wind and solar as well. But addressing each of those in a 
realistic way that allows America to utilize our energy 
resources that are here that are currently blocked by Federal 
policy. And you know, for people to just ignore that when the 
President shuts down supply, that somehow that has no effect on 
cost, then maybe they didn't take basic economics. But it 
absolutely does, and I know a few of our panelists have talked 
about this.
    I want to start by going through the record, and let us 
just talk about where we are with gas prices and look at the 
statements that the President himself made. You know, back in 
2008 Barack Obama said that he would prefer a ``gradual 
adjustment to near $4 a gallon gasoline.'' President Obama said 
this. He said it when gasoline was about $1.80 a gallon. The 
President got his wish. He asked for $4 a gallon gasoline. He 
said he wanted it. He has implemented policies to get us there, 
and now that the price is there and people across the country 
are furious with the price, the President is trying to blame 
somebody else, and it is some speculator. You know, we don't--
we need to open up the Strategic Petroleum Reserve or the 
President is the most energy-producing President in history. It 
is a disingenuous statement when you look at the fact that oil 
production on Federal lands is actually down, down by more than 
10 percent. Lands where the President actually has control 
through his regulators, that production is down. Where it is up 
is on private lands and many States like North Dakota where 
they have used hydraulic fracturing and new technologies to get 
oil in other areas, and the President is trying to shut that 
down, too, ironically. So on one hand, he is trying to take 
credit for something that he has no control over, but he is 
trying to control it through the EPA and shut it down. 
Fortunately, he hasn't been successful and in fact, we passed 
legislation to block the EPA from shutting it down. The 
President's own energy secretary, the President's own energy 
secretary says ``Somehow we have to figure out how to boost the 
price of gasoline to the levels in Europe.'' Well, he figured 
it out and we are getting there. And people are furious with 
the high price that they imposed. The Obama administration did 
this. I mean, you can look at the price of gasoline and you can 
track that the President has gotten what he wanted. It is just 
now he is getting the heat for it. People are furious that the 
President got his wish of $4 a gallon gasoline that we are 
approaching, and so now he is trying to shift the blame.
    But look at the record. The permatorium in the Gulf of 
Mexico, we have seen it directly in Southeast Louisiana. After 
the Deepwater Horizon explosion, the President imposed a 
moratorium on drilling that actually went against the advice of 
his own handpicked safety experts. The President's handpicked 
experts said don't impose a moratorium, it will actually 
decrease safety in the Gulf. And what happened? The President 
did it anyway and still to this day, there is a permatorium 
where it is almost impossible to know what the rules are to get 
a permit. So what happened? We have seen a dozen deepwater rigs 
leave not only the Gulf of Mexico, leave the country. Over 
12,000 jobs, American jobs have left the country because of 
that one decision by President Obama that went against the 
advice of his own safety experts. So how is that policy working 
out? Look at lease sales. In the President's lease sales that 
he recently issued, over 50 percent of the Federal lands that 
were getting ready to come open for exploration are closed now 
by President Obama, and the price keeps going up. If you look 
at Keystone XL, we were going to be able to get a million 
barrels of oil a day from a friend. Canada is a great friend of 
America, great trading relationship. The President said no, not 
only to that Canadian oil that now we wouldn't have to get from 
these Middle Eastern countries who don't like us or Venezuela, 
but he said no to 20,000 jobs. China wants the oil, so China is 
going to get the oil because President Obama said no. And the 
price keeps going up.
    And you wonder, after all of these things happen, what is 
their answer? The President's latest answer now, it looks like 
they are going to try to go down that road of tapping a 
Strategic Petroleum Reserve again. When they tried it the last 
time it didn't work. It is there for national emergencies. The 
Strategic Petroleum Reserve is not a bailout fund for President 
Obama's failed policies.
    So Mr. Gerard, I know you had given some good comments on 
this. If I could just get your take, you know, as you talked 
about how markets drive expectation. As all of these policies 
that President Obama to shut off so many areas of Federal 
energy have now taken an impact. Has that had an impact on 
price?
    Mr. Gerard. Absolutely. The market is driven by expectation 
and there tends to be a lot of focus here, particularly today 
on the Middle East question and Iran and the Straits of Harmuz. 
