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

             H.R. 6, THE DOMESTIC PROSPERITY AND GLOBAL FREEDOM ACT

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

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON ENERGY AND POWER

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 MARCH 25, 2014

                                   __________

                               Serial No. 113-129

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                                       ______

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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
    JOE BARTON, Texas                      Ranking Member
      Chairman Emeritus                  JOHN D. DINGELL, Michigan
    ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
    JOHN SHIMKUS, Illinois               BOBBY L. RUSH, Illinois
    JOSEPH R. PITTS, Pennsylvania        ANNA G. ESHOO, California
    GREG WALDEN, Oregon                  ELIOT L. ENGEL, New York
    LEE TERRY, Nebraska                  GENE GREEN, Texas
    MIKE ROGERS, Michigan                DIANA DeGETTE, Colorado
    TIM MURPHY, Pennsylvania             LOIS CAPPS, California
    MICHAEL C. BURGESS, Texas            MICHAEL F. DOYLE, Pennsylvania
    MARSHA BLACKBURN, Tennessee          JANICE D. SCHAKOWSKY, Illinois
      Vice Chairman                      JIM MATHESON, Utah
    PHIL GINGREY, Georgia                G.K. BUTTERFIELD, North Carolina
    STEVE SCALISE, Louisiana             JOHN BARROW, Georgia
    ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
    CATHY McMORRIS RODGERS, Washington   DONNA M. CHRISTENSEN, Virgin
    GREGG HARPER, Mississippi            Islands
    LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
    BILL CASSIDY, Louisiana              JOHN P. SARBANES, Maryland
    BRETT GUTHRIE, Kentucky              JERRY McNERNEY, California
    PETE OLSON, Texas                    BRUCE L. BRALEY, Iowa
    DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
    CORY GARDNER, Colorado               BEN RAY LUJAN, New Mexico
    MIKE POMPEO, Kansas                  PAUL TONKO, New York
    ADAM KINZINGER, Illinois             JOHN A. YARMUTH, Kentucky
    H. MORGAN GRIFFITH, Virginia
    GUS M. BILIRAKIS, Florida
    BILL JOHNSON, Ohio
    BILLY LONG, Missouri
    RENEE L. ELLMERS, North Carolina

                                     7_____

                        Subcommittee on Energy and Power

                             ED WHITFIELD, Kentucky
                                     Chairman
    STEVE SCALISE, Louisiana             BOBBY L. RUSH, Illinois
      Vice Chairman                        Ranking Member
    RALPH M. HALL, Texas                 JERRY McNERNEY, California
    JOHN SHIMKUS, Illinois               PAUL TONKO, New York
    JOSEPH R. PITTS, Pennsylvania        JOHN A. YARMUTH, Kentucky
    LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
    MICHAEL C. BURGESS, Texas            GENE GREEN, Texas
    ROBERT E. LATTA, Ohio                LOIS CAPPS, California
    BILL CASSIDY, Louisiana              MICHAEL F. DOYLE, Pennsylvania
    PETE OLSON, Texas                    JOHN BARROW, Georgia
    DAVID B. McKINLEY, West Virginia     DORIS O. MATSUI, California
    CORY GARDNER, Colorado               DONNA M. CHRISTENSEN, Virgin
    MIKE POMPEO, Kansas                      Islands
    ADAM KINZINGER, Illinois             KATHY CASTOR, Florida
    H. MORGAN GRIFFITH, Virginia         JOHN D. DINGELL, Michigan (ex
    JOE BARTON, Texas                        officio)
    FRED UPTON, Michigan (ex officio)    HENRY A. WAXMAN, California (ex
                                             officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Ed Whitfield, a Representative in Congress from the
      Commonwealth of Kentucky, opening statement....................     1
        Prepared statement...........................................     2
    Hon. Cory Gardner, a Representative in Congress from the State of
      Colorado, opening statement....................................     6
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................     7
    Hon. Fred Upton, a Representative in Congress from the State of
      Michigan, opening statement....................................     8
        Prepared statement...........................................     9
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, opening statement.......................................     9
    Hon. John Shimkus, a Representative in Congress from the State of
      Illinois, opening statement....................................    10
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................    10
    Hon. Jerry McNerney, a Representative in Congress from the State
      of California, opening statement...............................    11
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, prepared statement......................................   144

                                   Witnesses

    Paula Gant, Deputy Assistant Secretary for Oil and Natural Gas,
      Office of Fossil Energy, Department of Energy..................    12
        Prepared statement...........................................    14
        Answers to submitted questions...............................   145
    Anita Orban, Ambassador-at-Large for Energy Security, Ministry of
      Foreign Affairs, Hungary.......................................    33
        Prepared statement...........................................    35
    James Bacchus, Chair, Global Practice Group, Greenberg Trauig LLP    46
        Prepared statement...........................................    49
    David G. Schryver, Executive Vice President, American Public Gas
      Association....................................................    58
        Prepared statement...........................................    60
        Answers to submitted questions...............................   155
    Kenneth H. Ditzel, Principal, Charles River Associates...........    80
        Prepared statement \1\.......................................    82
        Answers to submitted questions...............................   157
    W. David Montgomery, Senior Vice President, NERA Economic
      Consulting.....................................................   102
        Prepared statement \1\.......................................   105
        Answers to submitted questions...............................   162

                               Submitted Material

    H.R. 6, the Domestic Prosperity and Global Freedom Act, submitted
      by Mr. Whitfield...............................................     4
    Letter of March 24, 2014, from Paul N. Cicio, President,
      Industrial Energy Consumers of America, to Mr. Whitfield and
      Mr. Rush, submitted by Mr. Rush................................   139

    ----------
    \1\ Additional supporting documents are available at http://
      docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=101953.

             H.R. 6, THE DOMESTIC PROSPERITY AND GLOBAL FREEDOM ACT

                                  ----------

                            TUESDAY, MARCH 25, 2014

                      House of Representatives,
                      Subcommittee on Energy and Power,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 1:04 p.m., in
    room 2123 of the Rayburn House Office Building, Hon. Ed
    Whitefield (chairman of the subcommittee) presiding.
        Members present: Representatives Whitfield, Hall, Shimkus,
    Terry, Burgess, Latta, Cassidy, McKinley, Gardner, Pompeo,
    Kinzinger, Griffith, Barton, Upton (ex officio), Rush,
    McNerney, Tonko, Green, Doyle, Barrow, Christensen, Castor, and
    Waxman (ex officio).
        Staff present: Nick Abraham, Legislative Clerk; Gary
    Andres, Staff Director; Charlotte Baker, Deputy Communications
    Director; Sean Bonyun, Communications Director; Allison Busbee,
    Policy Coordinator, Energy and Power; Tom Hassenboehler, Chief
    Counsel, Energy and Power; Jason Knox, Counsel, Energy and
    Power; Ben Lieberman, Counsel, Energy and Power; Brandon
    Mooney, Professional Staff Member; Chris Sarley, Policy
    Coordinator, Environment and the Economy; Jeff Baran,
    Democratic Senior Counsel; Alison Cassady, Democratic Senior
    Professional Staff Member; and Caitlin Haberman, Democratic
    Policy Analyst.
        Mr. Whitfield. I would like to call the hearing to order
    this afternoon. The topic of the hearing this afternoon is on
    H.R. 6, The Domestic Prosperity and Global Freedom Act. And at
    this time I would recognized myself for 5 minutes opening
    statement.

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

        And, as I said, we are excited about this hearing today.
    This is on the legislation introduced by our colleague Cory
    Gardner of Colorado. One of the subject matters that is really
    being discussed throughout the world today is the abundant
    energy supply in America, and, of course, one reason for that
    is the recent finds in natural gas in America. And we believe
    that, while we need further discussion on it, of course, that
    the export of liquid natural gas, not only would it be
    beneficial to our allies in Europe who find themselves
    dependent on expensive natural gas coming from Russia, but it
    would also be beneficial to our own economy because of the low
    cost of natural gas. And with the expansion of infrastructure
    to get that natural gas to market, it is going to create a lot
    of jobs. Another benefit from the export of liquefied natural
    gas would, of course, be to improve our trade account deficit,
    which has been negative for many years.
        And so, despite all of these benefits, though, the current
    process for approved LNG exports is very slow and
    unpredictable. Just yesterday the DOE did approve an
    application to export LNG from the Jordan Cove terminal in Coos
    Bay, Oregon. This marks the seventh application to be approved
    by DOE, but there are still over 20 applications pending. While
    the world waits for natural gas from America, a backlog of
    applications to export languishes at the Department of Energy.
    Now, we also understand that getting the permit approved at DOE
    is just the beginning. You still have to go through FERTH, the
    environmental process, so it is going to take a while. But this
    is an important development for America. We believe that it is
    important for the entire world.
        And at this time I would like to yield the balance of my
    time to the author of this legislation, Cory Gardner of
    Colorado.
        [The prepared statement of Mr. Whitfield follows:]

                    Prepared statement of Hon. Ed Whitfield

        This subcommittee has spent a great deal of time analyzing
    the impact of the Nation's oil and natural gas boom. One
    recurring theme throughout our work is that Federal policy has
    not yet adjusted to the new reality of American energy
    abundance, and in fact Obama administration red tape often
    stands in the way of the potential benefits of the energy boom.
    This is clearly the case with regard to the administration's
    barriers to natural gas exports, which is why my friend and
    colleague Cory Gardner has introduced H.R. 6, the ``Domestic
    Prosperity and Global Freedom Act,'' which would facilitate the
    export of natural gas.
        According to the Energy Information Administration,
    America's natural gas output has been rising since 2006. EIA
    projects the increases to continue through 2040, and expects
    domestic production of natural gas to remain well above
    domestic demand. And at the same time that we have this natural
    gas surplus, many of our allies round the world urgently need
    additional natural gas supplies.
        The case for mutually beneficial trade in liquefied natural
    gas (LNG) is a strong one. This was the conclusion I drew from
    our two hearings on energy exports, as well as our October 10,
    2013 forum that invited representatives from 11 foreign
    governments to discuss their perspectives on U.S. LNG.
        At the forum, we had the opportunity to hear from three
    European allies--Hungary, Lithuania, and the Czech Republic.
    All three face the difficulties of being reliant on Russia for
    natural gas. In particular, they explained that they bear the
    brunt of Russian economic and political pressure backed up by
    the threat of raising prices or even cutting off gas supplies.
        Our European allies expressed a strong interest in being
    able to import LNG from the U.S. They stressed that even
    relatively modest volumes of U.S. LNG reaching the European
    market can greatly reduce Russia's leverage. They also noted
    that the mere signal that America is serious about natural gas
    exports would immediately strengthen their negotiating
    position, long before the first LNG shipment goes out. This
    subcommittee is grateful to Anita Orban, Hungary's Ambassador-
    at-Large for Energy Security, for participating in that forum
    and for appearing before us again today.
        And I might add that our efforts to better understand the
    geopolitical benefits of U.S. LNG exports were underway well
    before the current crisis in the Ukraine erupted. But the
    Ukraine situation further underscores those benefits.
        There is no question that American LNG exports would be
    great news for our allies in Europe as well as other nations
    around the world that want to buy our LNG. But it is also great
    news for our economy here at home. A study conducted for the
    Department of Energy concluded that LNG exports would provide
    net benefits for American consumers and the economy overall. A
    subsequent update of that study confirmed those benefits and
    also highlighted the net jobs created by LNG exports. I am
    happy to have the lead author of these studies, David
    Montgomery, appearing before us today.
        Despite all of these benefits, the current process for
    approving LNG exports is very slow and unpredictable. Just
    yesterday, the DOE approved an application to export LNG from
    the Jordan Cove Terminal in Coos Bay, Oregon. This marks the
    7th application to be approved by DOE, but there are still over
    20 applications pending. While the world waits for natural gas
    from America, a backlog of applications to export languishes at
    the Department of Energy. H.R. 6 cuts the red tape, approves
    the pending applications, and provides future applicants with a
    much more reasonable process.
        U.S. LNG exports would be an economic success story and a
    foreign policy success story, and would come at a time where
    the Nation could use a lot more of both.

        [H.R. 6 follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. And at this time I would like to yield the
    balance of my time to the author of this legislation, Cory
    Gardner of Colorado.

      OPENING STATEMENT OF HON. CORY GARDNER, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF COLORADO

        Mr. Gardner. I thank the gentleman. Thank you, Chairman,
    for this hearing today on H.R. 6, The Domestic Prosperity and
    Global Freedom Act. I would also like to thank Representative
    Tim Ryan and all of the Members who have chosen to co-sponsor
    this legislation. This bill that I have introduced is short and
    straightforward. It grants approval for completed LNG export
    applications that are currently languishing at the Department
    of Energy, and would modify the standard of review for future
    export applications by shifting the benchmark from free trade
    agreement countries to World Trade Organization member
    countries. Rarely in Congress do we get chances to pass
    legislation that creates economic opportunities here at home,
    strengthen and help our allies around the globe, weaken our
    enemies, and not spend the American taxpayers' money all at the
    same time. Rarely do we even get to do one of those at the same
    time. But H.R. 6 gives us a chance to do all of these.
        I want to first give praise to what has brought us to the
    point of even being able to discuss selling some natural gas to
    other countries. American ingenuity has propelled the United
    States to the number one natural gas producing nation in the
    world. The shale gas revolution has provided enormous economic
    benefit to our Nation. With the ability to sell some of the
    natural gas we produce, we can see even more economic benefit.
        To paraphrase Pulitzer Prize-winning author Dr. Daniel
    Yergin, when he testified before this subcommittee last year,
    the United States is demand constrained, not supply
    constrained, when it comes to natural gas. In my home State of
    Colorado, on the western slope, the Peyonce Basin has been
    suffering due in part to the overabundance of natural gas
    supplies, which are saturating the market. Expanding the market
    for U.S. natural gas will encourage greater investment and new
    production.
        H.R. 6 also offers immense geopolitical benefits. The near
    monopolistic control Russia has on the LNG market in Europe has
    given them immense power, and reforming the LNG export process
    would send an immediate signal to the rest of the world that
    would help check Russia's aggression. But for its natural gas
    and oil production and exports, Russia's economy is no match
    for our industrial know-how and ingenuity.
        It is this American ingenuity that discovered there is
    enough natural gas to use domestically and to export to our
    allies around the globe. We have reached a turning point in
    this country that is moving towards energy independence. We no
    longer need to be at the mercy of nations that mean us harm.
    Being less dependent on foreign energy keeps our troops at
    home, keeps them safe, and keeps them from serving abroad.
    Energy produced here at home and sent overseas means we are
    sending energy, and not our troops.
        It is a false dichotomy to say that we must choose between
    allowing for the sale of natural gas to other nations or
    keeping it here. We will have enough for both for generations
    to come. There are some that are opposing LNG exports who still
    cling to the failed notion of Nixon era price control efforts.
    Like the leisure suit and eight-track player, it is time to let
    it go. We have heard from former Senator Jay Bennett Johnston
    and others that history is littered with the failed policies to
    control prices. It is time for us to move forward.
        I want to thank those that will be testifying here today,
    and I look forward to this debate. Thank you, Mr. Chairman. I
    yield back.
        Mr. Whitfield. Gentleman yields back. At this time
    recognize the gentleman from Illinois, Mr. Rush, for a 5-minute
    opening statement.

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

        Mr. Rush. I want to thank you, Mr. Chairman, for holding
    today's hearing on the potential impacts of exporting liquefied
    natural gas to overseas markets, as laid out in H.R. 6. Mr.
    Chairman, I look forward to today's hearing of experts,
    stakeholders, to clarify questions I have regarding the
    consequences of exporting LNG, and the impact it may have on
    several key issues that I am concerned about, including
    domestic natural gas prices, the potential for jobs, the effect
    on our manufacturing base, as well as the impact on the U.S.
    trade balance.
        As I understand the issue, Mr. Chairman, proponents of
    exporting natural gas say that doing so will lead to a net
    positive impact on American jobs, on the American economy, and
    the U.S. trade balance. Supporters also contend that exporting
    LNG to Japan, South Korea, Europe, and other U.S. allies will
    lower their natural gas prices, and provide them with leverage
    in negotiating with other natural gas suppliers, such as
    Russia. Opponents, primarily from within the U.S. manufacturing
    sector, disagree with those conclusions, and argue that
    exporting LNG will raise natural gas prices in the U.S., harm
    domestic manufacturing in energy intensive industries, and also
    hurt other natural gas consumers.
        The underlying bill, H.R. 6, will amend the Natural Gas Act
    to increase the number of destination countries for LNG exports
    for which DOE is required to deem applications consistent with
    the public interest. Under current law, DOE is required to
    grant applications for LNG exports to the 20, I want to
    emphasize that, to the 20 countries that have free trade
    agreements with the U.S. However, H.R. 6 will instead require
    DOE to approve ``without modification or delay'' applications
    for LNG exports to all 159 members of the WTO, including all
    likely importers of LNG, such as China, India, Japan, and
    European countries. While increasing our exports of LNG may
    have positive impact on our economy, I believe that it is
    imperative that we do so in a manner that is both reasonable,
    that is safe, and that is truly in the public's interest, Mr.
    Chairman.
        Mr. Chairman, today I am eager to engage our panel of
    witnesses to gain more insight into both the impacts of
    exporting LNG generally, as well as to learn more about the
    effects that H.R. 6 will have specifically. With an abundance
    of natural gas domestically, due to our technological advances,
    including hydraulic fracturing and horizontal drilling, it is
    important for the members of this subcommittee to fully
    understand the consequences of increasing exports, and the
    impact that will have on our consumers, our manufacturing base,
    and our economy as a whole.
        So I look forward to today's witnesses on this important
    matter. And with that, Mr. Chairman, I yield back the balance
    of my time.
        Mr. Whitfield. Thank you, Mr. Rush. And at this time I
    would like to recognize the chairman of the full committee, Mr.
    Upton, for 5 minutes.

