[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
 THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND 

                              THE ECONOMY
=======================================================================



                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             JUNE 20, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-025

              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

John W. Larson, Vice President, Economics & Country Risk, IHS 
  Global Insight, Washington, DC.................................     3
Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC, 
  testifying on behalf of the Forging Industry Association.......     5
Chuck Grobe, Commissioner, Moffat County, Craig, CO..............     7
Sean Meyn, Director of the Florida Institute for Sustainable 
  Energy, University of Florida, Gainesville, FL.................     8

                                APPENDIX

Prepared Statements:
    John W. Larson, Vice President, Economics & Country Risk, IHS 
      Global Insight, Washington, DC.............................    20
    Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC, 
      testifying on behalf of the Forging Industry Association...    25
    Chuck Grobe, Commissioner, Moffat County, Craig, CO..........    30
    Sean Meyn, Director of the Florida Institute for Sustainable 
      Energy, University of Florida, Gainesville, FL.............    36
Questions for the Record:
    None.
Ansers for the Record:
    None.
Additional Material for the Record:
    The Benefits of Natural Gas Production and Exports for U.S. 
      Small Businesses - Raymond J. Keating, Chief Economist, 
      Small Business & Entrepreneurship Council..................    43
    University of Florida - Sean P. Meyn.........................    92


 THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND 
                              THE ECONOMY

                              ----------                              


                        THURSDAY, JUNE 20, 2013

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Scott Tipton 
[chairman of the subcommittee] presiding.
    Present: Representatives Tipton, Mulvaney, Luetkemeyer, and 
Murphy.
    Chairman TIPTON. The hearing is now called to order and I 
would certainly like to thank our witnesses for being here on 
time. Sorry we were not. We did have votes going on, but I 
certainly appreciate your patience. I am joined here by Ranking 
Member Murphy, and we also have Representative Mulvaney here as 
well. And I certainly thank you for your time.
    I would like to thank all of our witnesses for appearing at 
today's hearing to be able to discuss job creation potential of 
the domestic oil and natural gas development.
    Until very recently, many geologists, energy market 
participants, and policymakers assumed that the overall rate of 
domestic oil and natural gas production had peaked and had 
entered into a permanent period of decline--a scenario that 
could result in higher energy prices, an increase in oil and 
gas imports, and the imposition of measures intended to reduce 
demand for petroleum as a fuel source.
    However, the advent of new technologies and changes to 
market fundamentals has led to a paradigm shift in the energy 
outlook of the United States. Where there was once energy 
scarcity, there is now a potential for an energy bounty.
    According to a number of recent studies of the United 
States' oil and natural gas resources, America now has the 
potential to supplant a significant portion of foreign oil 
imports with domestically produced oil, and it has the ability 
to be able to produce enough natural gas to satisfy domestic 
demand and offer natural gas export opportunities.
    As impressive as these gains are, this Committee is most 
interested in the potential economic and job creation benefits 
of domestic oil and natural gas production as they may accrue 
to small businesses and developing those resources responsibly. 
Overall, 88 percent of domestic oil and natural gas producers 
are classified by the United States Small Business 
Administration as small businesses. If America's oil and gas 
potential is fully realized, oil and gas producers could create 
up to 600,000 new jobs by the year 2020.
    In addition to jobs created directly by producers, more 
than 900,000 indirect jobs could be created at supplier firms 
supporting oil and gas development. This number would be in 
addition to more than 1.4 million induced jobs created as the 
economic effects of oil and gas development flow throughout the 
broader economy. These potential benefits to the United States, 
small businesses, and rural communities are truly 
extraordinary.
    At the same time, while domestic oil and natural gas 
production has many benefits, it is not the silver bullet 
solution to all of our nation's energy economic and 
environmental needs. Rather, it is an element of an ``all of 
the above'' strategy that must be used to promote long-term 
energy independence for our country.
    I look forward to hearing from today's witnesses and 
hearing their views on these issues, and I would now like to 
yield to Ranking Member Murphy for his opening statement.
    Mr. MURPHY. Thank you, Mr. Chairman. And I would like to 
thank the witnesses for their time with us here today.
    During the last decade, energy prices have risen 
dramatically. In fact, 10 years ago today oil was trading 
around $30 a barrel and a gallon of gas was $1.45. Since then, 
we have seen it reach highs of nearly $150 a barrel and then 
drop back down to around $100 a barrel where it is today. In 
the last year, it has become not uncommon for a gallon of gas 
to be around $4 a gallon depending on where you live. With 
these prices, innovative energy technologies and alternative 
energy sources are critical, and in many cases, small 
businesses are leading the way, whether they are working to 
develop new sources of energy, rethinking how we use existing 
fossil fuels, or making improvement to the electrical grid, 
these entrepreneurs have become agents of change in the energy 
industry, engineering new ideas and jobs that come from them. 
The reality is the more domestic options we have for energy, 
the better it is for everyone. With all these alternatives on 
the table, the U.S. is better positioned to reduce its 
dependence on foreign oil over the long term, and small 
business leaders are the ones who allow us to reach this goal.
    In my home state of Florida, we are seeing this change 
firsthand, particularly in the area of solar energy. This is 
not surprising in a state with an abundant source of fuel for 
that--sunshine. Florida is quickly becoming a leader in this 
sector and is one of the nation's largest suppliers of utility-
based solar power. Small businesses in Florida are not just 
installing solar systems in homes and businesses; they are 
developing in manufacturing the cutting-edge technologies upon 
which these systems are built. With more than 430 companies and 
nearly 16,000 workers, my home state has one of the largest 
concentrations of suppliers of silicon and other solar module 
components in the U.S.
    Another area that shows great promise is biofuels where 
Florida is also a top producer. Small businesses making 
biofuels can draw on our state's huge volume of biomass feed 
stock, including sugar cane, citrus residues, and urban wood 
waste. This production accounts for about seven percent of 
total U.S. biomass output. Further, some of the most advanced 
biomass energy research is conducted at Florida universities, 
leading to the development and production of new, cutting edge 
biofuels.
    Small businesses also play a key role in traditional energy 
innovation. This clearly is evident with regard to natural gas 
exploration. Shale gas in particular has created new jobs for 
specialty manufacturers, drilling service companies, and 
regional heavy equipment companies across the United States. As 
they grow, so do the local economies where demand is created 
for restaurants, hotels, and many other service companies.
    I look forward to hearing how we can continue to support 
energy-focused small business. We must find sensible ways to 
invest in the energy sources of tomorrow while ensuring that 
traditional fossil fuels can be used in an efficient and clean 
manner today. Determining the proper mix of these policies is 
often challenging but that is why this hearing today is so 
important.
    I also look forward to understanding what barriers these 
innovative companies face, as well as hearing whether 
government should play a greater or lesser role. The challenges 
of small businesses are the challenges of this Committee, and 
we are committed to ensuring that small firms continue to 
benefit from the recent developments in the energy industry. 
Thank you.
    Chairman TIPTON. Thank you.
    If the Committee members have opening statements prepared I 
ask that they be submitted for the record.
    I would like to take a moment to be able to explain the 
timing lights that are in front of you. The light will start 
out as green. You have five minutes for your testimony. Once we 
get down to one minute, the light will turn yellow, and 
finally, it will turn red. And at that time, if you could wrap 
up we would appreciate it.
    We would now like to be able to go ahead and start with our 
panel. First, I would like to be able to introduce our first 
witness, Mr. John Larson. He is vice president of Economics and 
Country Risk at IHS Global Insight, an economics forecasting 
firm. His most recent work is focused on measuring the 
potential employment contributions of unconventional oil and 
gas development in the United States economy, the subject of 
today's hearing.
    Mr. Larson, I appreciate your willingness to be testifying 
before our Committee, and we look forward to your testimony.

   STATEMENTS OF JOHN LARSON, VICE PRESIDENT, ECONOMICS AND 
  COUNTRY RISK, IHS GLOBAL INSIGHT; SIMON ORMEROD, CEO, AJAX 
  ROLLED RING AND MACHINE; CHUCK GROBE, COMMISSIONER, MOFFAT 
COUNTY; SEAN MEYN, DIRECTOR, FLORIDA INSTITUTE FOR SUSTAINABLE 
                 ENERGY, UNIVERSITY OF FLORIDA