The reality is that global demand coming out of China, India, 
and elsewhere, but the rest of the world also looks at the 
United States. When they see policies, they understand the vast 
resources we are sitting on, but when the policies 
fundamentally discourage those and there is no expectation in 
the marketplace that we are ever going to bring serious 
production to bear, and that all gets accounted into the price. 
So today, one of the reasons the price is being driven up is a 
lot of people believe that the United States won't take action. 
That is why we said if we call on the President to send a 
strong signal, we are not going to let this happen. We hear a 
lot of talk about well, let us quit talking about drilling for 
oil. We have been 40 years in the country and we haven't had a 
policy of drilling for oil. Why don't we try it once? We have 
tried everything else. Let us produce our own resource. Let us 
do it by Americans for Americans. It is in a global 
marketplace. The price is determined by the price of crude oil. 
But we put crude oil into the marketplace and it has downward 
pressure on that price. It is pretty fundamental, it is 
Economics 101, and we just can't seem to get ourselves there.
    Mr. Scalise. Thank you. I yield back, Mr. Chairman.
    Mr. Whitfield. At this time I recognize the gentleman from 
New York, Mr. Engel, for 5 minutes.
    Mr. Engel. Thank you. Thank you very much, Mr. Chairman. I 
listened to a lot. You know, it is such nonsense to try to 
point the finger politically at the President of the United 
States and say that there is rising gasoline prices because of 
him. As some of our colleagues pointed out before, you could 
look at when President Bush first came to office and when he 
left, and prices doubled and tripled and quadrupled. So it is 
just nonsense. Everybody knows that there are all kinds of 
pulls and tugs in China and India and other countries forcing 
things, changing the prices because of it. You know, we can 
tinker at the edges and we can try our best and we can do it 
from our different perspectives, but to say it is the 
President's policies is just poppycock, as far as I am 
concerned.
    I would rather focus on a few bipartisan things. Our 
colleague, Congressman Shimkus, earlier mentioned our bill, his 
bill and my bill, the Open Fuel Standard, H.R. 1687, which 
requires new automobiles to be alternative vehicles capable of 
operating on another fuel in addition to or instead of 
gasoline. Any type of fuel would qualify, natural gas, 
electricity, biodiesel, hydrogen, alcohol-based fuels, or 
anything else. And the beauty of this bill, which I have been 
sponsoring for a number of years, is that it would open up the 
marketplace so that other fuels could compete with gasoline. 
Any other fuel on the market can decide. When I was in Brazil, 
when you pull up to a refueling station you can choose to put 
methanol, ethanol, or gasoline into your vehicle. It is 
competition. Competition helps drive down prices. You can base 
that choice on cost or whether the fuel is produced 
domestically, or whatever criteria the consumer chooses. So I 
think we should have a similar choice. We could have flex fuel 
vehicles in this country for $100 or less per car, and I think 
is it criminal that we are not doing it. So that is what the 
Open Fuel Standard Act would provide, it would provide a 
choice.
    I would like permission to submit for the record two 
studies. One is the interdisciplinary study from the 
Massachusetts Institute of Technology called ``The Future of 
Natural Gas'' from June 9, 2011, which finds that the 
conversion of natural gas to methanol would provide a cost 
effective route to manufacturing an alternative or supplement 
to gasoline. Methanol can also be produced from other fossil 
fuels or from renewable resources such as agricultural 
products, municipal waste, and biomass. And I would also like 
to submit for the record a CAN report entitled ``Ensuring 
America's Freedom of Movement: A National Security Imperative 
to Reduce U.S. Oil Dependence,'' October of 2011, which notes 
that a light duty tri-flex fuel vehicle running on methanol, 
ethanol, and gasoline would be an effective and cost efficient 
way that could greatly reduce our dependence on foreign oil.
    [The information is available at http://mitei.mit.edu/
system/files/NaturalGas_Report.pdf and http://www.cna.org/
sites/default/files/MAB4.pdf]
    I also want to note that the 2012 Work Truck Show is going 
on in Indianapolis just this week. General Motors is 
introducing two new bi-fuel compressed natural gas and regular 
petroleum gas-powered trucks, the 2013 Chevrolet Silverado and 
the 2013 GMC Sierra 2500 HD. Both of these vehicles can burn 
either fuel, and GM promises that the on-the-go switch between 
the different fuel types is seamless. I really want to mention 
that.