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

        Mr. Upton. Well, thank you, Mr. Chairman. And before I
    start, I just want to welcome back Ranking Member Rush. I know
    his family has experienced some real health concerns, and you
    have been out of the saddle, and we really do welcome you back,
    so good to see you.
        Three weeks ago the House overwhelmingly, rightly so,
    passed a billion-dollar loan guarantee aid package for Ukraine.
    And today the House Foreign Affairs Committee is marking up yet
    another package of support as Russia's aggression continues. In
    this committee, we would debate on a bill that would help not
    only Ukraine, but literally every other Eastern and Central
    European Country, as well as other allies in Asia, and around
    the world, who are dependent on Russia's natural gas. And
    although passage of H.R. 6, The Domestic Prosperity and Global
    Freedom Act, won't certainly immediately turn on the spigot of
    American gas to Ukrainian or Hungarian homes overnight, it will
    indeed send a message, the right message, and a very powerful
    signal.
        The U.S. will be well positioned as a global energy
    superpower. We have the resources, the expertise, and the
    technology to deliver growing amounts of our domestic energy
    bounty to the market in the years and decades to come.
    Increasing exports would also result in the flow of billions of
    dollars into the United States economy. We can do that with
    this bill.
        This committee has an extensive record on the issue of LNG
    exports, including multiple hearings, an international forum,
    and a comprehensive report. And with continued technological
    innovation and access to production, a diverse electricity
    portfolio that indeed keeps all fuel sources in the mix, and a
    commitment to new infrastructure to get surging supplies to
    needed areas of demand, America has the ability to deliver a
    natural gas supply well in excess of our domestic needs. And by
    putting our extra natural gas capacity to use, by entering the
    global marketplace, the U.S. can supplant the influence of
    other exporters, like Russia, while strengthening ties with our
    allies and trading partners around the world. Overall, U.S.
    natural gas exports truly offer this win-win scenario.

        [The prepared statement of Mr. Upton follows:]

                     Prepared statement of Hon. Fred Upton

        Three weeks ago, the House overwhelmingly passed a billion-
    dollar loan guarantee aid package for Ukraine, and today the
    House Foreign Affairs Committee is marking up another package
    of support as Russia's aggression continues. In this committee,
    we begin debate on a bill that would help not only Ukraine, but
    every Eastern and Central European country, as well as other
    allies in Asia and around the world who are dependent upon on
    Russian natural gas. Although passage of H.R. 6, the Domestic
    Prosperity and Global Freedom Act, certainly won't turn on the
    spigot of American gas to Ukranian or Hungarian homes
    overnight, it will send a clear and powerful signal. The U.S.
    will be well positioned as a global energy superpower. We have
    the resources, the expertise, and the technology to deliver
    growing amounts of our domestic energy bounty to the market in
    the years and decades to come. Increasing exports would also
    result in the flow of billions of dollars into the U.S.
    economy. We truly can do well and do good with this bill.
        The committee has an extensive record on the issue of LNG
    exports, including multiple hearings, an international forum,
    and a comprehensive report. With continued technological
    innovation and access to production, a diverse electricity
    portfolio that keeps all fuel sources in the mix, and a
    commitment to new infrastructure to get surging supplies to
    needed areas of demand, America has the ability to deliver a
    natural gas supply well in excess of domestic needs. By putting
    our extra natural gas capacity to use by entering the global
    market, the U.S. can supplant the influence of other exporters
    like Russia while strengthening ties with our allies and
    trading partners around the world.
        U.S. LNG would fight back against Russia in two ways.
    First, by providing more natural gas to the global market, it
    would reduce the price Russia can get away with charging. And
    second, by providing our allies in Europe with an independent
    source of natural gas, it would limit Russia's political
    leverage over these nations. It is highly unlikely that the
    current crisis in Ukraine will be the last time Putin tries to
    bully a neighboring country.
        While the geopolitical benefits of LNG exports are
    substantial, the economic benefits alone should make H.R. 6 a
    no-brainer. Free trade strengthens the U.S. economy, and
    natural gas exports are no exception.
        H.R. 6 is a net jobs creator, including the jobs
    constructing and running the LNG export facilities as well as
    the additional energy industry jobs as natural gas producers
    expand their output to meet the increase in demand. These
    benefits are on top of the indirect jobs created as the
    billions in export revenues work their way through the economy.
        Overall, U.S. natural gas exports truly offer a win-win
    scenario. The U.S. has the chance to sell a product we have in
    abundance and other nations need, and at the same time provide
    a lifeline to our allies in that region for many years to come.
    I look forward to working with Cory Gardner and all of my
    colleagues to see H.R. 6 become law. Thank you.

        Mr. Upton.Yield now to Mr. Barton.

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

        Mr. Barton. Thank you, Chairman Upton, and thank you,
    Chairman Whitfield, and Ranking Member Rush for hosting this
    hearing today. I am proud to be an original co-sponsor of H.R.
    6, along with Congressman Gardner from Colorado. We do need to
    streamline the regulatory process for liquefied LNG exports. In
    the Energy Policy Act of 2005 we gave the FERC the authority to
    conduct the environmental review and make the final decision,
    but we gave the Department of Energy the authority to determine
    whether it was in the national interest to even go forward with
    that.
        I want to compliment the Department of Energy on approving
    the latest project yesterday. I am told they did that in 35
    days. These days, that is a world record lightning speed
    approval, and we are very appreciative of that. Unfortunately,
    there are still more than 20 export applications pending, and
    hopefully, after today's hearing, and with the passage of this
    piece of legislation, we can get that process hopefully even to
    be a little bit more timely. In any event, I look forward to
    today's hearing, I appreciate the witnesses, and I yield to Mr.
    Shimkus the balance of the time.

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

        Mr. Shimkus. Well, I thank my colleague. We should not
    underscore the importance of this legislation for freedom and
    democracy. The countries of Eastern Europe, and even Europe as
    a whole, have been, and will continue to be, to be extorted by
    the Russian Federation. It is a known fact. They extort on oil,
    they do trade, and the like. This bill is really an energy shot
    for freedom for these countries that are trying to get out of
    the Russian sphere of influence. I want to thank Cory for his
    effort. Cory, I know I can speak for all my friends in Eastern
    Europe to say thank you for this effort. It is really
    monumental and incredibly helpful to these countries who are
    looking to release themselves from the yoke of the Russian
    Federation, and of totalitarian regime.
        I don't want to seem melodramatic. I have dealt in this
    area for 18 years, and this is incredibly important at this
    time for these former Eastern European countries, also known as
    the former captive countries, because they once were captive to
    Soviet Union. And I yield back my time.
        Mr. Whitfield. Gentleman's time has expired. At this time I
    will recognize the gentleman from California, Mr. Waxman, for 5
    minutes.

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

        Mr. Waxman. Thank you very much, Mr. Chairman. Today we are
    examining Congressman Gardner's bill to change the approval
    process for liquefied natural gas exports. I said it when we
    first started discussing the possibility of LNG exports, I have
    an open mind, but I want to talk about some of my concerns. A
    number of studies predicted that LNG exports would have mildly
    positive economic effects, and since then DOE has moved
    aggressively to approve LNG exports. Today they have approved
    seven export proposals, and they are continuing to examine
    other applications as well.
        We need to carefully consider the impact of LNG exports on
    natural gas prices, and the impact of higher prices on American
    consumers and manufacturers. And we also need to look at the
    impact of LNG exports on global carbon emissions. Increasing
    U.S. exports would allow other countries to move from coal to
    natural gas, reducing their carbon emissions abroad, but LNG
    exports could increase U.S. carbon pollution by shifting
    electricity generation back to coal, and increasing fugitive
    methane emissions. I am not opposed to DOE's considering
    applications for additional LNG exports, but I want those
    reviews to be thorough.
        I am concerned about the approach of this bill. The bill
    would short circuit the established review process for pending
    and future LNG export applications. It requires DOE to approve
    essentially unlimited LNG exports to all 159 World Trade
    Organization countries without any determination that such
    exports are in the public interest, or whether they would have
    significant adverse impacts on domestic natural gas prices,
    manufacturing, and jobs. DOE would have to immediately grant
    the 25 LNG export applications currently pending. In doing
    that, by the way, that would result in approved export amount
    of 36 billion cubic feet per day. That is almost half of all
    natural gas consumed daily in the United States. Unlimited LNG
    exports would have serious impacts on consumers and
    manufacturers. That is why major companies like Dow, Ocoa, and
    Newcourt have raised concerns about this bill.
        Proponents of unlimited LNG exports contend we need to help
    Ukraine and our European allies resist Russian aggression. This
    bill will not result in LNG exports to Europe for several
    years, if at all. No LNG export facilities currently exist in
    the continental United States. The first export terminal will
    not begin initial operations until late 2015. Export capacity
    will not ramp up into other facilities until 2017 or 2018.
        When the U.S. actually begins to export significant
    quantities of LNG 3 or 4 years from now, where will it go?
    Well, it won't go directly to Ukraine, because Ukraine does not
    have any facilities to import or re-gasify LNG. In fact, it may
    not even go to Europe. We send be sending a clear message to
    Russia its aggression will have costly consequences, but I
    worry whether this really has the impact we want on a foreign
    policy basis. Russia is a member of the World Trade
    Organization. This bill adds Russia to the list of countries
    that can receive American natural gas without any DOE review.
    That is a very strange way to send a signal to support our
    American allies in Europe.
        This hearing should help us have an opportunity to think
    carefully about the bill, and I want to yield the balance of my
    time to Mr. McNerney.

     OPENING STATEMENT OF HON. JERRY MCNERNEY, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF CALFORNIA

        Mr. McNerney. Thank you. I am in favor of LNG exports, but
    I have four concerns. First of all, gas production in this
    country needs to be done cleanly, and that means eliminating
    fugitive gas, it means don't use fresh water, it means prevent
    well leakage to groundwater, and it means treating waste water.
    Until we are sure that we have national standards of some kind
    to make sure that that happens, I am very skeptical. Second,
    these large exports could impact U.S. manufacturing
    renaissance, and the price of natural gas generally in this
    country.
        Third, LNG export facilities are already being approved
    faster than they can be built, so this isn't really needed. And
    as Mr. Waxman mentioned, Ukraine doesn't even have LNG import
    facilities. And lastly, automatic approval seems pretty extreme
    to me. I mean, this could encourage the worst kind of
    applications to be submitted, knowing that they are going to be
    approved no matter what. So, until those concerns are
    addressed, I don't think I can support this bill. Thank you. I
    yield back.
        Mr. Whitfield. Gentleman's time has expired, and that
    concludes the opening statements. Today we have two panels of
    witnesses, and on the first panel we have one person, and that
    person is Dr. Paula Gant, who is the Deputy Assistant Secretary
    for Oil and Natural Gas at the Department of Energy. And part
    of her portfolio certainly has responsibility for this area.
    So, Dr. Gant, we will recognize you for your 5-minute opening
    statement. Turn your----

    STATEMENT OF PAULA GANT, DEPUTY ASSISTANT SECRETARY FOR OIL AND
       NATURAL GAS, OFFICE OF FOSSIL ENERGY, DEPARTMENT OF ENERGY

                        STATEMENT OF PAULA GANT

        Ms. Gant. Thank you, Chairman Whitfield, and Ranking
    Members Rush and Waxman, and the members of the subcommittee. I
    very much appreciate the opportunity to appear before you
    today, and to have the opportunity to explain and answer your
    questions about the Department's process for regulating the
    export of natural gas, including liquefied natural gas, or LNG
    exports.
        As Representative Gardner and Representative Rush have
    noted, we are enjoying an incredibly abundant natural gas
    supply, and observing the tremendous opportunities presented by
    that in recent years. It certainly makes my job quite a lot of
    fun, and these are extraordinary times for the country. There
    is tremendous opportunity, and we at the Department are very
    much focused on helping ensure that the country realizes that
    opportunity.
        Over the last several years, domestic gas production has
    increased significantly, outpacing demand growth, and resulting
    in declining net natural gas imports. This production growth is
    primarily due to the use of improved drilling technologies and
    practices, including largely the ability to extract natural gas
    from shale formations. Productions from shale formations
    amounted for a little less than two percent of domestic natural
    gas production in 2000. By 2012, that had risen to 40 percent
    of natural gas production, quite a dramatic change.
        Historically, the Department of Energy has played an
    important role in the development of technologies that have
    enabled the access to energy resources like this. Beginning in
    the late 1970s, public research dollars were invested in the
    development of hydraulic fracturing and horizontal drilling
    technologies that were later picked up and refined with private
    investment, and continued industry innovation. This has
    unlocked billions of dollars in economic activity associated
    with shale gas production.
        Thanks to American ingenuity and know-how applied to this
    tremendously abundant natural gas resource, the U.S. is now the
    world's number one gas producer, and is poised to become a net
    exporter of gas in 2018. This is according to the Energy
    Information Administration. And this is an extraordinary shift
    in our fortunes. Our outlook is shifting from one framed by
    energy scarcity to one framed by energy abundance. This
    presents tremendous opportunity and tremendous responsibility
    that we get it right.
        Today domestic natural gas prices are lower than
    international prices of delivered LNG to overseas markets. As
    in the United States, demand for natural gas is increasing
    rapidly in these other markets. Due primarily to these
    developments, DOE has received a growing number of applications
    to export domestically produced natural gas to overseas markets
    in the form of LNG, or liquefied natural gas. DOE's authority
    to regulate natural gas arises under the Natural Gas Act, as
    mentioned previously. It provides two statutory standards for
    processing applications to export LNG from the United States.
        By law, applications to export LNG to countries with which
    the U.S. has a free trade agreement that provides for natural
    treatment of trade in natural gas are deemed to be consistent
    with the public interest, and the secretary must grant
    authorization without modification or delay. As of March 24,
    DOE has granted 35 such applications. For applications to
    export liquefied natural gas to non-free trade agreement
    countries, the secretary must grant that authorization unless,
    after an opportunity for hearing, the proposed export is found
    not to be consistent with the public interest. In executing
    that requirement, DOE has established a robust process to
    assess the public interest, a process that provides for robust
    public input and transparency, and also allows a balancing of
    the many aspects of the public interest that must be
    considered, and that may potentially be affected by the export
    of natural gas.
        While Section 3(a) of the Natural Gas Act establishes a
    broad public interest standard, and a presumption favoring
    export authorizations, the statute neither defines the public
    interest, nor identifies criteria that must be considered. In
    prior decisions, however, the Department has identified a range
    of factors that it evaluates when assessing the public
    interest, including economic impacts, international
    considerations, environmental impacts, security of natural gas
    supply, among others. To conduct this review, the Department
    looks at the record evidence, as presented by applicants and
    participants in the proceeding. Applicants and interveners are
    free to raise new issues or concern relevant to the public
    interest that may have not been address in prior cases. And, in
    fact, we have seen that to be the case.
        To date, DOE has granted seven conditional authorizations
    for long term export of domestically produced lower 48 natural
    gas to non-FTA agreement countries. This is equivalent to 9.3
    billion cubic feet a day of capacity. This includes, as was
    noted, the Jordan Cove Energy Project, which the Department
    approved yesterday. As of today, there are 24 applications
    pending to export LNG to non-free trade agreement countries.
    The Department will continue to process these applications on a
    case by case basis in the order of precedence that had been
    established and made public on DOE's Web site. During this
    time, as we have done previously, we will continue to monitor
    market developments and assess their impact in the assessment
    of the public interest, and consider information as it becomes
    available.
        In conclusion, Mr. Chairman, I would like to emphasize that
    DOE is committed to moving this process forward as
    expeditiously as possible. We understand the importance of this
    issue and its significance, and the importance of getting our
    process right. Thank you, Mr. Chairman. I would be happy to
    answer questions.