                    STATEMENT OF JOHN LARSON

    Mr. LARSON. Great. Thank you, Chairman Tipton, Ranking 
Member Murphy, and distinguished members of the Committee. It 
is an honor to speak with you today.
    As you have rightly pointed out, the United States is in 
the midst of an unconventional oil and gas revolution that is 
fundamentally changing the energy position that we enjoy in the 
world today. It is also improving our global competitiveness 
and helping to stimulate a manufacturing renaissance.
    Since 2009, our company has been engaged in several studies 
to better understand the economic contributions associated with 
this revolution, and we will be releasing a study in July that 
will focus specifically on the manufacturing benefits and 
implications.
    So far, the unconventional activity is supporting 1.7 
million jobs in this country. Looking towards the future, the 
industry will support three million jobs by the end of the 
decade. At a time of great concerns about federal budgets, it 
is also important to note the revenue implications associated 
with this revolution. Total government revenue from 
unconventional activity accounted for $62 billion last year and 
will rise to 111 billion by 2020. By 2035, unconventional 
activity is expected to generate 2.5 trillion in cumulative 
revenues to the federal and state governments.
    These impacts are also meaningful at a state level. In 
Colorado, for example, unconventional activities supported 
78,000 jobs in 2012 and generated 1.5 billion in state and 
local taxes.
    But there is also a very important impact beyond those 
states that actually enjoy geographic activity around this 
unconventional revolution, and that is, in fact, 30 percent of 
all jobs are found in states that do not actually have a 
geographic play in this activity.
    If you look at Florida, for example, the state currently 
has about 36,000 jobs and $181 million in revenue generated 
through the supply chains across the country that help enable 
this unconventional activity to take place. A key reason, 
obviously, for this profound economic impact, both at the 
national level and the state level, is that this industry 
combines a capital-intensive industry with a broad domestic 
supply chain. As many of you know, this industry is really a 
homegrown result of our technology, innovation, and know-how. 
And so what that means is that dollars spent here, stay here in 
domestic suppliers.
    Equally impressive are the larger macroeconomic effects 
attributed to the savings brought about by lower natural gas 
prices and the corresponding electricity prices. In our study 
of the economic and employment contributions of shale gas in 
the United States, we identified how lower natural gas prices 
will increase industrial production 2.7 percent by 2015, and 
4.7 percent by 2035. And for households we identified, these 
lower prices cascade through the economy resulting in savings 
to consumers. It increases annual disposable income by nearly 
$1,000 by 2015.
    What does all this mean for manufacturing specifically? 
Several factors are shifting the economics in favor of 
onshoring and refueling a resurgence of manufacturing in the 
United States. First, global labor wage rates for many 
offshoring locations have significantly outpaced the U.S. wage 
increase narrowing the wage gap. Second, in an increasingly 
advanced manufacturing world, technology is shifting the 
balance away from the importance of low cost labor and toward 
high skilled work forces. And third, in a rapidly evolving 
energy landscape, the fundamentals around supply chains and 
offshoring are shifting. Higher oil prices, as you pointed out 
Ranking Member Murphy, which have tripled in the last decade, 
have significantly increased transportation costs, making the 
offshoring less attractive. Also, in the United States, the 
unconventional revolution is creating significant competitive 
advantage for both energy intensive industries and energy 
industries that rely on natural gas and their derivatives with 
feedstocks. As a result, companies are now talking about 
planned investment that will appear in the hundreds of billions 
of dollars in this country.
    All together, this unconventional revolution has already 
had a major impact. It is fundamentally transforming U.S. 
energy supply and contributing to the growth in government 
revenues, manufacturing, and economy-wide employment. Its 
significance will continue to grow as it unfolds, and these 
hearings I think provide a timely opportunity for assessing 
that impact and the significance that it will have in many 
dimensions.
    And I am pleased to answer Committee questions. Thank you.
    Chairman TIPTON. Thank you, Mr. Larson. We appreciate your 
testimony.
    I would now like to be able to introduce our next witness, 
Mr. Simon Ormerod. Am I getting that correctly?
    Mr. ORMEROD. That is right.
    Chairman TIPTON. Okay, great. Thanks.
    He is CEO of Ajax Rolled Ring, a material forging 
manufacturer located in York, South Carolina. Mr. Ormerod is 
currently serving as president of the Forging Industry 
Association, and is testifying today on behalf of FIA.
    Mr. Ormerod, thank you for appearing today, and we look 
forward to your testimony.

                   STATEMENT OF SIMON ORMEROD

    Mr. ORMEROD. Thank you. Chairman Tipton, Ranking Member 
Murphy, and members of the Subcommittee, thank you for the 
opportunity to testify before you today on the economic 
benefits of increased domestic supplies of natural gas and oil. 
And specifically, how those benefits might impact a small 
business like mine.
    My name is Simon Ormerod, and I am the CEO of Ajax Rolled 
Ring and Machine based on York South Carolina. I am currently 
the president of the Forging Industry Association. The FIA is 
the primary trade association representing the bulk of forging 
capacity in North America.
    Forging is the oldest known metalworking process, where 
metal is heated and formed under high pressure into a wide 
variety of high-strength parts using anything that rolls, 
floats, or flies.
    My company has approximately 100 employees and has been in 
York, South Carolina since 1980. We are a custom manufacturer 
of seamless rolled rings used in such critical industrial 
components as bearings, gears, flanges, and valve seat rings 
applied in end-use markets such as power generation, mining, 
and construction equipment, oil and gas, petrochemical, 
defense, rail transportation, and a wide variety of general 
industrial applications. The rings we make range from 7.5 to 
100 inches in diameter and weigh from 15 to 3,500 pounds.
    The modern forging process is both capital-intensive and 
energy-intensive. Adding a new production line for our company 
would cost in excess of $15 million, and we have significant 
expenditure on equipment every year due to the intense wear on 
the equipment. We are also a major user of natural gas and 
electricity in our region. Given those requirements, it may 
surprise you to know that most forging plants are small and 
medium-size businesses. Specifically, 95 of FIA's approximately 
200 members qualify as small businesses. Forged parts are 
strong and reliable and therefore, vital in performance of 
critical applications. It would take fully my allotted five 
minutes to name all of the components that contain forgings, 
but they are found in virtually all industries, and 
applications include automotive, aerospace, defense, power 
generation, mining, rail, hand tools, and even golf clubs.
    Forgers, like Ajax, are in a unique position to comment on 
the overall benefits to the economy created by the increased 
supplies of domestic natural gas and oil we are now enjoying in 
the U.S. Increased exploration for oil and gas is not only 
beneficial to our cost structure through lower priced energy, 
but also leads to increased amount for our forgings. My company 
makes forged rings that are used in gears and bearings and 
flanges that are subsequently sold to valve, pipe, and flange 
manufacturers in the oil and gas fields. Our products are also 
sold to manufacturers of drills, pumps, and many other oil and 
gas related equipment applications. Other forgers make critical 
parts such as the forged drill bits without which the hydraulic 
fracturing or fracking activity in our country would not be 
possible. Our industry is, in fact, integral to the increased 
supply of domestic natural gas we are seeing today.
    Demand for forged rings that we supply for valves used in 
oil and gas pipelines has risen by 20 to 30 percent in the past 
two years. We have added at least 10 new positions in that time 
for both forging and precision machining activities. The 
exacting requirements of those valves, many of which are for 
subsea applications, are such that only stainless steel 
forgings of the very highest standards and machine-to-
tolerances of thousandths of an inch are acceptable.
    But for forgers, the benefits of this energy boom are not 
limited to increased demand for our products. Natural gas is a 
key import and a cost-driver in our manufacturing process, so 
we also benefit from stable pricing of that energy source. Most 
forgings are processed at temperatures up to 2,300 degrees 
Fahrenheit, with subsequent heat treating done up to 1,900 
degrees Fahrenheit--so using natural gas or electric furnaces. 
Therefore, forgers require adequate, stable, and affordable 
supplies of natural gas and electricity to make the critical 
parts we make for nearly every industry sector imaginable. As 
recently as 2008, we were challenged with significant natural 
gas price volatility. Prices ranged from $5.80 for a million 
BTU to $12.70. When natural gas is a key import and a key cost 
driver, that market volatility makes it extremely difficult to 
plan for some of the investments I mentioned earlier.
    Forgers' other key raw material is, of course, steel. The 
metal producers also require natural gas as a key import and a 
low and stable gas price helps them to keep metal prices low 
for our customers. So today, with the abundant natural supplies 
of natural gas being extracted and sold in the U.S., we have 
confidence in the stability and competitive price of the 
market.
    So in conclusion, it would be remiss if I did not point out 
the FIA believes strongly that the U.S. must avoid enacting 
unnecessary regulatory barriers to increase domestic supplies 
of oil and gas. Polices that artificially increase prices or 
restrict supplies will certainly have a direct negative impact 
on the entire oil and gas supply chain regardless of company 
size, but they would also negatively affect hundreds of small 
manufacturers like Ajax and other forging industry supply 
chains. Policies that encourage safe exploration and 
development of domestic energy sources are critical to the 
continued revival of manufacturing, including the forging 
industry.
    Thank you for the opportunity to appear before you today, 
and I look forward to your questions.
    Chairman TIPTON. Thank you, Mr. Ormerod. And I apologize to 
my colleague, Mr. Mulvaney. I did not see the note that he was 
going to introduce. So if you would like to make a comment to 
welcome him, certainly feel free.
    Mr. MULVANEY. You did a fine job.
    Chairman TIPTON. Okay. Thanks.
    Mr. Ormerod, I thank you for your testimony.
    Our next witness is a member out of my home district in 
Colorado, Mr. Chuck Grobe. He is currently serving as county 
commissioner for Moffat County in Colorado. Prior to his recent 
election as commissioner, Mr. Grobe served two terms as mayor 
of Hayden, Colorado, and prior to that he served for six years 
on the Hayden Town Council. In addition to his service in 
elected office, Mr. Grobe has been active in the Associated 
Governments of Northwest Colorado.
    Mr. Grobe, I would like to thank you for making the trip 
here, and we look forward to your testimony.

                    STATEMENT OF CHUCK GROBE

    Mr. GROBE. Thank you, Chairman Tipton, Ranking Member Mr. 
Murphy, and the other members of the Committee for inviting me 
for this important hearing.
    Moffat County is the second largest county in Colorado, 
with over three million acres of land, 60 percent of which is 
managed by federal government. The top 10 taxpayers in Moffat 
County are all energy related, 20 coming from oil and gas.
    Our citizens have had a history of working in the energy 
field, agriculture, and recreation, and through this we have 
worked on a very cooperative working relationship with 
organizations and people in the community to work through our 
controversial use of public lands. One of these was Vermillion 
Basin, which a decade ago was in negotiation working on an 
agreement to be able to get gas reserves out of there. It is a 
77,000 acre parcel of land with 200 billion cubic feet of 
natural gas. We worked up a collaboration and had an agreement 
where we would only have a one percent disturbance to the land 
at any one given time. But entirely due to political reasons, 
the agreement was overturned by Washington politics, and 
because of that, the economic loss to the area and to the state 
were $700 million worth of revenue from that source--$25.6 
million would have been taxes coming to Moffat County. Of that, 
53 percent would have been to the school districts; $7.7 
million in bonus payments; $87 million in federal royalties 
partially returned to cities and counties; $43.75 million was 
the State of Colorado's share of the royalty; and $77 million 
of ad valorem and severance tax payments. And that is just from 
77,000 acres of the 1.8 million under federal control.
    Regulatory uncertainty, unnecessary federal regulations, 
frivolous lawsuits, and a lack of political courage by the 
current administration to allow development of these new oil 
and gas resources puts jobs in our area in jeopardy. Congress 
must struggle with national rules, such as hydraulic fracking 
with BLM. Trends of increased regulation in the oil and gas 
industry have manifested locally through creative avoidance of 
federal lands where now most of our leases and everything are 
on private land which costs 8-1/2 times more for the leases 
than if we were on federal land.
    Colorado is filled with beautiful scenery and abundant 
wildlife. Current technology allows us to work harmoniously 
with the two areas and still produce energy. Being home of the 
largest concentration of greater sage grouse in Colorado, we 
have been working for decades to protect and improve the 
habitat and improve the population of the sage grouse, because 
without the natural resources we would not be what we are 
either.
    Finding balance where both wildlife and oil and gas can 
thrive seems to employ as many biologists and rig hands. The 
past week and a half since I got the invitation, I have been 
talking to a lot of our small businesses in Craig and in Moffat 
County, and the volatility and the uncertainty of natural gas 
production has been on everybody's comments. From starting a 
welding business that was shut down in 2008 where they had to 
retool and move in a different direction and now all of their 
work in the oil industry is outside Colorado, to another 
business that refused to be involved with oil and gas 
development because it comes in fast but his quote was ``it 
leaves even faster.'' So with the federal regulations where we 
are it is hard to keep and draw small businesses into being 
profitable. Thank you.
    Chairman TIPTON. Thank you, Mr. Grobe.
    I would now like to be able to yield to Ranking Member 
Murphy so he may introduce our final witness.
    Mr. MURPHY. Thank you.
    Mr. Meyn is a professor of Electrical and Computer 
Engineering at the University of Florida, where he also holds 
the Robert C. Pittman Eminent Scholar Chair and serves as the 
director of the Florida Institute for Sustainable Energy. The 
Institute brings together research capabilities with a goal of 
creating a sustainable energy future. It encompasses more than 
150 faculty members and 22 energy research centers at the 
University of Florida. In the last few years alone, the 
University of Florida has received more than $70 million in 
federal and state research funds to conduct energy research. 
Thank you.