    I also would like to ask a couple of quick questions on 
behalf of the travel and tourism industry. The impact of rising 
gasoline prices is really felt by industries like the travel 
and tourism industry. It is enormously sensitive to high gas 
and energy prices. I am wondering if some of the panelists can 
comment on that. Fifty cents rising in gasoline since December; 
the estimates are that a 50-cent increase in gasoline prices in 
1 year translates to a $70 billion impact on the economy as a 
whole, so I would like any one of the panelists to comment on 
that, and also to comment--we have tinkered around the 
Strategic Petroleum Reserve and the risk of opening it up to 
address the problem now. I would like anyone who cares to 
comment on this.
    Mr. Milburn. Mr. Engel, in the trucking industry our diesel 
fuel costs have a direct impact every day on the whole economy. 
We are transporting goods and materials across this country 
every day. You weren't here for my opening testimony, but the 
regulations regarding the new fuels is going to add $6,200 to 
the cost of a new vehicle for me. With the increase in fuel, I 
cannot afford to keep putting back money to replace my truck, 
which is currently 3 years old and has over half a million 
miles on it, by 2014 with the new standards that the EPA is 
requesting. But when I am out here every day driving and 
transporting goods and services, it has a direct effect upon 
the economy and raising inflation and the cost of everything we 
do out here. The suit you are wearing, the car you are driving, 
we all haul it.
    Mr. Engel. Let me just--I know I am running out of time. 
Mr. Milburn had his hand up.
    Mr. Weiss. Thank you, and your question about the Strategic 
Petroleum Reserve----
    Mr. Engel. Weiss, I am sorry.
    Mr. Weiss. That is OK. I knew who you meant. I know we are 
both very good-looking fellows, so it easy to mix us up.
    There was a misstatement made earlier. In fact, the price 
of oil dropped 17 percent from the day that the President 
announced the sale on June 23 to the day that the last barrel 
of oil was sold on September 30, and the price of gasoline 
dropped almost 6 percent during that same time, or about 25 
cents a gallon. So in fact, selling 30 million barrels of oil 
last year of our reserves and 30 million barrels of our ally's 
reserve, putting that on the market did actually reduce prices 
during that time.
    Mr. Drevna. Mr. Engel, thank you. As comment on that, yes, 
the 30 million barrels we put out in that little bit of 
timeframe was about 9 hours worth of oil on the global market. 
Imagine what would happen if we opened up more resources, if we 
got off the 60 percent of imported oil that we are now to use 
our own and use Canada's. That is number one.
    Number two, you talked about your free choice--your free 
fuel, free car act. It would be free if we--if the refiners 
weren't obligated parties to a mandate. So you can't say 
something is free if we are mandated to use 36 billion gallons 
of non-free kinds of fuels. So we would be more than willing to 
talk to you about how this would work, but let us keep the 
consumer in mind and let us keep the free market in mind. So if 
we are going to do something that is based on a free market, 
let us have free market in competition, and it ultimately will 
help the consumer.
    Mr. Whitfield. Gentleman's time is expired. At this time I 
recognize the gentleman from Oklahoma, Mr. Sullivan, for 5 
minutes.
    Mr. Sullivan. Thank you, Mr. Chairman, and my first 
question is to Mr. Gerard.
    Mr. Gerard, the President stated in the State of the Union 
address, he called for increased American made energy 
resources. But as we know, actions speak louder than words. At 
the same time, he is calling for more oil and gas. His 
administration has 10 different Federal agencies considering 
ways to overregulate hydraulic fracturing, the process we use 
to get tight oil and natural gas out of the ground. Some of 
these agencies looking to potentially take hydraulic fracturing 
regulation from the States, where it belongs, including the 
Department of Energy, EPA, and the Department of Interior. Do 
you have any concerns that this administration will make 
hydraulic fracturing economically prohibitive to drill oil on 
both public and private lands, and can you go into how 
hydraulic fracturing can increase the supply of oil in America?
    Mr. Gerard. Yes, we are very concerned by what is going on 
at the Federal level. As you know, hydraulic fracturing has 
been around for 60 years. We have drilled over a million wells 
with this technology. We have improved it greatly. The 
technology is advanced. And today--and going back to Mr. 
Engel's point earlier when he was talking about natural gas 
vehicles, all that is made possible in the United States today 
because of the vast supply of natural gas. It is a game 
changer. It literally changes the energy equation in this 
country, so we are very concerned about what we see going on 
within the administration.