        [The prepared statement of Ms. Gant follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thank you very much, Dr. Gant. We appreciate
    your statement, and taking time to come over and talk about
    this important issue. At this time I recognize myself for 5
    minutes of questions.
        Of course, one of the developments with Mr. Gardner's
    legislation is it creates WTO countries the same as free trade
    agreement countries. And in your written testimony, you stated
    that you were concerned that H.R. 6, one of your concerns, that
    it would leave out public input. And I wanted to just explore
    that a little bit with you. When DOE made the NERA study
    available, that study was made available for public comment,
    and that was kind of the baseline for reviewing these
    applications.
        And in yesterday's Order on the Jordan Cove project, DOE
    concluded that NERA's explanation of its modeling design,
    methodology, and results provided a sufficient basis both for
    the public to provide meaningful comments, and for the
    Department to evaluate NERA's conclusions. And also DOE
    concluded in this recent Order that, ``We are not persuaded
    that using post-Annual Energy Outlook after post-2011 energy
    productions'', you are not persuaded that anything post-2011
    would have materially affected the findings of the LNG export
    study.
        So it would appear that the DOE non-FTA filing and
    authorization, since it is just one permitting process, because
    we have to get FERC involved also, it appears to me that your
    concerns about public input, maybe it is not that much of a
    concern, because the NERA study is sort of the baseline anyway,
    with the comments that you all made on these recent approvals.
    So would you agree with me that maybe you are being too
    concerned about the implications of what you perceive to be the
    lack of public input?
        Ms. Gant. Thank you, Mr. Chairman, and I agree the language
    in our Orders can be quite hard to read out loud sometimes. I
    struggle with it myself. I think there are a couple pieces to
    your question, and if I can take them in two? There are a
    number of aspects that inform our public interest
    determination, economic factors being some of them, as framed
    by the NERA analysis to a great extent, including environmental
    implications and geopolitical consideration. So the public
    interest is broader than the economic aspects of it.
        As I understand the legislation, and I am not intimately
    familiar with it, it would remove DOE's requirement to conduct
    a public interest determination. And the public interest
    determination is the means by which we solicit public input, so
    it would remove the public's opportunity to provide input on
    our process.
        The second piece of your question----
        Mr. Whitfield. But if you had that public input in the NERA
    study, wouldn't that compensate for the----
        Ms. Gant. The NERA study was cut out for public comment,
    and then it is put on the record in each of our subsequent
    Orders, so it applies to each of those Orders. And each of the
    applications, and the dockets that are established for them,
    must be given their own individual consideration on a case by
    case basis, as established by the statute. Could I answer the
    second part of your question, with regard to the NERA?
        Mr. Whitfield. Yes, go ahead.
        Ms. Gant. And I believe the reference you are referring to
    in our Order refers to the new information that has been
    provided. So the NERA analysis was based on the Annual Energy
    Outlook 2011, as released by EIA. In December, EIA released
    their Annual Energy Outlook 2014. They do this every year. The
    information provided therein, particularly with regard to the
    AEO 2014, demonstrates a projection for natural gas supply
    growth that is greatly outpacing expected natural gas demand
    growth. And so the finding, from our perspective, is that
    integrating the AEO 2014 into our analysis would not create a
    conclusion inconsistent with what we have already come to in
    2011, which indicates that exports of natural gas generate net
    positive benefits for the U.S. economy.
        Mr. Whitfield. Now, has DOE taken an official position on
    the Gardner legislation?
        Ms. Gant. I am aware of the proposal. It has not made its
    way through interagency review, so I am not in a position to
    comment on the specifics.
        Mr. Whitfield. My time has expired. At this time I
    recognize Mr. Rush for 5 minutes of questioning.
        Mr. Rush. Dr. Gant, thank you again for appearing before
    this subcommittee. And a lot of this--have under consideration
    is pretty timely now because of what is happening in Eastern
    Europe now. And I think that all the members of this
    subcommittee, in fact, all the Members of the Congress, we all
    stand together because we want to ensure that there are
    effective sanctions against Putin, and what he has done in
    Crimea, and we want to stop him. I don't think that there is
    any doubt in anybody's mind that we want to stand resolute and
    united, and trying to do all that we can to ensure that the
    democratic process is available to all those who are in Eastern
    Europe.
        But, with that said, the question came up earlier today, or
    the topic came up earlier today about H.R. 6, and its having
    such a tremendous impact on the future of Eastern Europe. And
    my question to you is, if H.R. 6 was, in fact, enacted today,
    when is the earliest possible time that exports of LNG will
    have their impact on decreasing Russia's hold on the Ukraine,
    or on the other of our European allies, whom right now have
    been paying Russia for their natural gas supply? When do you
    see, or can you estimate, that Russia and Putin will feel the
    effect of the decrease of the Eastern European countries'
    dependence on Russian natural gas?
        Ms. Gant. Thank you for that question, Ranking Member Rush.
    A couple of things that I think I can share that are
    responsive. And first I would say that we are tremendously
    concerned in moving to take immediate action to help our allies
    in Ukraine, and across Europe, and take the situation very
    seriously. To answer your question with regard to the
    legislation, again, I will just have to ask the committee to
    understand I haven't had a chance to really assess the
    legislation and what impact it would have. But what I can say
    is that our understanding of the way that the timeline on which
    projects are moving is that the earliest point at which we
    could export substantial volumes of liquefied natural gas from
    the lower 48 would be the third quarter of 2015. So, regardless
    of what happens with a change in legislation, because the
    project that has final approval is moving along in its process
    at FERC.
        However, there are other things that we can do to help the
    Ukraine and our European allies. The administration is keenly
    aware of these, and engaged in looking for ways to provide
    financial and technical existence. Also, there is the
    possibility of reversing pipeline flows in the Ukraine, should
    Russia actually turn off the tap, so to speak. That hasn't
    happened yet, but there are efforts underway to prepare for
    that eventuality and reverse pipeline flows so that gas could
    flow from Europe into the Ukraine.
        And, importantly, as has been noted before, our increase in
    domestic production in recent years has allowed us to
    significantly reduce our reliance on imported liquefied natural
    gas. Those cargoes that would have been destined for U.S.
    markets have made their way to other places on world markets.
    And we do know that increased supplies of natural gas on global
    markets, and increase diversity of those supplies, increases
    our energy security, and those of our allies and trading
    partners. So things are happening that could have a positive
    impact.
        Mr. Rush. But you have not been able to really look at and
    do your due diligence on this bill? That is understandable. But
    is there any way the effect of this bill, or any bill right now
    that would come out of the Congress on remediating the issue,
    or helping the Ukrainian people, it is not really certain right
    now any legislation that this Congress won't have an immediate
    effect. Is that what you are saying, in essence?
        Mr. Whitfield. The gentleman's time has expired, but I
    would like you to go on and answer his question.
        Ms. Gant. I would have to beg your patience that I am not
    in a position to opine on actions that this body might take,
    but I can say that we are proceeding with the guidance that you
    have given us, and working as expeditiously as possible.
        Mr. Whitfield. At this time recognize the gentleman from
    Texas, Mr. Barton, for 5 minutes.
        Mr. Barton. Thank you, Mr. Chairman, and I thank our
    witness for being here. First I am going to make a comment, and
    then I am going ask you some questions. Mr. Waxman referred to,
    and you also, I think, referred in your opening statement to
    the number of projects that are pending, and the amount of LNG
    that would be exported, if they were all to be approved. There
    is one minor point, they also all have to be built, and they
    are not all going to be built. You could approve 30 projects.
    My guess is you will have one or two built on the East Coast,
    one or two on the West Coast, and perhaps two or three on the
    Gulf of Mexico.
        Now, I could be totally wrong about that, but the cost of
    these projects, and the long term financing commitment, and the
    uncertainty of the foreign markets, as soon as we start
    exporting LNG, these prices that look so lucrative overseas,
    they are not going to stay at $16 and NCL for 12 or $13. When
    people see that the U.S. is going to export to Hungary, or to
    Japan, or to Eastern Europe, or wherever, those prices are
    going to change, and there is going to be an equilibrium point.
    We don't know where that is, but you are not going to build 20
    LNG terminals to export natural gas. That is just not going to
    happen.
        Could you give an example, at least hypothetically, of what
    would not be in the national interest? I mean, so far every
    project that has been reviewed has been approved, and the law
    is such that you have to find it is not in the national
    interest. If it is where we already have a trade agreement, it
    is an automatic, and if it is not, you do have to do this
    review, but so far the yeses have won every time. So what would
    be an example that would not be in the national interest,
    hypothetically?
        Ms. Gant. Thank you, Congressman. We would agree that it is
    unlikely that all of these projects will get built, that the
    success of these will depend on a number of factors. These are
    decade old commitments. They require very sophisticated
    engineering and construction capacities, and very large capital
    commitments, and very significant steel in the ground, if you
    will. The guidance that we have been given in the Natural Gas
    Act is to conduct a public interest review. As I noted, we
    didn't get a lot of guidance on what that meant, so we have
    tried to create a process that is very transparent, and we are
    working our way through that process.
        Considering the public interest in the criteria that we
    have set out, what I can tell you is that the considerations
    that we take into account in making that determination are all
    part of the public record. And given the information that is
    placed on the record to date in those proceedings, weighing all
    of that, and balancing those interests, our determination has
    been that----
        Mr. Barton. You----
        Ms. Gant [continuing]. Export is in the public interest.
        Mr. Barton. You have talked for a minute and a half and
    haven't said a thing. You know, that is not an adversarial
    question. Let me give you a hypothetical. If Barton LNG Exports
    presents an application to the Department of Energy to export
    LNG to North Korea to help build manufacturing capability to
    build missiles that would then be capable of attacking the
    United States, would that be in the national interest?
        Ms. Gant. I would imagine that quite a bit of information
    would be put into the public record for us to consider in that
    proceeding, and we would do so.
        Mr. Barton. I would hope the answer to that question would
    be no. I mean, well, my time is evaporating, so let me move on.
    Is it safe to assume that the geopolitical considerations that
    Mr. Rush has talked about, and Mr. Shimkus talked about, are
    reasons to approve LNG exports, that there is a geopolitical
    strategic component to the review?
        Ms. Gant. Yes, sir. In all of our orders that we have
    approved to date, and authorizations have granted, geopolitical
    considerations, international considerations, are factored in.
    We take very seriously our Nation's commitment to free trade,
    and very much understand that increasing the supply and
    diversity of natural gas on global markets benefits our energy
    use security, and that of our allies.
        Mr. Barton. OK. This is my last question, and I want you to
    give me, in the spirit of John Dingle, who is not here, a yes-
    or-no answer. And I will give you a hint that these questions
    are designed to make your report look good, OK? Question one,
    isn't it true that the Department of Energy rejected the claim
    that the NERA study overstated the likely macro benefits from
    LNG exports? Yes or no?
        Ms. Gant. Yes, sir.
        Mr. Barton. OK. Isn't it true that DOE observed that more
    natural gas is likely to be produced domestically if LNG
    exports are authorized than if they are prohibited?
        Ms. Gant. Yes, sir.
        Mr. Barton. OK. Isn't it also true that the Department of
    Energy rejected the claim that there is a one for one tradeoff
    between gas used in manufacturing and gas diverted for export?
        Ms. Gant. Yes, sir.
        Mr. Barton. OK. And isn't it also true that DOE was not
    persuaded that LNG exports will substantially increase the
    volatility of domestic natural gas prices?
        Ms. Gant. Yes, sir.
        Mr. Barton. And this is my last question. Isn't it true
    that DOE believes that the public interest generally favors
    authorizing proposals to export natural gas that have been
    shown to lead to net benefits to the U.S. economy?
        Ms. Gant. Yes, sir.
        Mr. Barton. Thank you very much.
        Mr. Whitfield. Gentleman's time has expired. At this time
    recognize the gentleman from California, Mr. Waxman, for 5
    minutes.
        Mr. Waxman. Thank you, Mr. Chairman. The Department of
    Energy has established a process for considering applications
    to export LNG, if the LNG would go to a country that has a free
    trade agreement with the U.S., the application is quickly
    granted. But if the LNG is going to a country without a free
    trade agreement, DOE does a public interest determination. That
    takes some time, but DOE has granted seven of those
    applications so far. Dr. Gant, I would like to ask you about
    how the Gardner bill would change this approval process.
    Everyone should understand what this bill would actually do. 24
    applications to export LNG to non-free trade agreement
    countries are currently pending before DOE. Under the Gardner
    bill, what would happen to those applications?
        Ms. Gant. Thank you, Congressman. Again, I have had the
    chance to only briefly review the bill, but as I understand the
    basic concept, it would grant status to WTO nations like that
    is currently granted to FTA nations under the Natural Gas Act,
    and in doing so, would remove DOE's requirement to conduct a
    public interest determination.
        Mr. Waxman. So they would be granted without modification
    or delay?
        Ms. Gant. If that is what the legislation instructs.
        Mr. Waxman. OK. It is my understanding it does. So for
    these applications, there would be no public interest
    determination, or analysis of whether the exports would have
    adverse impacts on domestic natural gas prices or consumers, is
    that right?
        Ms. Gant. As my understanding of the proposal is, yes, sir.
        Mr. Waxman. OK. Automatically granting those applications
    would result in the approval of a total of 36 billion cubic
    feet per day in LNG exports. That is equal to almost half of
    our total domestic consumption. Has DOE done any analysis of
    how this level of potential exports would impact domestic
    natural gas prices?
        Ms. Gant. Yes, sir. My understanding is that the capacity
    presented in the 24 applications that have not been granted
    non-FTA approval status is 36 BCF a day. The economic analysis
    that we have conducted to date does not consider exports at
    that level.
        Mr. Waxman. OK. So these are just the pending applications?
    Under the Gardner bill, future applications to export LNG to
    any of the 159 World Trade Organization member countries, DOE
    would be required to just deem them in the public interest and
    grant them, isn't that right?
        Ms. Gant. Again, not being familiar with the specifics of
    the legislation, if there is no public interest determination
    required, my understanding is, yes, the Secretary would be
    required to deem them----
        Mr. Waxman. If there is no public interest----
        Ms. Gant. Right.
        Mr. Waxman [continuing]. Requirement for analysis?
        Ms. Gant. Yes, sir.
        Mr. Waxman. OK. The WTO membership includes all likely
    importers, and the automatic approval doesn't depend on the
    proposed LNG export levels. Every application to export any
    amount of LNG to virtually anywhere in the world would be
    automatically granted under this bill. Dr. Gant, that is really
    just unlimited LNG exports, isn't it?
        Ms. Gant. My understanding is if the exports were
    authorized, then market forces would determine how many LNG
    cargoes would actually be exported from the United States.
        Mr. Waxman. Well, as far as the Government is concerned, an
    application from anywhere in the world would be automatically
    granted under this bill. Market forces, of course, would
    determine another----
        Ms. Gant. Yes, sir. The----
        Mr. Waxman [continuing]. Be another factor. OK. Is there
    any way under this bill for DOE to ensure that the total level
    of LNG exports will be in the public interest, or not have
    significant adverse impacts on domestic natural gas prices,
    consumers, and manufacturers?
        Ms. Gant. Our current process considers these applications
    on a case by case basis, and looks at the macroeconomic
    benefits and impacts of LNG exports. To the extent that we
    weren't conducting that review, we wouldn't be opining on that.
        Mr. Waxman. And is it your understanding the Gardner bill
    would not require that review?
        Ms. Gant. Again, I have very limited understanding.
        Mr. Waxman. OK. I have an open mind on LNG exports, but I
    have concerns about this bill. Rubber stamping what I think is
    unlimited LNG exports without any determination that they are
    in the public interest could have serious unintended
    consequences. That is why many of the largest manufacturers in
    the country oppose this bill. Yield back my time, Mr. Chairman.
        Mr. Whitfield. Gentleman yields back. At this time,
    recognize the gentleman from Illinois, Mr. Shimkus, for 5
    minutes.
        Mr. Shimkus. Thank you, Mr. Chairman. Let me ask,
    permitting doesn't mean building, is that correct?
        Ms. Gant. Correct.
        Mr. Shimkus. And I take it my colleagues didn't understand
    that. The markets will determine whether these get built, and a
    lot of jobs for steelworkers, a lot of jobs for laborers. These
    LNG facilities are major construction projects, and that would
    be good for the economy also. I have spent 18 years as a Member
    of Congress, dealing with Eastern European issues. I have spent
    3 years on the West German border. I have a passion for freedom
    and democracy in the former captive nations.
        To my friend Mr. Rush, who I know shares the same thing,
    these countries are already seeing benefits of lower natural
    gas prices because of the ability to export. I want to read an
    article from Climate Change Science and Technology on 6 March.
    ``Last week Lithuania took another important step towards the
    creation of its own liquefied natural gas terminal. The
    floating storage and re-gasification unit that is being built
    in South Korea by Hyundai Heavy Industries was put to water for
    initial testing, and christened by Lithuania's president. The
    ship should arrive in Klaipeda, the location of Lithuania's LNG
    terminal, by the end of the year and is planned for initial
    processing of LNG to start in December.'' My opening was just a
    passion plea. These countries need to free themselves from the