                     STATEMENT OF SEAN MEYN

    Mr. MEYN. Thank you very much, Ranking Member Murphy, and 
Chairman Tipton, and the members of the Committee. Yes, it is a 
great pleasure to be here to speak today.
    I have been working in the area of complex systems and 
controlled them for half of my life. The energy grid is a 
beautiful example. And it is an exciting time to be working in 
this area because I can remember the revolution in the 
telecommunications area of the 1990s where in the 1980s it 
seemed like an impossible problem. It seemed like there was no 
science to support management of this incredibly complex grid 
for communications, and within five years these impossible 
problems were solved by people who understood how to think 
about complex systems like the network. We pick up our phone 
today and we think, oh, it is so easy, but if you knew the 
mathematics and science that went into this phone it would blow 
your mind. It looks like abstract nonsense, the information 
theory, computer science that came into that. And so today this 
is a very similar situation where people feel that it is too 
complex to deal with and I think it is no harder than the 
telecommunications problem.
    There has been incredible innovation lately for two reasons 
that I have seen. The Department of Energy has helped some very 
risky but innovative small businesses and some have failed and 
some have been incredibly successful. There are some examples 
in Florida that have been fantastic. And the Federal Energy 
Regulatory Commission has made some changes to the market 
structure which has completely changed incentives in the power 
area. So the impact has been incredible how just slight changes 
of rules--it is like SimCity. Change the rules a little bit, 
the whole world changes.
    In their point there are, I guess, four themes. I concur 
that cheap natural gas is absolutely going to change the 
economy in many, many positive ways, and I am very pleased to 
hear the comments that we do have to think about--well, first 
of all, I am very happy to hear the comments from Mr. Larson 
about the entire supply chain. The macro effects are absolutely 
critical, and that is what really concerns me about too much 
talk about exporting our natural resources considering how much 
value added they can be here.
    I strongly want to say that it is unwise to put all of our 
energy in one natural gas basket. The forecast on natural gas 
prices, you can get anyone to give you a different forecast, 
and the Black and Veatch forecast shows the prices going up 
very steadily while coal prices are being flat. And that 
uncertainty is dangerous. So we want a diverse energy portfolio 
for national security. And again, the macro effect is 
incredible--the number of small businesses that will be 
involved.
    So back to my first comments. The telecommunications 
evolution has resulted in innovations in hardware but some of 
the biggest challenges were scientific, dealing with congestion 
and the grid level issues. And they took an incredibly, 
impossibly complex problem and with cooperation between R&D 
labs and mathematicians in my field they are able to crack 
these problems. So it seems completely transparent today. Cell 
phones seem trivial. And I think we can do the same thing with 
the grid.
    And particularly, the state of Florida. I do not see why we 
do not have 30 percent solar today. I just do not know why we 
do not have that. We know how to deal with the volatility. I 
think that the science is there, and we have to just get 
started. We will need power engineers and we will need the same 
breed of scientists who helped to build the telecommunications 
grid.
    So in terms of needs, the energy was defunded for 20 years 
at the university, so there are practically no professors in 
power systems anymore, so that is clearly going to need to 
change. And universities need support. I hope the Federal 
Energy Regulatory Commission continues the good work they are 
doing. In the last year or so they finally realized they are 
not incentivizing a responsive generation, the sort of 
regulation needs of the grid. And they have only just realized 
this.
    And I hope the Department of Energy--even though there have 
been failures, there have been incredible success stories of 
the risky businesses that they have supported. And so I hope 
that they continue. I know it has to be watched, but I hope 
they continue to help out crazy ideas. It does not take that 
much money to help a small business succeed.
    Thank you for giving me this opportunity.
    Chairman TIPTON. Thank you for your testimony.
    We will now begin our series of questioning, and I would 
like to start with Mr. Mulvaney.
    Mr. MULVANEY. Thank you, Mr. Chairman. Thank you to all 
four gentlemen for coming.
    A couple questions for Mr. Ormerod first and then some 
questions for the broader panel.
    Mr. Ormerod, in your written testimony--you did not get a 
chance to talk about it much in your verbal testimony--but in 
your written testimony you specifically mention the Keystone XL 
Pipeline and the impact that would have in your industry. Would 
you mind taking a few minutes and tell us specifically what 
that project means not only six months on but a year on, two 
years out? Tell me what that project means to the forging 
industry.
    Mr. ORMEROD. That project would be very significant for the 
forging industry. It is, as you can imagine, on a pipeline of 
that scale and that size, there is a lot of critical components 
that have to be put in place to make sure that the oil 
transported is going to be transported in a very safe way. The 
forgings are--that is what they are absolutely made for. They 
are made for those critical applications. So there will be 
rings for flanges. There will be a lot of forging connections 
put in place to make that pipeline, to support the pipeline, to 
make sure it is a safe pipeline. So I think it will be very 
significant for the forging industry.
    Mr. MULVANEY. As you know, one of the things I like to do 
when I am back home is tour manufacturing facilities, and I was 
touring one last week and asked what I thought was a fairly 
straightforward question and I got a very straightforward 
answer. I asked one of the manufacturers. I said, ``What can 
Congress do?'' Give me three things that Congress can do to 
help create manufacturing jobs, create an environment where we 
can grow manufacturing jobs. And the answer I got was very 
insightful because the person did not hesitate for a second. 
They said, number one, keep energy prices down. Number two was 
regulation. Number three was the tax code.
    I would be curious to know, Mr. Ormerod, if you would put 
those in the same order, and if so, why?
    Mr. ORMEROD. Certainly, energy is a critical cost driver 
for our business, so for us, as I talked about in my testimony, 
we have to heat up the steel in order to be able to forge it, 
so we heat it up either by using electricity or using gas. 
Mostly gas. And then we have to also use gas to treat the 
forgings after we have processed them. Energy, I would say, has 
been very volatile over the years, over the past few years for 
us, and it has created a lot of difficulty for us with the 
energy prices going up and down. So yes, to put energy at the 
top of the list, I would absolutely concur with that.
    Mr. MULVANEY. Mr. Larson, you mentioned the natural gas and 
its impact--lower natural gas prices have a tremendous impact 
on economic activity. I have heard that before. I have heard it 
not only from the folks who are using natural gas to heat metal 
to forge it but also from the chemical industry. It is actually 
a growth industry now in the United States because of the low 
cost of natural gas.
    Could you walk through for the record, please, why you 
think low natural gas prices would have such a dramatic 
economic impact?
    Mr. LARSON. Yeah, you are correct. There is a profound 
impact, and it stems from, first, all industry needs low costs 
of input to allow them to thrive in a competitive environment. 
You have to remember we are in a global-linked economy.
    Mr. MULVANEY. And I do not want to cut you off but this is 
someplace we have a tremendous competitive advantage over 
manufacturers overseas.
    Mr. LARSON. That is correct. Our prices are right around a 
third of what they are in, for example, Asia; a little more 
than a half of what they are in Europe. So there is a 
tremendous competitive advantage that all companies that rely 
on energy, either as an input or feedstock, enjoy relative to 
their global competitors. That is the first thing.
    The second thing is you talked about volatility. It was 
mentioned earlier today. The ability to have stable, as well as 
low prices is very important, too. And if you look at where we 
were in the volatility prior to this unconventional revolution 
to where we are today, that volatility has been significantly 
contracted, so there is more certainty in the environment 
overall.
    And then there is the knock-on effect. So it is not just 
the chemical industries who are going to be hugely competitive; 
we are already seeing large increases in production and output 
from those, and I think you are going to see the chemical 
industries be very, very successful going forward. There is a 
whole knock-on effect from that supply chain. You think about 
all the chemicals that go into manufacturing an automobile. We 
have talked about the steel that goes into it. You talk about 
the chemicals from the floor mats to the plastic that goes into 
all these. All those are knock-on effects and those costs are 
passed on. And at the end of the day what it means is, as I 
mentioned in my testimony, consumers are actually benefitting 
as well. So now you have the households having about $1,000 
more in their pocket by 2015 as a result of all these passed-on 
savings to consumers. That flows right back into the economy as 
the consumer can now step back out and spend that $1,000 in 
other ways.
    Mr. MULVANEY. Thank you, Mr. Larson.
    Mr. Chairman, I think it bears noting that these are the 
types of jobs that both parties say, and rightly so, that we 
want to grow in this country. These are heavy manufacturing 
jobs. We are talking about forging metals. We are talking about 
chemicals. This is the type of opportunity that we have in 
large part now because of your relatively low injury prices. We 
should be doing what we can to maintain that competitive 
advantage.
    Thank you for the opportunity.
    Chairman TIPTON. Thank you, Mr. Mulvaney.
    I would now like to yield to the ranking member for his 
questions.
    Mr. MURPHY. Thank you, Mr. Chairman.
    Mr. Meyn, you spoke briefly about the grid and some o the 
opportunities there. What are the biggest impediments to 
putting these strategies into practice right now?
    Mr. MEYN. Well, there is an issue in the fact that 
reliability is very reliable until you get it. And so basically 
right now in the Pacific Northwest, the people who regulate the 
grid would pay anything to get regulating resources, and it is 
very, very valuable. But nobody will come there to do it 
because as soon as they go there the value drops to zero. And 
so it is very difficult to design markets around this, and 
basically reliability is like a public good problem. Everyone 
wants a clean park but nobody is willing to pay for it. And I 
think we are almost forced to have some help from the 
government on just the reliability end. Of course, we can have 
energy markets, but reliability is something that is very 
difficult to have markets for.
    Mr. MURPHY. Have there been pilot programs or other 
countries that are doing this better that we should be looking 
toward?
    Mr. MEYN. Everyone has made the same mistakes. Germany 
installed all this wind without thinking at all about how much 
they needed to deal with the volatility issue. Switzerland has 
been much more thoughtful about this and they have actually, 
you know, they have generalized storage in all their large 
buildings, things like this to absorb volatility from 
renewable. But it is all so new. It is only the last few years 
and mistakes have been made all over the world. But they are 
learning quickly and so, for example, I have given the reports 
as examples. For example, ALCOA now has deals with utility 
companies to ramp up and down their consumption of electricity 
as a way of regulating the grid. The wind starts blowing; they 
ramp up production. That sort of thing. And that is going on 
all over the country. And the U.S. is a leader in those ideas, 
actually. And that is something that is going to grow quite a 
bit.
    Mr. MURPHY. Thank you.
    You also mentioned the increase in natural gas. We have all 
seen it. What do you feel the effect of that will be on some of 
the alternative energy sources--the cleaner the biofuels?
    Mr. MEYN. The beautiful thing about natural gas is it is 
incredibly responsive. So it is a way to have a lot of 
renewable energy. You can have 50 percent renewable energy 
easily in the Pacific Northwest if you have got gas turbine 
generators next door that can ramp up and down and regulate the 
system. Coal cannot do that. Nuclear cannot do that. So natural 
gas is a regulation. Just like an airplane, it is like the 
flaps on the wings of an airplane. It stabilizes the grid. It 
is incredibly valuable in that sense.
    Mr. MURPHY. Thank you.
    Mr. Ormerod, we have seen the wind industry has grown 
dramatically. I think last year I read that more than 13,000 
megawatts were installed. How does this affect your industry?
    Mr. ORMEROD. Well, the wind industry is a great--there is a 
lot of demand for forgings that go into a wind turbine, whether 
they be bearings, gears, the main shaft. All those things, they 
are all critical applications, of course, so that is a good 
source or good need for forged products which are supplied to 
these critical applications.
    So yeah, for the wind market, if the wind market would have 
grown to be a steady demand in the wind market, that is 
certainly very good for our industry.
    Mr. MURPHY. Okay.
    Mr. Grobe, you noted in your testimony about the lack of 
our government looking into natural gas on federal lands. I am 
curious, is there some potential, is there maybe--I am just 
thinking out loud here--something we should be looking into? We 
all know what a public-private partnership is, but expanding 
that model and looking at a partnership where you have the 
federal government, the state, the local, and private 
businesses involved, all coming up with an agreement where 
there is some sort of cost sharing where maybe a percentage of 
profits go back to renewables and alternative energies and 
resources. I think most people would agree that we should be 
taking advantage of our domestic energy fuels but maybe in 50 
years that is not necessarily the answer. As technology 
progresses, as wind gets better and solar and thermal and 
everything else, that that is eventually the future but right 
now we need this bridge, and natural gas is a great 
opportunity. But if we got all the players invovled--the state, 
the local, federal--that we might be able to make a little more 
ground. Any thoughts on that?
    Mr. GROBE. I think so. That would bring some sort of 
stability to the regulations because our problem that we are 
seeing is every election it seems to change where we have 
businesses depending on this kind of direction to go in and 
then all of a sudden a new person ends up in power, whether it 
is a governor or the president or whatever and the pendulum 
swings another way stopping business or halting it all 
together, you know, where if we have that stability, which I 
agree would be great, then we could move forward in a constant 
direction because right now, like I said, we have 
collaboratively worked with agencies to come up with an 
agreement but then it depends on what Washington says is 
whether we can follow through with it.
    Mr. MURPHY. Okay. Thank you.
    I always get a different answer on this one so I am 
hesitant to ask. But fracking. Every time we have different 
panels you always hear different answers on this. So what are 
your thoughts on fracking? On its effects on the environment? 
Perhaps how far we have come in the last 40 years of fracking 
that we should be aware of? And what do folks in your area 
think?
    Mr. GROBE. People in Moffat County are supportive of 
fracking as long as it is done in the proper fashion with 
encasing the wells and making sure that we are not influencing 
other aquifers and stuff like that, where the technologies have 
moved in that direction. But that is a whole can of worms, and 