    A week or so ago EPA Administrator Jackson commented, she 
said well, the States are doing a good job of regulating. Well, 
they have been there for many, many years. The governors think 
they are protecting their land, their water and their people 
very well. Our greatest concern is the Federal Government is 
now going to come in and overlay yet another layer of 
regulation to duplicate, conflict, or to crank down our ability 
to produce these vast resources here in the United States.
    As you mentioned today, there are 10 Federal agencies 
looking to regulate natural gas. Now we have got the Center for 
Disease Control, we have got the Army Corps of Engineers, we 
have got the Department of Agriculture. All these you probably 
haven't thought of before are looking to regulate hydraulic 
fracturing in one way or another. So it is a very serious 
consideration.
    The other thing I would add, in talking to governors around 
this country, those in North Dakota, Pennsylvania, and 
elsewhere that have seen this vast change, in the last 18 
months we have created 83,000 jobs in the State of Pennsylvania 
as a result of these newfound preferred technologies to produce 
natural gas. Governors are very worried the Federal Government 
is going to come in and overlay another level of regulation 
that will discourage this production. Over the next 5 years, if 
we are not allowed to use natural gas, it will by and large 
take off the table 45 percent of our gas production, 17 percent 
of our oil production by stopping the use of that proven 
technology.
    Mr. Sullivan. And you mentioned that we have done fracking 
for 60-some odd years. I believe there are probably over a 
million fracks, I believe.
    Has there ever been one instance, Mr. Gerard, that you can 
point to that it has ever gotten into groundwater?
    Mr. Gerard. There are zero confirmed cases of groundwater 
contamination after 60 years of hydraulic fracturing over a 
million wells.
    Mr. Sullivan. Why do you think that we have done it for--it 
is not a new technology. We have done it for a long time. Why 
all the sudden all this talk about it is so bad?
    Mr. Gerard. Well it tends to be heavily driven by those who 
would prefer to move us off of fossil fuels and specifically 
off of natural gas and oil.
    Mr. Sullivan. Thank you very much.
    Mr. Drevna, my next question is for you. President Obama's 
Executive Order 13563 required agencies to look for existing 
regulations that could be streamlined or repealed. Has EPA done 
this for refinery regulations? This is a three-part question. 
The Executive Order also requires agencies to look at the 
cumulative burden of regulations, which would seem particularly 
important for refiners which have been subject to a very long 
list of EPA measures. Has EPA looked at the cumulative burden 
on refineries? The Executive Order also urges agencies to take 
pains to minimize the cost of new rules and ensure that the 
benefits justify the costs. Do you see evidence of this at the 
EPA?
    Mr. Drevna. In short order of the three questions, no, no, 
and no.
    Now if I may be permitted to expand upon that somewhat, not 
only have they not, you know, looked at regulations that have 
impacted refiners and ultimately the consumer, which I think 
this hearing--I hope this hearing is about, it is the fact that 
they are giving us conflicting regulations. They are piling 
more on. I mean, you look at what we have to do, Congressman, 
on the Renewable Fuel Standard, so we are blending more and 
more in and we are at a point now where we are going to have to 
make a decision. Do we comply with ISA 07, or do we protect the 
consumer?
    And then we are asked to lower--I mean, to have better CAFE 
standards. That is a good thing, but so we are blending more 
stuff into gasoline that gets less mileage. And then we are 
asked to take more sulfur out that increases--at a cost, and 
then we are going to increase CO2. So you wonder why we are, 
you know, running around in circles as refiners. Just say wait 
a minute, has anyone gotten out of their own little vacuum here 
and looked at the overall impact of all these regs and how they 
are conflicting?
    And just to go back a little in history, I testified in 
2008 in February--I mean, the ink wasn't dry on ISO 07 that 
Senator Bingaman was holding a hearing on oversight on that 
bill, and you know, of course Tier 3 wasn't on the table at 
that time, but at that time we testified and we said Senator, 
which one of these bills, which one of these things do you want 
us to comply with? And then now we have EPA talking about well, 
it is OK to use E-15 in automobiles, except the automobile 
folks are saying oh, no way. We are not going to warranty 
those. It is OK to use, you know--we have to blend nine million 
gallons of something called cellulosic ethanol that doesn't 
exist, you know, and you wonder why refineries are scratching 
their heads right now, and that--so the answer is no. We need 
the EPA to really take a long, hard look at what the President 
said and act in earnest to try to work with us to figure out a 
path forward out of this thing. Right now we keep running into 
brick walls.