    extortion of Russian energy markets. And it is not just Eastern
    European. It is the Western European countries too. 50 percent
    of energy in Western Europe is from Russia. This is a big deal,
    folks.
        And now let me tie it to this whole FTA/WTO debate. The key
    component is we don't have a free trade agreement with Europe,
    is that correct?
        Ms. Gant. That is my understanding.
        Mr. Shimkus. So if we want to help Europe, we have to move
    to the WTO format. There was another bill that I sponsored by
    Mike Turner, a member of the NATO Parliamentary Assembly, and
    that was to grant this same provision to NATO countries. And in
    the permutation of how legislation gets written, it was deemed
    an easier way to include the WTO members than to go to a
    defensive treaty alliance type issue.
        Again, I want to make sure that I highlight, in this day
    and age, at this time in the world's history, with what is
    currently going, if you had any interest in a democratic, free
    Europe, whole and free, this is a big deal. The Russians extort
    by trade, they extort by energy. They get involved in political
    campaigns, legal and illegally. We are not making this up. Talk
    to any ambassador from an Eastern European country of Russian
    influence to try to destabilize their country. This is our
    opportunity, another way, without troops, bringing a measure of
    security to our European friends.
        And, of course, Shimkus is ethnically Lithuanian. I am glad
    that they have moved on an import terminal, at great expense to
    them. They have already seen the benefits of being able to
    negotiate lower natural gas prices because of the
    acknowledgement that now they are going to be able to go to the
    world market, outside of Russia, for their energy needs.
        So I want to thank you for the permits that you have
    already rendered. I hope that you will keep an open mind on
    this bill, and the WTO implications for our allies in Europe.
    It is a key component in this current struggle that we have.
    Thank you for, Mr. Chairman, a great hearing. I want to thank
    again Mr. Gardner. There couldn't be a more important time to
    move this legislation than now. So, with that, I will yield
    back my time.
        Mr. Whitfield. Gentleman yields back. At this time
    recognize the gentleman from California, Mr. McNerney, for 5
    minutes.
        Mr. McNerney. Thank you, Mr. Chairman. I agree with my
    colleague from Illinois that natural gas is a geopolitical
    tool, and it would be beneficial to have LNG import to Ukraine,
    but Ukraine doesn't have LNG import facilities, and we are
    already approving LNG export facilities far faster than they
    can possibly be built, so I question the need for this bill.
    But I do have one question for Dr. Gant.
        You know, with the deeming and automatic approval of LNG
    export facilities, that makes me worry about the quality of
    applications that you are going to be receiving, if that was to
    be enacted into law, in terms of safety, in terms of fugitive
    gas emissions, and all kinds of environmental problems. Is that
    something that would be a problem, in your mind, in your
    estimation?
        Ms. Gant. Thank you for the question. I would just note
    that DOE has responsibility for considering the impact of
    actually exporting the natural gas molecule, while our partner
    agency, the Federal Energy Regulatory Commission, is
    responsible for the permitting and siting of the actual
    physical facility, and safety, and engineering quality,
    environmental impacts actually associated with the facility.
        Mr. McNerney. So those aspects are OK, as far as you are
    concerned?
        Ms. Gant. Again, as I understand the legislation, it only
    addresses DOE's responsibilities.
        Mr. McNerney. OK. All right. That was my only question. I
    yield back.
        Mr. Whitfield. Gentleman yields back. At this time we will
    recognize the gentleman from Nebraska, Mr. Terry, for 5----
        Mr. Terry. To follow on that line of questioning, from the
    day that a permit is filed with DOE, what has been the average
    timeline for the seven that have been granted?
        Ms. Gant. Each individual application presents its own
    unique----
        Mr. Terry. That is why I said average----
        Ms. Gant [continuing]. Individually.
        Mr. Terry [continuing]. Between the seven.
        Ms. Gant. So once the comment period finished on the
    rulemaking, it was 3 months before we issued the first
    conditional authorization.
        Mr. Terry. 3 months?
        Ms. Gant. And we are on an average of about a 2 month pace,
    give or take a week or 2----
        Mr. Terry. And that is----
        Ms. Gant [continuing]. Depending on how fast we can----
        Mr. Terry. Very good. I understand that. Then what happens
    to the process one DOE signs off on a permit?
        Ms. Gant. So the statute gives us a little bit of
    flexibility. An applicant can proceed in parallel at the
    Department of Energy and the Federal Energy Regulatory
    Commission. We have established a process by which those
    applicants that have started their pre-filing process at FERC
    are entered into our order in the order at which they apply to
    us after initiating that process, and that they proceed through
    our process in parallel, if you will, to the FERC application
    process.
        However, we are a coordinating agency with the Federal
    Energy Regulatory Commission on the environmental impact
    assessment. So once we have given the conditional approval for
    export, then we wait until the Federal Energy Regulatory
    Commission has completed their environmental review, and then
    we consider that in our determination of a final authorization.
        Mr. Terry. OK. Now, even though you may be sped up, the
    reality is FERC still has to deal with it, so if there is one
    agency that wants to delay, for whatever political purposes,
    like Keystone pipeline and that, FERC can do that?
        Ms. Gant. In the vast majority of the applications before
    us, the Federal Energy Regulatory Commission has the lead
    Federal agency responsibility----
        Mr. Terry. Right.
        Ms. Gant [continuing]. For conducting environmental reviews
    of these projects.
        Mr. Terry. Couple of miscellaneous type questions here. A
    former member of this committee used to say that if we exported
    any, then that means the prices of natural gas in the United
    States would automatically go to the world prices on natural
    gas. That person always lost me on the logic. What is DOE's
    opinion on whether or not, if we fill up one ship with liquid
    natural gas and send it over to the Ukraine, or Lithuania, that
    that means that we will be on a world price for natural gas?
        Ms. Gant. The analysis that we consider in assessing the
    public interest is based on the analysis conducted by EIA and
    NERA previously, particularly in NERA analysis across all
    scenarios envisioned where an export were provided for, were
    allowed, and taken up in global markets, we saw overall
    benefits to the U.S. economy. And, importantly, in the EIA's
    AEO 2014 that was released in December, that projects a
    significant increase over the forecast period in LNG exports
    relative to the base case used in our NERA analysis. We see an
    actual decrease in projected Henry Hub prices for natural gas
    in the U.S., so that the----
        Mr. Terry. OK.
        Ms. Gant [continuing]. Baseline of 39----
        Mr. Terry. Very good. And have you been to the Balkan
    Fields, or the Eagleford Place?
        Ms. Gant. I have not, but I imagine I will have----
        Mr. Terry. You should. The chairman and I, and a couple
    others, Cory, did that. Fly over at night and see how much of
    the natural gas is being flared off, or wasted, in my view.
        Ms. Gant. Um-hum.
        Mr. Terry. And that is an extremely disappointing picture
    to me. So when we talk about whether or not exporting LNG is
    going to create a demand issue for us when we are burning off,
    flaring, almost a third sounds almost silly to me.
        Ms. Gant. Um-hum.
        Mr. Terry. Has DOD, in your last 30 seconds, looked into
    how to better capture that \1/3\ that is just lit off?
        Ms. Gant. Yes, sir. A couple of important things, we are
    very focused on reducing methane emissions from natural gas and
    oil systems, and other sources across the economy, as part of
    the President's climate action plan. Specifically with regard
    to natural gas associated with oil production, increasingly
    producers are looking at gasifying their drilling sites, so
    moving off of diesel engines, onto natural liquefied natural
    gas engines, so you are looking at ways to increase the value
    of that fuel on site. In addition, the quadrennial energy
    review will provide an opportunity to look at obstacles to
    building gathering lines that would allow you to capture
    natural gas.
        Mr. Terry. It would, if you would get one.
        Mr. Whitfield. The gentleman's time has expired. We have a
    vote on the House floor. We are going to try to do two more
    questions because Dr. Gant is going to be leaving, and we are
    going to be gone 50 minutes, and we are going to be coming back
    for the second panel. But the next on the list is Mr. Doyle. He
    will be recognized for 5 minutes, and then Mr. Gardner. And if
    you all wanted to----
        Mr. Doyle. Thank you, Mr. Chairman. Well, let me just say
    this. This hearing is not about whether or not we should export
    natural gas. We are doing that. Having said that, I have some
    great concerns about this bill.
        Dr. Gant, you said that your average approval time is
    around 2 months, every 2 months you are approving a permit. And
    I also heard you say that, when Mr. Barton asked you, when the
    first permit that you approved would actually come online, you
    said around the third quarter of 2015, is that correct? So that
    is about 15 months from now. So, based on your granting permits
    on an average of about 2 months, you could conceivably grant
    another seven or eight permits before the first facility
    actually goes online, assuming it goes online by the third
    quarter of 2015. At that point we would have 15 permitted
    facilities to go to non-free trade agreement countries.
        Now, you said that the difference between granting a permit
    to a non-FTA country versus an FTA country is you go through a
    process to see if it is in the national interest to do so. But,
    under Mr. Gardner's legislation, that would be waived. It would
    be treated just like an FTA permit, where you don't go through
    that process, is that correct?
        Ms. Gant. As I understand.
        Mr. Doyle. So, conceivably, if somebody wanted to export
    natural gas to Russia, which is a WTO country, there wouldn't
    be a review process by DOE whether or not that was in the
    national interest? It would just be approved like an FTA
    country? Is that correct?
        Ms. Gant. Correct.
        Mr. Doyle. I would say to Mr. Gardner, and people that are
    co-sponsors of this bill, you may want to consider, based on
    what is going on in the world with the Russians, the Chinese,
    Pakistani, Turkey, how these countries are flaunting our trade
    laws and cleaning our manufacturers' clocks. We just came from
    a steel caucus hearing this morning where these same very
    countries that we could be sending natural gas to, without any
    review to see if it is in the natural public interest, are
    using our trade laws to put our companies out of business.
        The one edge our manufacturers have in this country is
    cheap energy, and we are about to take that from them too.
    Right now we have natural gas at $4 to $5 at MCF. They are
    paying $14 to $16 over there. Mr. Barton has it right. What is
    going to happen is our prices are going to come up a little,
    and their prices are going to come down a little, and we will
    eventually hit some sort of a leveling off period of pricing
    where it doesn't make any more sense to export. And the market
    will determine how many of these facilities actually get built,
    because they cost billions of dollars to build. And even if you
    approve 30 permits, the likelihood is nowhere near 30
    facilities are going to get built.
        Well, if the sweet spot ends up a $9 or $10, it then
    becomes the world price. Now we have lost our competitive edge,
    our manufacturers have, in this world market, because they no
    longer have the benefit of cheaper energy than their
    competitors overseas, whose companies still illegally subsidize
    their industries, and put the steel industry out of business.
    We lose 20, 30 companies before we get relief at the
    International Trade Commission.
        I would just say to Mr. Gardner, and anyone else that is
    for this bill, let us sit down and think about the countries we
    want to actually do this to. Let us not open up to every WTO
    country. Let us talk about who our allies are, and who our
    partners are, and what we are trying to accomplish over in
    Europe and Eastern Europe, and maybe limit it to those
    countries. And let us make certain that if somebody can put an
    application in to send natural gas over to Russia right now
    that the review process that would be waived under your bill
    isn't waived. If you are not going to do that, I would suggest
    that you single out Russia and a few other countries not be
    eligible for this kind of favorable treatment.
        I am not against exporting natural gas. I am for it. I am
    for doing it. What I hate to see happen is just like with the
    Keystone pipeline. You know, not an ounce of American steel in
    that pipeline. The Indians and the Russians provided the steel
    that is going to build that Keystone pipeline. We need buy
    America provisions in this bill. If we are going to build these
    export facilities, they better damn well use American steel,
    U.S. steel, not Russian steel, not Indian steel, making sure
    that our companies have a level playing field when we do this.
        I am all for exporting the natural gas. I am not for giving
    away our competitive edge, and I am certainly not for giving
    cheap gas to our enemies. And this allows that to happen
    without any review from the Department of Energy. I don't have
    any questions. I yield back.
        Mr. Whitfield. At this time recognize the gentleman from
    Colorado, Mr. Gardner, for 5 minutes.
        Mr. Gardner. Well, thank you, Mr. Chairman, and if the
    gentleman supports the exporting, I would hate to see him
    exporting. So I thank you for your passion that you bring to
    this bill, but I hope you will stay and listen to other
    witnesses who are testifying today who will completely rebut
    and refute the statements that you just made. In fact, there is
    testimony within today's hearing that talks about the price
    impact, that talks about many of those same claims that you are
    making, which are refuted by the evidence and price impacts
    that are negligible, if at all, under this legislation.
        But what we do know, of course, as the DOE witness has
    talked about, and I thank you for the opportunity to have you
    here today, is the economic impact that this would have on the
    United States right now. The DOE permit application, in your
    assumptions, you talk about the number of jobs it would create.
    Have any of these facilities resulted in less employment in the
    United States? Have any of these permits resulted in a net loss
    of employment to the United States?
        Ms. Gant. I am not aware that those calculations have been
    made.
        Mr. Gardner. I mean----
        Ms. Gant. I am not privy to them, if they have.
        Mr. Gardner. Does higher production of domestic energy
    result in more or less jobs?
        Ms. Gant. The economic analysis that we base in our Orders
    demonstrates that greater production of natural gas has
    generated overall economic impacts.
        Mr. Gardner. And the gas that we are exporting is American
    gas, is that correct?
        Ms. Gant. That is correct, sir.
        Mr. Gardner. So we are creating American jobs, yes?
        Ms. Gant. Yes, sir.
        Mr. Gardner. With American energy?
        Ms. Gant. That is what the economic analysis suggests.
        Mr. Gardner. And it is going overseas to displace energy
    that is coming from who, Russia?
        Ms. Gant. It is hard to say which natural gas is being
    displaced, but there is no doubt that----
        Mr. Gardner. Would it displace Russian gas?
        Ms. Gant. There is no doubt that we have greater supplies
    of natural gas----
        Mr. Gardner. Would that be a net benefit to U.S. allies?
        Ms. Gant. It is definitely a net benefit.
        Mr. Gardner. And why would that be a net benefit?
        Ms. Gant. Because increased supplies of gas on global
    markets, and diversity of those supplies, increases energy
    security.
        Mr. Gardner. So that means what for the United States, in
    terms of geopolitical situation?
        Ms. Gant. We are very keenly interested and invested in the
    energy security of our allies and training partners.
        Mr. Gardner. So it would increase the security of our
    allies?
        Ms. Gant. It is a key strategic interest to the United
    States.
        Mr. Gardner. OK. It would create American jobs?
        Ms. Gant. What is it? I am sorry, I have lost track of what
    it----
        Mr. Gardner. We would create American jobs developing----
        Ms. Gant. Increased production of natural gas has led to,
    yes, increased economic benefits.
        Mr. Gardner. And that would be a net benefit to the United
    States economy?
        Ms. Gant. In our analysis to date, yes.
        Mr. Gardner. I thank the witness for her time.
        Mr. Whitfield. I might make just one comment regarding the
    scenario of exporting gas to Russia, or North Korea, or
    wherever, and maybe Dr. Gant can answer this question, or maybe
    you can't, but the reason we have these hearings is to find
    out. But Mr. Doyle presented a pretty dire--and many of us
    would agree with you. We wouldn't want gas going to Russia,
    North Korea, some of these WTO countries.
        It is my understanding that the Energy Policy Act of 1975
    gave the President of the United States the authority to
    prohibit export of natural gas to any country if they deemed it
    should not be done. And I know the Gardner bill does not amend
    that Act, but do you know personally if what I have just said
    is accurate?
        Ms. Gant. Mr. Chairman, if you wouldn't mind, I would
    rather take that question for the record----
        Mr. Whitfield. Yes.
        Ms. Gant [continuing]. Because I believe I know the
    answer----
        Mr. Whitfield. OK.
        Ms. Gant [continuing]. But I would rather----
        Mr. Whitfield. All right.
        Ms. Gant [continuing]. Not----
        Mr. Whitfield. Well, if you wouldn't mind getting back in
    touch with our committee staff? Because it is our understanding
    that that is the case, that the President could intervene and
    prevent some of the scenarios that Mr. Doyle talked about. But
    we want to make sure that that is accurate. OK. That concludes
    the first panel, and we thank you very much for taking time to
    come over and give your insights on this, and we look forward
    to working with you as we move forward. So you are dismissed.
        The second panel, we are going to cast these votes, and we
    are going to be back here in 50 minutes. And, as I have said
    before, we have world class restaurants in the Rayburn
    Building, so if you want to go down and get something to
    refresh yourself?
        Mr. Rush. They have 15 minutes to get down there.
        Mr. Whitfield. Fifteen?
        Mr. Rush. They have got 15 minutes to get down to Rayburn.
    They close at 2:30.
        Mr. Whitfield. Yes, they close at 2:30, so you better
    hurry. But we will be back in 50 minutes.
        [Whereupon, at 2:15 p.m., the subcommittee recessed, to
    reconvene at 3:05 p.m. the same day.]
        Mr. Whitfield. I would like to call the hearing back to
    order. And I want to apologize once again to those of you on
    the second panel. We appreciate your patience, and certainly do
    look forward to your testimony. And on the second panel today,
    we have Dr. Anita Orban, who is Ambassador-at-Large for Energy
    Security for the government of Hungary. We have The Honorable
    Jim Bacchus, who is with Greenberg Trauig Law Firm. We have Mr.
    David Schryver, who is Executive Vice President of the American
    Public Gas Association, Mr. Kenneth Ditzel, who is Principal
    with the Charles River Associates. And we have Dr. David
    Montgomery, Senior Vice President for NERA Economic Consulting.
        So all of you have a perspective on this issue, and we
    really look forward to hearing from you. So, at this time, I
    will recognize Dr. Orban for her 5 minute opening statement.
    And just make sure your microphone is on. Thank you.