it is an interesting debate in Moffat County, but if you go 
across the border into Routt County, they are trying to rewrite 
regulations themselves. So it is interesting as you move 
between counties within Colorado or you move within states, 
everybody is looking at it differently and that is where I like 
your idea of everybody getting together, come up with one plan, 
and let us move forward.
    Mr. MURPHY. Thank you.
    Last question, Mr. Chairman.
    Mr. Larson, I do not know if you heard Mr. Meyn's 
testimony. He spoke briefly about some of the concerns of the 
United States shipping liquefied natural gas and what that 
could do to prices. Just interested in your thoughts, how you 
think it would affect businesses and prices in the long run.
    Mr. LARSON. Yeah. I think it is an important thing. The 
risk I actually think around the price domestically from LNG 
exports comes more from the ramp up in demand domestically 
inconsistent with the underlying infrastructure to get the 
resources to the market if you will, to where that demand is. 
The supply is not the issue. It is sort of a peak demand 
situation. If you look at what is happening in the global 
market, global market LNG exports or imports are about 33 BCF a 
day. We have on the books applications to the DOE for about 28 
BCF a day. And so there is no way that all these facilities 
will be market viable. The market will self contain the number 
of facilities that will be built out of the states. It is 
probably going to cap out somewhere around 5 BCF a day because 
of the global market. And so I think the bigger risk is how you 
manage it and how you think about the internal infrastructure 
ensuring that we are able to connect supply to demand.
    You can point to an example. For example, in the Northeast 
where even with all this abundance we ended up actually 
importing LNG this year simply because we do not have the 
pipeline to move the resources from where they reside to where 
the demand is.
    Mr. MURPHY. Great. Thank you.
    Chairman TIPTON. Thank you, Ranking Member.
    Mr. Luetkemeyer, would you like to proceed with your 
questions?
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    Mr. Larson, I would like to follow up on your last comment 
with regards to we do not have enough pipeline constructed 
right now to haul all the natural gas demand. How much more do 
we need? Is it not located correctly, dispersed correctly 
around the country? Can you give me some information on it?
    Mr. LARSON. Yes. I cannot give you actual miles. I think 
what I will say is that the really exciting part about this 
unconventional revolution is there is sort of a democratization 
of energy. If you think about the old energy map of the United 
States, it is sort of gravitated towards the traditional energy 
states. That is being flipped on its head with this 
unconventional revolution. States have really fundamentally 
shifted, and so now we have got this geographic diversity of 
where our resource base is and where the in-demand markets are. 
And a lot of our pipelines are set up right now to move in the 
wrong direction. And so we do need to significantly change our 
pipeline infrastructure, add a lot more miles to connect, in 
particular from the inlands. I will give an example. On the oil 
side, in the Bakkan, we are railing out between 500,000 and 
600,000 barrels a day of oil. The ability to connect that 
through something like a Keystone XL would be significant to 
take that capacity off of the rail and allow it to move to 
market faster. So there is, I think, a strategic evaluation 
that needs to be made in this country about where our pipelines 
are situated relative to where demand is, and where our 
resource supply resides.
    Mr. LUETKEMEYER. Thank you.
    Mr. Grobe, first, thank you for your public service. I know 
sometimes it is a rather thankless situation, so----
    Mr. GROBE. Thank you.
    Mr. LUETKEMEYER. I appreciate your willingness to step up 
and serve. Obviously, from the situation with the oil leases 
and the activities in your area there, there is a lot of 
leadership that needs to take place and I am sure you are in 
the middle of that.
    Can you give us just a little bit of an insight into--the 
oil recently has been up in the Dakotas, you know, that is 
mostly on private land. And in your testimony here you have got 
some very significant figures of oil, gas, and coal in 
Colorado. Can you give us a little insight? I assume most of 
that is on federal land; is that correct?
    Mr. GROBE. No, actually, the older drillings and stuff, a 
lot of it has been on BLM, but here the past 10 years or so it 
has been primarily private land.
    Mr. LUETKEMEYER. Oh, really?
    Mr. GROBE. Because the regulations are so stringent on 
federal land. That is where I stated in my testimony, the 
written testimony is their private land cost 8-1/2 times more 
leasing than federal land but they are moving to private land 
because of the regulations federally.
    Mr. LUETKEMEYER. Okay. And so the lease that you talked 
about losing here, that was on federal land; is that right?
    Mr. GROBE. Yes.
    Mr. LUETKEMEYER. Okay. And the reason for that was? You 
were rather general in your testimony.
    Mr. GROBE. The secretary of the interior flew over and 
said, ``No, we are not going to allow that to happen.'' So that 
is why.
    Mr. LUETKEMEYER. Okay.
    Mr. GROBE. And that was a collaborative effort between all 
the agencies in our area.
    Mr. LUETKEMEYER. Okay.
    Mr. Meyn, you, in your testimony, said that you got $70 
million worth of research last year for your school.
    Mr. MEYN. Last year? Oh, no. No. Seventy million?
    Oh, excuse me.
    Mr. LUETKEMEYER. Did I misunderstand you?
    Mr. MEYN. Oh, yes. Absolutely. I gave----
    Mr. LUETKEMEYER. Where does 70 million----
    Mr. MEYN.--a total. I am not sure, actually. I do not 
remember. The disclosure?
    So I received research funding from the AFOSR and from NSF 
for the past--since 2006. It might add up to that much money 
for graduate students and supporting lab.
    Mr. LUETKEMEYER. Okay. So my question was what do you do 
with the money? What kind of research do you do?
    Mr. MEYN. I work on understanding large network systems. 
How do you understand a power grid, for example. How do you 
control it? Resource allocation problems. Once you have wind 
that is 4 gigawatts and zero, how do you control the resources 
to stabilize the whole system?
    Mr. LUETKEMEYER. Do you submit reports to anybody on that?
    Mr. MEYN. Yeah. Annual reports to the NSF and AFOSR.
    Mr. LUETKEMEYER. Does anybody use the data?
    Mr. MEYN. Well, does anyone use the data?
    Mr. LUETKEMEYER. That is a pretty important question.
    Mr. MEYN. Absolutely. I am just trying to think about how 
to answer it because I have been working in the markets area 
for 10 years and I think that FERC has listened to me. I think 
the new market structures are in part from my discussions with, 
for example, Dick O'Neill there for the last years.
    In terms of the control issues, I think Pacific Northwest 
National Labs, for example, is using these ideas in a lot of 
their pilot programs. All this is very new, you know, it has 
only been the last--there was almost no wind in the Pacific 
Northwest several years ago and now there is 4 gigawatts. 
Things are changing so fast it is hard to answer.
    Mr. LUETKEMEYER. Your response leaves me speechless.
    Thank you, Mr. Chairman.
    Mr. MEYN. No, but there has to be a follow up then because 
why is that? My graduate students are now working at Houston 
trading companies and on Wall Street and they are professors in 
various places. This is long-term research. I do not do 
research--I am not a consultant. I am looking at what the world 
will look like in 10, 20 years.
    Chairman TIPTON. Thank you.
    I appreciate the questions that we have had from our panel 
members. I would now like to start out with Mr. Larson. One of 
your comments when we were talking about affordable, reliable 
energy, you took it down to the base important thing I think 
for our communities, for our nation, when you started talking 
about families, about moms being able to get kids to the soccer 
match, and to be able to buy groceries, and to be able to fill 
up that gas tank, and to be able to turn on heat in the winter. 
Just to be able to protect our families.
    So I guess my first question, Mr. Larson, is many of the 
members of this Committee, we do, indeed, represent rural 
areas, and my own district, as Mr. Grobe will testify, is not 
only largely rural but many of these counties and communities 
are located on or near federal lands. Has your first every 
studied the potential implications of expanded energy 
development in more of a micro sense in regards to the rural 
areas? Because we certainly see pockets of prosperity in metro 
areas in Colorado and I think elsewhere.
    Mr. LARSON. Yeah. I appreciate the question.
    So as we looked at this, we did not draw down into sub-
state levels, if you will. I mean, we looked at it by state by 
state, but I think you are absolutely accurate in saying I 
think one of the interesting things about this opportunity is 
how impactful it has been in the rural communities. It really 
is changing the face of some of these rural communities, and 
that is a double-edged sword. My family comes from North Dakota 
and they have been living in the Bakkan area, and so they have 
enjoyed the upside of the evolution of this unconventional 
revolution in Dickenson and Williston and everything, but there 
is also the sort of change that it has brought about to these 
communities from this influx of activity and a change of your 
sort of way of life. That said, I think it is important to 
think about those pocketbook issues. The average community, the 
average household, $1,000, that is a lot of purchasing power 
that is brought back home so that individuals can enjoy a 
higher standard of living. And that is what this is. Lower 
energy prices ensure higher standards of living for everyone in 
the country.
    Chairman TIPTON. Simply by creating American energy 
security right here at home with American resources.
    Mr. Grobe, maybe you would like to be able to speak to 
that. When the secretary flew over Moffat County and said ``not 
here, not now,'' how did that impact communities? People that 
you and I know in our district?
    Mr. GROBE. That was pretty devastating because we were 
looking at the potential and these are good facts that we 
presented to the group that came together and agreed on this 
one percent disturbance. So when something like that happens, 
it just kind of takes the wind out of your sail because we are 
trying to move in a positive direction, work with small 
businesses, get them established, and that is where I was 
talking about earlier where the whims of the federal government 
kind of blow and we need to get some stability there.
    Chairman TIPTON. So just for clarity on this, in Moffat 
County, and I believe this has been replicated on the west 
slope of Colorado, brought together environmental groups, 
brought together industry, brought together community leaders 
such as yourself, other interested parties were able to come to 
an agreement, and what some in Washington considers flyover 
country, and I guess we are there, they are able to swoop over 
the top and just say not here and completely upend all of the 
efforts at the local level; is that correct?
    Mr. GROBE. That is correct. Because those collaborative 
efforts have been going on for eight or 10 years, and to have 
that just swept away without even stopping and talking to the 
locals, that was pretty disappointing.
    Chairman TIPTON. Right.
    Just as an aside, how important is coal in your district?
    Mr. GROBE. Very important because we have a Craig 
generating station there and two coal mines in our county that 
80 percent of our top 10 taxing entities are from coal.
    Chairman TIPTON. Right. We were just talking about fracking 
just a moment ago. You and I know a lot of the people that live 
and work there. These are family people. They love their 
families. Is it your sense that they are making a committed 
effort to make sure that we are doing this responsibly?
    Mr. GROBE. Oh, yes. Every turn we are looking at better 
ways to perform and work with the avenues and work with the 
government to make sure that it is clean and energy efficient.
    Chairman TIPTON. Mr. Larson, does this new petroleum 
resource potential in our country mean that we can solely rely 
on oil and gas for energy needs or are they just part of that 
broader strategy that we need to be able to embrace of that 
``all of the above,'' including coal, nuclear power, 
hydropower?
    Mr. LARSON. Yes. I think it is all part of an ``all of the 
above'' strategy. I think those who talk about energy 
independence do not recognize the international linkages that 
exist. We are always going to have a relationship with Canada, 
for example, and Mexico around energy. And so there are 
important strategic relationships. I think it is also important 
to point out that most of our refining capacity is set up for 
some of the heavy sour crude from, for example, Venezuela or 
the oil sands from Canada. So we are always going to be in a 
position we are going to want to import some of that oil. The 
beauty is that we can refine that oil and export it and change 
some of our trade dynamics. In fact, in 2011, for the first 
time in a quarter century, the United States was a world leader 
in refined petroleum products. So I think there are some really 
exciting opportunities but as was alluded earlier, all these 
other energy sources creating diversity in, for example, our 
power generation, if you will, is important. There is value in 
diversity. We learned that from grade school on. You do not put 
all your eggs in one basket. You want diversified energy 
portfolios.
    Chairman TIPTON. As you can hear, they are preparing to 
call votes but I do have one final question for Mr. Ormerod.
    When we are looking at the game changers that you had 
talked about in terms of being able to provide energy needs and 
revitalize the manufacturing in this country, would it be a 
correct assessment that maybe the secret weapon that the United 
States has had to not only be able to create jobs and good 
paying jobs and still be competitive against people that can 
afford to pay far less in foreign countries on a production 
level has been affordable energy in this country? Is that a 
fair statement?
    Mr. ORMEROD. Well, it certainly helps a lot. The energy 
costs that go into producing the steel that we use and also the 
processing of that steel is very significant to us. So if we 
can get cheap steel and we have got cheap energy to actually 
process the steel at our place it makes a very big difference 
to us.
    Chairman TIPTON. Great.
    Thank you all so much. We certainly appreciate your 
patience at the beginning of this hearing, and we are doing the 
other portion of our job in terms of the voting.
    I would like to be able to submit with unanimous consent to 
the record a report on the Benefits of Natural Gas Production 
and Exports for U.S. Small Businesses because the big guys may 
be able to play and to be able to generate, but small 
businesses is the number one job creator in this country and 
the domino effect that we see from responsible development of 
these resources down to the local restaurant, I do not believe 
that we can overstate.
    So with that, so ordered.
    Once again, I thank all the witnesses for appearing at 
today's hearing and for your valuable insights that you 
provided to this Committee. As I mentioned in my opening 
statement, the potential benefit for these energy resources to 
our nation are truly extraordinary. At the same time, Congress 
should avoid the temptation of putting all of our eggs in one 
basket, entrusting the economic security of this country to 
just two energy sources. In addition to oil and natural gas, 
the United States also possesses significant coal and 
hydropower resources. Advances in technology are increasing the 
capacity and reducing the cost of renewable energy as well. 
There is some potential for nuclear energy that we can use in 
this country, as well as wind and solar. In short, what I 
believe we truly need is that ``all of the above'' energy 
strategy.
    I would like to be able to ask unanimous consent that 
members have five legislative days to be able to submit 
statements and supporting materials for the record.
    Without objection, so ordered.
    This hearing is now adjourned. And again, thank you for 
being here.
    [Whereupon, at 12:33 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