    Mr. Sullivan. Thank you very much.
    Mr. Whitfield. The gentleman's time is expired. At this 
time I recognize the gentleman from Colorado, Mr. Gardner, for 
5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman, for holding this 
hearing today, and thank you as well to the witnesses for their 
time and thoughtful comments.
    Just a couple of questions. I heard Mr. Weiss say that the 
Strategic Petroleum Reserve had an impact on price, and I can't 
help but thinking the minority leader has talked about 
increasing--you know, tapping or drawing down the Strategic 
Petroleum Reserve. We have heard others say that they want to 
tap into the Strategic Petroleum Reserve. Now my guess is that 
is for a very simple reason. People would tap into the 
Strategic Petroleum Reserve because of supply and because of 
price, and the economic argument says that if you increase 
supply, if you increase the amount of oil that comes out of the 
Strategic Petroleum Reserve, then it has an impact on price. It 
was said here at this committee hearing, that it impacted 
price. Well that in itself is an argument for increased supply. 
So all this argument that supply doesn't matter is defeated by 
the argument that the Strategic Petroleum Reserve had an impact 
on price.
    So the answer is before us. If we increase domestic supply, 
then it will impact price and it will reduce the price, just as 
the tap of the Strategic Petroleum Reserve did, so that is 
pretty obvious.
    Mr. McNally, is that an incorrect analysis?
    Mr. McNally. No, you are right. Increasing supply does 
reduce the price. In the case of the SPR, though, it bought us 
4 days in 2011, and we did a little better in 2000 when 60 days 
before the election, President Clinton invited Al Gore to 
announce a stock draw, over the objections of his Treasury 
Secretary and the Federal Reserve chairman. That was a little 
better, that was 12 days, but it is short-term. What we really 
need is to increase production and supply over the long term. 
That will have a permanent effect.
    Mr. Gardner. And because as the Strategic Petroleum Reserve 
drawdown suggested, supply had an impact on price.
    Mr. McNally. Correct.
    Mr. Gardner. And so if you have more supply available in 
the United States, whether it is domestic drilling, whether it 
is the Keystone XL pipeline, whether it is using the oil 
developed through Niobrara oil formations in Colorado, that 
increases supply and will have an impact on price.
    Mr. McNally. Correct.
    Mr. Gardner. Thank you. And so the question I have then is 
do you think it is wise to access the Strategic Petroleum 
Reserve now or increase our domestic supply?
    Mr. McNally. I think--well, it is better to increase our 
domestic supply for the long term, but as we have been saying, 
there is no short-term solution to the prices we have right 
now. It would have been nice to have had the 700,000 barrels a 
day that would have flown to our Gulf refineries through 
Keystone by now, because we could have said to our Saudi 
friends, our Kuwaiti friends, we don't need that 700,000 
barrels a day, please send it to China and India, because we 
are asking them to lower their imports of Iranian crude. That 
would be nice, but we can't fix that overnight.
    Mr. Weiss. Mr. Gardner, can I address that since, you----
    Mr. Gardner. Actually I have a couple of questions for Mr. 
McNally. Thank you.
    What are the signs of true market manipulation by 
speculators, and then just a follow up question to that, 
historical examples that exist in oil companies or oil and 
other commodities?
    Mr. McNally. Traditionally in order for speculators to 
distort prices, they have to manipulate or hoard physical 
supply. There have been cases in the past, Mark Rich, et 
cetera, where physical people bought the actual commodity, hid 
it somewhere, took it off the market, and then went along the 
futures and squeezed people, and we police very carefully for 
that. There was no evidence anywhere that we saw a hoarding of 
inventory or some indication that either OPEC or some private 
company was hoarding oil prices were rising--as oil prices were 
rising into 2008 and even now, as I mentioned, inventories are 
actually very low and spare capacity is tight. It is the 
absence of inventory hoarding which I think convinces the 
independent unbiased experts have looked at this, including 
myself as a private market analyst, that there is no distortion 
going on.
    Mr. Gardner. Thank you.
    Mr. Milburn, a couple of questions for you. You mentioned 
talking about some of the regulations and the impact those 
regulations are having on the price of diesel. They have 
increased the price of diesel fuel, is that correct?