       STATEMENTS OF ANITA ORBAN, AMBASSADOR-AT-LARGE FOR ENERGY
    SECURITY, MINISTRY OF FOREIGN AFFAIRS, HUNGARY; JAMES BACCHUS,
     CHAIR, GLOBAL PRACTICE GROUP, GREENBERG TRAUIG LLP; DAVID G.
        SCHRYVER, EXECUTIVE VICE PRESIDENT, AMERICAN PUBLIC GAS
       ASSOCIATION; KENNETH H. DITZEL, PRINCIPAL, CHARLES RIVER
      ASSOCIATES; AND W. DAVID MONTGOMERY, SENIOR VICE PRESIDENT,
                        NERA ECONOMIC CONSULTING

                        STATEMENT OF ANITA ORBAN

        Ms. Orban. Thank you, Mr. Chairman. Thank you, Chairman
    Whitfield, and the members of the subcommittee. I am honored to
    be here today to provide perspective on the importance of LNG
    export legalization for Central Eastern Europe. We applaud the
    leadership of this committee to look at the geostrategic aspect
    of the LNG export. On March 6 four ambassadors of the four
    Visegrad countries signed a letter to Speaker Boehner and
    Majority Leader Harry Reid to urge them to recognize the
    overall importance of U.S. engagement in Central Eastern
    Europe, and more specifically in the area of energy security. I
    would like to ask you, Mr. Chairman, to enter this letter into
    the record along with my written remarks.
        Mr. Chairman, we are in the middle of the largest security
    crisis that Europe has seen since the end of the Cold War, and
    energy dependence, especially that of Ukraine and Central
    Eastern Europe is on everybody's mind. Energy import dependence
    is one of the key factors that limit the political options
    available to the Central Eastern European countries as U.S.
    allies. The popular interpretation of energy dependence, and
    natural gas dependence in particular, is widely associated with
    supply cutoffs. Supply cut may indeed happen, with
    unpredictable consequences for countries in the region. Yet, if
    used, it would seriously hurt the supplier as well, in the
    short term with loss of revenue, in the midterm with loss of
    its markets.
        There is another aspect of dependency, however, which is
    much less discussed, and that is its price implication. It is
    prices that provide the best economic and political tool for
    the monopoly supplier. Whoever has the monopoly calls the
    shots. Higher prices inflict a very tangible cost on the
    dependent country's economy and population by stuffing the
    supplier's coffers, and allowing it to reap the economic grants
    to finance further political, economic, and military actions.
    Most importantly, it can be applied in a discriminatory manner.
    The only way to limit the monopoly supplier's ability to use
    the price weapon is to establish alternative supplies. Once
    they are in place, the monopoly supplier can no longer use the
    price discrimination tool freely.
        For Central Eastern European countries the most important
    task is today to create the credible alternative options. To do
    that, we need to do two things. First of all, we need to
    enhance and ensure the capacity of the pipeline system and of
    the infrastructure, and we need to secure the necessary volumes
    of additional natural gas import. The first is our homework.
    Only we can do that, to create robust energy infrastructure, to
    create access to alternative supply, to create access to energy
    terminals. It is beyond the limit of my presentation to go into
    details to explain how much and what we have done, but I am
    very happy to elaborate on them during the Q and A session.
        However, Europe has been much less successful in building
    up the necessary volumes for alternative supply, and this has
    been largely out of the control of Europe. EU and U.S.
    sanctions against Iran, the slower than expected progress in
    Iraq, the upheaval in North Africa postponed, or put on hold
    indefinitely, potential alternative pipeline supplies. With no
    pipeline gas option available, the most credible alternative is
    to have access to the energy market. And it is pretty much only
    the American LNG which can create the credible volume to have a
    real impact in Central Eastern Europe.
        The urgency of establishing the region's access to LNG
    means that the United States Congress has a potent tool at its
    disposal. By clearing the way for U.S. shale gas to reach
    America's Central European NATO allies, it would provide
    significant protection against the deployment of the energy
    weapon. It is simply not true that lifting the natural gas
    export ban today would not have an immediate effect in the
    region. It would. It would immediately change the business
    calculus for infrastructure investments, and send an extremely
    important message of strategic reassurance to the entire
    region.
        Access to LNG would also assist Ukraine. During 2013, two
    capacities, reverse flow capacities, were opened toward
    Ukraine, one from the direction of Hungary, another from the
    direction of Poland, enabling the supply of natural gas to
    Ukraine on purely market terms.
        Expediting LNG export is an elegant, yet very effective
    tool, which is relatively cheap to use. It is a historic
    opportunity to send a strong message of freedom to the region
    by simply letting the markets work. This is not a partisan
    issue. It is an American issue that all statesmen in this
    country must show leadership on.
        Mr. Chairman, members of the committee, I believe that
    doing away with these export limitations would make economic
    sense, even in better times, but there is nothing like a crisis
    to focus the mind. As representatives of a country that Central
    Eastern Europe has traditionally looked to for leadership, you
    know well that you do not always have the luxury of choosing
    the time to make some of the most necessary decisions. But with
    the post-Cold War settlement crumbling before our eyes, if
    there was ever a time for your leadership, it is now. And if
    there was ever an issue that would do as much good at as little
    cost, it is the issue at hand. Thank you for your attention.

        [The prepared statement of Ms. Orban follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thank you, Dr. Orban. And at this time I
    will recognize the gentleman, Mr. Bacchus, for 5 minutes.

                       STATEMENT OF JAMES BACCHUS

        Mr. Bacchus. Thank you, Mr. Chairman, and it is always good
    to be back in this House. I had the privilege some time ago of
    representing the State of Florida in this House. Today I want
    to emphasize that I am here today representing no one but
    myself. I am speaking solely for myself. Furthermore, I am here
    today not to speak on issues of policy, but on issues of law,
    specifically on issues relating to international trade law
    under the WTO treaty. And I believe I have been invited here
    today because, when I became a former Member of the House, I
    went to Geneva and became one of the seven founding Judges on
    the appellate body of the World Trade Organization, and I
    served for nearly a decade there, including two terms as the
    Chief Judge there. I have written quite a few WTO legal
    opinions.
        So that is why I am here today. I am here because, largely
    overlooked in the emerging Congressional debate so far about
    restricting exports of natural gas, is the possibility that
    such restrictions are inconsistent with the obligations of the
    United States to other members of the WTO under the WTO treaty.
    This matters, because if our restrictive energy measures are
    inconsistent with our treaty obligations, the United States
    risks losing a case in the WTO, and such a loss could cause the
    WTO to authorize expensive economic sanctions against us
    through the loss of previously granted concessions in other
    sectors of our international trade.
        Mr. Chairman, WTO rules apply to trade in natural gas and
    other energy products in the same way they apply to other
    traded products. Some suggested that energy products are
    somehow separate and apart from other treated products in how
    WTO rules apply to them. There is no legal basis for this view.
    Among WTO rules that bind us in the WTO treaty are rules
    prohibiting bans, quotas, and other forms of quantitative
    restrictions on exports, unless those restrictions take the
    form of export taxes. Now, as all the members know, taxes on
    exports are prohibited by our Constitution in the United
    States, so energy export taxes are not an option for us. WTO
    rules also permit temporary restrictions on exports to prevent
    or relieve critical shortages of essential products, but that
    can hardly be said to apply to our current situation with
    respect to supplies of natural gas.
        A number of legal concerns occur when considering the
    consistency of the current U.S. process for licensing exports
    of natural gas with WTO rules. First of all, the current U.S.
    process gives special treatment in licensing exports of natural
    gas to countries with which we have a free trade agreement.
    Natural gas exports to these countries are deemed to be in the
    public interest, and permitted without delay. In contrast, the
    Department of Energy has elected to subject licensing requests
    for LNG exports to non-FTA countries to a thorough and lengthy
    assessment intended to determine whether exploits of natural
    gas to those countries serve our public interest. In this way,
    applicants that ship LNG to FDA countries are preferentially
    given expedited review in the licensing process, as compared to
    those applicants that will ship LNG to non-FTA countries.
        When seen through the prism of WTO law, Mr. Chairman, these
    are measures affecting trade that result in discrimination
    between like traded products. The legal question under WTO law
    is whether this discrimination can be excused by an exception
    in WTO law that allows trade discrimination as part of a free
    trade agreement. But it is not at all clear that all of the
    FTAs of the United States fit within the definition in the WTO
    treaty of a free trade agreement.
        Fortunately, H.R. 6, introduced by Congressman Gardner of
    Colorado, and currently under consideration by this committee,
    would eliminate this potential legal concern by providing that
    natural gas exports to all members of the WTO would be deemed
    to be in the public interest. Depending on how the Department
    of Energy chooses to implement H.R. 6, however, it may not, in
    its present form, remedy several other legal concerns arising
    from the current U.S. licensing process under WTO rules. I,
    frankly, could not tell from the testimony earlier today by the
    representative from the Department of Energy how precisely they
    view this bill, how they would change what they do if this bill
    is enacted, or even how they engage in their process today, nor
    can, really anyone else.
        One remaining legal concern under WTO rules is the question
    of the lengthy delays in granting export licenses. H.R. 6, in
    its third paragraph, would provide for immediate approval of
    pending applications, but what about new ones? Under WTO rules,
    a license can clearly be a restriction on exports. And case law
    has defined the notion of a restriction broadly to include
    licensing procedures that post limitations on actions, or had a
    limited effect, such as by creating uncertainties, or by
    affecting investment plans. In one case, delays of up to 3
    months in issuing export licenses were found to be inconsistent
    with the rules.
        Now, to be sure, liquefied natural gas is, practically
    speaking, not just another widget. Before it can be shipped by
    sea, natural gas much be transformed in a careful way that
    requires special facilities. Some period of deliberation, and
    citing, and evaluating LNG facilities seems reasonable. The
    FERC process of environmental consideration is probably
    perfectly defensible under WTO rules. But what would WTO Judges
    be likely to say about delays in issuing export licenses that
    last much longer?
        Mr. Whitfield. Mr. Bacchus, I have let you go a couple
    minutes over. If you would just summarize, and----
        Mr. Bacchus. Let me make one more point, Mr. Chairman, and
    then I will be happy to answer questions of the members on
    these other issues. And I congratulate the committee on asking
    first about our WTO obligations before enacting legislation,
    rather than finding out about them later in Geneva.
        An additional remaining legal concern is the lack of
    clarify, and how the Department of Energy defines the public
    interest. Conceivably even lengthy delays in the licensing
    process could be excused under WTO rules if it could be proven
    by the United States that such delays are necessary to protect
    life or health, or are related to the conservation of
    exhaustible natural resources, so long as the process is not
    applied in a way that results in arbitrary or unjustifiable
    discrimination, or disguise restriction on international trade.
        Now here is my final point, Mr. Chairman, for now. If,
    however, in determining the public interest the DOE considers
    as a factor the effect the proposed exports will have on
    domestic producers that use natural gas in making their
    products and their competition with like foreign products, then
    these exceptions to WTO rules will not be available, and will
    not excuse a WTO violation caused by lengthy licensing delays.
        In fact, Mr. Chairman, the United States of America has
    been making precisely the point that I have just made just now
    in a case against China in the WTO, dealing with Chinese
    restrictions on exports of rare earth elements. Most likely the
    United States will win this case. A WTO panel ruling is
    expected tomorrow. If we have proven the facts, we will prevail
    on the arguments I have just made, that are some of the same
    arguments that we heard earlier today.

        [The prepared statement of Mr. Bacchus follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thank you so much, Mr. Bacchus. At this time
    I recognize Mr. Schryver for 5 minutes.

                     STATEMENT OF DAVID G. SCHRYVER

        Mr. Schryver. Chairman Whitfield, Ranking Member Rush, the
    members of the subcommittee, I appreciate this opportunity to
    testify before you today, and I thank the subcommittee for
    calling this important hearing on The Domestic Prosperity and
    Global Freedom Act introduced by Congressman Gardner. My name
    is Dave Schryver, and I am the Executive Vice President for the
    American Public Gas Association. APGA is a national association
    for publicly owned natural gas distribution systems. There are
    currently approximately 1,000 public gas systems located in 37
    States in the U.S. Publicly owned gas systems are not-for-
    profit retail distribution entities owned by, and accountable
    to, the citizens they serve.
        As a result of advances in natural gas drilling techniques,
    U.S. consumers have enjoyed affordable energy prices, and a
    manufacturing renaissance is underway. The U.S. now has a
    unique opportunity to implement its long declared, but never
    seriously pursued, policy of energy independence, and thereby
    to fundamentally transform key variables affecting both our
    national security and domestic economy.
        However, APGA is concerned that the export of LNG threatens
    this opportunity. There have been about 30 applications filed
    at the Department of Energy, and the sum total of LNG that
    could be exported, should all these facilities go forward,
    would equate to nearly half of current U.S. natural gas
    production. This potential level of export could have serious
    adverse implications not only for U.S. national security, but
    also for domestic consumers of natural gas, and the economy as
    a whole.
        The pursuit of energy independence requires that the United
    States wean itself off of imported oil, which accounts for
    approximately 40 percent of our domestic use. The two major
    consumers of foreign oil in the United States are the
    transportation sector and the industrial sector. By converting
    commercial vehicles to natural gas, the United States can take
    giant steps towards energy independence and reducing greenhouse
    gas emissions.
        To accomplish this goal, natural gas in the United States
    must remain plentiful and reasonably priced. U.S. natural gas
    prices today are affordable, competitive, and relatively stable
    in contrast to the situation just a few years ago. This
    important change in gas pricing is the product of both the
    newly available supplies of natural gas and the fact that our
    natural gas market is largely limited to North America. At
    these prices, natural gas vehicles are price competitive with
    gasoline.
        By contrast, the large scale export of natural gas via LNG
    will not only play havoc with the current supply and demand
    situation, enhance the price of natural gas, but will also,
    because the price of LNG abroad is tied to the international
    oil market, inevitably link the domestic price of natural gas
    to international oil markets, which are substantially more
    volatile, and less transparent than our domestic market.
        APGA is not against free trade, but when important policies
    collide, nations must make choices. U.S. policymakers must
    carefully consider and prioritize the use of domestic resources
    according to the national interest over both the long and short
    terms. Ultimately, U.S. LNG will be sold by private firms to
    the highest bidder without any consideration of U.S.
    geopolitical interest. Wherever these firms can obtain the
    highest price for natural gas is where the gas will be sold.
        Proof of this assertion can be found in the already
    approved applications for export of natural gas to non-FTA
    countries. The seven approved applications have finalized
    contracts, or are negotiating contracts, to sell U.S. gas to
    Japan, South Korea, and India. Since the goal of profit
    maximization applies to all pending non-FTA export
    applications, any future exports will also go where the price
    is highest, and not where U.S. geopolitical interests may wish
    them to be sent. In addition, Ukraine, unlike its likely Asian
    competitors, currently has no LNG import facilities, and
    therefore no capacity to receive U.S. gas in the near future.
    Rather than exporting LNG, a focus should be on exporting the
    drilling technology that has enabled producers in this country
    to tap into our huge shale reserves. There are vast shale
    reserves in Europe, including in Ukraine, that are there for
    the taking.
        APGA strongly believes that natural gas has a critical role
    to play in keeping energy prices affordable for U.S. consumers,
    reducing our dependence on foreign oil, reviving domestic
    manufacturing. No matter how well intentioned, the projected
    price increases of exporting LNG threatens those three
    objectives. In lieu of exporting our affordable premium fossil
    fuel, Congress should focus on adopting policies that encourage
    greater domestic demand for natural gas. This is a much better
    choice in both the short and long term to accelerate the
    transition from imported oil to domestic natural gas to fuel
    our transportation sector, revitalize our manufacturing
    industry, and improve our balance of trade.
        We urge the committee to carefully consider the adverse
    impact that exporting LNG will have on millions of natural gas
    consumers in the U.S., who will feel the impact of higher
    prices resulting from exposure to the global export market.
    APGA thanks you for this opportunity to testify, and we look
    forward to working with this committee on this important issue.