                      COMMITTEE ON SMALL BUSINESS


                 Washington, DC  June 20, 2013


                          PREPARED TESTIMONY:


                         By John W. Larson \1\

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    \1\ John Larson is the Vice President and global leader for 
customized analytic and economic solutions within IHS Economics & 
Country Risk Group.

    Chairman Graves, Ranking Member Velazquez and distinguished 
members of the Committee on Small Business, it is an honor to 
speak with you today about the economic growth and employment 
opportunities being fueled by our country's unconventional 
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energy revolution.

    The United States is in the midst of an unconventional 
revolution in oil and gas that, it becomes increasingly 
apparent, goes beyond energy itself. Since 2009, our company 
has engaged in numerous studies to better understand and 
accurately quantify the dramatic economic contributions 
associated with this unconventional revolution. Today, the 
exploration and production industry driving this unconventional 
revolution supports 1.7 million jobs across a vast supply 
chain--a considerable accomplishment given the relative newness 
of the technology. That number could rise to 3 million by 2020. 
In 2012, this revolution added $62 billion to federal and state 
government revenues, a number that we project could rise to 
about $111 billion by 2020.\2\ What is now becoming clear is 
that the exploration and production industry contributions to 
the economy and the lower costs of energy brought about by this 
abundant growth in supply is helping to stimulate a 
manufacturing renaissance and improve the competitive position 
of the United States in the global economy--further stimulating 
job creation in the United States.
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    \2\ IHS, America's New Energy Future: the Unconventional Oil and 
Gas Revolution and the United States Economy, vol. 1 National Economic 
Contributions (October 2012) and vol. 2, State Economic Contributions 
(December 2012).

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    Where did the unconventional revolution come from?

    The unconventional revolution has unfolded rapidly. As 
recently as just a half-decade ago, during the period preceding 
the Great Recession, it was widely assumed that a permanent era 
of energy shortage was at hand. American's demand for oil and 
natural gas was increasingly focused on non-dramatic sources. 
The country, it seemed, was on a path to spending several 
hundreds of billion of dollars more every year on imports to 
meet oil and natural gas demand. How different things look 
today.