    Mr. Milburn. Significantly.
    Mr. Gardner. And you are not able to get as many miles as 
you were per gallon of diesel because of regulations?
    Mr. Milburn. No, sir. Prior to the advent of the ultra low 
sulfur diesel, which I talked about earlier, the trucks were 
actually getting better fuel mileage. The ultra low sulfur 
diesel has reduced the lubricity of the diesel, causing, you 
know, more wear and tear on the engines, and yet we are talking 
about going to compressed natural gas for a future energy 
source, but we are not there yet. That compressed natural gas 
engine for Class A trucks is going to be able to do the job 
hauling, in your State of Colorado, up the Rocky Mountains. We 
are going to need the power.
    Mr. Gardner. And Mr. Milburn, are you using--if there was 
something else available that was as affordable--actually less 
cost than gasoline or diesel that was equally available, that 
you could go to any convenience store and find, would you use 
that?
    Mr. Milburn. If it----
    Mr. Gardner. If it was efficient for your----
    Mr. Milburn. If it was efficient for my trucking operation, 
yes, I would.
    Mr. Gardner. And so you are not just using oil for the sake 
of using oil?
    Mr. Milburn. No, sir. You know, OOIDA's position is that we 
want to see further use----
    Mr. Gardner. But it is the most economical thing that you 
have right now, which----
    Mr. Milburn. It is right now.
    Mr. Gardner [continuing]. Is why we need to----
    Mr. Milburn. Plus the compressed natural gas stations are 
not en route. There is one in Baytown, Texas. That is the only 
one that I know of at this point, is in Baytown, Texas, for 
commercial trucks.
    Mr. Gardner. Mr. McNally, if I could ask you one final 
question. The Rocky Mountain region, we have seen consumers 
paying 50 to 54 cents less per gallon in the Rocky Mountain 
region because of the availability of West Texas Intermediate. 
What would happen if others had--you know, I guess what I am 
asking is how--if we had a better balance of West Texas 
Intermediate or of some of the supplies, what would happen 
around the country?
    Mr. McNally. The Energy Information Administration has 
noted because the Rocky Mountains, what we call Pad 4, is 
relatively self sufficient in refining, it has been able to 
enjoy the lower crude prices and have lower gallon gasoline 
prices. Everywhere else though in the Midwest, consumers are 
not enjoying the benefit of the glutted crude. Refiners who are 
in the Midwest are unable to gorge on low price crude and so 
world gasoline prices are doing very well. Canadian producers 
and U.S. producers, not so well, but American consumers outside 
of the Rocky Mountain region really haven't seen any benefit, 
and when that distortion is removed and that oil flows, they 
won't see prices----
    Mr. Gardner. So once again, a supply issue?
    Mr. McNally. Yes, sir.
    Mr. Gardner. Thank you.
    Mr. Whitfield. Thank you. Well, that----
    Mr. Rush. Mr. Chairman?
    Mr. Whitfield. Yes?
    Mr. Rush. Mr. Chairman, I have a unanimous consent request. 
One, that I have two letters here that I spoke of in my opening 
statement. One is to the chairman of the Commodities Futures 
Trading Commission dated March 1, 2012. It was sent by me to 
Chairman Gensler. I want that introduced into the record. I 
request unanimous consent that that be introduced into the 
record.
    Mr. Whitfield. Without objection.
    Mr. Rush. The second is a bicameral letter dated March 5, 
2012, to the entire Commission, and I would like that 
introduced into the record.
    Mr. Whitfield. Without objection.
    [The information follows:]


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    Mr. Rush. My last unanimous consent request is that Mr. 
Weiss indicated that he had--he indicated in his testimony or 
during his testimony that there was a report, a 2009 report by 
the Commodities Futures Trading Commission. I would like to, of 
course, through the Chair, get that and have that entered into 
the record, and any additional reports that you might have 
also, to get those introduced into the record.
    Mr. Whitfield. Without objection. Does anyone else have a 
document they would like to submit for the record?
    Well that concludes today's hearing, but we will keep the 
record open for 10 days in case someone feels moved to submit 
additional information. I want to thank all of you for taking 
time to be with us today to explore this important issue of 
gasoline prices and the impact on our economy.
    And with that, the hearing is concluded. Thank you.
    [Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]


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