        [The prepared statement of Mr. Schryver follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thanks very much, and, Mr. Ditzel, you are
    recognized for 5 minutes.

                     STATEMENT OF KENNETH H. DITZEL

        Mr. Ditzel. Mr. Chairman, and members of the subcommittee,
    thank you for your invitation to present testimony before the
    Subcommittee on Energy and Power. My name is Ken Ditzel. I am a
    principal at Charles River Associates, where I have authored
    three reports on LNG exports since February 2013. The client
    for these reports has been Dow Chemical. The views I express
    today, though, are mine, and do not necessarily reflect the
    views of CRA or others.
        Now, Dr. Montgomery and I have conflicting views on the
    value of LNG exports. I first want to state that Dr. Montgomery
    and I have known each other for almost 10 years, and we worked
    together for almost seven. He is a great person, and I agree
    with David on many other subjects where he is given
    Congressional testimony, but this time is different. The reason
    is that LNG exports could present serious opportunity costs.
    Why? It is because gas-intensive manufacturing creates twice as
    much GDP, almost five times the permanent jobs, and eight times
    the construction jobs as LNG exports on an equivalent
    consumption basis. Also, manufacturing distributes these
    benefits across more States, which means more people win in
    more States. Finally, manufacturing has a larger trade balance
    impact than LNG exports. Assuming equivalent consumption,
    manufacturing would create a $34 billion trade benefit
    differential.
        Given these higher benefits, we need to ask ourselves two
    key questions. One, is there a price point where the
    manufacturing renaissance will be at risk? Two, could U.S. LNG
    exports raise prices to this level? To answer the first
    question, price levels approaching almost $8 per million BTU
    would end the manufacturing renaissance. We saw these price
    levels in the mid-2000s, and the job destruction that ensued.
    The answer to the second question is yes. LNG exports, if left
    unconstrained, could raise domestic gas prices above $8 per
    million BTU. Why? It has to do with net back pricing. Today the
    U.S. net back price would be $10 per million BTU, if there were
    exports.
        Turning to the two NERA reports, I have a number of
    criticisms about their assumptions, process, and results. Given
    DOE's reliance on the first NERA report, it is surprising that
    the DOE never had the report peer reviewed, as it would have
    uncovered a number of concerns, such as, one, the NERA report
    forecasted no exports in its reference cases, even though 30
    BCF per day of applications were submitted at the time. Second,
    a lack of transparencies in results, full output data by
    scenario were missing on supply and demand by region in
    international LNG import prices. Third, resource owners win,
    while the rest of the economy loses. Fourth, assumptions that
    the LNG market is competitive. We know it is not because OPEC
    influences the oil prices by which LNG is indexed.
        In reviewing the second NERA report, I found more concerns.
    One is NERA's now forecasting five BCF per day in the long term
    in its reference scenario, even though actual LNG export
    margins have slightly decreased between the timing of the two
    reports. The second is NERA's results are inconsistent. NERA
    forecasts all have prices to be $3.44 in 2018 in its reference
    scenario. Backing into this price using NERA's output tables
    gives lower prices, which means LNG exports would be
    uneconomic, and would not occur in their model.
        Three, NERA forecasts almost one BCF per day of exports by
    2018, which is only 45 percent of the Sabine Pass capacity, yet
    Sabine has a take or pay contract that would put the facility
    near 100 percent. Also, at 45 percent, one has to wonder if
    Sabine is a losing proposition, which shareholders wouldn't
    want to hear. Fourth, NERA forecasts international gas prices
    to drop from $16 today to $11 by 2018. That is because NERA
    models the energy market as competitive, and we know it is not.
    The BG group, however, forecasts LNG import prices to remain
    close to today's levels from the next few years.
        In summary, I believe the value of LNG exports is still
    very much in question. The process employed thus far has been
    opaque, and I encourage the DOE to open up the process, and
    reconsider the reports it relies upon for determining what is
    in the public interest.

        [The prepared statement of Mr. Ditzel follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thank you very much. At this time, Dr.
    Montgomery, you are recognized for 5 minutes.

                    STATEMENT OF W. DAVID MONTGOMERY

        Mr. Montgomery. Thank you, Mr. Chairman, Ranking Member
    Rush, and Mr. Green, Mr. Griffith, and Mr. Gardner. I
    appreciate the opportunity to be here, and thought I might as
    well mention all of you. I led both NERA's study of the
    macroeconomic impacts of LNG exports that we did for the
    Department of Energy, and also our recent update. I have
    provided a copy of this report with my testimony. I would like
    to request that that be entered for the record. I am also
    speaking today for myself, not for NERA, or any other
    consultant there, or any of their clients. These are my
    opinions.
        We did, as Dr. Gant mentioned, in our new study update our
    data to the most recent complete Energy Information
    Administration Annual Energy Outlook. What Mr. Ditzel refers to
    as our forecasts are simply what was in AEO 2011, when we did
    the DOE study, and 2013, in our current study. The reference
    case was calibrated precisely to the AEO forecast, as close as
    you can come. So we did the update. We also looked at higher
    levels of exports than we did in the previous study. We looked
    at the full amounts of exports that the market would take in
    each of the scenarios we developed. And what we found, again,
    was that LNG exports would provide net economic benefits to the
    U.S. in all the scenarios we examined, and the less the
    regulators restricted U.S. exports, the greater the benefits
    would be.
        Indeed, the largest net benefits were achieved when no
    limit was set on LNG exports by DOE. But that didn't mean that
    exports are unlimited, because the market would limit them.
    And, put another way, there is a sweet spot, I agree, but the
    sweet spot is only going to be found by letting the market work
    to discover it. We are not going to be able to discover a sweet
    spot through arguments here, or through analysis. The sweet
    spot is the point at which the value in domestic use and the
    value in exports are balanced off by the market.
        We also find that the benefits of LNG exports will be
    distributed broadly, and we looked at this more carefully than
    we did in the previous version. Wage growth will be slightly
    slower, but it is not true that it is only rich land owners in
    Wyoming and North Dakota that will be getting the benefits.
    Workers benefit from increased values of their 401(k)'s and
    retirement savings. Everyone benefits from a source of
    Government revenue that doesn't retard growth. And there is the
    basic point of international trade that when we increase
    exports, it directly reduces the cost of the other imported
    consumer goods that people buy. So there is an offsetting
    effect.
        You know, there is a demand for our exports. Other LNG
    exports go up, buyers need dollars. Buyers go out and acquire
    those dollars. That drives the value of the dollar up. That
    drives down the price of all the other goods that we import.
    For consumers, that is what turns out to be a wash, and it is a
    very important part of understanding the trade implications.
        Now, you have heard that the chemical industry will create
    more GDP if it were allocated the BCF of gas than the natural
    gas industry would create by exporting it. That is a false
    dichotomy, and bad economics in the bargain. The same thing
    could be said of every industry that uses a basic commodity,
    for example, grocery manufacturers, who use the same
    agricultural products that we export. Does this mean that we
    need to establish a law that creates a public interest
    requirement through determining whether agricultural exports
    are in our national interest? No. The market sorts that one out
    perfectly adequately.
        The whole notion that chemicals, or other manufacturing
    industries, need Government allocations of energy to survive is
    false. There is just no problem for the Government to solve.
    The competitive advantage of U.S. manufacturing won't be taken
    away by exports. I would like to put up one slide here which
    shows what happened. This is the manufacturing renaissance.
    This is the effect of lower natural gas prices. The blue line
    shows 2005. The United States is the highest cost producer of
    chemicals at that point. It was really on the verge of being
    knocked out of business. Now we are tied with the Middle East
    as the lowest cost producer. We have a 60 cent a pound
    advantage in ethylene production over our nearest rival.
        So I did a calculation. I asked, what is the maximum impact
    that we see from natural gas exports across all our cases? It
    is not this fantasy that we are going to be linked to oil
    prices, and suddenly jump to 10 or $12 a barrel. It is a $1
    increase above what prices would otherwise be. That $1 increase
    in natural gas prices converts to 5 cents a pound on the cost
    of producing ethylene. That is out of a 60 cent advantage that
    we have already.
        It is true, U.S. manufacturing gets a huge advantage over
    its rivals in countries that have to import natural gas, and we
    get it because our gas is so much cheaper, and that there is
    enough for manufacturing, and enough for the exports as well.
    In fact, when we looked at exports, we found that almost all of
    the increased gas for exports was coming from additional
    production. Almost none of it was coming from manufacturing.
    Manufacturing can afford to buy the gas because it has such an
    advantage. It is a false dichotomy to say it is either or.
        Let me show two other slides. This one shows that there are
    employment impacts, and they are positive impacts. There are
    direct jobs that are going to be created by building LNG
    facilities. We show them here that they will peak before 2018,
    2,000 to 40,000 jobs, depending on how fast we get on with the
    business of exporting LNG. That actually converts into reduced
    unemployment. Lot of talk about creating jobs, and putting
    people to work 40 years from now is nonsense. CBO, and most
    other forecasters, assume that once we get out of this
    recession, we will stay approximately at full employment. What
    matters is between now and 2018, because that is when CBO says
    we will be returning to full employment. Using a standard kind
    of macroeconomic theory, we looked at this and determined that
    we would get something up to 45,000 additional workers joined
    out of the unemployed and put to work at the maximum level of
    LNG exports that we came across.
        Final chart, let me show, this would have an effect on
    Russia. I will leave it to others to talk about why it is our
    strategic advantage to do this, but what this shows is that if
    we do two things, one is if we remove bureaucratic restrictions
    on exports, and the second is if we actually encourage the
    shale revolution, rather than restricting it through ham-handed
    regulations or unjustified fears, we can knock out five
    trillion cubic feet of Russian exports. It won't be because we
    are exporting directly to Russia, to Europe, it is because we
    will be going where we have transportation cost advantages to
    go, and others, in particular the Middle East and Africa, will
    be shipping their gas to Europe, and knocking Russia out of
    that market.
        That will face Russia with two choices, and it is the
    choice every monopolist has to face when a competitor appears.
    They either have to cut back their production in order to
    maintain high prices, cede most of their market, or they have
    to take much lower prices. We project that, in the optimistic
    supply case that EIA has developed in 2013, we could reduce
    Russia's natural gas export revenues between 40 and 60 percent
    if we free up LNG exports. I think that is a significant hit to
    the Russian economy, and one that should get their attention.
    Thank you for your indulgence.