    US crude oil output, after a nearly 40 year decline, has 
increased dramatically--by 46% since 2008.\3\ Net petroleum 
imports have fallen from 60% of total consumption in 2005 to 
36% in the first four months of 2013. The decline is due, in 
part, to moderating energy demand during the slow recovery in 
the wake of the Great Recession, however, greater fuel 
efficiency in autos and a slowing of the growth in total 
vehicle miles will continue to constrain the growth of demand. 
But, the decline in imports has also been achieved through 
significant supply side changes resulting from that dramatic 
increase in U.S. oil production. The largest element of this 
increase in production comes from what has become the newest 
major advance in energy development: tight oil. In fact, oil 
imports in 2012 would have cost the United States around $70 
billion more and increased our trade deficit a little over 
10%--were it not for the increase in production capacity 
brought about by tight oil since 2008.
---------------------------------------------------------------------------
    \3\ Energy Information Administration, Monthly Energy Review (May 
2013).

    With respect to natural gas, in just seven years, US 
natural gas production has risen from 51 billion cubic feet 
(bcf) per day to 66 bcf per day--a 27% increase. This rapid 
rise was driven primarily by shale gas production. In 2000, 
shale gas accounted for just 2% of total natural gas 
production. Today, shale gas accounts for nearly 44% of total 
natural gas production. This rapid rise in unconventional 
production has also enhanced US energy security. Five years 
ago, due to constrained production, the United States seemed 
locked into importing increasing amounts of liquefied natural 
gas (LNG) and was heading towards spending as much as $100 
billion dollars on future imports to meet domestic demand. Now, 
these newly unlocked resources ensure that the United States 
will need, at most, minimal LNG imports to balance supply with 
demand. Instead of debates over US imports, there is the 
prospect of exporting some of the domestic surplus, as well as 
the potential for using natural gas in some classes of 
---------------------------------------------------------------------------
vehicles.

    What is the economic impact of the unconventional oil and 
gas revolution?

    While various states had begun to home in on the economic 
development aspects of shale gas and tight oil, it was only in 
last several years that its significance for the national 
economy started to come into focus. We have undertaken a series 
of studies to assess the economic impact of the unconventional 
revolution. The first two--released late last year--examined 
the national and state-by-state impacts.\4\ We are now 
extending that study to assess the impact on manufacturing--
which will be released in July 2013.\5\
---------------------------------------------------------------------------
    \4\ IHS, America's New Energy Future: the Unconventional Oil and 
Gas Revolution and the United States Economy, vol. 1 National Economic 
Contributions (October 2012) and vol. 2, State Economic Contributions 
(December 2012).
    \5\ IHS, America's New Energy Future: the Unconventional Oil and 
Gas Revolution and the Manufacturing Renaissance, vol. 3 (July 2013)

    So far, this unconventional revolution is supporting 1.7 
million jobs--direct, indirect, and induced. Looking towards 
the future, the industry will continue to contribute to strong 
job growth bringing the total to 3 million workers by the end 
of this decade. At a time of great concern about the federal 
budget, it is also important to note the important revenue 
implications associated with this energy revolution. Total 
revenues flowing to governments from unconventional activity 
amounted to $62 billion last year and will rise to $111 billion 
by 2020. This does not include revenue from traditional oil and 
gas activity. By 2035, unconventional activity is expected to 
have generated nearly $2.5 trillion in cumulative government 
---------------------------------------------------------------------------
revenues since 2012.

    It is also notable that, owing to the long supply chains, 
the job impacts are being felt across the United States, 
including in states without significant shale gas or tight oil 
activity.\6\ That is to say, when it comes to unconventional 
activity, a state does not need to have a major unconventional 
play within its geographic boundaries to benefit economically 
from the activity. In fact, nearly 30 percent of all jobs 
associated with the unconventional energy revolution are found 
in states with no appreciable unconventional activity. For 
example:
---------------------------------------------------------------------------
    \6\ Producing states are defined as those that are part of the 20 
largest unconventional oil and natural gas producing plays in the US 
Lower 48, such as the Bakken and Marcellus Shale plays. Non-Producing 
states are not part of the 20 largest unconventional oil and natural 
gas producing plays in the US Lower 48 and are not part of an emerging 
oil or natural gas play in the 2012 to 2035 forecast horizon. These 
states may be part of plays that are currently producing oil and/or 
natural gas, but nevertheless are classified as non-producing states, 
because current production is relatively small and the prospect for 
future unconventional production is unknown.

           In Missouri, economic activity associated 
        withy supply-chains that supported unconventional 
        activity in 2012 contributed nearly 38,000 jobs to the 
        state and generated almost $290 million in state and 
---------------------------------------------------------------------------
        local taxes.

           In New York, a state that currently bans 
        unconventional activity, 44,000 jobs along with $1 
        billion in state and local taxes can be attributed to 
        activities supporting the supply-chain associated with 
        shale gas and tight oil in other states across the 
        country in 2012.

    A key reason for the profound economic impact of the 
unconventional activity is the fact that it combines a capital-
intensive industry with a broad domestic supply chain. The 
United States is a leader in all aspects of the unconventional 
industry, which means that most of its suppliers are 
domestically-based, and that means a larger portion of the 
dollars spent are supporting domestic jobs in trucking, steel 
fabrication, aggregates, heavy equipment manufacturing, hotels, 
housing, and restaurants, among others.

    But there is now an even bigger positive impact for our 
economy that is beginning to be recognized. In addition to 
these specific contributions to the economy, there are larger 
macroeconomic effects attributed to the savings brought about 
by lower natural gas prices and corresponding electricity 
prices. In our study, The Economic and Employment Contributions 
of Shale Gas in the United States, we identified the following 
two important macro-economic implications stemming from lower 
natural gas prices:

           For U.S. based industries, the abundance of 
        affordable natural gas means lower input and feedstock 
        prices. As a result, industrial production--the measure 
        of output from manufacturing, mining, and utility 
        industries--will increase 2.7 percent by 2015 and 4.7 
        percent by 2035.

           For households, these lower prices cascade 
        through the economy, resulting in a $926 increase in 
        annual average disposable income in 2015. By 2035, 
        annual average disposable income per household will 
        have increased by more than $2,000.

    Manufacturing Renaissance?

    The impact on manufacturing is notable. Several factors are 
shifting the economics in favor of on-shoring and fueling the 
resurgence of manufacturing in the US. First, global labor wage 
rates for many off-shoring locations have significantly 
outpaced US wage increase, narrowing the wage gap. Second, in 
an increasingly advanced manufacturing world, technology is 
shifting the balance away from the importance of low cost labor 
toward higher skilled workforces. Third, rapidly evolving 
energy landscape is fundamentally shifting the traditional 
economics around supply chain as:

    (1) higher oil prices, which have tripled in the last 
decade have significantly increased the transportation costs 
making off-shoring less attractive;

    (2) the unconventional revolution in the US, which has 
ushered in a new era of affordable and abundant domestic 
natural gas, is creating significant competitive advantages for 
both energy intensive industries and industries that rely upon 
natural gas derivatives as critical feedstock to production.

    As a result, companies are now committing or planning 
investments that in total appear to range into hundreds of 
billions of dollars.\7\ The US chemical industry is 
particularly well positioned to capitalize on the benefits of 
this unconventional revolution. This industry is highly energy 
intensive using energy inputs, mainly natural gas and natural 
gas liquids, as both the major fuel source and feedstock. The 
US chemical industry's feedstock prices are now among the 
lowest in the world. As a result, the US is gaining a decisive 
competitive advantage in the cost of producing basic 
petrochemicals like ethylene, ammonia, methanol, and their 
downstream derivative products.
---------------------------------------------------------------------------
    \7\ American Chemistry Council, Shale Gas, Competitiveness, and New 
U.S. Chemical Industry Investment--An Analysis of Announced Projects 
(May 2013)

    A large number of chemical companies, for instance, have 
announced plans to build or expand facilities in North America 
with capital expenditures totaling close to $100 billion.\8\ 
Will all be built? Time will tell. But what is striking is 
that, just five years ago, these companies would have scoffed 
if they had been told that they would be investing back into 
the United States. The investments are coming both from US 
based companies, which are ``on-shoring'' in response to lower 
energy costs, and from foreign companies.
---------------------------------------------------------------------------
    \8\ IHS, Energy and the New Global Industrial Landscape: a Tectonic 
Shift? (January 2013), p. 2.

---------------------------------------------------------------------------
    Conclusion

    Altogether, the unconventional oil and gas revolution has 
already had major impact in multiple dimensions--beginning with 
U.S. energy supply and costs and now extending to government 
revenues, manufacturing, and the wider economy. Its 
significance will continue to grow as it continues to unfold. 
These hearings provide a very timely opportunity for assessing 
that impact and significance in its many dimensions, and I am 
pleased to respond to the committee's questions.
                      TESTIMONY OF SIMON ORMEROD,


                   CEO of AJAX ROLLED RING & MACHINE


                PRESIDENT, FORGING INDUSTRY ASSOCIATION


                               BEFORE THE


       U.S. HOUSE of REPRESENTATIVES COMMITTEE ON SMALL BUSINESS


              SUBCOMMITTEE ON AGRICULTURE, ENERGY & TRADE


                             June 20, 2013


    Chairman Tipton, Ranking Member Murphy, and Members of the 
Subcommittee, thank you for the opportunity to testify before 
you today on the economic benefits of increased domestic 
supplies of natural gas and oil on manufacturing in general, 
and the forging industry in particular.

    My name is Simon Ormerod, and I am the CEO of Ajax Rolled 
Ring & Machine in York, South Carolina. I am also the current 
President of the Forging Industry Association (FIA) and am 
honored to testify on FIA's behalf. Headquartered in Cleveland, 
Ohio, FIA is the primary trade association representing the 
bulk of forging capacity in North America.

    Forging is the oldest known metalworking process, where 
metal is heated and then formed under high pressure into a wide 
variety of high-strength parts used in anything that rolls, 
floats or flies. Virtually any metal can be forged, from 
aluminum to zirconium. The process is usually performed by 
preheating the metal to a desired temperature before it is 
worked.

    Ajax Rolled Ring & Machine was established in 1980 and has 
approximately 100 employees. We are a custom manufacturer of 
seamless rolled rings that are used in a variety of critical 
industrial components including bearings, gears, flanges, and 
valve seat rings for end-use markets such as power-generation 
including steam and gas-turbine, wind energy, mining and 
construction equipment, oil & gas, petrochemical, defense, rail 
transportation, and a wide variety of general industrial 
applications. We make rolled rings that range from 7.5 to 100 
inches in diameter and weighing from 15 to 3,500 pounds, using 
carbon, alloy, and stainless grades of steel as well as certain 
non-ferrous grades such as copper.

    The modern forging process is both capital-intensive and 
energy-intensive. Adding a new production line for our company 
would cost in excess of $15 million, and we have significant 
expenditure on our equipment every year due to the intense wear 
on the equipment. We also are a major user of natural gas and 
electricity in our region. Given those requirements, it may 
surprise you to know that most forging plants are small and 
medium-sized businesses. Specifically, 95 of FIA's 
approximately 200 members are small businesses. Focusing just 
on our forging producer members, 50 out of 110 are small 
businesses. Approximately half of our supplier members are 
small businesses. 55% of FIA members have sales below $30 
million. Only 12% have sales over $120 million. These plants 
provide over 35,000 well-paid jobs and benefits. In 2012, the 
average hourly rate for a forge employee was $19.28 with an 
additional $9.48 of benefits paid by the employer.

    In 2012, custom forging accounted for nearly $10.6 billion 
of sales in North America. An additional $3-$5 billion in 
catalog and captive sales would bring the industry total for 
2012 to the $13.6-15.6 billion range. Comprised of less than 
500 forging operations in 38 states, Canada and Mexico, the 
largest U.S. presence of forging operations is in Ohio (77, 
Pennsylvania (63), Illinois (54), Michigan (54), California 
(38), Texas (41), New York (16), Indiana (18), Wisconsin (17), 
Kentucky (13), Massachusetts (10) and South Carolina (9).

    In spite of the fact that the industry is populated by 
mostly small and medium-sized businesses, the forging industry 
is critical to the U.S. economy. We are, in fact, one of the 
corner stones of U.S. manufacturing.

    Forged parts are strong and reliable and therefore, vital 
in performance-critical applications. Forgings are rarely seen 
or identified by consumers, because they are normally component 
parts inside assemblies. For example, forgings are necessary 
components in the following applications:

           Automotive - A single car or truck may 
        contain 250 forgings, predominantly in the engine and 
        transmission; 40% of all truck axle assemblies are 
        comprised of forged components;

           Aerospace - structural, engine and landing 
        gear parts of commercial and military aircraft are 
        forged;

           Defense - a heavy tank contains over 550 
        separate forgings; the 120mm gun tube on the M1A2 
        battle tank is forged; the US Navy's Aegis Class guided 
        missile destroyers are steered by 2 forged rudder 
        stocks approximately 20 feet in length and weighing 
        35,000 pounds each; Cruise missile warheads and all 
        penetrator bomb cases are forged; a standard artillery 
        shell usually contains at least 2 forged components;
            Power Generation - pressure vessels, 
        generator rotors, pump shafts, valve manifolds, valve 
        bodies, turbine blades and shafts, pipes and fittings 
        are forged for nuclear (commercial and naval), land and 
        marine power generation equipment;

           Wind Energy - about 20 metric tons of 
        forgings are used in a typical large wind turbine;

           Oil and Gas Exploration - hundreds of 
        forgings are used in both an oil rig tension leg 
        platform and a land-based drilling rig; in addition 
        forgings are used in the transportation of oil and gas 
        under high pressure;

           Mining - forgings up to 70,000 pounds are 
        used in surface and underground mining equipment;

           Rail - The Association of American Railroads 
        requires all axles to be forged for locomotives. The 
        traction gears and the engine crankshaft and camshaft 
        in locomotives are also all forged;

           Medical - Quality surgical tools and joint 
        replacements require strong, lightweight forgings;

           Tools - Hammers and wrenches are forged; and

           Sports - Forged golf clubs allow more 
        efficient transfer of energy from club to ball than 
        traditional clubs--that equals more distance without 
        swinging harder.

    Forging is Both Energy-Intensive and Critical to the Energy 
Production Sector

    Because we produce parts for the energy supply chain and 
are heavily dependent on adequate supplies of competitively 
priced natural gas and electricity, forgers like Ajax are in a 
unique position to comment on the overall benefits to the 
economy created by the increased supplies of domestic natural 
gas and oil we are now enjoying in the U.S. Increased 
exploration for oil and gas is not only beneficial to our cost 
structure, through lower priced energy, but also leads to 
increased demand for our forgings.

    Direct Suppliers to the Oil & Gas Industry

    As noted above, hundreds of forgings are used in both oil 
rig tension leg platforms, land-based drilling rigs and 
pipelines. My company makes gears, bearings and flanges that 
are sold to valve, pipe and flange manufacturers in the oil & 
gas field. Our products are also sold to the manufacturers of 
drills, pumps and many other related equipment applications. 
Other forgers make critical parts such as the forged drill 
bits, without which the hydraulic fracturing (`fracking') 
activity in our country would not be possible. This industry is 
responsible for much of the increased supply of domestic 
natural gas we are seeing today.

    Demand for forged rings that we supply for valves used in 
oil and gas pipelines has risen by 20-30 percent in the past 2 
years. We have added at least 10 new positions in this 
timeframe for both forging and precision machining activities. 
The exacting requirements of these valves, many of which are 
for sub-sea applications, are such that only stainless steel 
forgings of the very highest standards and machined to 
tolerances of thousandths of an inch are acceptable.

    As many have noted, opportunities such as shale gas 
extraction and the potential Keystone Pipeline extension in the 
U.S. occur once in a generation. Shale gas extraction is 
already providing significant benefits to our economy, and the 
Keystone Pipeline extension promises to create a significant 
number of jobs during construction as well as provide cost-
effective supplies of crude oil from a stable and friendly 
source. The FIA strongly believes that safe, responsible 
development of these energy sources will continue to fuel a 
U.S. manufacturing renaissance, and U.S. policies should not 
erect artificial regulatory barriers to their success.

    Abundant Domestic Supplies of a Key Input to the Forging 
Process

    In the case of natural gas, we benefit directly from the 
increased exploration, extraction and transportation of gas 
because we supply to the industry itself. Also, as natural gas 
is a key input and a key cost driver in our manufacturing 
process, we also benefit from stable pricing of that energy 
source.

    Most forging work is done at temperatures up to 2300+F, 
with subsequent heat treating done at up to 1900+F, using 
natural gas or electric furnaces. Therefore, forgers require 
adequate, stable, affordable supplies of natural gas and 
electricity to make the critical parts we make for nearly every 
industry sector imaginable.

    In 2008, natural gas prices were extremely volatile and 
supply was inadequate. Prices ranged from $5.8 per MBTU to 
$12.7 per MBTU. When natural gas is both a key input and a key 
cost driver, that market volatility makes is extremely 
difficult to plan and to remain globally competitive. In 
addition, the competitive nature of our industry means that 
such cost increases can rarely be passed on to the customer.

    Forgers' other key raw material is metal, and for most 
forgers this means steel. The metal producers also require 
natural gas as a key input and a low and stable gas price helps 
them to keep metal prices lower for their customers. While the 
majority of the metal producers might not qualify as small 
businesses, their customers often are. These customers could be 
forging companies, such as Ajax, or else distributors, many of 
whom are also small businesses.

    Today, with the abundant supplies of natural gas being 
extracted and sold in the U.S., we have confidence in the 
stability and competitive price of the market. Since the 
beginning of 2011, the price range has been between $1.95 MBTU 
and $4.50 MBTU. That means I can have confidence in my ability 
to be competitive, because I can predict the cost of one of my 
key inputs. I can also feel more confident in making investment 
decisions, which involve a longer time horizon, because I have 
more confidence that energy costs and supplies will be more 
stable. A further factor is our competitive position versus 
overseas forging companies. The fact that we have stable and 
low priced energy helps us to compete with these companies both 
in the U.S. and in overseas markets.

    Conclusion

    It is easy to see the immediate effect on job creation in 
the towns and states where shale gas extraction is actively 
being conducted. It is a logical next step to consider the 
increased jobs that suppliers to the oil & gas industry, like 
Ajax, have been enjoying as a result of this increased gas 
exploration and extraction activity. Your subcommittee has 
already heard from small businesses that will be directly 
impacted by the building of the Keystone Pipeline extension. 
For those of us that supply directly to the oil and gas 
industry, demand for forgings has slowed somewhat now that the 
extraction is actually taking place. Approval of the Keystone 
Pipeline extension would obviously generate significant new 
demand.

    However, because natural gas is also an input and key cost 
driver in my manufacturing process, the stable, adequate 
supplies of less expensive domestic natural gas means that 
there is more activity in many sectors, whether for defense 
applications, rail applications or general industry and the 
long term benefits will be significant.

    The U.S. must be very cautious in enacting regulatory 
barriers to increased domestic supplies of oil & gas. Policies 
that artificially increase prices or restrict supplies would 
certainly have a direct negative effect on the entire oil & gas 
supply chain regardless of company size. But they would also 
negatively affect hundreds of small manufacturers like Ajax and 
others in the forging industry supply chain that provide 
critical components to almost every industry you can imagine--
and that means everything from airplanes to hand tools to hip 
joints. That is why we believe that policies that continue to 
encourage safe exploration and development of domestic energy 
sources are vital to the continued revival of U.S. 
manufacturing, including the forging industry.

    Thank you for the opportunity to appear before you today. I 
look forward to your questions.
        Testimony of Moffat County Commissioner Charles G. Grobe


                              In front of


          Small Business Subcommittee on Ag, Energy and Trade


                             June 20, 2013


    Thank you Chairman Tipton, Ranking Member Murphy, and other 
members of the subcommittee for holding this important hearing. 
My name is Chuck Grobe, and I am a county commissioner from 
Moffat County, Colorado. When combined, the coal, uranium, 
vanadium, oil shale, shale-oil and natural gas in our region 
has the potential to power our nation for generations as 
technologies continue to unlock and enhance their energy 
potential. I will be sharing with you the benefits of oil and 
natural gas production related to job creation in Northwest 
Colorado.