        [The prepared statement of Mr. Montgomery follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Whitfield. Thank you, and thank all of you for your
    testimony. We appreciate it very much. We know that, on this
    subject matter of exporting LNG, that there are a lot of
    different perspectives to review it from. One is the
    geopolitical arena, and from an economic standpoint, it sounds
    like, Dr. Montgomery, you believe that economically it would be
    a tremendous benefit for us to export natural gas. And, Mr.
    Ditzel, I guess it would be fair to say, from your perspective,
    it would be more of a negative than a positive overall.
        So, I want to get back to that in just a minute, but, Dr.
    Orban, you have heard the argument that because of the time
    that it takes to put in infrastructure to export that really
    there is not going to be any immediate benefit to European
    countries that are relying on natural gas from Russia. Would
    you agree with that assessment, or do you disagree with that
    assessment?
        Ms. Orban. Thank you, Chairman. I would disagree with this
    assessment, and let me highlight two points here. One is, if
    the decision is made to expedite U.S. energy to its allies, it
    can have two impacts. One, it is a strategic reassurance of the
    relationship between the European allies and your United States
    immediately. It sends a very important geopolitical signal at
    that very moment. Second, the economic impact. We have numerous
    cases, and in my written testimony, I also cited one case, when
    a future prospective alternative already had a price impact on
    the dominant supplier's pricing. So we believe that it would
    have an immediate price impact on the dominant supplier's
    pricing in Central Eastern Europe.
        And also let me add, when we are talking about the energy
    industry, we are talking about decades of investment. An
    investment will reach its maturity in several decades. We are
    talking here about a couple of years, which is, in the energy
    industry, it is like talking about tomorrow, or the day after
    tomorrow. And let me also take this opportunity to highlight
    that it is very important for us that this issue here, what we
    are discussing today, is a non-partisan issue in the United
    States. And I would like to highlight and recognize Congressman
    Gardner for introducing this bill, and I would like to
    recognize also Ranking Member Rush for acknowledging the
    geopolitical aspect of this important issue.
        Mr. Whitfield. Let me ask you, when you import natural gas
    from Russia by way of the Ukraine, or Belarus, or however, what
    is the length normally of those contracts?
        Ms. Orban. The current length of those contracts is 20 to
    25 years. They are long term contracts.
        Mr. Whitfield. Your microphone.
        Ms. Orban. Sorry. The length of those contracts is 20, 25
    years. They are long term contracts, which were usually
    concluded in the '90s. So a lot of countries, we see their
    contracts are expiring in the next couple of years. If we are
    talking about renegotiating of the contract, or the future of
    the gas market in Central Eastern Europe, for all these
    countries, knowing that the credible option is there to buy
    2018, 2019, onward, it gives an absolutely different
    negotiating position.
        Mr. Whitfield. So certainly, from your perspective, this is
    a crucial time, with these contracts to expire?
        Ms. Orban. It is the time.
        Mr. Whitfield. Yes. And where do you import gas from, other
    than Russia, in Hungary, for example?
        Ms. Orban. We are importing from Russia, as well as we have
    access to a hub in Baumgarten, which is in Austria, where we
    are able to import not on a long term basis, but on a spot
    basis. But if we talk about the molecules, all the molecules in
    the pipeline system are Russian, of course, in that part of
    Europe.
        Mr. Whitfield. And most of this natural gas that you are
    importing, it is used for electricity, or for----
        Ms. Orban. It is used for heating, it is used for
    manufacturing, and it is used for electricity. The case of
    Hungary is pretty important to note that \3/4\ of the
    households use natural gas for heating. As a result, it is an
    extremely important social, as well as political issue, the
    energy security, as well as the price of gas.
        Mr. Whitfield. And one time you had indicated that in
    Croatia they were in the process of building an import facility
    there that Hungary would benefit from. Is that the case?
        Ms. Orban. There is a plan to build an energy facility in
    Croatia. If it is built, Hungary would benefit from that
    immediately, as well as many other countries in the region. We
    inaugurated a pipeline between Croatia and Hungary in 2010,
    with six billion cubic meters capacity, which is a pretty big
    capacity, compared to the size of the market there. It is three
    times of the market of Croatia. It is about 60 percent of the
    market of Hungary. But for the LNG terminals to be built, you
    need the volume. You need the supply on the other end. And the
    LNG market currently is pretty tight. There is not really new
    LNG coming into the market. To get that investment feasible and
    up and going, you need the credible opportunity and alternative
    of energy entering the market.
        Mr. Whitfield. Well, my time has expired. I wanted to
    discuss this difference between Mr. Montgomery and Mr. Ditzel a
    little bit, and also the WTO, but I am going to have to
    recognize Mr. Rush for 5 minutes at this point.
        Mr. Rush. It is very interesting, Mr. Chairman, I want you
    to know. We are seeing a resurgence in American manufacturing,
    and I want to make sure that we don't do anything to undermine
    and hinder, or hamper, this resurgence in manufacturing. But I
    am also quite interested in the geopolitical aspects of this,
    and I don't know whether or not Dr. Orban could speak to this,
    but I certainly want to ask.
        I grew up on the streets in Chicago, and it has been my
    experience that a success of a bully is that there is a chance
    to be a bully until you stop them from being a bully. And you
    stand up to a bully. You call the bully out. And so, in my own
    way, I look at Putin as being a bully. And if we don't do
    something in here, in terms of the LNG, or whatever, what can
    you see, or tell us, or give us an idea, where does he go next?
    Who is he going to bully next? Do you have any idea about that?
    And then I am going to get back to the matter at hand, but I
    just want to take the opportunity, because I think if you don't
    stop a bully, he is going to keep on bullying. That is the
    nature of a bully, until you stand up to him. So is that one of
    your concerns?
        Ms. Orban. Thank you, Mr. Rush. If I understood you
    correctly at the beginning of your question, you allowed me now
    to answer, but you said that you will still----
        Mr. Rush. OK.
        Ms. Orban. --ask it. I am not sure whether anybody is able
    to answer your question.
        Mr. Rush. All right. Well, let us go back to something
    maybe somebody could answer. Mr. Schryver, the American Public
    Gas Association has been working with Alcor, Newcore, and other
    major U.S. manufacturers on the issue of LNG exports. And you
    call have significant concerns about exporting LNG. The
    Industrial Energy Consumers of America is also very concerned
    that you all will oppose the bill before the subcommittee. So,
    based on your conversations with these companies, why do you
    think that they are so concerned about LNG exports?
        Mr. Schryver. From the perspective of our members, we are
    concerned about the price impacts first and foremost. Our
    members are focused on providing safe and affordable natural
    gas to their customers, so that is one. We are also concerned
    about the impact LNG export is going to have on efforts to
    increase our energy independence. That is number two. And
    lastly, you know, there has been a number of studies out there,
    you know, whether there is a net benefit or not. And when our
    members look at their natural gas customers, half the people
    they serve on average, you know, don't own stock, and those
    that do may not necessarily own stock in a natural gas
    production company, or a company that is going to benefit from
    LNG production. So, from that standpoint, they really see no
    benefit from LNG export.
        Mr. Rush. All right. Mr. Ditzel, I understand that Dow had
    commissioned some of your work on LNG export impacts?
        Mr. Ditzel. Yes.
        Mr. Rush. Yes. Are Dow and other manufacturers right to be
    worried about the effect of LNG exports on the price of natural
    gas in the U.S.?
        Mr. Ditzel. They absolutely do. I have enumerated in all my
    studies the impact of LNG exports was going to be significant.
    If we leave it unconstrained, we will see prices rising above
    $8 per million BTU. I have raised this concern many times
    because I have some serious questions about the quality of the
    NERA report. As I pointed out in my oral testimony, and also in
    my written testimony, there are a number of flaws where the
    numbers just don't add up or make sense.
        And, for example, I pointed out that NERA comes to $3.44
    per MCF in 2018 in its reference scenario. The problem is that
    when you look at their output tables and you add it all up, it
    comes to a number that is lower, which means you wouldn't
    export. So there are a number of concerns with the NERA----
        Mr. Rush. My time is running out. What about the jobs? They
    are--large volumes of LNG exports. How many jobs are at stake?
        Mr. Ditzel. Well, when we did our analysis, and looking at
    the job impact, we found that there is a five time impact by
    manufacturing relative to LNG exports. So that is roughly
    180,000 jobs that are created from manufacturing at five BCF
    per day, and a fifth of that with LNG exports. And it is only
    something that is a concern if LNG prices rise, or force prices
    to rise above $8 per million BTU, which we think will happen.
        Mr. Rush. And Dr. Montgomery don't agree with you. He
    disagrees. And why do you think he is wrong about his----
        Mr. Ditzel. Sure.
        Mr. Rush. --analysis?
        Mr. Ditzel. He ties his reports and his analysis to the EIA
    reference case. And as I have shown in my slides, and in my
    testimony, the EIA reference case is consistently wrong, if you
    look back at history, and never hits any of the spot prices. So
    he ties it to a reference case that just, you know, that is
    likely to be wrong going forward. And in that case, we have
    analyzed the EIA analysis, and showed that the implied import
    price, in their analysis, was around $12 per million BTU in the
    long term, and that is consistent with what Dr. Montgomery
    uncovers in his analysis, and that is a big drop from today's
    prices. So his analysis thinks that the LNG exports from the
    U.S. are going to make a big dent.
        Mr. Gardner. Gentleman's time has expired. I am going to
    try to do this better than last time. I think last time I hit
    the mute all button. I guess I am going to try not to do that
    this time.
        To Dr. Montgomery, I had a question for you. Recognize
    myself 5 minutes, I apologize. We heard a lot about price
    impact, and investments in various industries. If there is an
    overabundance of supply of natural gas in the United States,
    will that erode capital investment in production within the
    United States of natural gas?
        Mr. Montgomery. Yes. The investment and the, you know,
    exploration and production moves very directly with the price
    of natural gas. If we find ourselves, again, with a glut of
    natural gas, it could lead to collapses temporarily, as we
    actually probably saw a couple of years ago. You know, $2 per
    million BTU price of natural gas were, I think, largely driver
    by overextension of production on leases that had to be
    drilled. But it is all a matter of degree. As we see additional
    demand for natural gas exports coming into the market, that
    will bring forth production. I will let EIA defend its own
    record. I think that Mr. Ditzel seems to forget that every
    forecaster misses precise numbers. The point is that EIA has
    done a very good job on average of keeping up with what we are
    thinking with kind of current thinking about the future.
        But we followed EIA's resource characterization and supply
    curves. And what they have concluded, and this is new in the
    AEO 2013, and even more so in 2014, is that we can produce a
    lot more natural gas without the price going up very much. That
    is what keeps the price of natural gas down. That is why we can
    get, in most cases, an additional four or five, six, eight TCF
    of natural gas, with less than a $1 increase in the world oil
    price. It is because production responds very aggressively to
    the new demand, and it doesn't take much of a price increase to
    get enough natural gas produced to satisfy all of that demand.
        Mr. Gardner. And Dr. Montgomery, Dr. Orban, I think this
    question could be addressed to both of you. In your testimony,
    when you talk about Russia, you say monopolists can be
    restrained as effectively by potential competition as by actual
    production by their rivals. Can you please talk about that in
    more detail?
        Mr. Montgomery. Yes. We have many examples in the United
    States, and overseas, of companies which may be the, you know,
    largest incumbents in a market, but as long as they can see
    that there are competitors ready and waiting to come into the
    market, with the capacity to, you know, meet their price, or to
    provide supplies at competitive prices, then that is going to
    discipline their pricing. We call it limit pricing phenomenon.
    Don't price any higher than what it takes to bring somebody
    else into the market and take it away from you. I think that is
    exactly what we see with Russia.
        But what is critical to it is that there not be this
    overhanging risk that all of a sudden an administration will
    decide, no, that is enough exports, and cut them off before
    enough exports can flow to take the market away.
        Mr. Gardner. Dr. Orban, I want to add to that question.
    Have you or your government experienced any issues with Russian
    energy supplies, and if you could please explain that?
        Ms. Orban. As you know, there was a case in 2009, which
    received us a lot of media attention, where for less than 2
    weeks the supply was stopped entirely on the Ukrainian pipeline
    system, which caused serious shortages in Central Eastern
    Europe. It affected the different countries differently. Some
    countries had very severe problems, like Slovakia, or Bosnia-
    Herzegovina, or Bulgaria. Many countries needed to shut down
    industries, but there were also countries that residential
    heating was affected. After 2009 State level, as well as the
    European level, they introduced numerous measures, and we built
    numerous new infrastructure to prepare for a potential new
    crisis situation to be able to assist each other based on the
    principle of solidarity, as well as to sustain if there is a
    serious crisis for a longer period.
        Mr. Gardner. And the ability for the United States to
    export LNG, of course, would help mitigate that as well?
        Ms. Orban. Absolutely. As I explained, what we need is
    build the internal capacity. The pipeline system and the
    internal infrastructure in Europe is lagging behind that of the
    United States. That is our homework. We are doing that. The
    other which we need is the extra volume to create the gas to
    gas competition in the market, and that is where the United
    States could be----
        Mr. Gardner. Mr. Ditzel, is it a fair assumption to say
    that the manufacturing renaissance in this country is because
    of the price of energy, and the abundance of energy supply in
    this Nation?
        Mr. Ditzel. Absolutely.
        Mr. Gardner. Are you concerned that a lack of opportunities
    to export will impact investments within energy, and drive
    energy prices up because of a lack of investment in the energy
    sector, as wells are shut in, and production is decreased
    because of that issue?
        Mr. Ditzel. My concern is that, with unlimited LNG exports,
    it will raise domestic gas prices to a point that it will end
    the manufacturing renaissance.
        Mr. Gardner. Dr. Montgomery, what do you say to those who
    say that if there is no limit, that the levels will be
    unlimited?
        Mr. Montgomery. You have a find a buyer, and the U.S. is
    not going to find buyers for gas at the levels that Mr. Ditzel
    is assuming. You simply have to look at supply and demand in
    the global market, and there are far too many countries out
    there who could beat us by several dollars a million BTU in
    delivering gas if our wellhead price was $10. We can't find a
    scenario in which we sell gas at $10 a million BTU because
    nobody in the world wants it at that price.
        Mr. Gardner. Thank you, and my time has expired. Mr. Green,
    the gentleman from Texas, is recognized for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman, and thank both the
    Chair and the ranking member for having the hearing today on an
    issue that is really important where I come from, an industrial
    area in East Harris County, chemical plants, refineries, that
    are all benefiting from our regionalized natural gas. Our
    committee, in 2005, actually federalized permitting of
    importing LNG because we thought our chemical industry in '05,
    we couldn't compete with North Sea gas, and we were losing
    chemical jobs, as you mentioned, Mr. Montgomery. But now we are
    seeing expansions.
        Of course, my concern is a balance between the producers
    needing to be certain they know their gas will have a market,
    because right now we are flaring a significant amount in South
    Texas, and I know the royalty owners would love to see that
    stop flaring and be able to ship it to someone. But our
    manufacturers need to know they have certainty of the prices
    not to skyrocket. And I would love to help our allies,
    particularly in Eastern Europe, but even if we pass the bill
    today, even--areas not going to export gas until next year. So
    even if we streamlined every permit that is in the line, it is
    not going to get there very quickly. And that is, again,
    depending on the investment that they can get.
        But the American people need to know that they will
    continue to benefit from our natural resources that we are
    seeing in the renaissance. By eliminating the regulatory
    oversight, I am concerned that we should mostly harness the
    agency expertise, and we heard that earlier, streamline the
    decision-making, which I think is being done right now, and
    also define the transparency. And so that is why I am glad we
    are having this hearing today.
        Mr. Schryver, in your testimony you state that the U.S.
    will give up a manufacturing renaissance promised on low
    prices, investing in natural gas. You cite an article in the
    New York Times that South African investment in a gas and
    liquids plant in Louisiana would cost $14 billion. Do you
    believe that the firm relied solely on the NERA study
    commissioned by the DOE to invest in that plant in Louisiana?
        Mr. Schryver. Do I believe the firm that is moving to
    Louisiana is relying solely on NERA? No. Actually, there are a
    number of factors. I don't want to speak for them, but I assume
    there are a number of factors, one of which is the low cost of
    natural gas we are enjoying right now.
        Mr. Green. Well, the CEO of that South African company
    stated that the plant becomes economical when U.S. natural gas
    prices exceed $8 per million BTU. Do you believe that the
    companies that will invest $14 billion to build a new facility
    without forecasting potential natural gas increases, that it
    would be much less than $8?
        Mr. Schryver. From APGA's perspective, we are not sure
    ultimately how much natural gas is going to be exported, and
    every study we have seen has shown that the more natural gas
    that is exported, the greater the price impact will be.
        Mr. Green. Well, even in Texas we have five crackers that
    cost a billion dollars each, and these companies relied on NERA
    study, and they will invest that billion dollars without
    forecasting. Do you believe they would invest that billion
    dollars per cracker without forecasting potential price
    increases?
        Mr. Schryver. I am sure they forecasted potential price
    increases.
        Mr. Green. Mr. Ditzel, how is natural gas priced in
    different parts of the world? Again, we are used to our U.S.
    pricing system, but it is priced in different ways. For
    example, Henry Hub, National Balancing Point, Japanese
    Clearing, S-Curve Oil Index, when signing contracts, how many
    years constitute a long term LNG contract? Could you tell us if
    there is a predominant natural gas pricing in the world, or is
    it really based on geography?
        Mr. Ditzel. It is absolutely based on geography in the U.S.
    We have a very liquid market, with several trading hubs,
    primarily the Henry Hub. Europe is becoming much more liquid,
    with the National Balancing Point and the TTF facility. But in
    Asia, we see that a lot of the pricing is around oil because--
    --
        Mr. Green. Yes.
        Mr. Ditzel [continuing]. In Japan and Korea, they do not
    have domestic production capabilities, so they have to look at
    the closest substitute to natural gas, and that is oil. And
    that is why you see the gas indexed to oil, because of the
    substitution effect.
        Mr. Green. OK. And these contracts that have been signed
    already for these plants that are exporting, whether it would
    be Cheniere and Sabine, or, you know, Chesapeake Bay, or the
    one just announced in Oregon, or other ones along the Texas/
    Louisiana coast, aren't the average LNG contracts 16 to 20
    years?
        Mr. Ditzel. Many of the contracts are 20 years, and many of
    them are take or pay contracts, which means that you are going
    to take until you think it is no longer economic, and want to
    pay the towing charge, instead of taking the gas. So they are
    going to continue to take as long as prices are economic to
    them.
        Mr. Green. Well, I am real familiar in Texas with take or
    pay, because we had some issues back in the '70s and '80s where
    utility companies had to make those commitments. And, by the
    way, most of these contracts, where is their jurisdiction if
    there is a legal decision? Do they have Federal courts in the
    United States, New York Federal Court, or is it an
    international court?
        Mr. Ditzel. I am sorry, I am not an expert in that area, so
    I can't answer.
        Mr. Green. OK. Because I know oftentimes if it is an
    international contract, and it is not in a U.S. court, again,
    having practiced law, sometimes you can get home-towned in a