    Moffat County is the second largest county in Colorado with 
just over 3 million acres of land, 60% of which is federally 
managed. Our public and private lands host a variety of uses 
that sustain our economy and culture. The top ten taxpayers of 
Moffat County are all energy related, and 20% of our tax base 
is supplied from the oil and gas sector. The Yampa River runs 
through the middle of our county and hosts endangered fish 
along with sport fish. The Sagebrush Steppe in our county hosts 
some of our state's largest cattle ranches, various oil and gas 
operations, coal mines, a power plant, and Colorado's largest 
Greater Sage Grouse populations. In the past and future, coal 
has and will play an important role in the economic well-being 
of Moffat County. The Mancos and Niobrara formations exist 
throughout Colorado (and other states) and hold the promise of 
great prosperity for Western Colorado. In fact, recently, the 
most prolific Niobrara well in Colorado was drilled in 
neighboring Garfield County and is the highest producing shale 
well in Colorado to date. Our citizens have a history of 
generations being employed by the agriculture, energy, and 
recreation sectors all receiving various nationally recognized 
awards for land animal conservation. Most importantly, our 
community has decades of on-the-ground examples of 
collaborative efforts that bring varous interest groups to the 
tables to reach agreement on the most controversial public 
lands issues.

    Vermillion Basin:

    One of these issues is that of the Vermillion Basin. The 
Vermillion Basin is a 77,000 acre cold desert shrub land that 
hosts a 200 billion cubic feet natural gas resource as well as 
equally valued scenery and wildlife. Over a decade ago, and 
very early in the Bureau of Land Management's land planning 
process, the Moffat County Commissioners acknowledged the 
environmental values of Vermillion Basin as well as its natural 
gas potential. Moffat County proposed to protect those 
environmental values while encouraging the local economy 
through natural gas development, having only the absolute 
highest reclamation standards known to work in the high desert 
ecosystems of the Vermillion Basin. Moffat County then led the 
consensus building process between all affected governments and 
agencies, known as Cooperating Agencies, to agree to protect 
99% of Vermillion Basin while only utilizing 1% of the surface 
at any given time. For several years, the local Bureau of Land 
Management office backed this plan. Entirely due to political 
reasons, the locally supported plan of protecting 99% of 
Vermillion Basin's surface was overturned by Washington 
politics, and Vermillion Basin is currently inaccessible to 
natural gas development. The economic losses of not developing 
Vermillion Basin translate to:

           $700 million of natural gas resource that 
        would be extracted (sold at $3.50/mcf)

           $25.6 million to Moffat County Taxing 
        Districts (Moffat County School District, Colorado 
        Northwestern Community College, Craig Rural Fire 
        Protection District, City of Craig, Town of Dinosaur, 
        Colorado River Water Conservancy District, and Moffat 
        County)

           $7.7 million in bonus payments split between 
        the State and Federal government and partially returned 
        to counties and cities within Moffat County (leased at 
        $100/acre Moffat County average 2008-2010)

           $87 million in federal royalties partially 
        returned to cities and counties within Moffat County

           $43.75 million of the State of Colorado's 
        share of royalty

           $77 million of ad valorem (i.e. production) 
        and severance tax payments

    With the uncertainty of conducting business where 
situations such as the Vermillion Basin example carry the day, 
where political will rather than facts dictate the outcome, 
small businesses across our region cannot afford to risk the 
finances to start or grow business that do not have regulatory 
certainty and businesses cannot provide reliable employment.

    Excessive local, state, and national regulations on the oil 
and gas industry cause volatility to our economies:

    Despite the good news of jobs and new revenues on the 
horizon, the promise of prosperity for rural Western Colorado 
is obstructed by a very dark cloud. Regulatory uncertainty, 
unnecessary federal regulations, frivolous lawsuits, and the 
lack of political courage by the current administration to 
allow development of these new oil and gas sources, puts our 
jobs potential in jeopardy. Quite often political will, rather 
than facts, dictate whether or not to develop particular energy 
projects. Unfortunately, this misguided approach has had 
numerous consequences for small businesses and our economics 
across the region. Regulatory uncertainty for the oil and gas 
industry has a negative impact on small businesses. Wages in 
the oil and gas industry are 51% higher than most other 
industries in the state. These are good paying jobs. Oil and 
gas employees stay at our local hotels, eat in our restaurants, 
and shop on main street. Many companies have chosen to focus 
their efforts in states with pro-development policies. As a 
result, Colorado has lost important revenues and jobs.

    To demonstrate how companies desire to avoid regulation, in 
Northwest Colorado, the Niobrara Shale-oil project has been 
heavily explored for the last couple years. The Niobrara oil 
resource straddles Routt and Moffat County equally. The USGS 
identifies the Niobrara oil resource as similar acreage in each 
county, similar depth in each county, and generally regards the 
geophysical opportunity for extraction equal in each county. 
Each of these counties has long standing, tremendously 
different philosophical perspectives on drilling. Moffat County 
generally has a blue-collar work force that make a living in 
the energy industry and their elected officials have 
traditionally represented such. Routt County is more of a 
resort area and is regarded by the state Oil and Gas Commission 
as one of the most regulatory restrictive counties in the state 
on oil and gas development. Last year, 20 wells were drilled in 
Moffat County exploring the Niobrara oil resources. Given the 
equal geologic opportunity to explore the Niobrara oil 
resource, one would expect a similar number of wells in Routt 
County. However, solely due to public desire and a long history 
of elected officials representing that public desire in the 
form of regulation, only one (1) well was drilled last year in 
Routt County.

    This same trend experienced locally was translated to the 
state level in 2008 when, due to additional regulatory burdens 
placed on the state by the Colorado General Assembly, 
significantly more strigent rules were placed on oil and gas 
operators through a new rulemaking process of the Colorado Oil 
and Gas Commission. The new rules gave Colorado national 
recognition as one of the most highly regulated states in the 
nation for oil and gas development. While the State will 
broadly acknowledge a general increase in applications to drill 
and the oil and gas associations will pubically acknowledge 
industry continues to drill in Colorado; this is not because of 
the additional rules, but in-spite of the rules.

    Just as in both the county and state examples above, 
Congress must struggle with national rules, such as the Bureau 
of Land Management's hydraulic fracturing rules. Trends of 
increased regulation in the oil and gas industry have 
manifested locally through creative avoidance of federal lands. 
For example, it is common in my county for Federal Exploratory 
Units, known as federal units, to now follow unusual aliquot 
descriptions to avoid as much federal surface and minimize the 
inclusion of federal minerals simply to decrease the federal 
regulatory footprint. In fact, the same 2010 University of 
Colorado study mentioned above reveals the fact that oil and 
gas companies focus activity three fold greater on private land 
sthan they conduct activity on federal lands. This trend is 
alarming considering the cost of leasing private lands in 
Colorado is 8.5 times greater than federal lands. Despite the 
added costs of moving into private lands to avoid regulatory 
burdens, the trend is growing. The Niobrara shale oils in 
Moffat County are almost entirely being explored on private or 
State Trust Lands surface. The trend of oil and gas companies 
increasing operations on private lands is not only local and 
statewide, but national. See graphs below.
[GRAPHIC] [TIFF OMITTED] T1700.001

    Balancing wildlife interests with energy development:

    The above mentioned December 2011 Colorado University 
School of Business study revealed statistics that provided 
insights about the importance of the oil and gas industry for 
our nation, Colorado and small businesses. ``The OIL & GAS 
Industry in Colorado directly employs over 40,000 people and 
supports over 107,000 jobs in the state and provides $6.5 
billion in total labor income and $31 billion in economic 
output annually.''

    Some important figures from the above referenced study are:

           $130 million to school and education funds 
        solely from State Land Board leasing/royalties (oil and 
        gas, 2012)

           The oil and gas industry pays over 90% of 
        our state's severance tax.

    For Moffat County:

           629 producing wells owned by 41 different 
        operators

           44 horizontal wells were permitted in 2012 
        with 16 currently producing. This is a significant 
        increase from years past. If this trend continues, 
        there will be more significant oil production on 
        significantly less acreage, in turn, this will mean 
        significantly higher property tax revenues with less 
        surface disturbance.

           Oil production in Moffat County has 
        increased 25% from 2011 to 2012 which will be reflected 
        in 2013 when 2012 taxes are collected.

    The tax revenues provided from the industry provide 
critical resources for education and other important programs. 
Protesters who oppose development fail to make this connection 
and do not consider that many of the other programs they 
support receive revenues and royalties from the oil and gas 
industry.

    Colorado is filled with beautiful scenery and abundant 
wildlife. Current technology allows for a balanced approach 
that respects the environment but still allows us to make best 
use of our natural resources. Being home to the largest Greater 
Sage Grouse populations in Colorado, Moffat County has long led 
planning efforts to assure the thriving of grouse populations 
while simulateneously protecting a vibrant local energy 
economy. Known as the ``Elk Capital of the World,'' we 
constantly struggle between balancing timing stipulations 
recommended by the Colorado wildlife management agency and 
finding a window within the year for industry to operate. 
Finding the balance where both wildlife and oil and gas can 
thrive seems to employ as many wildlife biologists as rig 
hands!

    Summary

    In addition to my years of experience working for a local 
power generation plant and experience as a local elected 
official at both the city and county levels, I have spent 
several hours discussing these issues with local business 
owners around my community. The need for stability within local 
businesses is evident. I have found that the uncertainty of the 
oil and gas industry, because of additional regulations, has a 
ripple down effect on local businesses. A local specialty 
industrial parts supply house has chosen to focus on supplying 
products to the local power plant and coal mines instead of the 
volatile oil and gas industry. While the entrepreneurial spirit 
still exists, a consistent theme of being beat down by state 
and federal regulations causes companies to look for new 
markets. For example, a welding and fabrication shop has 
diversified and begun servicing oil fields in other states. The 
higher wages cause local business to desire to stay in the oil 
and gas industry. However, additional regulation is mounting on 
their backs and gradually growing regulatory burdens drag them 
down. High paying jobs and the entrepreneurial spirit is still 
driving extracting oil and gas resources from Moffat County, 
yet limited access to federal lands is driving exploration to 
the private land. Wilderness Study Areas, wildlife 
stipulations, and additional state regulatory burdens provide 
resistance to recovery from a nation-wide recession.
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