    country that might not be as beneficial for our exporting
    partners. Does your analysis include any shifting in
    contracting from Asia, for example?
        Mr. Gardner. Gentleman from Texas, I have given you an
    extra 45 seconds here.
        Mr. Green. OK. Thank you.
        Mr. Gardner. Time is expiring.
        Mr. Green. Just some movement of contracting once we get
    into the export market in the United States?
        Mr. Ditzel. In the analyses that I have looked at thus far,
    I have assumed, based on unconstrained exports from the U.S.,
    that we would remain at about 80 percent of the Brent price,
    which is where prices have trended over the last few years, and
    there is a number of drivers to support that trend going
    forward, mainly because Japan is likely going to take a slow
    re-start to its nuclear facilities, Germany is abandoning its
    nuclear facilities, and as the BG Group forecasts, a major
    player in the LNG market, that the market in general will be
    tight through the end of the decade.
        Mr. Green. Thank you, Mr. Chairman, for your patience.
        Mr. Gardner. Gentleman's time has expired. The gentleman
    from Virginia, Mr. Griffith, recognized for 5 minutes.
        Mr. Griffith. Thank you, Mr. Chairman. Let me start off by
    responding to some of the comments I heard earlier today about,
    you know, we can't do any good immediately because it will take
    a while to build. And I am reminded that they believe that
    there is a lot of natural gas, maybe some oil, off the coast of
    Virginia, and that in 2004, when I was a member of the Virginia
    House of Delegates, we begged, let us start on the research,
    let us get going, and the criticism then was it would take 6 to
    7 years, it is not going to do any good. We are still waiting.
    If we had started in 2004, like we had requested, and we sent
    the request to the Governor to ask for the ability for him to
    ask for the President to give us that authority, we would
    already be getting natural gas, and hopefully some oil off the
    Virginia coast. So when I heard that argument I am reminded,
    you know, well, it will never happen if you don't start at some
    point.
        Also, in response to recent questioning, although I think
    you answered it earlier, Dr. Orban, you said that the time is
    now because not only do you need to get started if you are
    going to do these kinds of things, but the contracts are coming
    up in a few years, and if they see that a competitor is on the
    way, that that will affect the negotiations, and the
    discussions, and whether or not natural gas is used by a weapon
    by the Russians. Am I correct in my assessment of your previous
    testimony? OK. And let me let you all know that I represent an
    area that produces coal and natural gas.
        So, Mr. Ditzel, let me ask you this. For a vibrant
    manufacturing sector, wouldn't we also be well advised to not
    strangle our coal industry by regulations? Wouldn't you agree
    with that as well? I assume you are pro-coal, as well as pro-
    natural gas usage?
        Mr. Ditzel. I am not pro-coal or pro-gas. I just want to
    say specifically, to address your point, that for the coal
    industry, it is going to be hamstrung by the EPA, by MATS. We
    are going to see a number of retirements, and the EPA has a
    number of proposals ready to affect the coal industry even
    further on carbon pollution. And coal is a backstop for natural
    gas, so if there are not a lot of options, the gas prices will
    rise as a result, because there is no backstop to relieve the
    gas. And specifically in the electricity market, it is nuclear
    and wind, and those are expensive options.
        Mr. Griffith. Well, even in manufacturing of certain
    products, certain plastics and so forth, you could use oil,
    natural gas, or coal, and so we are negatively impacting the
    market that way. And would you also advocate that we not export
    coal for that same reason, so we have a greater supply in the
    United States?
        Mr. Ditzel. Well, to address your point about coal, and the
    use of coal for chemical processes, we have seen that in China,
    and China has put our technology in the U.S. to good use. And
    their chemical industry is built primarily on U.S. technology
    using coal, but we can't do that here in the U.S. because of a
    lot of the regulations associated with using coal in industry.
        Mr. Griffith. And I appreciate that, and we certainly don't
    want to hurt our manufacturing sector if we can help it, but
    clearly it is under assault from a number of different
    directions.
        Dr. Montgomery, if I could ask you, previously, in some of
    your testimony back in April of 2013, you indicated that it
    looked like prices, if we exported, might rise 25, 50 cents,
    somewhere in that range. I think you said today it looks like
    it might be a dollar. Is that accurate, somewhere in that
    range, if we export?
        Mr. Montgomery. Yes. If we export, across most of the
    scenarios that we looked at, we either had no price increase,
    because it didn't turn out to be economic to export. Certainly
    if we had $8 gas in the United States, nobody would want to buy
    it overseas. That actually is the EIA low oil and gas resource
    case. So doesn't much matter what we do about exports in that
    case, nobody is going to want to buy it, and the manufacturing
    industry is going to be killed off, probably by our excessive
    regulation of natural gas. So, got to look at the scenario, but
    the only cases in which we found that we have high levels of
    exports of natural gas are ones where it is so cheap to produce
    that the price of gas stays lower than----
        Mr. Griffith. All right, and I am running out of time, so
    let me ask you this, because my gas folks tell me back home
    that we have so much natural gas in this country that we
    haven't even tapped into yet, that if the price remains above
    $4, in the $5 range, that there will be more production, which
    then offsets any price increase. Is that what you are basically
    saying, is that the production capabilities in this country are
    so great that there won't be an increase of any significant
    amount in the price because they will produce more, because
    they can still make a profit at four----
        Mr. Montgomery. Yes.
        Mr. Griffith [continuing]. $5, $6?
        Mr. Montgomery. That is exactly what I am saying, that we
    will see that most of the exports are satisfied by increased
    production. There won't be much of a price increase, and
    whatever price increase there is is going to be far less than
    the cost advantage manufacturing already has over those poor
    rivals who have to import the gas, and pay as much to move it
    to their countries, as it costs us to buy it here.
        Mr. Griffith. I appreciate that. And, Mr. Chairman, I yield
    back. I do have additional questions to submit into the record,
    and I assume that we will do that at the end of the hearing.
        Mr. Gardner. Absolutely will, thank you. And the gentleman
    from New York is recognized for 5 minutes.
        Mr. Tonko. Thank you, Mr. Chair. Mr. Ditzel, in your
    summary you state that the concerns you have raised about
    finding the right level of natural gas exports were submitted
    to DOE, but the DOE public interest determination process, and
    I quote, ``continues in a manner that is opaque for both sides
    of the issue.'' Please elaborate on that statement. What would
    make the public interest determination more transparent?
        Mr. Ditzel. Sure. I think you saw the answer by Dr. Gant
    earlier that it was opaque, that you couldn't get a straight
    answer, and it is one of the complaints on both sides. There is
    a lot of uncertainty around the process, and businesses would
    like to make decisions. What would make it more transparent
    would be to look at the NERA study and first do a peer review.
    I have peer reviewed it, I have given my comments, and
    mentioned many of my concerns. I think a serious peer review
    needs to be given again. Also, in determining the public
    interest, it is not just simply the economic interest. It is
    also the environmental interest, and it is also national
    security interest, and there are no criteria that are set forth
    that you can gauge or measure, and publicly see and understand,
    in any of part of the DOE process.
        Mr. Tonko. Thank you. And your testimony states that you
    believe the NERA analysis used flawed assumptions, and the
    wrong modeling approach. It is my understanding that NERA
    relied on information and procedures used by the Energy
    Information Agency, or the EIA. The EIA's projections,
    especially projections of prices of natural gas, have often
    been wrong. In March 2012 EIA released a retrospective study
    they did of their projections from '94 through 2011, a period
    of 17 years. An energy policy form article summarized some of
    those findings of that analysis. The findings do not give me
    confidence that DOE's conclusion about the net economic
    benefits, let alone the broader public interest, is very
    robust.
        During that 17-year period, EIA overestimated crude oil
    production 62 percent of the time. They overestimated natural
    gas production 70.8 percent of the time, and natural gas
    consumption 69.6 percent of the time. I would also point out
    that in 2003, just 11 years ago, EIA's analysis of the LNG
    market was anticipating we would be importing natural gas, and
    there were plans for a number of LNG import facilities. If DOE
    allows too much export, we may be creating a situation like the
    one we now face with propane, where, in spite of the abundant
    domestic production, our consumers and our domestic
    manufacturers are paying very high prices, and seeing no
    benefit from the increased domestic production.
        DOE is granting export allowances for 20 years. That is a
    long time in a business cycle. Do we need a more flexible
    approach that would allow us to pull back if we have granted
    too much export authority, or if conditions here in our country
    change?
        Mr. Ditzel. Well, first I want to address the EIA comments
    that you made in the reference case, and how consistently wrong
    it has been. Dr. Montgomery made a good point earlier that
    there are scenarios around the reference case. The problem is
    that you have to pick a reference case, and not just blindly
    choose it. You have to step back and say, is it the right
    reference case? The biggest issue with the EIA analysis is that
    they rely on a domestic supply and demand curve. So if you take
    the supply curve from EIA, and you layer on LNG exports, I
    agree you would get the prices that EIA projects.
        But the problem is we leave the domestic demand and supply
    curve when we enter into the global market. We enter the global
    LNG supply and demand curve, and that is where you get netback
    pricing. EIA does not have a global gas trade model. They have
    admitted it. I have heard them say that, so their approach is
    invalid when you are looking at LNG exports. And on the second
    question, do you mind repeating it, Representative?
        Mr. Tonko. Well, the second thing is if we have granted too
    much export authority, or if conditions in the U.S. change,
    should we have a more flexible approach?
        Mr. Ditzel. Well, I think it would be challenging to pull
    back on multibillion dollar investments, and leave things
    stranded. But if, in a transparent process, if LNG exports are
    determined to be beneficial to the economy, and not opportunity
    costs to other parts of the economy, I think you have to put in
    a certain amount of consumer protections, and those would be
    using the gas as leverage to negotiate free trade agreements,
    also considering reducing taxes for those who would be affected
    most. Also investing in technologies, for example, advanced
    catalytic technologies, that would reduce our need for natural
    gas, and improve our efficiency. And, fourth, I think we need
    to reconsider some of the efforts by EPA, because we do not
    have the backstop in place for coal to come through and
    substitute for natural gas.
        Mr. Tonko. Thank you very much. Mr. Chair, I have exhausted
    my time, so----
        Mr. Gardner. Gentleman yields back. The gentleman from West
    Virginia, Mr. McKinley, is recognized for 5 minutes.
        Mr. McKinley. Thank you, Mr. Chairman. I have been curious
    a little bit about the issue of if, when we export natural gas,
    we are going to see an increased price. And I am not an
    economist, I am an engineer, but I would probably like to see a
    little bit more statistics about that, why that would occur,
    because, as you know, we have been exporting 15 percent of the
    coal production, and we haven't seen coal prices increase as a
    result of that. So I am interested in the disconnect, why coal
    prices aren't going up, but gas prices will under the scenario.
        But more importantly, the other question I have is that,
    under Article I, Section 9, Paragraph 5 of the Constitution,
    there is the prohibition about putting duties and tariffs on
    exports. And that has been clarified, if I might, in 1996, in
    the IBM Decision, in which it went on to say something to the
    effect that that same protection extends to services and
    activities closely related to the export process, so my
    question has to do with the permitting process.
        If it takes 3 years to get a permit for natural gas, I know
    coal has been longer than 3 years trying to get the permit
    approved over in the State of Washington, in Bellingham, to put
    a coal terminal there, trying to prevent exporting by use of
    Government authority. What is the difference between imposing a
    tariff, but yet imposing a slow walk permitting process to
    prevent something from happening in an expeditious way? How can
    that be justified? How is that constitutional, I should say,
    what they are doing?
        Mr. Montgomery. I would like to get Mr. Bacchus to answer
    this, but he is a lawyer, and I notice that he is being
    reticent. And I am an amateur reader of law journals, but I
    think I am pretty----
        Mr. Bacchus. I am just waiting to be asked a question.
        Mr. Montgomery. I am sorry. Then I will recede.
        Mr. Bacchus. Congressman, you raise a very good point. As
    we have all learned in this country in the past few years,
    sometimes it is hard to tell a tax from a fee, or a tax from
    something else that may have the effect of a tax. And it may be
    that, under the U.S. Constitution, there might be some issues
    raised by the lengthy delays in this permitting process.
        As I advised the chairman at the outset, I am here today
    not to advise on policy, but on law, and specifically
    international law. And from a legal perspective, I am
    fascinated by this debate, because, as a matter of
    international law, we have long since made this decision that
    we are talking about today, when we signed the WTO treaty. We
    concluded then that it was presumably in our public interest,
    in agreeing to this treaty, that we would impose restrictions
    on exports only in some very limited exceptional circumstances
    permitted by that treaty. And I have heard no circumstances
    discussed today that fit those exceptions in that treaty.
        As a matter of international law, right now, with no action
    whatsoever by this Congress, we have a legal obligation to
    export natural gas unrestricted to her country, and other
    countries in Central and Eastern Europe that are members of the
    WTO, period. The only reason that we are not doing so at this
    point is because they are friends of ours, and they haven't
    bothered to sue us in the WTO. But somebody could do so. At the
    same time, as I mentioned, our valiant trade negotiators and
    trade lawyers in the administration are, at this very moment,
    arguing in the WTO in not one, but two cases against China that
    they cannot do what these laws we are discussing, that we have
    in place today do. And they are winning those cases, as they
    rightly should.
        Meantime, more than \1/3\ of WTO members, under the threats
    of the current financial situation, are imposing more and more
    export restrictions. This is a form of economic nationalism and
    protectionism that is illegal as a matter of international law,
    and the United States, on a bipartisan basis, has been leading
    the charge against this in the WTO, and should.
        Mr. McKinley. Thank you. Maybe you can stop. I would like
    to carry on this conversation regarding the constitutionality
    of that. The third question I have is, do you think that this
    Supreme Court Decision yesterday about the Spruce Mine,
    allowing the EPA to retroactively withdraw a permit that they
    have given, could that have an impact on our LNG exports? If
    someone can build the facility, which could be a billion
    dollars or more, and the EPA withdraw that permit 2 or 3 years
    later, is that an appropriate gesture, or what has happened in
    the law that allowed that to happen?
        Mr. Bacchus. I haven't read the opinion, Congressman, so I
    couldn't advise you on that at this time. I will be happy to--
    --
        Mr. McKinley. But you are aware of the Spruce Mine, 4 years
    after it had been granted, 4 years afterwards, did the EPA pull
    the permit that they had been granted by the Corps of
    Engineers? That is a chilling effect for anyone in any
    business, not just coal, steel. Anyone that has a water permit,
    they have that permit pulled, I am concerned about what it is
    going to have on LNG. Thank you. Yield back my time.
        Mr. Gardner. Gentleman yields back, and we will go a couple
    more questions. Both Mr. Rush and I have just a few follow-up
    questions for you. Mr. McKinley, you are welcome to stay, if
    you would like, for that. But the question I have is, following
    up on this last question and conversation, how often has the
    U.S. pursued cases before the WTO regarding trade disputes with
    other countries? How often have we pursued trade disputes
    before the WTO with other countries?
        Mr. Bacchus. Very often. It is the appropriate way for
    resolving inevitable trade disputes with our trading partners.
        Mr. Gardner. Even if Russia is a WTO, nothing in this
    legislation requires trade with Russia?
        Mr. Bacchus. We have the option, if you so desire, in your
    proposed legislation, to carve out an exception for Russia.
    Russia a member of the WTO, but one of the limited exceptions I
    mentioned to WTO rules is for national security. If national
    security interests, essential national security interests, are
    at stake in a time of emergency in international relations, we
    can impose a trade restriction. So you could----
        Mr. Gardner. Mr. Bacchus, if you could cut it short real
    quick? Mr. Rush has one final question for Dr. Orban real
    quickly. Thank you.
        Mr. Bacchus. Of course, sir.
        Mr. Rush. Thank you. I panicked, because I saw you
    gathering your stuff, but I have one question. So far, DOE has
    ran seven export applications, and my understanding is that the
    export terminals--export this LNG have already signed long term
    contracts to supply LNG to China, Japan, Korea, and India,
    where natural gas prices are higher than in Europe. And the
    question is, is there any reason to believe that LNG exported
    from the U.S. will go to Europe, rather than to Asia?
        Ms. Orban. Thank you, Ranking Member Rush. Yes, there is.
    Of course, the more gas on the market is the better for us. It
    has already indirect impact. But the Asian market's absorption
    capacity is also limited, obviously, and as soon as it reaches
    its limit in terms of price difference, the European market
    comes next. And don't forget that our countries are ready to
    pay a surplus for energy security, which is above, of course,
    market price. So we have every reason to believe that if either
    the expediting process is expedited, the process is expedited,
    or we have the law, then we would have a contract to supply the
    European market with U.S. energy.
        Mr. Gardner. Thank you, Dr. Orban. I know you have an
    important meeting, as reported in the newspapers this morning,
    to attend, so please. Mr. Bacchus, if you would like to finish
    where we left off? I apologize for interrupting, but I know Dr.
    Orban had a meeting. Thank you.
        Mr. Bacchus. Of course. Good job.
        Mr. Gardner. I cut you off. I don't know if you would like
    to continue that, and then we will be----
        Mr. Bacchus. That is all right, and I appreciate it, Mr.
    Chairman. As I said earlier, I think it is important that the
    committee consider WTO obligations before enacting legislation,
    rather than learn about them afterwards. And I commend you for
    doing just that. Conceivably, the United States, and other
    members of the WTO, could impose trade restrictions, and indeed
    a trade embargo, on Russia, even though Russia is a member of
    the WTO. This need not be limited to natural gas or other
    energy products. It could include other products.
        This would be ordinarily in violation of WTO obligations.
    It could be challenged by Russia and WTO dispute settlement.
    But if the Russians did challenge it, we would then have a
    defense. The defense would be under Article 21 of the GAT,
    which deals with national security, and is a general exception
    to general obligations, such as the one on not imposing
    restrictions on exports. This general defense has never been
    the subject of much jurist prudence in the WTO. One of my great
    accomplishments as a Judge there was that I was able to get out
    of Geneva alive without having to say what it meant.
        But, presumably, we would have this defense. It clearly is
    in the GAT, and I can't imagine that a Judge using the WTO
    would question any country's assertion of its national security
    interest, nor can I imagine that they would not see a national
    security concern here, especially if we did not proceed alone,
    but proceeded along with a number of our trading partners.
        Mr. Gardner. Thank you, Mr. Bacchus. And to the panelists,
    thank you very much for your time here today. That concludes
    today's hearing. Members are reminded that they will have 10
    business days to submit questions for the record and other
    material. Anything else?
        Mr. Rush. Mr. Chairman?
        Mr. Gardner. Yes?
        Mr. Rush. Mr. Chairman, I ask unanimous consent to place in
    the record a letter from the Industrial Energy Consumers of
    America, strongly opposing H.R. 6.
        Mr. Gardner. Without objection.
        Mr. Rush. Thank you, Mr. Chairman.

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        Mr. Gardner. That concludes today's hearing. Thank you for
    your participation.
        [Whereupon, at 4:34 p.m., the subcommittee was adjourned.]

        [Material submitted for inclusion in the record follows:]

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